Ask Mike
# 07-09
Subject: CGL: Louisiana Supreme Court Case May 2007
Q. In our last producers’ meeting, someone mentioned that there had been a recent Louisiana Supreme Court case involving contractors and subcontractors under CGL. From what we can tell, it appears to involve the exclusion related to “your work.” Another person in the meeting said they were told the case would restrict coverage in the contractor’s CGL for work done by a subcontractor. Yet another said they were told just the opposite.
Are you familiar with the case, and can you tell us what the decision means to our CGL contractors and subcontractors?
A. The case is Supreme Services & Specialty Co., Inc. v Greer, 2006-C-1827 (5/22/07) – Westlaw 958 So.2d 634. It is posted on the Louisiana Supreme Court’s web site ( or you can get the case through Google.
While every court case has a winner and a loser, the good news for the insurance industry as a whole is that the case essentially reaffirms how most of us view the scope of the CGL exclusion for damage to “your work.”
The case involves the construction of an oilfield services facility. Greer was contracted to do the work, and used several subcontractors for various aspects of the job. During the concrete pouring phase, Supreme Services complained about cracks in the concrete in both the building and exterior slabs.
As work progressed, all attempts to remedy the problem with cracks in the concrete failed. Ultimately, Supreme Services brought suit against Greer.
Greer submitted the claim to its CGL insurer, who later denied coverage, citing exclusion j.(6), which provides in pertinent part:
j. Damage To Property
"Property damage" to:
(6) That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.
Paragraph (6) of this exclusion does not apply to "property damage" included in the "products-completed operations hazard".
In addition, the insurer cited the definition of “your work”:
22. "Your work":
a. Means:
(1) Work or operations performed by you or on your behalf; and
(2) Materials, parts or equipment furnished in connection with such work or operations.
b. Includes
(1) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of "your work", and
(2) The providing of or failure to provide warnings or instructions.
Greer countered that the exception to exclusion j.(6) under the “completed operations hazard” was applicable, and coverage should be found in the exception for work done by subcontractors in the Damage To Your Work exclusion, as follows:
l. Damage To Your Work
"Property damage" to "your work" arising out of it or any part of it and included in the "products-completed operations hazard".
This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.
Greer argued that the CGL was ambiguous, and therefore should be interpreted in its favor. The original trial court disagreed, and the Supreme Court referenced that court’s initial interpretation, as follows:
“The trial court concluded that the policy exclusion's language is clear
andunambiguous and allows for no other interpretation but that " . . . this
particularexclusion does exclude the particular work that was incorrectly performed by Greer on this piece of property." The trial court rejected Greer’s argumentthat [the policy language] (under said subsection "Damage to your Work") creates anambiguity.”
The court of appeal reversed, and given the conflicting jurisprudence on this issue in the various circuits, the Supreme Court agreed to hear the case. In the end, the Court upheld the insurer’s denial of coverage, and rejected the defendant contractor’s argument of ambiguity.
In the course of the Supreme Court’s 18-page decision, there is a very illuminating and informative analysis of the distinction between the “Damage To Property” exclusion and the “Damage To Your Work” exclusion, including the exception for work done by subcontractors, which was at the core of the case.
Here is one example, excerpted from the case:
“In reviewing both the “work product” exclusion and the PCOH[Products/Competed Operations Hazard] provision, wefind no contradiction in their language. Under the “work product” exclusion, theinsured or its subcontractor becomes liable for damages to its work or its productcaused by its faulty workmanship.
Under the PCOH provision, damages, otherthan the faulty product or work itself, arising out of the faulty workmanship arecovered by the policy.
Stated differently, if a subcontractor’s faulty electricalwork caused the building to burn down before completion, the “work product”exclusion would eliminate coverage for the faulty electrical work performed by thecontractor or subcontractor. However, the operations hazard coverage applies notto the faulty work, but damages arising out of the faulty work. Damage to realproperty arising out of the faulty work (fire damage) would not be excluded as itwould be covered under the PCOH provision.
The case sub judice[before the Court]involves a claimfor damages to the work product itself, i.e. the cracked concrete slab, not a claimarising out of the work and covered by the PCOH provision. Thus, the exceptionfor the work performed on the insured’s behalf by a subcontractor under the PCOHdamage section of the policy simply is inapplicable to the present case.
In other words, the PCOH provision only applies to those injuries which might occur as aresult of the damaged product. In the instant case, there is no need to delineate thePCOH provision because there is no other product damaged or third person injured. Here, the only applicable provision is the “work product” exclusion, which appliesto work performed by Greer or on its behalf by subcontractors.
For the above reasons, we hold that according to the plain language of theCGL policy, under the “work product” exclusion, there is no coverage for damageto the concrete slab that must be restored, repaired, or replaced because of thedefective work or the defective product of Greer and its subcontractors.
We findthat the PCOH provision is inapplicable in this instance. We further find that thereis no inherent ambiguity canceling the “work product” exclusion when thedefective work is performed by a subcontractor. We note that the “work product”exclusion applies to both the contractor as well as others acting on his behalf -subcontractors.
Therefore, we conclude that the court of appeal erred in grantingGreer’s motion for summary judgment. We reverse the court of appeal’s ruling andreinstate the trial court’s ruling.
REVERSED and RENDERED.”
There are other instances of CGL coverage analysis within the Court’s opinion, and these would serve as excellent educational tools in assisting any insurance practitioner in understanding the scope of these important policy provisions. So you might want to download and print the decision, and make it available to folks in the agency who work with contractor risks.
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