By: Michael P. Sams, Esq., Herling D. Romero, Esq., Vincent Purcell
In Admiral Insurance Company v. Tocci Building Corporation (“Admiral”), the First Circuit held that a commercial general liability insurer is not obligated to defend and indemnify its insured general contractor for property damage caused by other subcontractors’ defective work, on an ongoing project.
In Admiral, Tocci was hired to manage the construction of a new apartment building (“the Project”), but after three years of alleged issues, the Project owner terminated Tocci and filed suit. The owner’s lawsuit alleged, among other things, property damage caused by defective work. Discovery revealed that defective work by certain subcontractors had resulted in property damage to other non-defective parts of the Project. The alleged damages included:
- damage to sheetrock caused by faulty roof work;
- mold caused by water intrusion; and
- damage to a concrete slab, wood framing, and underground pipes caused by improper backfill and soil compaction.
Tocci’s commercial general liability insurer denied coverage for the claims – contending that the owner’s claims did not include any allegations suggesting that Tocci was, “liable for property damage caused by an occurrence.” In the ensuing litigation between Admiral and Tocci, the Federal District Court found in Admiral’s favor, concluding that Admiral had no duty to provide coverage for Tocci in the lawsuit.
The First Circuit Court of Appeals reviewed the case and applied a three-step process to analyze the coverage issue:
- do the damages alleged in the action fall within the scope of coverage?
- if so, do the exclusions to coverage apply?
- if so, do any exceptions to the exclusions apply?
Where the claims against Tocci included property damage, the First Circuit focused its analysis on the insurance policy’s exclusion J(6), which excludes from coverage, “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” The policy defined “your work” as “[w]ork or operations performed by you or on your behalf.”
The First Circuit held that the entire Project constituted Tocci’s work because Tocci was retained as the general contractor for the entirety of the Project – a new building. The Court found, therefore, that the replacement, restoration, or repair to any part of the Project work, all fell within the “your work” exclusion of the insurance policy (the insurer does not cover negligently caused damage to “your work”). Additionally, the First Circuit held that no exception to this exclusion applied as work was ongoing (and presumably then, exceptions to the “your work” exclusion in the completed operations section of the policy were inapplicable).
Admiral serves as a warning to contractors about the limitations of commercial general liability policies. Insurance does not cover everything. Understanding construction project risks and managing those risks using contractual provisions, in addition to insurance, is essential.
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