What is the scope of coverage under a commercial general liability (CGL) insurance policy on a construction project? As most attorneys will tell you, "It depends." It truly depends on the express terms or language of the policy, the cause of the damage, and notably the jurisdiction of the dispute.
The Mississippi Supreme Court heard oral arguments on October 5, 2009 in the case of Architex Association Inc. v. Scottsdale Insurance Co. to determine what exactly is covered under the terms of a CGL policy. The general contractor (Architex) filed suit against its insurance carrier after the owner the project sought damages from the general contractor for alleged defective work. The insurer claimed that the defective work was performed by a subcontractor, which was not covered by the CGL policy. The general contractor contended that any negligent work of the subcontractor should be covered under the "your work" provisions of the policy.
The trial court held that damages were not caused by an occurrence or accident since the work being performed by the subcontractor was an "intentional act." The oral arguments on appeal can be found at the Mississippi Appellate Court Video Archive. (The appellate court has some great questions between 1:50pm-1:55pm and 2:01pm).
In a prepared statement published in the Mobile Bay Business Journal, Architex’s counsel, Dorsey Carson, indicated that a finding for the insurance carrier would render a contractor’s CGL policy practically useless:
"It would exclude coverage for any damages if the act that caused the damage is in any way related to the act of construction. It is a matter of whether the insurer is going to cover its insured for acts that it received premiums for, and for a policy that it marketed to contractors expressly for this type of damage.”
A decision from the Mississippi Supreme Court is expected by the end of the year. Many in the construction industry are watching this case as it will have a significant impact on insurance coverage disputes:
- “The insurance industry made a very conscious decision to provide this coverage and charge these premiums. We are asking the insurance industry to stand behind the language of the policy it has today.” Mike Kennedy, general counsel for Associated General Contractors of America.
- "The premise has always been that if the work of your subcontractors is negligently performed and causes damage, it’s covered." Chris Solop, Mississippi Associated General Contractors.