Exclusion L in CGL Policies is commonly referred to as the “Your Work” exclusion. In the construction defect world, the exclusion has caused much confusion and has been the subject of several recent opinions.
For construction defect cases, the “Your Work” exclusion essentially excludes coverage for those claims where the plaintiff seeks damages for defective construction to parts of the project that are considered the “work” of the insured. In short, if a contractor’s shoddy work damages only its own “work,” the CGL policy does not provide coverage. The exclusion generally provides:
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.
(The italicized language is what is called the “subcontractor exception,” which is sometimes not included in the insurance policy. Whether the subcontractor exception is or is not included in the policy is extremely important as we will review momentarily.)
There are a number of variables when determining how the “Your Work” exclusion applies. The first question is, what is considered “Your Work” as it pertains to the specific insured? This often can be answered by the insured’s role; is the insured a general contractor or developer responsible for the entire project, or a subcontractor responsible for merely a small portion of the project.
“Your Work” for General Contractor’s and Developers
For starters, if the insured is a general contractor responsible for the entire project, or the developer, then the entire project will likely be consider “your work.” See J.B.D. Const., Inc. v. Mid-Continent Cas. Co., 571 F. App’x 918, 925 (11th Cir. 2014) (“Because J.B.D. undertook the construction of the entire fitness center, we agree with the district court’s finding that J.B.D.’s ‘work,’ for the purpose of applying the ‘your work’ exclusion, included ‘construction of the health center building with related and appurtenant improvements to an existing structure.’”).
The entire project will be considered the general contractor or developer’s “work” even if they exclusively hired subcontractors to perform the actual construction itself. See id.
Accordingly, if the insured is a general contractor or developer responsible for the entire project, and there is no subcontractor exception, the “your work” exclusion will exclude coverage for the insured GC or developer entirely. Trovillion Const. & Dev., Inc. v. Mid-Continent Cas. Co., No. 6:12-CV-914-ORL-37, 2014 WL 201678 (M.D. Fla. Jan. 17, 2014) (excluding coverage under the “Your Work” exclusion for faulty work by a subcontractor because the exclusion did not contain a “subcontractor exception” to the “Your Work” exclusion.). If the subcontractor exception is not eliminated, the exclusion will not apply to work performed by any subs which, as is often the case, usually includes the entirety of the actual work on the project.
As stated, when dealing with coverage for a GC or developer, it all depends on the subcontractor exception. This rule began with a statement that many considered dicta by the Florida Supreme Court. In J.S.U.B., the Florida Supreme Court noted that if an insurer did not want to insure a contractor for its subcontractors’ defective work, all that the insurer needed to do was remove the subcontractor exception to the “Your Work” exclusion. See U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So. 2d 871, 882 (Fla. 2007) (“if the insurer decides that this is a risk it does not want to insure, it can clearly amend the policy to exclude coverage, as can be done simply by either eliminating the subcontractor exception or adding a breach of contract exclusion”).
Until recently, no Florida court had denied coverage based on this portion of the “Your Work” exclusion. In 2012, the Court in Amerisure Mut. Ins. Co. v. Auchter Co., 673 F.3d 1294, 1310 (11th Cir. 2012) noted the importance of the subcontractor exception:
[F]aulty workmanship to one part of a project (the roof, for example) can lead to damage to another part of the Project (such as stucco walls which may leak from faulty roof construction). In such an example, under Auchter’s CGL policies, the damage to the stucco walls would be “property damage” within the meaning of the policy, but would ordinarily be excluded under the “your work” exclusion, unless the stucco walls had been constructed by a subcontractor, in which case the damage could be covered by the subcontractor exception to the “your work” exclusion.
Amerisure Mut. Ins. Co. v. Auchter Co., 673 F.3d 1294, 1310 (11th Cir. 2012)
In 2014, a Court finally followed the rationale in J.S.U.B. and excluded coverage for a contractor’s work performed by subcontractors under a “Your Work” exclusion that did not contain the subcontractor exception. In Trovillion Const. & Dev., Inc. v. Mid-Continent Cas. Co., No. 6:12-CV-914-ORL-37, 2014 WL 201678, (M.D. Fla. Jan. 17, 2014), the court held:
However, an insurer is only liable for structural damage caused by a subcontractor’s defective work if the damage occurs during the policy period of a CGL policy that includes the “subcontractor exception” to the “your work” exclusion. See J.S.U.B., 979 So.2d at 891 (observing that an insurer can exclude coverage for damage arising out of a subcontractor’s defective work by eliminating the subcontractor exception to the work exclusion).
Trovillion Const. & Dev., Inc. v. Mid-Continent Cas. Co., No. 6:12-CV-914-ORL-37, 2014 WL 201678, at *7 (M.D. Fla. Jan. 17, 2014).
Compare the outcome in Trovillion to another recent case, Carithers v. Mid-Continent Cas. Co., 782 F.3d 1240, 1250 (11th Cir. 2015). In Carithers, the policy retained the subcontractor exception. Thus, the Eleventh Circuit Court was required to parce through facts and allegations to determine which subcontractors performed which exact work. The ultimate question was whether one subcontractor’s work damaged another subcontractor’s work, constituting property damage. Ultimately the Court held that a defectively constructed balcony (by one sub) caused damage to the garage (by another sub), which constituted property damage.
In Carithers, had the “Your Work” exclusion eliminated the subcontractor exception, the Court would not have focused on whether one sub damaged another sub’s work. Without the exception, the entire project would have been considered the insured general contractors’ “work.” The “Your Work” exclusion would then have eliminated the need for the Court’s debate on what constituted “property damage” (which is generally defined as damage by you to another part of the project that you were not working on).
In short, the rule for GC’s and Developers can be summed up as: (1) there is no coverage for a GC or Developer for construction defects under a CGL policy that has eliminated the subcontractor exception to the “Your Work” exclusion; and (2) If the subcontractor exception is present, the “Your Work” exclusion will not exclude property damage by the subcontractors of the insured general contractor or developer.
“Your Work” for Subcontractors
Just like the GC and Developers, an insured subcontractor’s “work” consists on the work it actually did or is responsible for. The subcontractor exception analysis applies to a sub-sub as well. Practically, the subcontractor exception is less important for an insured subcontractor since plaintiffs will likely allege a subcontractor damaged property that was neither its own work, nor the work of any of the subs it hired.
In short, for subcontractors that have hired no sub-subcontractors, the “Your Work” exclusion analysis is essentially the same as the analysis on what constitutes “property damage.” If an insured subcontractor only damages its own work, such damages will be excluded under the “Your Work” exclusion and will also not be considered “property damage” under the policy in the first place. Contrarily, if an insured subcontractor damages another portion of the project other than its own, the “Your Work” exclusion will not apply to exclude coverage.
Florida Insurance Coverage Law 