Business Risk Exclusions in CGL Policies Produce a Patchwork of Decisions

by Carlton Fields


*see video here

On July 23 and 24, 2014, respectively, intermediate appellate courts from South Carolina and Massachusetts released opinions upholding the application of the “your work” exclusion in a commercial general liability policy against claims based on contracted work that had been performed improperly.  These two decisions buttress application of the “your work” exclusion, but they also illustrate the fact that the area of business risk exclusions (which typically refers to the “your work” and “products completed operations hazard” exclusions) can be a thicket of competing rationales.  Recent decisions from other courts show that these results cannot be taken for granted.

South Carolina:  Let’s Go to the Tape

Up first was the South Carolina Court of Appeals, in a case involving a contractor that hired a subcontractor to install insulation in a new building. The subcontractor completed its work, including sealing the joints of the insulation with tape. The contractor then began constructing a wall over the insulation and, while doing so, discovered that the tape used to seal the insulation was defective and coming loose. The contractor tore down the wall and instructed the subcontractor to fix the insulation seals with new tape. The contractor then charged the cost of tearing down and re-building the wall to the subcontractor.

The subcontractor sought indemnification for the wall claim under its CGL policy. The policy covered “property damage” caused by an “occurrence,” and it expressly excluded from coverage “property damage” to “any property that must be restored, repaired, or replaced because ‘your work’ was incorrectly performed on it.” The policy defined “your work” to mean:

  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.

In a declaratory judgment action brought by the insurer, the trial court found that the “your work” exclusion precluded coverage. In Precision Walls, Inc. v. Liberty Mutual Insurance Co., No. 2013-000787, 2014 WL 3610895 (S.C. Ct. App. July 23, 2014), the Court of Appeals agreed. Citing a line of South Carolina cases, the court noted that “your work” exclusions in general are consistent with the purpose of CGL policies “to insure risks of liability but not to insure normal, frequent, or predictable consequences of doing business.”

The court found that the subcontractor’s policy contained no ambiguities, and that the defective tape constituted “your work,” because it was “material furnished in connection” with the subcontractor’s work. The court also found that the brick wall was “property that must be restored, repaired, or replaced” because of the defective tape. The court thus held that, under its plain terms, the “your work” exclusion applied to preclude coverage for the contractor’s claim for the wall repair.

Massachusetts: The Nightmare by the Lake

The following day, the Massachusetts Appellate Court released a similar decision, captioned, Pacific Indem. Co. v. Lampro, 12 N.E.3d 1037 (Mass. Ct. App., July 24, 2014). In Lampro, homeowners hired a landscaper to develop their lakefront property in an environmentally sensitive area. One of the contractor’s subcontractors failed to follow certain environmental restrictions in the permits which the contractor had secured. Instead, the subcontractor “clear-cut” a swath of trees and brush, resulting in what was described as “an environmental nightmare” for the homeowners. The homeowners’ property insurer paid more than $100,000 to remedy the damage, and, as subrogee, sued the contractor and its general liability insurer for negligence and indemnity, respectively. The contractor’s insurer disclaimed coverage.

The general liability policy issued to the contractor covered “property damage” caused by an “occurrence.” It also contained an exclusion for damage to “[t]hat particular part of real property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” The policy defines “your work” as “[w]ork or operations performed by you or on your behalf.”

The trial court found for the insurer, and the appellate court affirmed, but their reasoning was different from that of their sister court to the south.  The courts held  that there had been no “occurrence,” because a breach of contract is not “accidental” in nature, but rather a risk of doing business.  However, the courts also endorsed the approach of the South Carolina court, finding that, if there had been an occurrence, the claim would have come unambiguously within the terms of the “your work” exclusion, leaving the general liability carrier off the hook.

But Then There’s California …

One California appellate court recently expressed the rationale behind these exclusions in language that was strikingly similar to that of the Precision Walls case:

The rationale underlying the your work exclusion is that a liability insurance policy is not designed to serve as a performance bond or warranty of a contractor’s product. . . . The exclusion applies both to defective components in the insured’s product and to non-defective components damaged by the defective components. . . [G]eneral liability policies containing such exclusions “are not designed to provide contractors and developers with coverage against claims their work is inferior or defective. The risk of replacing and repairing defective materials or poor workmanship has generally been considered a commercial risk which is not passed on to the liability insurer. Rather liability coverage comes into play when the insured’s defective materials or work cause injury to property other than the insured’s own work or products.

Certain Underwriters at Lloyd’s, London v. Transguard Ins. Co. of America,  (Cal. Ct. App. June 2, 2014).

Transguard involved the work of a specialty fine art shipper, which had successfully shipped several valuable paintings from Germany to Santa Monica, California. The owners then moved the paintings themselves to a different space in their home, and asked the contractor’s employee to hang them. The employee mistakenly believed that the cardboard frames on the paintings were packaging material and removed them, effectively destroying the works.

This was, then, precisely the type of error that a customer seeks to avoid by hiring a “specialty fine art shipper,” rather than an ordinary mover.  Yet the same court that declared that a CGL policy “is not designed to serve as a performance bond” also held that the contractor’s negligence “was not the type of defective work intended to be encompassed by the exclusion, and instead resulted in the type of injury that liability insurance is designed to cover. Indeed, construing ‘your work’ to include [the contractor's] alleged conduct would essentially eviscerate any coverage under appellant’s policy.” 2014 WL 2528656 at *8.

Another note of caution in interpreting these provisions was struck earlier this year by the Alabama Supreme Court, in Owners Ins. Co. v. Jim Carr Homebuilder, LLC, No. 1120764, 2014 WL 1270629 (Ala. March 28, 2014). There, the court analyzed coverage under a CGL policy issued to a homebuilder that was sued by the homeowners as a result of allegedly faulty workmanship in constructing the home. It analyzed the business risk exclusions together, noting that:

[O]nce [the builder's] “ongoing operations” with regard to the Johnsons’ house came to an end, it was not the intent of the Owners policy to insure [the builder] against claims for damage to the Johnsons’ house arising from exposure to generally harmful conditions made possible by faulty workmanship previously performed by [the builder]. This risk is known as the “completed operations hazard” and, absent supplemental coverage purchased by the insured, is not insured against by the standard CGL policy.

In manifestation of this latter fact, standard CGL policies—including the Owners policy—include an express “Your Work” exclusion that specifically addresses the completed-operations hazard. The parties acknowledge the applicability of the “Your Work” exclusion in this case, inasmuch as it is undisputed that [the builder's] “operations” on the Johnsons’ house were completed at the time of the alleged occurrences.

However, the Court noted that the builder had purchased, for an additional premium, separate “products-completed operations hazard” coverage, and, as a result, the “your work” exclusion was rendered inapplicable, insofar as it applied only to “[p]roperty damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard.” Effectively, the decision read the “your work” exclusion out of the policy, because the separate coverage had been purchased.   That coverage removed the alleged property damage from the products-completed operations hazard, and so the damage was excepted from the “your work” exclusion.

The recent decisions from Massachusetts and South Carolina are good news for business risk exclusions generally, but there are often factual variables that create tension in the application of these exclusions, as well as in whether courts will find an “occurrence” in the first instance.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Carlton Fields | Attorney Advertising

Written by:

Carlton Fields

Carlton Fields on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.