An article by Noelle McCall, CIC, CRM, CCIP, ACRA, CISR

The current ISO CG 00 01 Commercial General Liability (CGL) coverage form provides coverage for losses arising out of subcontractor-caused damage to the named insured’s (contractor’s) work via the subcontractor exception to the “your work” exclusion. The exception can be found in Exclusion I, where it states the following…

“"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.”

This coverage is critical to contractors! Did you know it has become a common practice among some insurance carriers (and especially excess and surplus lines and insurers of low cost/low coverage policies) to add an exclusion (such as ISO CG 22 94 or CG 22 95 forms or to use non-ISO coverage forms) to client’s CGL policies, which remove the exception to the “your work” exclusion for subcontractors? CG 22 94 removes the subcontractor exception entirely, whereas CG 22 95 does so on a project-specific basis.   

Some reasons why insurance carriers include these exclusions are:

• insurers do not want to insure faulty workmanship by a named insured, its subcontractors, or sub-subcontractors
• some carriers have had to pay construction defect claims for the named insured’s uninsured subcontractors or sub-subcontractors
• adding the exclusions is an attempt to temper rising insurance costs

Takeaways/Action Items for Insurance Agents/Brokers:

1. If your construction client’s CGL policy does not use ISO CG 00 01, then check the “your work” exclusions in the coverage form plus look for any separate “your work” endorsements. Do the coverage form and/or any endorsements exclude or remove products/completed operations coverage for property damage to the named insured’s work arising out of the named insured’s subcontractors or sub-subcontractors?
2. Does the client’s CGL policy include ISO endorsements CG 22 94 or CG 22 95 or equivalent forms?
3. If the answer to question 1 or 2 above is yes, then I would recommend asking the insurer to either: (1) add back the coverage (which will likely cost additional premium), or (2) move the client’s policy to an insurance carrier who provides the coverage.
4. Failing to remedy the issue or to properly advise the client of the issue in advance of a loss can lead to an E&O claim against the client’s insurance agent/broker if the client has an uninsured claim associated with the subcontractor exclusion.

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