New Hampshire Supreme Court Interprets "Your Work" Exclusion in CGL Policy

The NH Supreme Court issued an important ruling yesterday, clarifying the “Your Work” exclusion under a standard Commercial General Liability (CGL) Policy. See Cogswell Farm Condominium Association v. Tower Group, Inc.

Executive Summary

Under the Court's ruling, the “Your Work” exclusion in the standard CGL policy only bars coverage for property damage to the defectively constructed portions of a contractor’s work. It will not preclude claims for damage to the non-defective parts of the work. In other words, if a contractor’s defective work causes damage to other non-defectively built portions of the project, the contractor cannot recover its costs for repairing the defectively performed work, but can claim coverage for the damage to the non-defective work.

Discussion

In Cogswell, a contractor’s defective work (a leaky water barrier) caused water damage to several condo units that the contractor had properly constructed. The property owner sued the contractor and sought to recover under the contractor’s CGL policy. The contractor’s insurance carrier, however, denied coverage based upon the policy's “Your Work” exclusion in policy. This exclusion precludes coverage for property damage for “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” The carrier argued that this clause precluded any claim for damage to the contractor’s own work.

The trial court found in favor of the insurer, but the New Hampshire Supreme Court overturned the decision, holding that while the insurer’s interpretation was reasonable, the policy could also be read in a more limited fashion, only barring claims for the cost of repairing the defective work. The court held that since either interpretation was reasonable, the policy was ambiguous, and the ambiguity must be resolved in favor of the insured. Accordingly, the court concluded by stating that:

[The “Your Work” exclusion] bars coverage for property damage to the defectively constructed portions of the condominium units...however, [the exclusion] does not bar coverage for damage to those portions of the units that were not defectively constructed by [the Contractor] but were damaged as a result of the defective work.

Important Note

Courts nationwide have disagreed sharply on this issue. Accordingly, while Cogswell is good law in New Hampshire, courts in other jurisdictions may not follow the same rationale, and contractors should check the law in their specific jurisdiction when dealing with this issue.