Defective Construction CGL Coverage: The Subcontractor Exception

In the construction industry, commercial general liability (CGL) insurance is the standard policy for managing property damage risks. Historically, CGL policies do not cover an insured’s own defective construction because the insured controls its own work and can reasonably foresee the damage that may result from defective work. But what about the defective work of an insured’s subcontractor? Practical considerations limit an insured's effective control of every aspect of a subcontractor’s work, and this limitation complicates the insured’s ability to foresee future risks. In 1986, the increasing involvement of subcontractors led general contractors to insist upon protection from subcontractor work risks in CGL policies. The insurance industry agreed upon and created the subcontractor exception. Insurers, however, have claimed that CGL policies exclude coverage for any defective work, including the work of a subcontractor. This Note discusses court decisions rejecting the categorical denial of coverage for any defective work and how courts have found coverage exists where a subcontractor’s defective work is beyond the insured’s effective control and not foreseeable. Over the past 15 years, 23 state supreme courts have ruled that CGL policies cover the defective workmanship of an insured’s subcontractor. To illustrate the trend toward coverage, the Note summarizes a recent Ohio appellate court decision as a case study of the issue.