Coverage for a subcontractor's defective work was the issue presented in Westfield Ins. Co. v. Sheehan Constr. Co., No. 08-3463, 2009 U.S. App. LEXIS 9021 (7th Cir. April 29, 2009).
Moisture problems were found in a residential subdivision for which Sheehan was the general contractor. An investigation determined defective work by one of Sheehan's subcontractors caused the problem. In the underlying suit, Sheehan settled for $2.8 million and then sought indemnity from Westfield. The district court found there was no coverage.
The CGL policy did not cover property damage to a contractor's own work, denoted in the policy as "your work." Sheehan argued the problem stemmed not from its work but from the subcontractor's work. Further, the standard CGL form was revised in 1986 to remove subcontractors' work from the definition of "your work."
The Seventh Circuit agreed the standard form changed in 1986 by adding the phrase, "[t]his 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." Sheehan, however, did not purchase a policy with this language. It bought a policy that lacked the "does not apply to subcontractors' work" language. Instead, Sheehan's policy defined "your work" to include, "[w]ork or operations performed by you or on your behalf." Sheehan's premiums presumably reflected the difference in language.
Thanks once again to my Damon Key colleague and fellow blogger, Robert Thomas (inversecondemnation.com), for sending me this case.
