The subsidence and "your work" exclusions were before the court in Wilshire Ins. Co. v. RJT Construction, LLC, No. 08-50925, 2009 U.S. App. LEXIS 19409 (5th Cir. Aug. 26, 2009).
Wilshire insured RJT under two consecutive CGL policies from June 2004 to June 2006. In 1999, RJT repaired the foundation of the home after it was damaged by an accidental discharge of plumbing water. In 2005, the homeowner alleged that cracks in the walls and ceilings suddenly appeared in his home, which was allegedly caused by RJT's negligently performing the foundation repair.
When the homeowner sued, RJT sought a defense from Wilshire. The district court granted summary judgment to Wilshire, finding that because the alleged property damage was the result of foundation movement, the policy's subsidence exclusion precluded coverage.
The Fifth Circuit reversed. The court first determined there was an occurrence within the policy period to trigger coverage. The complaint alleged property damage, such as cracks in the walls and ceilings, which suddenly appeared in 2005. It did not matter that the faulty foundation work occurred in 1999, or that the damage was discovered in 2005. It only mattered that damage was alleged to have occurred in 2005.
Turning to the subsidence exclusion, the Fifth Circuit decided it did not apply. The policy excluded any claim caused by the subsidence of land as a result of "landslide, mudflow, earth sinking or shifting . . . ." Accordingly, the exclusion focused on the movement of land, not of the foundation. The complaint did not allege that RJT's operations resulted in subsidence or movement of the earth, but alleged RJT failed to repair the foundation to withstand subsidence.
Finally, the court noted that the "your work" exclusion prevented a CGL policy from morphing into a performance bond covering an insured's own work. Here, the foundation was RJT's own work, so the exclusion precluded coverage for repairing the foundation. The exclusion, however, only precluded coverage for liability for repairing or replacing the insured's own defective work, not for damage to other property resulting from the defective work. Therefore, the exclusion did not preclude coverage for damage to the parts of the house resulting from the allegedly faulty foundation. Because these damages presented a covered claim, Wilshire had to defend the entire suit.
