Fourth Circuit Court of Appeals Analyzes Whether a Duty to Defend Arises in a Construction Case Relative to the "Your Work" Exclusion
On March 29, 2012, the Fourth Circuit Court of Appeals issued an unpublished opinion (Jessco v Builders Mutual Insurance Company) addressing the duty to defend in a construction case. The underlying case involved the construction of a residential home in North Charleston, South Carolina, and Jessco was the general contractor.
The policy at issue contained a standard "Your Work" exclusion and defined "your work" as "work or operations performed by you or on your behalf." The court noted that this definition was broad enough to preclude coverage for work done by the insured's subcontractors. Although CGL policies often contain a subcontractor exception to the "Your Work" exclusion, the policy at issue also contained an endorsement which removed the subcontractor exception to the "Your Work" exclusion.
Builders Mutual argued that it had no duty to defend because all of the homeowners' claims were precluded by the "Your Work" exclusion. Builders Mutual further argued that "all of the work on the property was done by subcontractors on Jessco's behalf and that the your-work exclusion therefore bars coverage for all of the claims asserted by the [homeowners]."
The Court disagreed and held that there was a duty to defend because the homeowners' claims against Jessco "created a possibility that a third-party's work or property was damaged by the faulty workmanship of Jessco or its subcontractors." The Court noted that the "Your Work" exclusion does not preclude coverage for damage to a third party's work. Because the contract between Jessco and the homeowners contemplated that the homeowners would self-perfom the flooring and the landscaping, there was a possibility that a third-party's work was damaged and, therefore, there was a duty to defend.
Although the Court held there was a duty to defend in this case because the homeowners self-performed some work, the analysis may have been different if the general contractor and his subcontractors performed all of the construction work.