A subcontractor called the general contractor and told him he moved a water supply line, after which a leak occurred. The sub filed a claim, but now denies he ever touched the supply line. The sub's carrier won't follow through with the claim.
An agency's client is a restoration contractor and was acting as general contractor for a full home repair after a tornado caused significant damage.
Plumbing inspections were completed and no one entered the structure until a tile subcontractor came to install tile in the master shower a few days later. During the installation, the subcontractor called the general contractor and said he had to move the water supply line to make the tile fit and after doing so he heard a "whooshing" noise and thinks a leak had occurred.
When the general contractor arrived to shut off the water, the basement ceiling was damaged and the main level's hardwood floor needed to be replaced—both of which had just been completed as part of the restoration project.
The general contractor advised the subcontractor to file a claim with his carrier, which he did but told the carrier he never touched the supply line and now denies the story he told the general contractor. The subcontractor's carrier will not follow through with the claim because the subcontractor said he had nothing to do with the loss.
Leaving aside the fact that the subcontractor's carrier shouldn't be able to make the decision simply on its insured's word, as well as the fact this clearly should be a claim on the subcontractor's policy, the agency filed the claim on the general contractor's commercial general liability policy for subcontractor-caused property damage.
However, the carrier informed the agency it "cannot find coverage" within the insured's CGL policy and advised that it is likely to deny the claim. However, the carrier did end up paying the loss under the installation floater.
While the loss was ultimately covered, the agent is concerned that the carrier covered the claim under the wrong form and what potential impact that could have on future losses. What if a subcontractor turns in a fraudulent certificate of insurance (COI) and causes hundreds of thousands of dollars in damage? Does the general contractor need installation floater limits to accommodate that? Or what if an entire home is destroyed by a sub-caused fire and the sub doesn't have coverage?
Q: Should damage caused by a subcontractor be covered under a general contractor's CGL installation floater?
Response 1: It's great that the claim was paid but I don't believe the installation floater was the right policy to cover this loss, since the damage was to the completed portion of the home. There are two likely causes of the loss from your description.
First, if the cause of damage was the plumbing, which just happened to fail while the tile installer was in the area, and if the plumbing was installed by a subcontractor and not by the general contractor's employees, the CGL should cover it.
The CGL Exclusion takes away coverage of “damage to your work" and the building of the house was the general contractor's work. The form says the carrier excludes:
“Property Damage" to “your work" arising out of it or any part of it and included in the “products-completed operations hazard."
But then the exclusion provides an important give-back of coverage:
This 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.
If the plumbing was done by a subcontractor, then the CGL should pay for the damage to the house.
The second scenario is that the damage was done by the tile installer. I assume the subcontractor was not added as an additional insured under the general contractor's CGL policy. If that's the case, there would be no coverage under the CGL unless there was a way to find the general contractor negligent or legally liable for the damage.
Did the general contractor or another interested policy have a builders risk policy on the home? If so, the builders risk or the properly endorsed homeowners policy would cover this damage.
The other source of coverage is the subcontractor's CGL, which should cover the loss if he caused the damage by trying to move the pipe—which you say he is denying.
However, I disagree with your statement that the subcontractor's carrier shouldn't be able to make the decision simply on its insured's word. The sub's CGL was issued to the sub and he is the named insured under the policy, so the carrier has every right to believe its named insured unless he is proved to be incorrect.
The general contractor could sue the subcontractor, which would then require the sub's carrier to defend him and it would be up to the court to determine if the subcontractor was legally liable or not. In response to a lawsuit, then the sub's carrier could reevaluate whether it pursues defense or tries to settle. The amount of damage to the house might influence its decision.
Response 2: Why is the general contractor's policy responding to the damage? It should be easy to determine if the subcontractor cut the water line. In any case, Exclusion J.5 of the general contractor's CGL says:
This insurance does not apply to “property damage" to:
(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations;
This would include the water line and shower. However, the remaining portions of the house may or may not be covered, depending on what's in the rest of the policy.
The CGL pays on an actual cash value basis, and the general contractor would have to be legally liable for the actions of subcontractor.
Response 3: Your thought process for an installation floater is a great idea to avoid future scenarios as described. I suspect that sub will find himself in litigation seeking restitution for the loss.
Speak with your underwriting team to inquire if an auditable installation floater is available on a reporting basis, as this is very common on large builders risk accounts.
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