Commercial General Liability (CGL) insurance claims involving defective workmanship are complicated and expensive. They involve a complex scheme of coverage, from the insuring agreement, through the definitions, particularly occurrence and property damage, and finally the business risk exclusions.
Historically, the courts have not exactly followed according to the terms and language of the policy exclusions themselves, but according to the more opaque business risk doctrine. That doctrine states that an insured contractor is not entitled to insurance coverage for property damage arising out of faulty workmanship that are within the scope of its control. Obviously, there can be no argument with the basic premise that an insured contractor—or any insured for that matter—should not be insured for business risks within its own control. However, that underlying premise cannot serve as a substitute for careful application of the policy provisions to a defective work claim.
Policy provisions, particularly certain exclusions, actually circumscribe and limit the business risk doctrine by preserving coverage for certain risks that might usually be regarded as typical business risks of an insured contractor. There is no better example of such a provision than Exclusion (z) of the broad form property damage (BFPD) endorsement. This provision was added to the form in the 1950s and became most popular when it was standardized in an endorsement to the CGL policy in 1973.
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