The owner of a condominium project sued Exeter alleging substantial defects in the design and construction of the condominiums. Exeter reported the claim to its CGL carrier, Scottsdale which agreed to defend Exeter under the usual reservation of rights. After 14 months of defending Exeter, Scottsdale disclaimed coverage on the basis of the work product exclusion.

Exeter sued for a declaration that it was entitled to a defense from Scottsdale. In response Scottsdale filed a motion for summary judgment contending that the alleged property damage was excluded under the policy.The trial court denied Scottsdale’s motion which was reversed on appeal.

Per the appellate court, the allegations principally arose out of construction work performed by Exeter or its subcontractors.

“CGL policies like the one in this case are not intended to provide indemnification to contractors for claims that their work product is defective.”

“Thus because the complaint seeks relief for conduct that falls solely and exclusively under the work product exclusions of the CGL policies, and the damages sought therein do not arise from an occurrence resulting in damage to property distinct from the work of Exeter or its hired subcontractors, Scottsdale is not obligated to provide Exeter with a defense or to indemnify it in the underlying action.”

Two points worth noting:

(1) A GCL policy is not a substitute for a performance bond which is the insurance product intended to protect owners from defects in contractors’ work product, and

(2) the work product exclusion does not apply if there is an allegation of damage to property, in the slightest amount, other than the contractor’s work.