Commercial General Liability Policies: Workmanship Exclusion and Ensuing Loss Exception

In Taja Invs. LLC v. Peerless Ins. Co., the district court for the Eastern District of Virginia considered the scope of the workmanship exclusion in a commercial general liability (CGL) policy (the “Policy”). The case assessed whether there would be insurance coverage for the collapse of a wall at a residential property undergoing renovations.

During the renovations, the contractor attempted to excavate the existing crawl space to a depth of nine feet to enable living spaces. The contractor, however, failed to install underpinnings to secure the building’s foundation pursuant to the plans, causing the east wall to collapse.

At issue was whether the workmanship exclusion in the CGL policy barred coverage and whether the ensuing loss exception could restore coverage.

Workmanship Exclusion

The Policy’s workmanship exclusion provided: “defects, errors, and omissions relating to design, specifications, construction, or workmanship are not covered, but if loss by another covered peril results, [the insurer] will pay for the resulting loss.” The exclusion applies where the loss is attributable to the quality of construction and “arises from defects in the materials or process used by the insured or its agents to construct the property.”

The court concluded that the workmanship exclusion precluded coverage because the contractor’s acts, errors, and omissions relating to the excavation of the basement caused the east wall’s collapse. Specifically, the contractor’s failure to follow the construction plan, over-excavation, and lack of underpinnings caused the wall’s collapse.

Ensuing Loss Exception

Where the workmanship exclusion applies, the next inquiry is whether the “ensuring loss” clause in the exclusion restores coverage. Courts generally find such restoration only where an “independent and covered loss occurs subsequent to the excluded acts or omissions giving rise to the losses.”¹ Courts require an additional superseding covered cause, subsequent in time to the initial excluded conduct, to trigger an ensuring loss.

The court concluded that the ensuring loss exception failed to restore coverage because no independent covered cause contributed to the collapse beyond the contractor’s excluded conduct. There was no separate and distinct cause intervening to contribute to the loss.

Case Implications

Faulty workmanship generally is not covered in a CGL policy. If that faulty workmanship causes damages, those damages generally will be excluded unless there is an additional cause separate from the faulty workmanship that would trigger the ensuring loss exception. It is not enough that there are damages beyond the work itself. Restoration of coverage under the ensuring loss exception requires that the damages beyond the work itself involve an additional superseding cause beyond the workmanship.

¹The exception to the exclusion, however, does not create coverage where none exists. In other words, the conduct first needs to fit within the insuring agreement of the Policy.