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Seventh Circuit Holds That ‘Your Work’ Exclusion Applies to Work Performed by Subcontractors
Insurance Law Update
May 2009
Seventh U.S. Circuit Court of Appeals
In Westfield Ins. Co. v. Sheehan Const. Co., Inc., ___ F.3d ___, 2009 WL 1139331 (7th Cir (Ind.) April 29, 2009), the Seventh U.S. Circuit Court of Appeals found that a comprehensive general liability (CGL) policy’s “your work” exclusion applied to bar coverage for damages caused by a subcontractor of the insured general contractor.
Sheehan Construction Company (the insured) was the general contractor for a residential property development. A few years after moving in, residents began to notice moisture intrusion in their homes. The problem was traced to defective work performed by one of Sheehan’s subcontractors. The matter was ultimately settled for $2.8 million. Sheehan requested its insurer, Westfield, to indemnify the settlement expense.
Westfield declined, citing language in its policy that excludes coverage for property damage caused by work defectively or incorrectly done by the insured (the “your work” exclusion). Sheehan countered that the “your work” exclusion was not applicable because it was the subcontractor’s work that caused the damage. For support, Sheehan cited to changes implemented in the 1986 standard-form CGL policy that removed subcontractors’ work from the definition of “your work.” The court recognized this change in the standard-form CGL but noted that the Westfield policy purchased by Sheehan was not issued on that form. In addition, the Westfield policy had an endorsement that defined “your work” as “work or operations performed by you or on your behalf.” [Emphasis added.] Citing this italicized phrase, the court found that subcontractors’ work was indeed included in the scope of the “your work” exclusion. While the court stated that this type of loss might be covered in other jurisdictions under the 1986 standard form, it referenced several other Indiana decisions that had addressed functionally identical situations and held that the insurer need not indemnify a general contractor-insured.
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