UWWM Case Note: SCO decides USFI v JSUB

On Dec 20, 2007, the Supreme Court issued its long awaited opinion in United State Fire Insurance v. JSUB, Inc.  The question whether an insured general contractor has coverage for damages cause by the faulty workmanship of a subcontractor under a standard CGL policy has been answered in favor of the insured. In summary, the Court held that a post 1986 standard form commercial liability policy with "products-completed operations hazard" coverage provides coverage to a general contractor for damage caused to the completed project by the faulty workmanship of a subcontractor. The Court held that faulty workmanship that was neither intended nor expected from the standpoint of the insured was an "accident" and therefore an "occurrence," and that the cost of repairing damage caused by defective work was "property damage" within the meaning of the policy.  The policy under consideration included an exception to the "Your Work" exclusion for faulty workmanship by a subcontractor and did not include a beach of contract exclusion. Unite Stated Fire did not argue that any exclusion barred coverage, but the court focused on the specific language of the exclusions to the policy, and the exceptions to such exclusions, to determine coverage was available. The court surveyed the law of several other jurisdictions and repeated its holding on several occasions that the policy terms determined coverage, not public policy or other considerations.

In a separate decision issued the same day, the Supreme Court applied its reasoning in JSUB to deny coverage for repairs to defective work itself. In Auto-Owners v. Pozzi,  a case certified to the Supreme Court by the United States Court of Appeals for the Eleventh Circuit, a similar set of facts were presented as in JSUB, with one crucial distinction-there was no subsequent damage to the construction caused by the defective work, in this case, faulty window installation. The general contractor and subcontractor had settled with their homeowner client by agreeing to repair defective windows, apparently before any damage occurred to the project. Citing to JSUB, the Supreme Court held that the defective work itself does not constitute "property damage" within the meaning of a CGL policy; therefore, coverage was not available for such claim.    

These decisions provide a greater level of clarity for construction and insurance claims in Florida , but will likely lead to efforts to revise the CGL forms in the future.