It is our firm's privilege to represent a number of prominent contractors and construction industry participants. Because our team has been down in the trenches with our clients since the economic downturn started, we can certainly attest to the fact that the past three years have been difficult at best for the contracting community. Less available work (public and private), razor thin margins, stricter lending and bonding guidelines, and a variety of other factors symptomatic of an anemic economy have all played a role in creating the "survival of the fittest" atmosphere prevailing in the industry today. We counsel our clients that it's more important now than ever before to be acutely aware of their "risk portfolio" if they intend to successfully compete in today's market. As my grandfather used to ask, "Have you closed all the gates?" Central to this evaluation is a thorough assessment of your company's insurance coverage platform.
 

     Any contractor or builder that has recently been faced with a defective construction claim has likely experienced a denial of that claim by its commercial general liability ("CGL") insurance carrier or that of its subcontractor. In fact, much has been written and said in the recent past by the construction law bar regarding the topic of CGL coverage for faulty workmanship as this is a predominant issue facing our industry.

     The story usually goes something like this: A residential homebuilder, commercial contractor, or subcontractor is sued by an owner or other party with whom they have contracted for the construction of a residence or commercial project. Typically, the contractor or builder utilized subcontractor labor for the different scopes of work comprising the project and expects to hold the at-fault subcontractor accountable for its defective performance. This is especially true where the faulty workmanship at issue has caused damage to something other than the at-fault subcontractor's own work. The contractor expects that either its own CGL policy, or that of its subcontractor, will provide coverage for the claim. At least that's what was typically thought when the policy was offered for sale by the agent and the premium paid to the carrier, right? Unfortunately, certain insurance carriers don't see it that way.

     Over the last decade or so "[c]ontractors' insurers have been financing a national war against property damage coverage-coverage that their underwriters have been promising (and providing in their insurance products) since 1973."[1] The controversy finally made its way to Kentucky when the Kentucky Supreme Court confronted the case of Cincinnati Insurance Company v. Motorist Mutual Insurance Company[2], calling the matter a "'difficult question.'" The case involves a residential homebuilder sued by a disgruntled homeowner claiming that the subject home was poorly constructed. The dispute focused upon the question of whether faulty workmanship, standing alone, constitutes an "occurrence" (as defined in the CGL policy) for coverage purposes.