The Completed-Roof Claim and Two Aggregates
Northvale Construction is a general contractor insured under an occurrence-basis commercial general liability policy running July 1, 2023 to July 1, 2024, with limits of $1,000,000 each occurrence, $2,000,000 general aggregate, $2,000,000 products-completed operations aggregate, and a $10,000 per-occurrence deductible. In September 2023 the policy paid $1,800,000 toward a single bodily injury occurrence at a job site. Northvale subcontracted all roofing on a 40-unit apartment building to Halden Roofing, which finished the roof in October 2023 and was paid in full. In February 2024 the building owner reported leaks; a March 2024 inspection found Halden had omitted underlayment across roughly 6,000 square feet. Water ruined drywall, insulation and a tenant restaurant's equipment, and the entire roof must be stripped and reinstalled. Current estimates are $260,000 to tear off and reinstall the roof, $220,000 for the other damaged property, and $75,000 of lost income claimed by the restaurant tenant. The owner sued Northvale in April 2024.
1. Which limits of liability govern the owner's suit, and how much aggregate capacity remains for it? Assume all covered damages are paid within the 2023-2024 policy year.
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Step 1 - Classify the claim. The roof was finished, paid for, and put to its intended use before the damage appeared, so the claim arises out of the products-completed operations hazard (work away from premises the insured owns or rents, after possession has been relinquished).
Step 2 - Match the hazard to the limit. Losses in that hazard are paid out of the products-completed operations aggregate, not the general aggregate. The $1,800,000 bodily injury payment was a premises/operations loss, so it eroded the general aggregate only. The products-completed operations aggregate is still whole at $2,000,000.
Step 3 - Apply the per-occurrence cap. The each-occurrence limit of $1,000,000 still applies on top of whichever aggregate is used, so total payment for this occurrence cannot exceed $1,000,000 regardless of aggregate capacity.
Conclusion: $1,000,000 each occurrence, backed by $2,000,000 of products-completed operations aggregate capacity. Only $200,000 remains in the general aggregate, so the classification matters enormously. If a claims person wrongly coded this as an ongoing-operations loss, only $200,000 of aggregate would be available.
2. The adjuster proposes to deny everything, arguing the damage arose out of Northvale's own 'work' and the policy never pays to replace defective construction. Evaluate that position.
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A blanket denial is wrong; the claim must be split into three buckets.
1. The defective work itself. The missing underlayment is not damaged property - it is work that never conformed to the contract. There is no accidental physical injury to it, so no coverage for the bare cost of correcting the defect.
2. Resulting damage to other property. The 'your work' exclusion bars property damage to the insured's work, and the 'particular part' exclusion bars damage to property that must be repaired because the insured's work was performed incorrectly. Both exclusions carry a subcontractor exception: they do not apply where the damaged work, or the work out of which the damage arose, was performed by a subcontractor. Halden is a subcontractor, so the exclusions fall away and the $220,000 of drywall, insulation and equipment damage is covered.
3. Tear-out and replacement. The cost of stripping and re-roofing is the classic disputed item. Carriers ordinarily treat it as the cost of correcting the defect, not as property damage, even though the same subcontractor exception is argued. Expect a reservation-of-rights letter and a negotiated allocation rather than a clean denial.
Conclusion: Denying the whole claim overstates the exclusions and risks bad faith exposure on the resulting-damage bucket.
3. How should the restaurant tenant's $75,000 lost-income claim and the deductible be handled?
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Coverage. 'Property damage' includes loss of use of tangible property that is not physically injured, so a tenant's lost business income during repairs is covered damage even if the restaurant's own fixtures escaped harm (here they did not). The income loss flows from the same defective roofing and is therefore also within the products-completed operations hazard.
One occurrence. The owner's property damage, the tenant's equipment damage and the tenant's lost income all arise from the same continuous exposure to water intrusion from one defective roof. They are one occurrence, not three.
Deductible. The $10,000 deductible is subtracted once per occurrence from the total covered damages, not once per claimant or per coverage item. Covered damages of $220,000 plus $75,000 equal $295,000; less the deductible equals $285,000, comfortably inside the $1,000,000 each-occurrence limit and the intact products-completed operations aggregate.
Watch point: had the leak spanned two policy years, the carrier would allocate damages to the period in which the injury to property took place, and a second deductible could apply to a separate occurrence.