Defective Flashing, a Subcontractor, and the 'Your Work' Exception
A Des Moines general contractor finished a 40-unit apartment complex in 2019 and subcontracted all roofing and flashing to a licensed subcontractor carrying its own $1M/$2M CGL. The GC's own CGL is the standard ISO occurrence form: $1M each occurrence, $2M general aggregate, $5,000 per-occurrence deductible, and it includes the exception to the "your work" exclusion for work performed on the GC's behalf by subcontractors. No other endorsements modify the policy. In 2024, water intrusion is traced to flashing the sub installed backwards on 40 balconies. Repair costs are $410,000 for drywall, insulation, and interior finishes installed by the GC's own crews, plus $95,000 to remove and reinstall the defective flashing itself. The GC was not negligent in selecting or supervising the sub. Defense costs to date are $60,000.
1. Does the GC's CGL respond to the $410,000 of interior damage? Work through the exclusions in order.
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1. Is there an occurrence and property damage? Yes. Accidental water intrusion causing physical injury to tangible property (drywall, insulation, finishes) during the policy period is an occurrence and property damage. No expected-or-intended argument survives; the GC did not know the flashing was reversed.
2. Exclusion j - damage to property in the insured's care or j(6) 'particular part'? j(6) is directed at the particular part of real property being worked on during ongoing operations. The work here was completed in 2019, so j(6) is not the operative exclusion.
3. Exclusion l - 'your work.' "Your work" includes work performed on the insured's behalf by a subcontractor, and exclusion l removes damage to that work arising out of it. Standing alone, it would bar the claim.
4. The subcontractor exception reinstates coverage. Because the damaged work (and the work out of which the damage arose) was performed by a subcontractor, exclusion l does not apply. That exception exists precisely for this general-contractor fact pattern.
Conclusion: The $410,000 of interior damage is covered, subject to the $1M occurrence limit and the $5,000 deductible, with defense in addition to limits.
2. What about the $95,000 to remove and replace the defective flashing itself? Explain the competing arguments and how you would resolve the tender.
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Argument for coverage: the subcontractor exception to exclusion l is written broadly - damage to "your work" is restored when the work was done by a subcontractor - and removal costs are part of the direct physical loss.
Argument against coverage: the flashing was never damaged by an external event; it was installed incorrectly. Correcting the insured's own defective workmanship is a cost of making the project conform to contract, not accidental property damage. Many courts treat replacement of the defective component itself, as opposed to resulting damage, as outside the insuring agreement regardless of the subcontractor exception. Exclusion j(6)/"particular part" reasoning is also used by some carriers to reach the same result for the component being worked on.
Resolution I would use as the file handler:
- Tender the $95,000 to the subcontractor's carrier as an additional insured on the GC's policy, since that is the source of the defective work; that policy faces the same analysis but the sub's own work exclusion applies without a subcontractor exception.
- On the GC's policy, reserve rights and pay the $410,000 of resultant damage, which is the clearly covered portion.
- Do not let the dispute over $95,000 delay the covered payment; document the allocation in writing so the insured understands why part of the bill is held.
Aggregate check: defense costs are in addition to limits on an occurrence-form CGL, so the $60,000 of defense does not erode the $2M general aggregate; the $410,000 payment does.
3. The GC's broker says the loss should be reported to the subcontractor's policy instead. Evaluate that advice and list the coverage traps for the GC.
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Tender to the sub's policy is correct but not sufficient. The GC should be an additional insured for liability arising out of the sub's ongoing or completed operations. Traps:
- AI status may not exist. A certificate of insurance is evidence of coverage, not coverage. Confirm the actual endorsement form, its scope (ongoing vs. completed operations), and whether it is primary and non-contributory.
- Completed-operations sublimit or sunset. Some AI endorsements expire or are limited to the statute of repose period; a 2019 project may be at the edge.
- The sub's own "your work" exclusion bars the cost of repairing the sub's defective work, which is exactly the $95,000 item - so the GC's own policy, not the sub's, is the realistic source for most of the loss.
- Other insurance clauses. If the GC's CGL is excess to the sub's, payment order changes; if both are primary, they contribute.
- Notice and voluntary payment conditions. The GC must not repair and settle with the homeowners' association without the carriers' consent, or it risks the voluntary-payment defense.
Bottom line: pursue both policies in parallel, put every carrier on written notice now, and avoid characterizing the loss as purely "the sub's fault" - that framing invites the GC's carrier to deny the resultant-damage portion that the subcontractor exception was designed to cover.