Ridgeline's Defective Flashing and the Subcontractor Exception

All three - $352,000 - but only because a subcontractor did the work.

The trigger is property damage caused by an occurrence. Faulty workmanship alone is not an occurrence; the resulting water damage to property is.

• $140,000 (other trades' drywall, flooring, cabinets) - clearly covered. This is damage to property other than the insured's product or work, and it is not property in Ridgeline's care, custody or control.
• $22,000 (tenants' belongings) - covered. The care/custody/control exclusion applies to property the insured holds for safekeeping or control, not to a tenant's contents inside a building the insured built.
• $190,000 (tear-out and reinstall of the windows and flashing) - the close call. Exclusion j.(6) removes damage to property that must be restored because "your work" was incorrectly performed on it, but that exclusion does not apply to property damage included in the products-completed operations hazard, and this work was completed and put to its intended use. Independently, j.(6) contains an exception for work performed on your behalf by a subcontractor, which restores coverage here.

If Ridgeline's own carpenters had installed the flashing, the $190,000 would be excluded as the cost of correcting its own defective work, and only the $162,000 of resulting damage to other property would be paid. That is the judgment the exam is testing.

One occurrence, one $5,000 deductible: $352,000 − $5,000 = $347,000, well within the per-occurrence limit.

No.

The contractual liability exclusion bars liability assumed under contract, subject to a narrow exception for an "insured contract." An insured contract includes the portion of a business contract in which the insured assumes the tort liability of another party - and tort liability means liability that would be imposed by law in the absence of the contract.

Ridgeline's clause covers the owner's own negligent supervision. Ridgeline would owe nothing for that in the absence of the contract, so the promise is not the assumption of tort liability, is not an insured contract, and is excluded. The carrier owes neither indemnity nor a defense for that demand.

Two supporting points worth stating:

• Many states, North Dakota among them, restrict or void broad-form indemnity for the indemnitee's own negligence in construction contracts. Confirm the current statute before relying on the contract's enforceability either way.
• If the clause had instead required Ridgeline to indemnify the owner for Ridgeline's negligence (vicarious liability for Clearview's work, for example), that would be an insured contract and would be covered.

Aggregate: products-completed operations. The building was complete and turned over to the owner; the injury arises out of Ridgeline's work away from the premises. That places the loss in the products-completed operations hazard, charged against the $2,000,000 PCO aggregate, not the general aggregate. Mis-posting it understates the general aggregate available for the rest of the year and distorts renewal underwriting.

Deductible: once, per occurrence. All of the water damage traces to a single cause - one installation defect at one building during one rain event - so it is one occurrence. Do not let the number of claimants or line items multiply the deductible. The $5,000 comes off the total, and the carrier then allocates the net payment.

If the tenants file their own claims, they are claimants against the same single payment, not new occurrences. Watch two things: the per-occurrence limit is shared among all claimants once tenders are settled, and Ridgeline's defense costs are outside the limit for an occurrence form, so they do not erode the amount available to pay the $352,000.