Sundance Builders: Defense, Completed Operations, and Wyoming Workers' Compensation
Sundance Builders is a general contractor in Cheyenne with a CGL occurrence-form policy: $1,000,000 each occurrence, $2,000,000 general aggregate, $2,000,000 products-completed operations aggregate, and a $1,000,000 employer's liability limit. Three matters arise: (1) A framing subcontractor's employee falls from scaffolding and sues Sundance, alleging negligent site supervision (the suit also includes a count for breach of contract). (2) Eight months after Sundance completes a townhome, a second-floor railing it installed gives way; a tenant is injured and her furnishings are damaged when they fall through the opening. (3) Sundance's own laborer injures his back on the job and asks whether the CGL will pay his medical bills and lost wages.
1. Must the CGL carrier defend Sundance in matter (1)? Analyze the defense obligation and the employer's liability exclusion.
Read the worked answer
Yes - the carrier must defend.
Duty to defend is broader than the duty to indemnify. The insurer must defend if the allegations, read liberally and compared to the policy, potentially state a covered claim. Extrinsic facts are generally not used to deny a defense.
Applying the employer's liability exclusion: exclusion e bars bodily injury to "an employee of the insured arising out of and in the course of employment." The injured framer is an employee of the subcontractor, not of Sundance. He is therefore not "an employee of the insured" on the face of the complaint, and the exclusion does not defeat coverage. (Note the separate "injury to contractors' employees" wrinkle - that concerns whether the subcontractor's workers' compensation policy or the general contractor's program is primary; it does not void Sundance's CGL.)
The theory alleged - negligent site supervision - is an independent act of the insured, not vicarious liability for the subcontractor's work. That is the good-news allegation for coverage.
The breach-of-contract count does not eliminate the defense: the insurer must defend the entire suit if any claim is potentially covered, even though contract damages are not covered and the carrier may later seek allocation or recoup defense costs where the policy allows it. The insured must be told the mixed claim exists and that the carrier's reservation of rights letter is a defense under protest, not a denial.
2. Analyze coverage for matter (2): the railing failure and the tenant's injuries and furnishings. Address the your-work and completed operations issues.
Read the worked answer
Split the claim into two pieces - this is where most candidates lose the point.
Damage to the railing and the project itself: excluded. The your work exclusion bars property damage to that particular part of real property on which the insured or its subcontractors are performing operations, and the damage to your work exclusion bars damage to the insured's completed work product. Faulty workmanship is not an insured loss; it is a business risk. The cost to rebuild the railing is Sundance's.
Bodily injury to the tenant and damage to her furnishings: generally covered. The claim falls under products-completed operations, which is exactly the exposure the $2,000,000 PCO aggregate exists for (and it is separately limited from the general aggregate). Courts diverge on whether defective construction is an occurrence when it causes only damage to the project, but where the defective work causes bodily injury to a third party or damage to property other than the insured's work, the overwhelming majority treat it as an accidental occurrence and cover it.
The furnishings are property damage to property other than the insured's work, so neither the your work nor impaired property exclusion should bar them.
Practical notes: the subcontractor's own policy and any additional-insured endorsement should be tendered; the other insurance and subcontractor carve-backs to the your-work exclusion (if purchased) change the answer materially.
3. For matter (3), explain what the CGL will and will not pay, and how Wyoming's workers' compensation program changes the analysis.
Read the worked answer
The CGL will not pay. Employer's liability exclusion e bars bodily injury to an employee of the insured arising out of and in the course of employment. The $1,000,000 employer's liability limit on the declarations page is essentially unusable for this injury. The laborer's medical bills and lost wages are a workers' compensation claim, not a liability claim.
Wyoming's program is the answer, and it is a state-administered system. Employers in Wyoming obtain coverage through the state Workers' Safety and Compensation Division (or must qualify to self-insure with Division approval); there is no conventional competitive market where a producer places a private workers' compensation policy for a Wyoming employer. So a producer should not be shopping the account to private carriers - the correct advice is to confirm the employer is enrolled with the Division, that payroll classifications and quarterly reports are current, and that coverage begins on the hire date.
Consequences to explain to Sundance:
- Workers' compensation benefits are generally the employee's exclusive remedy against the employer, which is why the CGL does not respond.
- Coverage gaps on Wyoming job sites typically arise with out-of-state employers working temporarily in Wyoming or with subcontractors whose coverage has lapsed - verify certificates and endorsements.
- The employer's liability limit on the CGL may still matter for injuries in other states or for stop-gap exposure, so do not delete it from the program wholesale.