Courts throughout the country have struggled with the scope of the "your work" exclusion in commercial general liability policies. In American Home Assurance Company v. Cat Tech L.L.C., No. 10-20499 (October 5, 2011), the United States Court of Appeals for the Fifth Circuit clarified its interpretation of that exclusion under Texas law. In the case before it, Cat Tech serviced a reactor, which subsequently malfunctioned. Cat Tech's insurers refused to indemnify Cat Tech for the ensuing property damage claim, citing the "your work" exclusion, which precluded coverage for:
"Property damage" to "your work" arising out of it or any part of it and included in the "products-completed operations hazard."
The policies defined "your work" as "(1) [w]ork or operations performed by you or on your behalf; and (2) [m]aterials, parts or equipment furnished in connection with such work or operations."
The court defined three categories of damage at issue in the case: (1) property damage to the specific parts of the reactor upon which Cat Tech performed defective work; (2) property damage to those parts of the reactor upon which Cat Tech performed non-defective work but were nonetheless damaged; and (3) property damage to other parts of the reactor upon which Cat Tech did not work. The Fifth Circuit concluded that the "your work" exclusion precludes coverage only for the first two categories, i.e., that portion of the reactor upon which Cat Tech performed repair services, defective or otherwise. The "your work" exclusion did not preclude coverage for damage to parts of the reactor that Cat Tech did not repair or service.
The court distinguished this "your work" exclusion from "your work" exclusions that exclude coverage for "property damage. . . to . . . that particular part of any property not on premises owned by or rented to the insured, . . . . the restoration, repair or replacement of which has been made or is necessary by reasons of faulty workmanship thereon by or on behalf of the insured." According to the Fifth Circuit, the latter exclusion, not at issue in the case before it, excludes only property damage to property that was the subject of defective work and does not bar coverage for property damage to parts of the property that were the subject of only nondefective work by the insured and were damaged as a result of defective work by the insured on other parts of the property.
The Fifth Circuit remanded the case for further proceedings because the underlying arbitration award was "far too vague in its description of the damage to the reactor and how that damage relates to the work Cat Tech performed." On remand, the lower court should determine whether the damage suffered by the reactor was limited only to those components upon which Cat Tech worked, or instead included other components unrelated to that work.
Thus, in the Fifth Circuit, with the narrower exclusion not at issue in this case, an insured should have coverage for damage to non-defective work as well as to property not within the scope of work. Under the Fifth Circuit's interpretation of the broader exclusion at issue here, an insured should have coverage for damage to property not within the scope of work. Other courts do not necessarily agree with the Fifth Circuit's interpretation, however, and may find coverage even under this exclusion for damage to the non-defective work as well as damage to the property outside the scope of the work.
This case illustrates the importance of carefully examining the language of the "your work" exclusion in your insurance policies. In any underlying dispute or in a coverage dispute, the insured should be mindful of the distinctions between the various categories of property damage when describing the nature of the work performed and the property damage sustained. Careful description of the work and the damage will be pivotal to maximizing coverage. As with any coverage dispute, choice of court and choice of law will also be important to determining the availability and scope of coverage. An attorney with experience in insurance coverage can assist insureds navigate through the complexities of the "your work" exclusion.
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