Defective Work of Subcontractor Not Covered by Insurance

When a building contractor faced a substantial claim regarding damage to its customer’s property in a development it had contracted to do, it naturally sought confirmation from its insurer that the claim would be covered by its public liability policy.

An exclusion clause in the policy applied to the cost of making good any defective work. It applied only to the part of the property that was directly affected by the defective work, not to the remainder of the property in the event that it was also damaged as a result of the defective workmanship. The policy also covered work carried out by subcontractors.

The building contractor considered that the part of the policy that covered subcontractors ‘stood alone’ and covered the cost of rectifying all their defective work.

The insurer disagreed, arguing that that interpretation would amount to it offering a guarantee of the quality of the work undertaken by the subcontractors.

The court accepted the insurer’s argument, concluding that the contractor’s interpretation would extend the scope of the insurance policy well beyond that which it was reasonable to envisage was meant.

Disputes between insurers and policyholders over the scope of cover are common. The result of leaving a major risk uninsured can be catastrophic. For advice on the interpretation of your commercial insurance policies, contact us on 01752 663295.

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