A contractor was building a detached garage for a homeowner and preparing to depart at the end of the day. The building was 99.9% completed except for a few minor corrections that he was going to finish in a couple of hours the following morning. As he prepared to leave, he discarded a cigarette he was smoking which smoldered until a fire broke out, largely destroying the garage. The adjuster for his CGL insurer denied the claim under a reservation of rights, citing these three exclusions:

“Property damage” to… That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the “property damage” arises out of those operations;

“Property damage” to… That particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it.

“Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard”. This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.

The first question is whether this is an ongoing operation or a completed operation, the latter defined in the policy to include the following language:

Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed.

Based on this definition excerpt, we believed this to be a completed operation, but it really doesn’t matter if the policy language expressed in the three cited exclusions is carefully reviewed.

In our opinion, the damage did not arise out of either ongoing or completed ‘operations’ nor was “your work” incorrectly performed on the garage. These are largely workmanship exclusions. In our opinion, negligently discarding a cigarette is not part of the insured’s work or operations.

In the end, the adjuster bought this premise and paid the claim. What do you think?

Photo by Daniel M. Hendricks

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Bill Wilson

Founder at InsuranceCommentary.com
One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information