First Circuit Court Decision Highlights Key Insurance Coverage Issues for Construction Defects

Earlier this month, in Admiralty Insurance Company et. al. v. Tocci Building Corporation et. al, the First Circuit Court of Appeals offered important guidance on the scope of insurance coverage for construction defect claims under Commercial General Liability (CGL) policies. While the case itself revolved around a dispute between a general contractor and its insurer, the decision provides critical insights for construction professionals navigating similar coverage issues.

The Court’s Decision

The central question before the court was whether the contractor’s CGL policy required the insurer to defend and indemnify the contractor for claims related to construction defects. The court determined that the “Damage to Property” exclusion—specifically exclusion (j)(6)—barred coverage. This exclusion applies to property that must be restored, repaired, or replaced because the insured’s work was incorrectly performed on it.

Importantly, the court found that the exclusion applied to the entire project because the contractor was responsible for overseeing all aspects of the construction. This broad interpretation meant that no portion of the damages alleged in the underlying defect claims was covered under the policy. Furthermore, the contractor was unable to demonstrate that any exceptions to the exclusion—such as the “products-completed operations hazard”—were applicable. This exception might apply to claims arising after a project’s completion, but it did not come into play here as the court determined that the relevant criteria had not been met.

It is important to note that the court addressed how Massachusetts interprets the so called “your work exclusion.”  Massachusetts adopts a different approach than many other states, which allow coverage if an insured’s defective work damages otherwise nondefective work also provided by the contractor.

What the Court Left Unanswered

Significantly, the court did not address whether faulty workmanship itself constitutes an “occurrence” under a CGL policy. This remains an unsettled issue in the First Circuit and other jurisdictions. Many construction professionals look to CGL policies for coverage of unexpected or accidental damage stemming from defective work, but the definition of an “occurrence” often serves as a critical point of contention. Until this question is definitively resolved, policyholders should approach coverage disputes with caution and ensure that their insurance programs are tailored to their specific risk profiles.

Practical Implications

This decision serves as a cautionary tale for contractors, subcontractors, and project owners alike. CGL policies are a cornerstone of risk management in the construction industry, but this case underscores the importance of understanding the limits of coverage. The “Damage to Property” exclusion, in particular, can significantly narrow the scope of protection, especially for contractors who assume responsibility for large portions of a project.

Construction professionals should review their insurance policies closely, paying special attention to exclusions and any exceptions that might restore coverage. Consider working with experienced insurance advisors or legal counsel to identify gaps in coverage and explore additional options, such as contractor’s professional liability or builder’s risk policies, to address potential exposures.

Finally, while the court’s decision is a reminder of the limits of CGL policies, it also highlights the value of clear communication with insurers. Demonstrating how policy exceptions apply can make the difference in securing coverage for claims. As this area of law continues to evolve, staying informed and proactive will help mitigate risks and ensure your business is adequately protected.

For further details, the court’s full opinion can be found here.