CGL Insurance Coverage Disputes

When CGL Insurance Companies Unreasonably Refuse to Defend or Indemnify their Insureds

Commercial General Liability (CGL) policies are designed to protect businesses in the event they are sued for causing property damage or personal injury. CGL insurance companies are required to provide a legal defense and indemnity if the lawsuit is covered by the policy.

Recently, CGL insurance carriers have started to unreasonably refuse to honor their obligations to defend and indemnify their insureds. This situation has become particularly prevalent in cases where homeowners have sued their general contractor and subcontractors for construction defects. This recent trend by insurance companies toward denying defense and indemnity is in stark contrast to how insurance companies have traditionally handled these claims. Until a few years ago, CGL insurances companies were almost uniformly providing a legal defense and indemnity in construction defect cases. This practice of providing defense and indemnity was best exemplified in the synthetic stucco cases. As a result, an expectation of coverage for construction defects was created amongst homeowners, general contractors, and subcontractors.

Without providing any notice, CGL insurance companies began refusing to defend or indemnify their general contractor and subcontractor insureds in cases involving construction defects. Now, when general contractors and subcontractors are sued, the CGL insurance carrier typically sends a Reservation of Rights letter stating that the CGL policy provides no coverage for the suit because there is no "property damage", "occurrence", or one of many exclusions bars coverage, including the "your work" exclusion. In general, the "your work" exclusion bars coverage for damage to your work when the named insured actually performs the work that causes the damage. What your CGL insurance company will not tell you is that the "your work" exclusion contains language restoring coverage for property damage arising out of operations performed by subcontractors. In other words, if damage to "your work" is caused by the work of one or more of your subcontractors, the CGL policy will generally provide coverage for that resulting damage to your work.

In an effort to remove coverage for work performed by subcontractors, CGL carriers have begun to insert what is known as a "2294 Endorsement" into their policies. This endorsement purports to take away coverage for construction defects when the work is performed by subcontractors under certain circumstances. However, CGL carriers are often adding this endorsement to their insureds' policies without providing any notice of this reduction in coverage. This lack of notice renders the endorsement unenforceable under North Carolina law such that the policy is reformed to read as if the endorsement had never been added to the policy.

In addition to failing to notify their insureds of the addition of this 2294 Endorsement, CGL insurance carriers and insurance agents are not informing their insureds and clients that coverage for subcontractors' work can be bought back for a small premium. Lea, Rhine & Rosbrugh, P.L.L.C. advises all of its general contractor and subcontractor clients to purchase this buy back of insurance coverage for subcontractors' work.

The attorneys at Lea, Rhine & Rosbrugh, P.L.L.C. at the forefront of these CGL insurance coverage issues and have represented both homeowners and contractors in these cases against insurance companies who are unreasonably denying their duty to defend or indemnify their insureds.

If you are a general contractor, homeowner, or subcontractor and are experiencing difficulty in obtaining a legal defense or indemnity from a CGL insurance carrier, call Lea, Rhine & Rosbrugh, P.L.L.C. at 910-772-9960 or toll free 866-772-9960 or submit an online questionnaire. A lawsuit must be filed before an applicable expiration date, known as a statute of limitations, so please call right away to ensure that you protect your rights.