A recent coverage decision from the Michigan Court of Appeals should have general contractors examining the scope and limits of coverage provided by their commercial general liability (commonly referred to as “CGL”) policy. In Heaton v Pristine Home Builders, L.L.C., unpublished opinion per curiam of the Michigan Court of Appeals, entered Oct. 25, 2012 (Docket No. 305305), the Michigan Court of Appeals affirmed the trial court’s decision to grant summary disposition in favor of the insurer where the CGL policy did not provide coverage for damage confined to the insured’s own work product.

In Heaton, the general contractor engaged a subcontractor to install precast concrete foundation walls at a residential construction site. These foundation walls shifted during construction and caused significant damage to the entire structure. As a result, the partially constructed home had to be raised and rebuilt.

After the plaintiff homeowner obtained a jury verdict against the general contractor and subcontractor, it filed a “request and writ of garnishment” against the contractor’s CGL carrier. In denying coverage and dismissing the garnishment claim, the Michigan Court of Appeals reasoned that the damage was confined to the insured’s own work product (even though it was performed by a subcontractor) and, therefore, cannot be viewed as accidental under the policy.

The court distinguished its facts from those in Radenbaugh v Farm Bureau Gen Ins Co of Mich, 240 Mich App 134; 610 NW2d 272 (2000), where the court extended coverage for damages caused by a faulty foundation design supporting a mobile home. The Heaton court noting that the damages in Radenbaugh were caused by negligence on the part of a mobile home dealer who provided the homeowner with erroneous schematics and instructions to install a basement under the mobile home. The homeowner then hired contractors to install the basement and erect the mobile home in accordance with those specifications and instructions. The entire mobile home was damaged as a result of the schematics provided by the mobile home dealer and the court found coverage under the mobile home dealer’s CGL policy because it’s negligence in providing erroneous schematics and instructions resulted in damage to property of others.

As evidenced above, coverage issues are impacted by a number of variables and it is important for contractors to understand the scope of coverage provided by their CGL policies. In Heaton, the general contractor argued that the court’s ruling would leave it exposed to personal liability without coverage. The Michigan Court of Appeals was not persuaded by this argument and suggested that the contractor should negotiate the type of coverage they need and pass on policies that so broadly preclude liability protection.

Accordingly, if you are a general contractor or subcontractor engaged in commercial or residential construction, it is imperative that you review your CGL policy and understand the scope of coverage to avoid the unpleasant surprise experienced by the general contractor in Heaton.