Are You Covered for Defective Work Performed by Your Subcontractors? - Be Aware of the CG 22 94 Endo
The CG 22 94 Endorsement is becoming more prevalent in standard general liability insurance and can have a far-reaching effect on the coverage of your policy. Essentially, the Endorsement eliminates the Subcontractor Exception to the Your Work Exclusion and, thus, negates coverage for virtually any claim involving damage to a contractor’s completed work.
By way of background, a standard general liability policy states that damage resulting from your work is covered, but damage to the work you actually perform is excluded. This is known as the “Your Work" Exclusion. For example, an owner asserts a claim against a general contractor that constructed an apartment complex and alleges a plumbing leak caused water damage in several apartment units. Under the Your Work Exclusion, the general contractor’s general liability policy would not cover the claim because the entire apartment complex is considered the general contractor’s work.
However, general liability policies typically contain an exception to this exclusion if the work is performed on your behalf by a subcontractor. With this exception, work completed by a subcontractor is not considered "Your Work." This is commonly known as the “Subcontractor Exception to the Your Work Exclusion.” Thus, in the example above, if the general contractor hired a plumbing subcontractor to perform work, the claim would not be denied by the insurance company based upon the "Your Work" Exclusion. .
The CG 22 94 Endorsement effectively removes the “Subcontractor Exception to the Your Work Exclusion.” Therefore, general liability policies that contain the CG 22 94 Endorsement will dramatically limit a general contractor’s coverage under its general liability policy. In the example above, the general contractor would have no coverage for the water damage because the entire apartment complex is considered to be “Your Work.” When an insurance company attaches CG 22 94 Endorsement to a policy, it is transferring the risk of a subcontractor's poor performance back to the general contractor.
Take Away: Given that most general contractors subcontract at least some portion of their work, this is an issue to take seriously. All contractors should determine whether the CG 22 94 Endorsement is a part of their insurance policy and discuss removing it with their agent.