Should a contractor’s Commercial General Liability (CGL) insurance policy cover the expense of uncovering defective work causing damage to the owner’s property as well as the costs of exposing or accessing damaged building elements in need of repair as a result of the contractor’s defective work?

For example, in a case where a building owner suffers physical injury to its building in the form of water damage as a result of defectively installed plumbing, under most circumstances it can be expected that the contractor’s CGL policy will provide coverage for claims related to the physical damage, and maybe will provide coverage to repair the defective plumbing causing the damage. But can the CGL policy be expected to cover the costs associated with accessing the damage to be repaired or the costs associated with accessing the defective work? Property damage and the defective work can be concealed within walls or ceilings, or access to the damage or the defective work can require removal and replacement of other building elements, such as HVAC or electrical components. The expenses associated with gaining access to the damaged building elements and/or the defective work is sometimes referred to as “Rip and Tear” damages.  

This issue has grown into a frequent point of contention in construction insurance over the years and the answer to whether a contractor’s CGL policy will provide coverage for Rip and Tear damages differs from state to state. Resolution of the issue boils down to a particular Court’s interpretation of the CGL policy language. Standard CGL policies usually cover “property damage” that the insured becomes legally obligated to pay which were caused by an “occurrence.” The terms “property damage” and “occurrence” are usually defined by the CGL policy at issue. Although definitions may differ depending on the particular CGL policy at issue, “property damage” often includes physical injury to tangible property, including all resulting loss of the use of that property and loss of use of tangible property that is not physically injured. The term “occurrence” includes an accident, or even continuous or repeated exposure to substantially the same general harmful conditions.

Courts differ in determining whether  “rip and tear” damages should be afforded coverage under a contractor’s CGL policy and there does not appear to be a consensus amongst the jurisdictions. For example, a California court in American Home Assurance Company, et al. v. SMG Stone Company, Inc, et al., 119 F.Supp.3d 1053, 1059 (N. D. Cal. 2015) considered the issue and found that no coverage existed under the contractor’s CGL policy for “rip and tear” damages because the court did not consider remedial work to be “property damage,” even though the court found that the installation of defective tiles constituted an “occurrence.” For its reasoning the Court stated that “[t]he risk of replacing and repairing defective materials or poor workmanship has generally been considered a commercial risk which is not passed on to the liability insurer. Rather, liability coverage comes into play when the insured’s defective materials or work cause injury to property other than the insured’s own work or products.” Id. (quoting Md. Cas. Co. v. Reeder, 221 Cal.App.3d 961, 967 (1990)).

Similarly, an Arizona court held that no coverage existed when a developer sought reimbursement of about $10,000,000 from its insured for the costs of repairing non-defective walls floors, and other property to fifty new homes in order to repair cracks and other damages caused by soil settlement. See Desert Mountain Properties Ltd. Partnership v. Liberty Mutual Fire Insurance Co., 236 P.3d 421 (Ariz. App. 2010). The Court refused to recognize coverage under the developer’s insurance policy, explaining that removal of non-defective property required to repair poorly compacted soil is not damage caused by the poorly compacted soil. Id. at 215-16. Instead, the Court considered the removal as damage caused by the repair of the poorly compacted soil.

Maryland courts have also supported this conclusion and ultimately denied coverage for “rip and tear” damages under a CGL policy. In OneBeacon Ins. Co. v. Metro Ready–Mix, Inc., 427 F.Supp.2d 574 (D.Md. 2006). The insurers sued seeking a determination that they were not obligated to defend or indemnify its insured manufacturer against claims of breach of contract and warranty. Id. Both claims concerned the insured manufacturer’s poor work in providing defective grout for a construction project. Id. The Court held that demolition and reconstruction of pilings and columns necessitated by repair of defective grout work did not qualify as an “occurrence” under applicable CGL insurance policy. Id. at 576. The Court further explained that the “contractor’s damage claims against the insured manufacturer for providing poor quality grout to support the pile caps and columns only concerned the insured manufacturer’s contractual obligations. Id. at 576-77. As such, the Court found that this did not involve an “accident” within the definition of “occurrence” under the applicable CGL insurance policy. Id. at 577. Thus, the Maryland Court refused to recognize coverage under CGL insurance policy. Id.

However, some jurisdictions have ruled differently and recognized coverage. For example, a state of Washington court faced a similar factual scenario where the insured subcontractor drilled and inserted concrete piles into the ground as a primary part of a building’s foundation during a construction project. Dewitt Construction Inc. v Charter Oak Fire Insurance Co., 307 F.3d 1127, 1132 (9th Cir. 2002). The concrete piles were later required to be removed and reinstalled due to a separate insured manufacturer’s failure to properly construct piles. Id. In determining whether the “rip and tear” damages were covered, the Court explained that the damage to the work of the other subcontractors that occurred when their work had to be removed was a direct result of the insured manufacturer’s defective work. Id. at 1133. As such, the Court found that the necessary removal and destruction of the concrete piles constituted “property damage” under the CGL insurance policy. Id.