SW Legal studies in Business

Indiana Court Changes Interpretation of Standard CGL Policy Term

Indiana high court held that CGL policies would be construed to cover losses suffered by a contractor due to defective work of subcontractors, so long as the work was shown to be unintentional.

Topic Insurance
Key Words

CGL, Exclusions, Faulty Workmanship, Subcontractors

C A S E   S U M M A R Y

Commercial General Liability (CGL) policies protect an insured against losses from business operations. The standard policy provides broad coverage that is limited by specific exclusions. The industry standard is a form known as the Insurance Services Office (ISO) most recently revised in 1986, but based on an earlier form. The policy in question here was a standard policy issued by Continental to Sheehan Construction. It excluded coverage for property damage to work performed by, or on behalf of the named insured, by a subcontractor. Sheehan was the general contractor for a housing subdivision. It hired subcontractors to do the construction work. Some homes experienced water leaks. Inspection showed massive damage due to faulty workmanship by Sheehan’s subcontractors. The homeowners sued Sheehan, which turned to Continental for policy coverage. The trial court and appeals court agreed with Continental that Sheehan was not covered by CGL as the damage was caused by work performed by subcontractors working for Sheehan. Sheehan appealed.


Reversed and remanded. CGL insurance policies providing coverage for property damage caused by an occurrence could provide coverage for water damage to homes caused by subcontractors’ faulty workmanship, to the extent that the subcontractors’ faulty workmanship was the product of unintentional conduct. Damage from such conduct would be unforeseeable and would constitute an accident and, therefore, be an occurrence within the meaning of CGL policies. This interpretation of CGL policies changes the previous interpretation of policy language as applied by Indiana courts. It will be determined at trial if the faulty workmanship was intentional or not.


Sheehan Construction Co. v. Continental Casualty Co., ---N.E.2d--- (2010 WL 3823107, Sup. Ct., Ind., 2010)

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