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AGC Lauds Tenn. Court’s Insurance Policy Ruling

Tue April 24, 2007 - Southeast Edition
Construction Equipment Guide

The Tennessee Supreme Court has ruled that standard insurance policies provide considerable coverage for construction defects.

“We congratulate Tennessee for becoming the 19th state to get this right,” said AGC CEO Stephen E. Sandherr. “The Tennessee Supreme Court read and heeded the words actually written into the policy, and that is all we ask.”

The case arose after the windows installed in a new hotel began to leak.

The building’s owner then launched arbitration proceedings against its general contractor, seeking compensation for resulting damage. The contractor’s insurance carrier then filed the case just decided. With limited regard for the language of the commercial general liability policy sold to contractors throughout the United States, the carrier maintained that the policy provided absolutely no coverage for the defective windows, or the resulting damage, and that, as a result, the carrier had no duty to provide the contractor with a defense to the owner’s claim for compensation.

Tennessee’s lower courts rejected the carrier’s arguments, deciding that the contractor’s policy does provide considerable coverage for construction defects. The Tennessee Supreme Court has now affirmed those decisions, explaining that the carrier relied on old cases, that the policy expressly covers accidental property damage and that the general contractor could not foresee that its subcontractor would not properly install the windows.

On its face, as the court observed, the policy excludes coverage for work that a contractor self-performs but preserves coverage for work “performed on your behalf by a subcontractor.”

“AGC does not seek insurance coverage for intentionally sloppy or shoddy workmanship; AGC just wants the coverage that the insurance carriers promised when they asked our members for their business,” said Michael Kennedy, AGC’s general counsel. “That is why we applaud this decision, why we are involved in the similar cases already pending in Texas, Florida and Minnesota and why we also look forward to those decisions.”

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