Faulty Work on University Construction Project Can be Covered by an Owner Controlled Insurance (CGL) Policy

September 2, 2013

In Capstone Building Corp. v. American Motorists Ins. Co., 308 Conn. 760 (2013), the University of Connecticut had procured an Owner Controlled Insurance Project ("OCIP") policy which it argued covered faulty construction on a student housing complex.  The court held that the damage to non-defective property caused by faulty work was covered because it constituted an "occurrence" or "accident" (i.e., unforeseen) from the perspective of the University.  However, the court held that defective work, standing alone, was not covered because there was no "property damage" beyond the construction defects standing alone.  Likewise, the court held that repair of faulty construction, standing alone, was not covered because the repair was not "because of" the faulty work, a standard "property damage" requirement.

CLIENT TIP:  OCIP policies typically provide commercial general liability ("CGL") coverage for liability claims against all contractors and subcontractors on a project.  The Capstone decision, while consistent with other courts, flags a serious risk management issue involving construction claims under any CGL policy:  Because faulty work standing alone is not covered by a standard CGL policy (nor is its repair) the owner - such as a college or university - should ensure that it has perfected other risk transfer options.  These options can include contractual indemnity by the contractor or developer, or that the faulty work is covered by a bond.