The contractor’s excavator digging the foundation for a new building undermines the abutting building, which collapses, and a worker is injured.  In the subsequent lawsuits, one by the abutter and one by the injured worker, the project owner tenders the defense to its GL carrier.  The carrier eventually gets a court decision, that there is no coverage due to the subsurface soil movement exclusion.  In the circumstances of a clear accident, and clear personal injury and damage to property, is this correct?  Yes.

The appellate decision (subscription required) in this New Jersey case[1] does not explain why the owner had to defend itself and was not able to insist on a defense by the contractor or its subcontractor.  But there was common ownership of the project owner entity and the contractor, and one can only surmise that the apparent absence of contractual indemnity or insurance obligations arose from this relationship. 

The critical point is that standard exclusions in project owner policies – for damages arising from “movement of land or earth,” for personal injury claims of a contractor/subcontractor employee, and for property damage arising from work of a contractor/subcontractor – will be upheld.  In the absence of a builder’s risk policy or other specific coverage or endorsement, project owners continue to rely on the indemnity and insurance requirements of standard form contracts.  If there is no indemnity obligation, if the project owner is not an additional insured on the contractor’s policy, and if the owner is relying upon typical GL and property coverage, that owner will be defending itself with its own money from personal injury and property damage claims arising from construction.