In Supreme Services & Specialty Co., Inc. v. Sonny Greer, Inc., No. 06-C-1827 (La. May 22, 2007), the Louisiana Supreme Court held that a general liability contract’s exclusion for the restoration, repair, or replacement of damage to an insured’s work precluded coverage for a defective concrete slab installed by the insured’s subcontractors.
Factual and Procedural Background
Sonny Greer, Inc. (“Greer”), a general contractor, built an oil field services facility. Subcontractors poured the facility’s concrete slab and parking lot. The facility’s owner, Supreme Services and Specialty Co., complained of cracks in the concrete slab and parking lot soon after the concrete was poured. Greer attempted to fix the problems by removing sections of the slab and repouring the concrete, but problems remained. The owner filed suit against Greer after construction was complete.
Greer’s general liability insurer, AXA Global Risk U.S. Insurance Co. (“AXA”), denied coverage, and Greer filed suit against AXA. AXA moved for summary judgment, arguing that damages arising out of Greer’s work were specifically excluded. The trial court agreed with AXA, finding that exclusion j(6) (the “work product” exclusion), which excluded coverage for damage to property that must be restored, repaired, or replaced because the insured’s work was incorrectly performed on it, barred coverage. The intermediate appellate court disagreed and reversed. The intermediate appellate court held that (1) the “work product” exclusion did not apply to work performed by Greer’s subcontractors and that (2) the “work product” exclusion when construed in conjunction with the products-completed operations hazard provision, which applies to completed work, was ambiguous. AXA appealed to the Louisiana Supreme Court, and the Court granted review “to resolve the conflict among the circuits in applying the ‘work product’ exclusion.”
The Louisiana Supreme Court reversed the decision of the lower appellate court. The Court explained that a “CGL policy is not written to guarantee the quality of the insured’s work or product.” Based on this, the Court reasoned that the “work product” exclusion of the insurance contract excluded coverage for property that must be repaired or replaced because the “work” performed by Greer, or on its behalf, was incorrectly performed.
The Court found that the “work” at issue included all the work associated with laying the concrete slab. Thus, the “work product” exclusion barred coverage for repairing and replacing the concrete slabs installed by Greer or its subcontractors. The Court next discussed why the intermediate appellate court erred when it held that a contract containing both a “work product” exclusion and a products-completed operations provision contained an “inherent ambiguity.” The Court explained that the “work product” exclusion barred coverage for damage to the insured’s work while the work was still in progress and that the exclusion applied to an insured and its subcontractors. The products-completed operations provision and its related exclusions, on the other hand, applied “in two instances: 1) when the damage arises from the defective [completed] work and 2) if the damage causes injury to a third party.”
In the case before the Court, “the claim involved damages to the work product itself, i.e. the cracked concrete slab, not a claim arising out of the work and covered by the [products-completed operations hazard] provision.” The Court found that it was unnecessary “to delineate the [products-completed operations] provision because there is no other product damaged or third person injured.” The Court held that the “only applicable provision is the ‘work product’ exclusion, which applies to work performed by Greer or on its behalf by subcontractors.” Thus, there was no inherent ambiguity between the “work product” exclusion and the productscompleted operations provision.
The Court did not address whether the claim before it involved an operations claim — a claim that arose before the work was complete — or a completed operations claim — a claim that arose after the work was complete. Instead, the Court held that a “CGL policy containing the ‘work product’ exclusion does not insure against any obligation of the policyholder to repair or replace its own defective product.”
In holding that there is no coverage for a contractor’s or its subcontractors’ defective work, Louisiana joins a growing majority of jurisdictions that have concluded that a general liability contract does not cover an insured’s faulty or defective work. This decision also highlights the fact that the productscompleted operations provision does not create an ambiguity in a general liability insurance contract and does not provide coverage for the insured’s defective work.