In its recent decision Palm Beach Grading, Inc. v. Nautilus Ins. Co., 2011 U.S. App. LEXIS 14576 (11th Cir. July 14, 2011), the Eleventh Circuit affirmed a holding by the United States District Court for the Southern District of Florida that costs associated with repair of the insured’s own work does not constitute “property damage” under a general liability policy.

The insured, A-1 Underground, had been subcontracted to construct water utilities and sanitary sewer utilities in connection with a larger construction project.  A-1 later abandoned the project, forcing the general contractor, Palm Beach Grading (“PBG”) to hire a second subcontractor to complete the work.  The second subcontractor determined that A-1’s work associated with a sewer line was defective, requiring the subcontractor to dig up and replace the line.  PBG later sued and obtained a judgment against A-1.  PBG then commenced suit against A-1’s general liability carrier, Nautilus, seeking recovery of the repair costs.

The Eleventh Circuit acknowledged that under Florida law, faulty work can constitute an “occurrence.”  The court nevertheless agreed with the lower court that the repair costs associated with A-1’s faulty work did not constitute third-party property damage as required under the policy.  In so holding, the Eleventh Circuit relied on the decisions by the Florida Supreme Court in U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So.2d 871 (Fla. 2007) and Auto-Owners Ins. Co. v. Pozzi Window Co., 984 So.2d 1241 (Fla. 2008), in which the courts concluded that a general liability policy only covers the costs of repairing damage resulting from an insured’s defective work, not the cost of repairing the or removing the defective work itself.  Because PGB’s claim was limited to repairing the sewer line, as opposed to damage caused by the sewer line (such as resulting sinkholes or back-ups), the underlying suit did not allege “property damage” triggering coverage under the Nautilus policy.