Eleventh Circuit Finds No Coverage for Faulty Workmanship Claims

Tred R. Eyerly | Insurance Law Hawaii

    The Eleventh Circuit affirmed the district court’s grant of summary judgment to the insurer on the general contractor’s claims for damages due to faulty workmanship. Tricon Dev. of Brevard v. Nautilus Ins. Co., 2021 U.S. App. LEXIS 27317 (11th Cir. Sept .10, 2021). 

    Tricon was the general contractor for a condominium project in Florida. Tricon hired a subcontractor to fabricate and install metal railings for the project. The subcontractor was insured by Nautilus under two CGL policies. The policies had endorsements to add Tricon as an additional insured. 

    The subcontractor fabricated some of the railings, but they had defects and damage. Further they were not installed properly and did not meet the project’s specifications. Tricon found another manufacturer to fabricate new railings to satisfy the projects’ requirements. Tricon agreed to pay the cost of removing the subcontractor’s railings and fabricating and installing new ones. If submitted a claim to Nautilus to cover these costs.

    Nautilus denied the claim. Tricon sued and the district court granted summary judgment to Nautilus.

    On appeal, the Eleventh Circuit noted that the policies at issue were post-1986 standard form CGL policies with products-completed operations hazard coverage governed by Florida law. Such policies did not cover the costs of replacing defective products. 

    Applying Florida law, there was no coverage if there was no damage beyond the faulty workmanship, i.e., unless the faulty workmanship damaged some otherwise non-defective component of the project. Further, under Florida precedent, if a subcontractor was hired to install a project component and, by virtue of his faulty workmanship, installed a defective component, then the cost to repair and replace the defective component was not “property damage.”

    Here, Tricon alleged that the subcontractor’s railings were deficient due to having defects and damage, not being installed properly, and not satisfying the project’s specification. Tricon did not allege that the subcontractor’s faulty workmanship damaged otherwise non-defective components of the project. Thus, the costs that Tricon incurred in removing the subcontractor’s railings and the fabrication and installation of new railings did not constitute “property damage” under the policies. 

Contractor Entitled to Continued Defense Against Allegations of Faulty Construction

Tred R. Eyerly | Insurance Law Hawaii

    The U.S. District Court found that the contractor was entitled to a defense in the underlying state court action. Pa. Nat’l Mut. Cas. Ins. Co. v. Zonko Builders, 2021 U.S. Dist. LEXIS 168855 (D. Del. Sept. 7, 2021).

    Zonko was the general contractor for building the Salt Meadows Townhomes Condominium. This included supervising subcontractors in the installation of siding, house wrap, and flashing in five buildings between 2005 and 2007. In 2016, Salt Meadows and its individual members (“Association”) found property damage in the condominiums.

    The Association sued Zonko in state court, alleged that resulting damages included drywall damage in ceilings or walls, flooring and carpet, water damage around window trim, rot on window frames, incorrect flashing around roofs and windows, possible ridge vent leaks, and possible foundation issues. 

    Zonko tendered to Penn National, who agreed to defend. Penn National then filed this suit and a motion for judgment on the pleadings, hoping to no longer have to pay defense costs. 

    The court first determined an occurrence was alleged in the underlying case. The policy’s Subcontractor Exception confirmed that Penn National would provide coverage for the faulty workmanship of subcontractors.  The endorsement provided coverage for “property damage” to “your work” if such “‘property damage’ is the result of work performed on your behalf by a subcontractor that is not a Named Insured.” The underlying lawsuit alleged that subcontractors performed defective work causing property damage, which constituted an occurrence.

    Further, none of the exclusions raised by Penn National applied. The “your product” exclusion was not applicable because it “your product” was defined as “goods or products, other than real property.” The underlying complaint concerned property damage to real property, not damage to Zonko’s products or equipment.

    The “contractual liability” exclusion did not bar coverage because the underlying action also plead negligent construction and respondeat superior theories. The court similarly found that the exclusions for “damage to impaired property,” “recall of products,” and “fungi or bacteria” were not applicable. 

    Therefore, Penn National’s motion for judgment on the pleadings was denied.

Eleventh Circuit Finds No “Property Damage” Where Defective Component Failed to Cause Damage to Other Non-Defective Components

Anthony L. Miscioscia and margo Meta | White & Williams

In Florida, damage caused by faulty workmanship constitutes “property damage;” however, the cost of repairing or removing defective work does not. Amerisure Mutual Insurance Company v. Auchter Company, 673 F.3d 1294 (11th Cir. 2012) (Auchter). But what happens when the cost of repairing or removing defective work results in loss of use of the tangible property which is not physically injured?

The United States Court of Appeals for the Eleventh Circuit was recently faced with this question in Tricon Development of Brevard, Inc. v. Nautilus Insurance Company, No. 21-11199, 2021 U.S. App. LEXIS 27317 (11th Cir. Sep. 10, 2021). Tricon arose out of the construction of a condominium. Tricon was hired to serve as general contractor for the project and hired a subcontractor to fabricate and install metal railings. The railings installed by the subcontractor were defective and damaged, improperly installed, and failed to meet the project’s specifications. Tricon filed an insurance claim with Nautilus Insurance Company, the subcontractor’s commercial general liability insurer, for the cost to remove and replace the railings.[1]

Relying on Auchter, the court concluded that the repair and removal of defective work does not constitute “property damage”. The court rejected Tricon’s contention that Auchter failed to consider that the repair and removal of defective components may result in a “loss of use of tangible property that is not physically injured”, and thus, qualify as “property damage”. It noted that the Auchter court held that “after interpreting the policy as a whole [and] ‘endeavoring to give every provision its full meaning and operative effect’” there was no coverage for the defective installation. The Eleventh Circuit therefore concluded that “the entire definition of ‘property damage’ in the post-1986 standard form commercial general liability policy must fail to cover the kinds of costs that Tricon incurred from its subcontractor’s deficient work.”


[1] Tricon was an additional insured under the subcontractor’s policy for liability for “property damage” caused, in whole or in part by the subcontractor’s direct or vicarious acts or omissions.

Eleventh Circuit Finds No “Property Damage” Where Defective Component Failed to Cause Damage to Other Non-Defective Components

Margo Meta and Anthony Miscioscia | White and Williams

In Florida, damage caused by faulty workmanship constitutes “property damage;” however, the cost of repairing or removing defective work does not. Amerisure Mutual Insurance Company v. Auchter Company, 673 F.3d 1294 (11th Cir. 2012) (Auchter). But what happens when the cost of repairing or removing defective work results in loss of use of the tangible property which is not physically injured?

The United States Court of Appeals for the Eleventh Circuit was recently faced with this question in Tricon Development of Brevard, Inc. v. Nautilus Insurance Company, No. 21-11199, 2021 U.S. App. LEXIS 27317 (11th Cir. Sep. 10, 2021). Tricon arose out of the construction of a condominium. Tricon was hired to serve as general contractor for the project and hired a subcontractor to fabricate and install metal railings. The railings installed by the subcontractor were defective and damaged, improperly installed, and failed to meet the project’s specifications. Tricon filed an insurance claim with Nautilus Insurance Company, the subcontractor’s commercial general liability insurer, for the cost to remove and replace the railings.[1]

Relying on Auchter, the court concluded that the repair and removal of defective work does not constitute “property damage”. The court rejected Tricon’s contention that Auchter failed to consider that the repair and removal of defective components may result in a “loss of use of tangible property that is not physically injured”, and thus, qualify as “property damage”. It noted that the Auchter court held that “after interpreting the policy as a whole [and] ‘endeavoring to give every provision its full meaning and operative effect’” there was no coverage for the defective installation. The Eleventh Circuit therefore concluded that “the entire definition of ‘property damage’ in the post-1986 standard form commercial general liability policy must fail to cover the kinds of costs that Tricon incurred from its subcontractor’s deficient work.”


[1] Tricon was an additional insured under the subcontractor’s policy for liability for “property damage” caused, in whole or in part by the subcontractor’s direct or vicarious acts or omissions.

Delaware District Court Finds CGL Insurer Owes Condo Builder a Duty to Defend Faulty Workmanship Claims — Based on the Subcontractor Exception to the Your Work Exclusion

Anthony Miscioscia and Laura Rossi | White and Williams

On September 7, 2021, in one of the few decisions addressing the scope of coverage for faulty workmanship under Delaware law, the Delaware District Court denied an insurer’s motion seeking a declaration that it neither needed to defend nor indemnify an insured-builder under a commercial general liability policy.

In this declaratory judgment action, Pennsylvania National Mutual Casualty Insurance Company v. Zonko Builders, the insurer argued that the ongoing underlying action failed to properly plead an “occurrence” in a case alleging damages to a condominium caused by faulty workmanship involving subcontractors.* Zonko Builders (Zonko) served as the general contractor, supervising subcontractors. The Condominium Association sued Zonko for damages allegedly resulting from design and construction deficiencies. The motion was opposed by the Condominium Association, which cross-moved for partial judgment on the pleadings.

In AE-Newark Associates, L.P. v. CNA Insurance Companies2001 Del. Super. LEXIS 370 (Del. Super. Ct. Oct. 2, 2001), the Delaware Superior Court found that an insured was entitled to coverage for damages arising from a faulty roof system installed by a subcontractor on behalf of the insured general contractor.

Although the CGL policy at issue defined an “occurrence” as an accident, the policy also contained an endorsement providing that damages because of property damage to “your work” shall be deemed to be caused by an “occurrence” if the damage was performed on the insured’s behalf by a subcontractor. Nonetheless, the insurer argued that it owed no coverage because faulty workmanship is not an occurrence.

Relying on the 20-year old holding in AE-Newark Associates, as well as a number of out-of-state opinions, the Delaware District court in Zonko noted:“[w]hile we are mindful Delaware Courts have rejected a definition of ‘occurrence’ which includes faulty workmanship, we note no Delaware court analyzed the interplay of subcontractor exceptions and the term ‘occurrence.’” The court went on to explain that “if the Policy does not cover subcontractors’ faulty work, the Policy’s Your Work Exclusion need not specifically except subcontractors’ work. Such an interpretation contravenes Delaware law by rendering the Subcontractor Exception mere surplusage.” Thus, the court found that the Policy’s endorsement provided support to the fact that the definition of “occurrence” included subcontractors’ faulty work.

The court denied the motion as to the insurer’s duty to indemnify and dismissed the Condominium Association’s counterclaims, concluding that the Association lacked standing and the duty to indemnity issue was still unripe.

The Zonko opinion provides insurers with cautionary guidance that, in drafting an exclusion, an insurer may unwittingly provide an insured or court with ammunition to argue/find that the insuring agreement is otherwise broader than the insurer perhaps intended.