In the case Westfield Insurance Co. v. Sheehan Construction Co., defective work by one of Sheehan’s subcontractors resulted in a $2.8 million construction-defect judgment against Sheehan. Sheehan wanted Westfield Insurance to indemnify the expense of the judgment under Sheehan’s general commercial liability policy, which expressly covered accidental bodily injury and property damage, but expressly excluded property damage caused by Sheehan’s own work.

The trial court found that numerous definitions and exclusions in the policy weighed against Westfield’s liability, and ruled in favor of Westfield.

In Westfield Insurance Co. v. Sheehan Construction Co., defective work by one of Sheehan’s subcontractors resulted in a $2.8 million construction-defect judgment against Sheehan. Sheehan wanted Westfield Insurance to indemnify the expense of the judgment under Sheehan’s general commercial liability policy, which expressly covered accidental bodily injury and property damage, but expressly excluded property damage caused by Sheehan’s own work.

The trial court found that numerous definitions and exclusions in the policy weighed against Westfield’s liability, and ruled in favor of Westfield.

The appellate court agreed, and upheld the trial court’s ruling. In examining the effect of the insurance policy’s "your work" exclusion, the appeals court found that the entire housing development project at issue comprised "the work" of Sheehan, and pointed out that although work performed by a subcontractor was excluded from the definition of "your work" in later versions of the boilerplate policy, the version purchased by Sheehan specifically included work performed "on your behalf" in the definition of the "your work" exclusion.

The appellate court went on to opine that the "moral hazard" of indemnifying a general contractor for the shoddy work of its subcontractors might serve to incent general contractors to hire cheap, "substandard subcontractors," knowing they could rely on their insurer to cover repair costs.

Based on both the plain language of the policy and the moral issue posed, the Court of Appeals upheld the trial court’s ruling.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.

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