Iowa Supreme Court Rules in Favor of General Contractors on Insurance Coverage Dispute

06.10.2016

On June 10, 2016, the Iowa Supreme Court released an opinion addressing an insurance-coverage issue very important to the construction industry. The issue is whether defective work performed by a subcontractor is an “occurrence” under the general contractor’s commercial general liability (CGL) insurance policy. If it is an “occurrence,” then the CGL policy covers the damages related to the defective work (assuming there is nothing else in the policy that would preclude coverage). If it is not an “occurrence,” then the CGL policy does not cover the damages. Prior Iowa appellate court cases had effectively ruled that defective work, whether it is performed by the general contractor or a subcontractor, is not an “occurrence” under the general contractor’s CGL policy, and, therefore, damages caused by the defective work are not covered under the CGL policy. 

In this case, entitled Nat’l Sur. Corp. v. Westlake Investments, LLC, the Iowa Supreme Court ruled that defective work by a subcontractor is an “occurrence” under the general contractor’s CGL policy, and, therefore, the related damages are covered under the policy. It came to this conclusion by, among other reasons, noting that the prior Iowa court cases had not addressed an exception to one of the policy’s exclusions which reads, “This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.” The Iowa Supreme Court concluded that this language constitutes an exception to the coverage exclusion which results in coverage for damages caused by a subcontractor’s defective work. 

The Iowa Supreme Court’s decision changes Iowa law in a very favorable way for general contractors, and it will have a significant impact on insurance coverage issues that arise on construction projects in Iowa.  

For further information, contact Steve Marso at 515-288-6041.

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