General Contractors — Does Your Policy Have Anti-Concurrent Causation Language?

Construction company CGL insurance

Introduction.

The U.S. Court of Appeals for the Eighth Circuit recently affirmed a trial court judgment for a general contractor in an insurance coverage dispute, despite the fact that the policy at issue had a “faulty workmanship” exclusion.  This is an important decision for any general contractor that has a CGL or builder’s risk policy that contains a faulty workmanship exclusion, because in nearly any coverage dispute, the insurance company will claim that the insured’s faulty workmanship was the cause of the damage, and accordingly will try to deny coverage. 

The case is Henderson & Sons, Inc. v. Travelers, No. 18-3341.  Henderson & Sons was the general contractor on a project to design and install a building as part of the wastewater treatment facility in Iowa City, Iowa.  Panels on the building’s roof were damaged during a windstorm.  Henderson filed a claim with Travelers under a builder’s risk policy that it had issued.  Travelers denied coverage, arguing that the damage was caused in whole or in part by Henderson’s faulty workmanship.  The case went to trial, and the jury found for Henderson, awarding damages of nearly $600,000.00 against Travelers.  Travelers appealed that verdict to the Eighth Circuit, which affirmed in an Opinion issued April 20, 2020. 

The “Faulty Workmanship” Exclusion.

The policy contained a faulty workmanship exclusion that stated that Travelers “will not pay for loss or damage caused by or resulting from . . . [o]mission, in, or faulty, inadequate or defective:  (1) [p]lanning, zoning, development, surveying, siting, design or specifications; or (2) [m]aterials, workmanship or maintenance.”  Critically, the faulty workmanship exclusion contained no “anti-concurrent cause” language.  An anti-concurrent cause provision bars recovery based on an excluded event (such as faulty workmanship), even if another event (such as wind) could be considered a concurrent cause of the same loss. 

In Henderson & Sons, the policy also contained an “external event” exclusion, which provided that Travelers would not pay for loss or damage caused by things such as governmental action, nuclear hazard, or a military action, flood, fungus and rot.  But, that particular exclusion made clear that any loss or damage stemming from those events was excluded, regardless of any other cause or event that contributed concurrently, or in any sequence, to the loss or damage.  That was an anti-concurrent cause provision, and it was valid under Iowa law (and under the law of most other states).

At the trial, the parties presented evidence from different engineering firms as to why panels on the building’s roof were damaged in the windstorm.  They offered differing conclusions that (1) wind, (2) faulty workmanship, or (3) some combination of those two, had caused the damage. 

On appeal, Travelers argued, wrongly, that the faulty workmanship exclusion in the policy did in fact contain an anti-concurrent-cause provision.  As noted, that type of provision bars recovery when the loss is caused by both an excluded item (such as faulty workmanship in this case) and an event that would otherwise be covered under the policy (such as a windstorm).  Reading the plain language of the policy quoted above, the Eighth Circuit construed the language to mean that Travelers would not pay for damage caused by faulty workmanship, except when the damage was caused in part by a covered event, such as a windstorm.  In other words, because there was not an anti-concurrent cause provision in the faulty workmanship exclusion, the Travelers policy had to pay if the jury found that the roof damage was due to a windstorm, even if it also found that the damage was due to faulty workmanship.   

Takeaways.

When insurance policies do not have an anti-concurrent cause provision, the law is that where an accident has two independent causes, one of which is covered and one excluded, the policy provides coverage unless the excluded cause is the sole proximate cause of the injury.

This is a very important case for general contractors, because insurance companies frequently claim that the cause of any damage to covered property was faulty workmanship.  In Henderson & Sons, even though there was a faulty workmanship exclusion in the policy, the policy still provided coverage to the general contractor, to the tune of nearly $600,000.00, because there was no anti-concurrent cause provision in the faulty workmanship exclusion.  General contractors should review their CGL and/or builder’s risk policies very carefully, or have an attorney review those policies, to determine whether they will provide coverage in the event that they are liable for loss or damage that is caused by both covered and excluded causes of loss.