CWC Builders, Inc. v United Specialty Insurance Company

US District Court D Mass 2015


Construction manager CWC, on a residential construction project, required its subcontractor to add CWC as an additional insured on the sub’s General Liability policy with United.  A flooding incident damaged a neighboring property and CWC got sued.  CWC called on United to defend it and to provide indemnity.

United issued the additional insured endorsement naming CWC on a primary and non-contributory basis, and for two years of completed operations. United argued first it only had to step up “for losses caused through the fault of our insured” but later informed CWC that the subcontractor’s General Liability policy had an endorsement which excluded residential coverage. Endorsements were separately paginated amendments overriding the parts of the policy they modifed.  Since this was a residential project, the insurer said the endorsement excluding residential work acted to exclude all policy coverage for the claims.

This insurance does not apply to . . . “property damage” . . . which, in whole or in part, directly or indirectly, arises out of or is related to any past, present, continuing or future “residential construction work” performed by or on behalf of an “insured,” or by or on behalf of any other person or entity, on “residential property.”

ISSUE 1 Did the insurance effectively exclude all residential work claims?

HOLDING 1 – Yes. The Court found the exclusion effective blocking coverage to CWC as additional insured. “[a]n insurer may select the risks it will insure and those it will not, and a clear exclusion will be respected.”

ISSUE 2 – Did the residential exclusion block cover only for the Completed Operations hazard claims?

HOLDING 2 – All claims were excluded.  The policy of United contained Products Completed Operations coverage with a separate, lower limit of coverage.  The Court ruled that the residential exclusion applied to all parts of the General Liability cover of which Products Completed Operations was just a part.

The endorsements in the United policy are “separately paginated amendments” that override the underlying provisions of the part of the policy they purport to modify.

In describing the complexity of piecing together the policy, its exclusions and amendments the Court said:

Surely an “objectively reasonable insured, reading the relevant policy language,” would not expect to have to engage in such elaborate assessments of the relationships between various listed parts in order to determine the reach of the modification set forth in the endorsement.