Double AA Builders, Ltd. v. Preferred Contractors Ins. Co., LLC (12/30/2016)

January 13, 2017

Arizona Court of Appeals Division One holds that the “subcontractor exception” to a “your work” exclusion is unavailable to a general contractor seeking indemnification from a subcontractor’s insurance company for the cost of repairing faulty work done by the subcontractor.

A general contractor who had hired a subcontractor to perform certain work on a construction project replaced a faulty roof that had been installed by the subcontractor.  The general contractor then sought indemnification from the subcontractor’s insurance company.  The trial court granted the general contractor’s motion for summary judgment, holding that the damage had occurred during the policy’s coverage period and that a “subcontractor exception” clause removed the claim from a provision that excluded damage resulting from “your work” from coverage.  The subcontractor’s insurance company appealed.

The Court of Appeals reversed, holding that while the “your work” provision excluded the faulty work on behalf of the subcontractor from coverage, the “subcontractor exception” to that exclusion did not apply because the work was performed by the subcontractor acting as a subcontractor, not by another subcontractor acting on the subcontractor’s behalf.  The Court reasoned that “your work” exclusions barred coverage for an insured’s faulty work, and that the named insured in this case was the subcontractor who had performed the faulty work in this case.  The Court of Appeals remanded to the trial court with instructions to enter summary judgment in favor of the insurance company.

Judge Swann delivered the unanimous opinion; Judges Gould and Orozco concurred.