115 Insurance Coverage of Contractor's Negligence

• Jurisdiction: Arizona

Where an insurance policy excludes coverage when there is material alteration of the general design or method of construction, the exclusion will not be applied because of a departure from temporary working plans. An exclusion for damage to property worked on by an insured will be enforced by the court unless the insurance policy is ambiguous.

In C.H. Leavell & Co. v. Fireman’s Fund Ins. Co., 372 F.2d 784 (9th Cir. 1967), the contractor entered into an agreement with the owner to construct a bridge according to plans and specifications prepared by the owner. This work was subcontracted. The contractor was insured under a “Bridge Builders All Risks” policy. The policy provided that there would be no coverage if “[t]he general design or method of construction be materially altered or changed during the policy term.” Id. at 787.

The subcontractor’s workers departed from plans prepared by the subcontractor. This resulted in damage to the bridge structure that was under construction, for which the contractor sought recovery from its insurer.

In refusing to allow the above-quoted portion of the policy to prevent recovery from the insurer, the court held that the “general design or method of construction” referred to the owner’s plans. These were the plans on which the bid was based and which were supplied to the insurer. It did not refer to the subcontractor’s temporary working plans. The court pointed out that it would be absurd to hold that the subcontractor could not alter its temporary working plans—which the insurer had never seen—during the course of the work, to meet changing conditions.

In addition, the court held that the doctrine of respondeat superior, under which the district court had held the subcontractor responsible for its workers’ departure from the plans, applies only to liability to injured third persons. It does not apply to the superior’s recovery from its insurance company. Negligence on the part of an insured or its employees is no defense against recovery for a loss it has suffered. This “Bridge Builders All Risks” policy insured the contractor against the risk of damage by reason of the negligence of the subcontractor’s employees.

In Federal Ins. Co. v. P.A.T. Homes, Inc., supra, a contractor recovered a judgment against a subcontractor for defective work which had to be repaired or replaced. The contractor attempted to recover from the subcontractor’s insurance company. The insurance policy contained two exclusions; one excluded coverage of damage to property worked on by the insured, and the other implied that there was such coverage:

This insurance does not apply:

(a) to liability assumed by the insured under any contract or agreement except an incidental contract; but this exclusion does not apply to a warranty of fitness or quality of the named insured’s products or a warranty that work performed by or on behalf of the named...