This week, the Court interpreted a commonly-litigated “your work” insurance exclusion found in most commercial general liability policies.  The Court’s holding didn’t go as far as the plaintiff wanted, but it may broaden coverage significantly depending on the facts at issue.  In Mosser Const., Inc. v. Travelers Indem. Co., No. 09-4449 (pdf), the Court held that the term “subcontractor” included some suppliers of materials, even if the materials were standard inventory and the supplier did not actually transport or install the materials at the construction site.

The “your work” insurance exclusion generally excludes from coverage damage to “your work” or damage arising from “your work.”  But the exclusion has an exception — if the damaged work or the work out of which the damage arises is “performed on your behalf by a subcontractor.”  The Sixth Circuit concluded that “subcontractor” was ambiguous, given the absence of a definition in the policy and differing case law definitions.   The case was resolved, therefore, on the general rule that ambiguities should be construed in favor of insurance coverage. 

The court rejected the contractor’s suggested interpretation — that any entity that supplies any materials used on a job site is a “subcontractor.”  Instead, the Court held that a material supplier can be a “subcontractor” if (1) it manufactures the materials according to the general contractor’s specifications and (2) the contractor-material supplier’s contract referenced the master contract between the property owner and the contractor.  

Under this standard, the material supplier in the Mosser case was a subcontractor because it manufactured the gravel itself (rather than purchased it from another supplier), and the purchase order for the gravel identified the specific project that was the subject matter of the master contract.  Without the “your work” exclusion, Travelers was obligated to indemnify and defend the general contractor in its litigation with the property owner.