A Florida Federal District Court, applying Florida law, held that an insurer must indemnify a general contractor for damages caused by subcontractors’ faulty workmanship, including both for the cost of repairing the defectively installed work and the costs of repairing damage to non-defectively installed work.

Pavarini Construction Company (“Pavarini”) was the general contractor for a large condominium building.  The project was insured by two relevant insurance policies:  a primary level CGL policy issued by American Home Assurance Company (“American Home”); and, an excess CGL policy issued by ACE American Insurance Company (“ACE”).

Pavarini hired certain subcontractors to install concrete columns, beams, and walls with reinforced steel.  The subcontractors, however, either omitted entirely or improperly installed the reinforced steel throughout the building.  This caused property damage to other parts of the building, including stucco debonding, cracking of the walls, cracking of the concrete elements, and cracking in the mechanical penthouse enclosure to the roof, which led to water intrusion.  Pavarini incurred over $25 million in costs relating to the remediation effort.

The issue was whether the damage caused by the defective work of Pavarini’s subcontractors was covered by the ACE policy, which followed form to the American Home policy.  Pavarini sought reimbursement from ACE, claiming that none of the costs include the repair of defective work itself; rather, all repairs were of damage to otherwise non-defective building components.  ACE argued that much of the repair effort amounted to a de facto repair of the defectively installed steel.

The court held that the ACE policy provided coverage for damage to the completed project caused by a subcontractor’s negligent work, but it did not provide coverage for damage for the repair of the defective subcontractor work itself.  Thus, the court held that all costs to repair non-defective work (e.g., cracking of stucco, collapse of penthouse structure, cracking in critical concrete structural elements) were covered.  However, the court also found that the costs of replacing the defective work itself was also covered:  “in order to adequately repair the non-defective project components, the building had to be stabilized.  Even if the predominant objective of the repair effort was to fix the instability caused by the defective subcontractor work, it is undisputed that the same effort was required to put an end to ongoing damage to otherwise non-defective property….”  In other words, ACE was required to cover the costs to repair the defective work (which is typically excluded), because the defective work was causing ongoing damage to non-defective work.  Pavarini Constr. Co. v. ACE American Ins. Co., 14-cv-20524 (S.D. Fla. Oct. 29, 2015).