Most General Liability carriers that insure homebuilders and remodelers started to add this exclusion in 2004. This exclusion results in a substantial reduction in coverage as compared to prior policy forms.
The intent of CG2294 is to recognize that property damage to a homebuilder’s or remodeler’s work itself is a business loss that is not intended to be covered by the General Liability policy. Such losses are meant to be born by the contractor. Instead, the General Liability policy intends to cover consequential or the resulting injury or damages to “other property” that flows from the improper, faulty, or defective workmanship.
The definition of “other property” is the key to interpreting the scope of this exclusion. Different insurance carriers have differing opinions on what “other property” means and this has a huge bearing on the impact of this exclusion.
The best way to illustrate this point is to look at an example. Assume that a homebuilder builds a house and faulty wiring is installed by the electrical sub that results in a fire that destroys the entire house three years after the sale.
Some insurance carriers would use CG2294 to deny coverage for property damage to the entire house because the entire house was the “work” of the homebuilder. This is the majority view on the application of this exclusion.
On the other hand, other insurance carriers would use CG2294 to only deny coverage for property damage to the wiring installed by the electrical sub and would provide coverage for property damage to the rest of the house. The carriers that follow this reasoning believe the intent of CG2294 is to cover the resulting or consequential damage to other parts of the house that are not related to the faulty work. This is the minority view on the application of this exclusion.