If you are like most general contractors, you probably do not pay much attention to whether or not your insurance policy contains an Exterior Insulation and Finish System (EIFS) exclusion, provided, of course, that you do not work with EIFS. If you are like most subcontractors, likely you do not have concerns if another sub on the job is using EIFS, or that EIFS has been previously installed on the project.
Typically general contractors and subcontractors who install EIFS will be insured to do so. Additionally, it is common for subs who do not install EIFS (e.g. lap siding subcontractor, masonry subcontractor or roofing subcontractor) to have an EIFS exclusion in their insurance policy. If you were to ask your roofing contractor/subcontractor if he had an EIFS exclusion, his response would possibly be: “I install the roof, who cares about EIFS?” Similarly, you may hire one contractor to perform the masonry work or installation of the lap siding on the project, and you may hire a separate specialty contractor (with the proper insurance) to install EIFS on small portions of the project. You’re covered, right? Possibly not, as a recent federal court case pointed out.
In First Mercury Insurance Co. v. Miller Roofing Enterprises, et al., 2013 U.S. Dist. LEXIS 24728, the US District Court for the Western District of Washington held that a roofing company’s insurer, First Mercury Insurance Company (FMIC), could escape liability for any negligent act performed by its insured, Miller Roofing Enterprises (Miller Roofing), because the roofing company’s insurance policy contained a broadly worded EIFS exclusion:
This insurance does not apply to . . . “property damage” included in the “products completed operations hazard” and arising out of “your work” described as . . . [a]ny work or operation with respect to any exterior component, fixture or feature of any structure if any “exterior insulation and finish system” is used on any part of that structure.
Miller Roofing, the roofing company in aforementioned case, replaced three roofs on a project in 1997. In 2006 Miller Roofing was hired twice, pursuant to oral contracts with the owner, to perform repairs to the roofs. At no time did Miller Roofing perform any EIFS installation or EIFS repairs to the building. In late 2007 water leaked into a building and caused damage to the ceiling, walls and building contents.
The owner of the building (Tim McClincy) and the building tenant (McClincy Brothers Floor Covering, Inc.) brought suit in King County (Case No. 09-2-06720-1) against Miller Roofing alleging: Breach of Contract, Negligence, Violations of the Washington Product Liability Act, Fraudulent Concealment and Breach of Express and Implied Warranties. FMIC defended Miller Roofing in the state court matter under a reservation of rights and concurrently brought suit in federal court (Case No. C11-0105-JCC) against Miller Roofing, as well as the Plaintiffs (Tim McClincy and McClincy Brothers Floor Covering, Inc.) in the underlying action, for a declaration of no coverage under the terms of the insurance policy between FMIC and Miller Roofing. Quoting from the federal court opinion:
Defendants argue that the EIFS exclusion does not apply because the leak was the result of “defective workmanship to the roof itself,” and “Miller Roofing did not install the EIFS on the building, nor did it undertake to make any repairs to the EIFS itself.” Even if that is true, it is irrelevant. The exclusion applies not only to property damage arising from EIFS-related work by the insured, it applies to property damage arising from “any” work by the insured on an exterior component, fixture, or feature of a structure, as long as “’exterior insulation and finish system’ is used on any part of that structure.” Those conditions are met here.
Id., at 5 (Internal Citations Omitted). The federal court ruled in favor of FMIC and held that the EIFS exclusion was a complete bar to coverage (for Miller Roofing) despite the fact that Miller Roofing had not installed or repaired the EIFS. Ultimately, a roofing contractor, who had simply worked on a project that had EIFS cladding on the exterior found himself without coverage for the roofing work he had performed.
How could this affect you? Consider the following three examples.
Example 1 – Where you act as the general contractor: If a building, be it residential or commercial, contains any amount of EIFS on the exterior, and if a subcontractor with this broadly worded EIFS exclusion performs any work on the exterior project, the subcontractor’s insurer may be able to avoid paying any damages on behalf of the subcontractor, possibly forcing the subcontractor to pay for their own defenses costs, pay for the claim out of pocket (if
they are able), or possibly forcing you (the general contractor) or your insurer to cover the claim.
Example 2 – Where you are the contractor: If you contract directly with the owner of a project to remodel a building, construct a home, install a roof, install siding, install masonry, etc… and EIFS is “used on any part of that structure” by anyone, then this broadly worded EIFS exclusion may allow your insurer to deny you coverage in the event that a lawsuit should ever be filed against you with respect to the project.
Example 3 – Where you are the project owner: If you contract directly with a contractor to build a new home, construct a new commercial building, install a new roof, install new siding, install new masonry, etc … and a small amount of EIFS is used on the exterior of the project, this broadly worded EIFS exclusion may negate coverage for the contractor, leaving you or your insurer to cover the cost of the claim. Additionally, it is very possible that your own insurer may have an exclusion precluding coverage (for you) if the roof/siding/masonry failed due to faulty workmanship (i.e. your insurance typically does not serve as a warranty for your contractor’s defective/faulty work). As such, you may be left to cover the entire claim out of your own pocket.
The takeaway is clear – before you or your contractor(s)/subcontractor(s) perform any work on any project that has EIFS (or may have EIFS in the future), you should always consider the implications of doing so based on this recent ruling, otherwise you may find yourself in a similar situation. Insurance policy exclusions are not necessarily uniform. You may have an EIFS exclusion in your policy that is worded differently; possibly you have always read the entire
insurance policy for each and every subcontractor that you have ever hired and feel at ease. Nevertheless, this case should serve as a reminder to all contractors that EIFS exclusions are far reaching, irrespective of whether or not the contractor with the EIFS exclusion ever intends to do any work with or around EIFS.
If you would like a copy of the case sent to you or your insurance agent, please feel free to email RCampbell@@campbell-bissell.com or give us a call at 509.455.7100.