Nautilus Insurance Co. v. 1452-4 N. Milwaukee Avenue, LLC presents yet another variation on the issue of the extent to which a CGL policy affords an insured coverage for construction liabilities. 562 F.3d 818 (7th Cir. 2009). 1452 hired a contractor to perform excavation work in its property. The contractor in turn hired a subcontractor to perform the excavation work. In the course of performing the work, an adjoining property was damaged so seriously that it had to be demolished.
1452 was insured under a CGL policy issued by Nautilus. The policy contained a “contractor-subcontractor” exclusion, which provided that coverage was excluded for all property damage “arising out of operations performed for you by contractors or subcontractors you hire or your acts or omissions in connection with your general supervision of such operations.” Id. at 821.
The owner of the adjacent property brought suit against 1452 for the loss of its building. The complaint alleged that the contractor, project manager, and subcontractor failed to properly reinforce the neighboring property; ran a backhoe into the side of the restaurant, causing structural damage; and committed various other errors and omissions during the course of the work. The complaint further alleged that the damage to the restaurant was so severe that the building had to be demolished. Id. at 820.
1452 tendered the claim to Nautilus. Nautilus denied covered, invoking the contractor-subcontractor exclusion.
The court concluded that the exclusion “plainly knocks out coverage for claims based on negligent hiring or negligent supervision of contractors and subcontractors.” Id. at 822. The allegation in the underlying complaint that 1452 had failed to give the statutorily required advance notice of the excavation was outside the exclusion, because “the statutory claims in the underlying complaints seek recovery for the same losses as all the other claims – the property damage arising out of the faulty excavation performed by 1452 LLC’s contractors and subcontractor – and coverage for that property damage is excluded by the contractor-subcontractor exclusion.” Id.
