CGL Coverage For Breach of Contract 2000 Update

August 24, 2000

When construction work proves to be defective, claims against the insured contractor can involve many facets - lost profits for the owner when the defect prevents a building from opening on schedule; damage to the interior when a roof fails, or even serious property damage in a catastrophic collapse. All of these claims usually involve breach of contract. Depending on the particular claim, only breach of contract might be alleged. Some insurers deny coverage for such claims on the basis that the insured is not "legally obligated" to pay damages arising out of a breach of contract. They may also assert that the CGL policy provides coverage only for tort damages. Coverage for other claims is questioned on a theory that a breach of contract does not constitute an occurrence under a CGL policy. Since the courts of several states have upheld these controversial arguments, these types of claims have become the crest of a wave of defective work coverage litigation. Over the past year, Texas courts have had the opportunity to address some of these issues.

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