Defective Workmanship and Products Liability – where do they differ

A comprehensive commercial liability policy almost always comes with the extensions of Defective Workmanship and Products Liability but it does not mean that no losses cannot fall between the cracks. One needs to carefully understand what cover is offered by both types of cover in order to understand which section will apply and if there is indeed cover.

I had an interesting matter presented to me me for a decision in which the policy holder was asked to source a compressor for a commercial client and then install it for them. Part of the installation involved taking a second hand coupling that belonged to the third party which would be used to facilitate the installation. No part of the compressor belonged to the third party but the coupling did that was used.

In finalizing the installation an error was made while fixing in the coupling and it was hammered incorrectly out of line. As a result of this the entire compressor failed and effectively had to be totally respired or replaced. The cost of the coupling was negligible. The key point to decide on for this claim is firstly is this a defective workmanship or products liability claim. The big point of departure is with products liability there is no or was no cover in this policy for product recall and only resultant damage caused by the entire product is covered. The products itself included. If it is looked at as a defective workmanship claim, one normally excludes the part worked upon under the exclusion of rectifying defective work but all resultant damage would be covered including the part of the compressor free from the defective workmanship. This would mean only the coupling would be excluded and the majority of the loss would be covered including.

Defective workmanship is negligent workmanship performed on third party property and the damage then presents itself after handover. At all times the damaged property remains the property of the third party. Products liability is very different. The product does not belong to the third party while being installed and effectively if it is installed wrong and that then required a replacement, regardless of any defective workmanship performed in the installation, the claim is in essence a products liability claim as the item has not been handed over to the third party and does not yet belong to the third party. It’s in essence a product recall and replacement. There was no other resultant damage. Installation is also part of the definition of the Products Liability cover.

The claim was hotly debated between Insurers, loss adjuster and policyholder. There is rarely a black and white approach to a liability claim and one could see the defective workmanship to the coupling as being the trigger and the compressor damage being the resultant damage. I was against this given the compressor had not yet been handed over and contractually the client had not performed in terms of the contract.

It is important for policyholders to understand the cover they have and to make sure they take our products recall cover if they want to plug this gap.

Danny Joffe, Adv.

Director & Chairman of Risk Committee