ROGERS

Jeffrey J. Vita, Hamden, and David G. Jordan, Hamden, for the appellants (plaintiff in each case). Tom E. Ellis, with whom were Susan Evans Jones and, on the brief, Deborah Etlinger, Hartford, for the appellee (defendant in both cases).
Michael J. Donnelly, Hartford, and Patrick J. Wielinski, pro hac vice, filed a brief for the American Subcontractors Association as amicus curiae.

Wystan M. Ackerman, Hartford, filed a brief for the Property Casualty Insurers Association of America as amicus curiae.

Joseph K. Scully, Hartford, filed a brief for the American Insurance Association as amicus curiae.

ROGERS, C.J., and NORCOTT, PALMER, ZARELLA, EVELEIGH, HARPER and VERTEFEUILLE, Js.

ROGERS, C.J.

This case, on certification from the United States District Court for the Northern District of Alabama, Southern Division (District Court), pursuant to General Statutes § 51–199b, presents questions regarding the interpretation of commercial general liability insurance policies under Connecticut law. The plaintiffs, Capstone Building Corporation (Capstone Building) and Capstone Development Corporation (Capstone Development), served, respectively, as the general contractor and the project developer for construction of the Hilltop student housing complex (Hilltop) at the University of Connecticut (UConn). UConn procured a commercial general liability policy for the Hilltop project, which insured the plaintiffs and their work. The defendant, American Motorists Insurance Company (AMICO), is the issuing insurer's successor in interest. The District Court determined that the resolution of the parties' claims depended on propositions of law for which there was no controlling precedent in this court's decisions.

We accepted the following three questions for our consideration, and answer them accordingly: “1. Whether damage to a project contracted to be built, which was caused by defective construction or faulty workmanship associated with the construction project, may constitute ‘property damage’ resulting from an ‘occurrence,’ triggering coverage under a commercial general liability insurance policy?”

We conclude that allegations of unintended defective construction work by a subcontractor that damages nondefective property may constitute an “occurrence” resulting in “property damage” under certain circumstances. We also hold, however, that defective work standing alone or repairs to that defective work do not constitute property damage and, therefore, are not covered under the particular insurance policy in the present case. Finally, we hold that work by a contractor, as opposed to a subcontractor, is excluded from coverage under the terms of the policy.

“2. Can an insurer's bad faith conduct in investigating an insurance claim provide a basis for a cause of action for bad faith under Connecticut law?”

We conclude that under the plain language of the insurance policy in the present case, we do not recognize a cause of action based on the insurer's failure to conduct a discretionary investigation of claims for coverage.

“3. Does Alderman v. Hanover Ins. Group, 169 Conn. 603 (1975), apply to pre-suit settlement cases wherein the insurer, under a commercial general liability insurance policy, wrongfully denies coverage, but where only some of the underlying claims should have been covered under the policy?”

We conclude that, in global settlements encompassing multiple claims, the insured has the burden of proving that the settlement is reasonable in proportion to claims that, considered independently, the insurer had a duty to defend.

I

The District Court has provided us with the following facts relevant to resolving these questions. Capstone Building Corp. v. American Motorists Ins. Co., United States District Court, Docket No. 2:08–CV–00513–RDP (N.D.Ala. September 22, 2011). On June 2, 2000, Capstone Development entered into an agreement with UConn to coordinate and supervise construction at Hilltop. Pursuant to the agreement, Capstone Building would serve as the general contractor for the project. The cost of the project was not to exceed $39,325,000. The contract between the plaintiffs and UConn contained provisions governing, inter alia, insurance and the resolution of disputes arising out of the project. The contract required UConn to procure “[l]iability insurance providing coverage not less than a[c]ommercial [g]eneral [l]iability insurance policy and insuring [itself], the [s]tate of Connecticut, the Design/Builder, Subcontractors of all tiers and such other persons or interest as [UConn] may designate in connection with the performance of the work ... such that the total available limits to all insureds combined will not be less than $2,000,000 per occurrence and $5,000,000 aggregate....”

Accordingly, UConn procured an owner controlled insurance program commercial general liability policy (policy) from AMICO'spredecessor in interest. The commercial general liability policy is the standardized form used in the construction business, and tracks the language of the 1986 revisions by the Insurance Services Office, Inc. The policy provides that “[a]ny entity you [i.e., the Named Insured] are required in a written contract ... to name as an insured (the ‘Additional Insured’) is an Insured but only with respect to liability arising out of ‘your work’ for the Additional Insured, or acts or omissions of the Additional Insured in connection with the general supervision of ‘your work.’ ” The policy's definition of “ ‘[y]our work’ ” includes “[w]ork or operations performed by you or on your behalf....” The policy's general insuring provision covers damages resulting from “bodily injury” or “property damage” if the bodily injury or property damage is caused by an “occurrence” that takes place in the “coverage territory” and occurs during the “coverage period.” We discuss these terms as they relate to the certified question in more detail later in this opinion.

The project was completed in August, 2001, and the project's architect certified that it complied with the state building and fire safety codes. More than three years later, on September 29, 2004, UConn sent a letter to the plaintiffs regarding alleged defects in the project. See footnote 20 of this opinion. The letter was triggered by the discovery of elevated levels of carbon monoxide in several areas of Hilltop. According to UConn's investigation, the source of the leak “was the individual hot water heaters serving the residential units and the insufficient draft of the exhaust from the heater through the venting system.” In the course of the investigation, UConn identified a number of other “defects and deficiencies” allegedly attributable to the plaintiffs' work. Consequently, UConn prepared to take remediation efforts, including “the installation of direct and separate flues from all third floor hot water heaters, the provision for consistent sizes of piping, the installation of spill switches, the installation of hard-wired carbon monoxide detectors directed to [UConn's] [d]epartment of [p]ublic [s]afety, the replacement or modification of the fan coil units in the two-bedroom residential units, and other potential actions.”

In response, Capstone Building forwarded UConn's letter to AMICO, and demanded that AMICO defend against UConn's claims. AMICO acknowledged receipt of the letter on December 6, 2004, recognizing that UConn had made a claim against Capstone Building for elevated levels of carbon monoxide. Apart from the carbon monoxide issue, however, AMICO's response did not detail UConn's other allegations, except to note “[a]dditional defects and deficiencies in the performance [by Capstone Building], its engineers and contractors....” AMICO concluded that UConn's claims were not covered under the policy: “As the liability at issue arises out of [Capstone Building's] own work, including its role as general contractor and heating and plumbing installation, there can be no coverage for this matter for Capstone [Building] under the policy.”

Subsequently, on April 4, 2005, Capstone Building filed an action against AMICO's predecessor in interest in the Circuit Court of Jefferson County, Alabama, seeking, inter alia, a declaratory judgment that “the subject insurance policy obligates [AMICO] to provide coverage to [Capstone Building] for [UConn's] claims and contentions against [it].” AMICO removed the case to the District Court on March 31, 2006. Capstone Building Corp. v. Kemper Ins. Co., United States District Court, Docket No. 2:06–CV–639–JHH (N.D.Ala.2006). The District Court dismissed the declaratory judgment claim for failure to join UConn, a necessary party, and dismissed the breach of contract and bad faith claims on ripeness grounds, noting that there was no “suit” under the meaning of the policy when the action was filed. In addition, on May 31, 2006, in response to Capstone Building's requests that AMICO review UConn's claims, AMICO sought a declaratory judgment against Capstone Development, denying any responsibility for the claims, which the District Court dismissed for failure to join UConn as a necessary party. American Motorist Ins. Co. v. Capstone Development Corp., Inc., United States District Court, Docket No. 2:06–CV–1031–WMA (N.D.Ala.2006).

Meanwhile, on May 16, 2006, UConn sent the plaintiffs a letter formally requesting their participation in mediation pursuant to the construction contract. Upon receipt of the mediation request, Capstone Building again contacted AMICO, demanding its defense at the mediation. AMICO responded on May 31, 2006, asserting, in addition to generic defenses, the pending declaratory judgment action in the District Court and denying any contract with Capstone Building or a breach of that contract. Consequently, the plaintiffs and UConn proceeded to mediation without AMICO. At the mediation, UConn alleged that the plaintiffs had breached its agreement by failing to properly implement construction plans and had been negligent and deficient in the construction process. UConn claimed damages in excess of $25,000,000 which included “necessary corrective work, the need for peer reviews ... to review and design proposed changes and revisions, loss of use of the premises resulting in rebates of rent to students for the periods of evacuation of the housing units or for periods when [systems] such as ... air conditioning ... [were] not operational, and [an extensive list of] damages associated with [the plaintiffs'] failure to perform [their] work in compliance with the [c]ontract, codes, [s]tate laws, and regulations.” (Internal quotation marks omitted.)

On December 26, 2007, the parties reached a settlement agreement in which the plaintiffs each agreed to pay UConn $1 million. In addition, the plaintiffs incurred substantial attorney's fees.

Upon resolution of the settlement, the plaintiffs filed separate actions against AMICO in the Circuit Court of Jefferson County, Alabama, for breach of contract and bad faith. AMICO removed the actions to the District Court, which consolidated the actions and certified the aforementioned questions for our consideration. Additional facts will be set forth in the opinion as necessary.

“The scope of our review in a case involving a certified question from a federal court is ordinarily limited to the issue raised by that question.” Gerrity v. R.J. Reynolds Tobacco Co., 263 Conn. 120, 131, 818 A.2d 769 (2003). “[T]he purpose of the certification process is to answer the question of law submitted pursuant to the certification, not to resolve factual disputes between the parties.” 32A Am.Jur.2d 540, Federal Courts § 1136 (2007). The specific facts of a case, as found in the District Court's memorandum, provide the necessary context for our legal analysis. Arrowood Indemnity Co. v. King, 304 Conn. 179, 186, 39 A.3d 712 (2012).

II

We begin with the first certified question: “Whether damage to a project contracted to be built, which was caused by defective construction or faulty workmanship associated with the construction project, may constitute ‘property damage’ resulting from an ‘occurrence,’ triggering coverage under a commercial general liability insurance policy?” We conclude that defective construction or faulty workmanship that causes damage to nondefective property may constitute property damage resulting from an occurrence, thus triggering coverage under the commercial general liability policy. We also conclude, however, that if the property damage is the result of an insured's defective work, it is excluded from coverage by such a policy. Finally, property damage caused by a subcontractor's defective work may be covered under the exception to the “your work” exclusion.

The policy's insuring agreement provides in relevant part: “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages. However, we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’ to which this insurance does not apply. We may, at our discretion, investigate any ‘occurrence’ and settle any claim or ‘suit’ that may result....” The insuring agreement also specifies: “This insurance applies to ‘bodily injury’ and ‘property damage’ only if ... [t]he ‘bodily injury’ or ‘property damage’ is caused by an ‘occurrence’....” Because the insuring agreement covers only those occurrences that cause property damage or bodily injury, the interpretation of these terms is closely interrelated.

We begin by noting that the first certified question is an issue of first impression in Connecticut, and that the decisions of our sister jurisdictions reveal a split of opinion. Among courts denying coverage for claims arising from defective work, some focus on policy grounds, holding that the cost to repair damages caused by faulty workmanship is a business risk not covered under a commercial general liability policy. Others hold that defective work lacks the element of fortuity necessary to qualify as an “accident” or “occurrence” under such a policy. A significant number of decisions, however, support the opposite conclusion, and find coverage for damage to other, nondefective, property caused by defective work. We are convinced that the latter line of decisions is more persuasively reasoned with respect to the commercial general liability policy in the present case. Accordingly, we conclude that the policy at issue covers damage to nondefective property caused by a subcontractor's defective work.

Our analysis is guided by our usual procedures for interpreting insurance policies. “[C]onstruction of a contract of insurance presents a question of law.... The [i]nterpretation of an insurance policy ... involves a determination of the intent of the parties as expressed by the language of the policy ... [including] what coverage the ... [insured] expected to receive and what the [insurer] was to provide, as disclosed by the provisions of the policy.... [A] contract of insurance must be viewed in its entirety, and the intent of the parties for entering it derived from the four corners of the policy ... [giving the] words ... [of the policy] their natural and ordinary meaning ... [and construing] any ambiguity in the terms ... in favor of the insured....” (Citations omitted; internal quotation marks omitted.) Hartford Casualty Ins. Co. v. Litchfield Mutual Fire Ins. Co., 274 Conn. 457, 462–63, 876 A.2d 1139 (2005).

The commercial general liability policy is a standard form developed by the Insurance Services Office, Inc., and has been used throughout the United States since 1940. American Family Mutual Ins. Co. v. American Girl, Inc., 268 Wis.2d 16, 33, 673 N.W.2d 65 (2004). It begins with a broad grant of coverage in the “insuring agreement,” followed by a series of “exclusions” (and exceptions to the exclusions) that define the contours of coverage. Accordingly, we begin our analysis with the initial grant of coverage in the “insuring agreement” and then consider the effect of the exceptions and exclusions to the policy's coverage.

A

The contract defines “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The term “accident,” however, is not defined in the contract. Whether faulty workmanship can be the basis for a claim under a commercial general liability policy is an issue of first impression for this court.

The terms of an insurance policy are given their “natural and ordinary meaning....” (Internal quotation marks omitted.) Hartford Casualty Ins. Co. v. Litchfield Mutual Fire Ins. Co., supra, 274 Conn. at 462, 876 A.2d 1139. We have held that “the term ‘accident’ is to be construed in its ordinary meaning of an ‘unexpected happening’ ”; Commerical Contractors Corp. v. American Ins. Co., 152 Conn. 31, 42, 202 A.2d 498 (1964); and means “unexpected or unintended.” (Internal quotation marks omitted.) Buell Industries, Inc. v. Greater New York Mutual Ins. Co., 259 Conn. 527, 541, 791 A.2d 489 (2002). This construction is consistent with the dictionary definition of accident. See Black's Law Dictionary (9th Ed.2009) (“[t]he word accident in accident policies means an event which takes place without one's foresight or expectation”), quoting 1 A. Appleman & J. Appleman, Insurance Law and Practice (1981) § 360; Webster's Third International Dictionary of the English Language (2002) (“an event or condition occurring by chance or arising from unknown or remote causes”). We also have held that the definition of occurrence is unambiguous and refers to “something that happens unexpectedly without design.” (Internal quotation marks omitted.) Metropolitan Life Ins. Co. v. Aetna Casualty & Surety Co., 255 Conn. 295, 307, 765 A.2d 891 (2001).

The defendant argues that defective construction lacks the element of “fortuity” necessary for an accident. This suggests that a foreseeable event can never be an accident under the terms of the commercial general liability policy. Insurance policies, however, are designed to cover foreseeable risk, including negligent acts. For the same reason, the mere fact that defective work is in some sense volitional does not preclude it from coverage under the terms of the policy. “[A] deliberate act, performed negligently, is an accident if the effect is not the intended or expected result; that is, the result would have been different had the deliberate act been performed correctly.” Lamar Homes, Inc. v. Mid–Continent Casualty Co., 242 S.W.3d 1, 8 (Tex.2007). We have held that “[a]n accident is an event that is unintended from the perspective of the insured.” (Internal quotation marks omitted.) Vermont Mutual Ins. Co. v. Walukiewicz, 290 Conn. 582, 594, 966 A.2d 672 (2009). In the context of a homeowner's insurance policy, the motive of the acting party is determinative of whether an act was intentional or accidental. Allstate Ins. Co. v. Barron, 269 Conn. 394, 408 n. 10, 848 A.2d 1165 (2004) (“to the extent that [the insured] engaged in conduct for which she could not be held responsible because her mental incapacity negated her intent, the consequences of her conduct were accidental and, therefore, an ‘occurrence’ within the meaning of the policy”). Accordingly, because negligent work is unintentional from the point of view of the insured, we find that it may constitute the basis for an “accident” or “occurrence” under the plain terms of the commercial general liability policy.

On the basis of the foregoing analysis, we conclude that defective workmanship can give rise to an “occurrence” under the insuring agreement. This is, however, only the first step in determining whether the damage at issue in the present case is covered under the policy. The terms of the insuring agreement require both an “occurrence” and “property damage” for coverage. We therefore turn to consider the “property damage” requirement of the insuring agreement.

B

The policy defines “ ‘[p]roperty damage’ ” as “[p]hysical injury to tangible property, including all resulting loss of use of that property” and “[l]oss of use of tangible property that is not physically injured.” Much like the meaning of “occurrence” discussed previously herein, there is no consensus on the meaning of the term property damage in the context of claims for defective work under commercial general liability policies.

The parties agree that the commercial general liability policy covers physical injury to third parties' property. They disagree, however, about the application of the term property damage when invoked to cover damages to the work of the insured contractor or subcontractor. As a threshold matter, we see no basis in the language of the policy for limiting coverage to liability for harm to third parties. “[J]ust like the definition of the term ‘occurrence,’ the definition of ‘property damage’ in the [commercial general liability policy] does not differentiate between damage to the contractor's work and damage to other property.” United States Fire Ins. Co. v. J.S.U.B., Inc., 979 So.2d 871, 889 (Fla.2007). Although a contractor's work will often be excluded from coverage pursuant to contractual exclusions in a commercial general liability policy, this distinction is not found in the plain language of the insuring agreement's initial grant of coverage. Accordingly, we conclude that physical injury to or loss of use of the insured's property is within the initial grant of coverage as described in the policy's insuring agreement.

Although we reject AMICO's argument that the insuring agreement never covers damage to the insured's project, whether an insured party makes a viable claim for property damage is a highly fact-dependent determination in each case. The allegations detailed in the District Court's memorandum of law may be divided into four categories: (1) damage to nondefective property stemming from defective construction; (2) carbon monoxide; (3) defective work, standing alone, including building and fire safety code violations; and (4) repairs to damaged work.

1

Although the majority of the allegedly defective work involved defective construction, poor quality, or buildingcode violations, without more, the plaintiffs argue that “assertions made by [UConn] that the [p]roject suffered water damage, mold damage, elevated carbon monoxide exposure, cracked piping, and structural problems ... clearly involve ‘property damage’ as defined within the [owner controlled program commercial general liability policy].”

The policy defines “ ‘[p]roperty damage’ ” as “[p]hysical injury to tangible property, including all resulting loss of use of that property.” Hilltop and its component parts are clearly “tangible property.” Thus, under the plain language of the commercial general liability policy, water and mold damage to portions of the insured's project, beyond the defective work itself, would qualify as “physical injury to tangible property.” Auto Owners Ins. Co. v. Newman, 385 S.C. 187, 194, 684 S.E.2d 541 (2009) (moisture intrusion to sheathing and building frame due to defective stucco was “property damage” under commercial general liability policy); Travelers Indemnity Co. of America v. Moore & Associates, Inc., 216 S.W.3d 302, 310 (Tenn.2007) (water and mold damage to walls from defective window installation was “property damage” under commercial general liability policy). To the extent that the plaintiffs' claims are based on physical injury to or loss of use of nondefective property, we hold that they are within the insuring agreement's coverage.

2

Whether the escape of carbon monoxide is “[p]hysical injury to tangible property, including all resulting loss of use of that property,” is a question of first impression for this court. We hold that under the plain language of the commercial general liability policy, the escape of carbon monoxide, without more, is not property damage. The New Hampshire Supreme Court recently held that the seepage of odorless carbon monoxide from defectively installed chimneys was not “property damage,” reasoning that the gas “caused no physical, tangible alteration to any property” or any physical injury to the homeowners. Concord General Mutual Ins. Co. v. Green & Co. Building & Development Corp., 160 N.H. 690, 694, 8 A.3d 24 (2010). Thus, the loss of use of the defective chimneys, standing alone, did not constitute property damage under either of the policy's definitions. Id. We find the New Hampshire court's reasoning persuasive and hold that the escape of carbon monoxide alone does not qualify as property damage.

3

The alleged defects and deficiencies also include building code violations, defective construction and poor quality control. For the reasons discussed in the following paragraphs, we conclude that these alleged defects do not constitute “[p]hysical injury to tangible property, including all resulting loss of use of that property” unless they result in damage to other, nondefective property.

A plain reading of the policy suggests that project components defective prior to delivery, or those defectively installed, did not suffer physical injury within the meaning of the policy's terms. Crossmann Communities of North Carolina, Inc. v. Harleysville Mutual Ins. Co., 395 S.C. 40, 48–49, 717 S.E.2d 589 (2011) (“the critical phrase ... ‘physical injury’ ... suggests the property was not defective at the outset, but rather was initially proper and injured thereafter”); Travelers Ins. Co. v. Eljer Mfg., Inc., 197 Ill.2d 278, 312, 258 Ill.Dec. 792, 757 N.E.2d 481 (2001) (stating that under its plain meaning, “physical injury” in commercial general liability policy unambiguously“connotes ... an alteration in appearance, shape, color or in other material dimension”). This is true even if the defective work diminishes the building's value, since “faulty workmanship that merely diminishes the value of the home without causing physical injury or loss of use does not involve ‘property damage.’ ” Lamar Homes, Inc. v. Mid–Continent Casualty Co., supra 242 S.W.3d at 10.

This principle is illustrated by the Tennessee Supreme Court in Travelers Indemnity Co. of America v. Moore & Associates, Inc., supra, 216 S.W.3d at 302, in which the court had to decide whether damage caused by a subcontractor's faulty window installation was covered by the contractor's commercial general liability policy, which was in all pertinent respects identical to the policy in this case. The court held that a claim “in which the sole damages are for replacement of a defective component or correction of a faulty installation” was not within the policy's definition of property damage. Id., at 310. “Without more, this alleged defect is the equivalent of the ‘mere inclusion of a defective component’ ... and no ‘property damage’ has occurred.” Id. However, “[b]ecause the alleged defective installation resulted in water penetration causing further damage, [the insured] has alleged ‘property damage.’ ” Id.

We find this analysis persuasive. On the basis of the language of the policy, “physical injury to tangible property”would not include construction deficiencies unless they damage other, nondefective property. In American Family Mutual Ins. Co. v. American Girl, Inc., supra, 268 Wis.2d at 35–36, 673 N.W.2d 65, the Wisconsin Supreme Court held that “sinking, buckling, and cracking of [a warehouse] as a result of soil settlement qualifies as ‘physical injury to tangible property.’ ” Similarly, the Texas Supreme Court held that “allegations of cracking sheetrock and stone veneer [as a result of a defective foundation] are allegations of ‘physical injury’ to ‘tangible property.’ ” Lamar Homes, Inc. v. Mid–Continent Casualty Co., supra, 242 S.W.3d at 10. In those cases, however, the “physical injury to tangible property” was not the structural defect itself, but the damage the defect caused to other, nondefective property. Thus, allegations of construction defects, without more, do not state a claim for “injury to tangible property” under the plain meaning of the terms of the insuring agreement. We agree with the Florida Supreme Court that “faulty workmanship or defective work that has damaged the otherwise nondefective completed project has caused ‘physical injury to tangible property’ within the plain meaning of the definition of the policy. If there is no damage beyond the faulty workmanship or defective work, then there may be no resulting ‘property damage.’ ” United States Fire Ins. Co. v. J.S.U.B., Inc., supra, 979 So.2d at 889.

4

We next turn to consider to what extent repair work is covered under the policy. The insuring agreement provides that “[w]e will pay those sums that the insured becomes legally obligated to pay as damages because of ... ‘property damage’....” We have already held that defective work, without more, is not “property damage” within the meaning of the policy. Extending coverage to the repair of the defective work itself would render the policy's requirement for “[p]hysical injury to tangible property” meaningless, since it would allow the insured to recover the costs to repair work that, although defective, did not meet the definition of property damage. We are not aware of any cases that have extended coverage in commercial general liability policies this far.

Other courts have recognized the “difference between a claim for the costs of repairing or removing defective work, which is not a claim for ‘property damage,’ and a claim for the costs of repairing damage caused by the defective work, which is a claim for ‘property damage.’ ” United States Fire Ins. Co. v. J.S.U.B., Inc., supra, 979 So.2d at 889; see also Travelers Indemnity Co. of America v. Moore & Associates, Inc., supra, 216 S.W.3d at 310 (“claim limited to faulty workmanship or materials is one in which the sole damages are for replacement of a defective component or correction of faulty installation” [internal quotation marks omitted] ). Because “ ‘physical injury’ unambiguously connotes damage to tangible property causing an alterationin appearance, shape, color or in other material dimension”; Travelers Ins. Co. v. Eljer Mfg. Inc., supra, 197 Ill.2d at 312, 258 Ill.Dec. 792, 757 N.E.2d 481; repair of defective work itself is not a liability “because of ... ‘property damage’ ” under the plain meaning of policy's terms. It follows that repairs to the defective work itself are not covered in the insuring agreement. Cf. Times Fiber Communications, Inc. v. Travelers Indemnity Co., Superior Court, judicial district of Stamford–Norwalk, Docket No. X05–CV–03–0196619S, 2005 WL 589821 (February 2, 2005) (38 Conn. L. Rptr. 642) (replacing defective work not “occurrence” under commercial general liability policy).

We emphasize, however, that the insuring agreement clearly does contemplate coverage for repairs to nondefective property stemming from “[p]hysical injury to tangible property” or “loss of use” caused by defective work stemming from an occurrence, including consequential costs for the necessary repairs and remediation. See Federated Mutual Ins. Co. v. Concrete Units, Inc., 363 N.W.2d 751, 757 (Minn.1985) (phrase “damages because of ... ‘property damage’ requires the insurer to pay all damages which are causally related to an item of ‘property damage’ which satisfies either of the policy's definitions”). Accordingly, we conclude that the commercial general liability policy covers claims for property damage caused by defective work, but not claims for repair of the defective work itself. Travelers Indemnity Co. of America v. Moore & Associates, Inc., supra, 216 S.W.3d at 310.

C

We now turn to consider the exclusionary clauses in the policy, as well as their exceptions. The various exclusions and exceptions constitute the bulk of the policy's language and are often determinative of coveragefor any particular claim. As the Wisconsin Supreme Court observed, “[commercial general liability] policies generally do not cover contract claims arising out of the insured's defective work or product, but this is by operation of the [policy's] business risk exclusions....” American Family Mutual Ins. Co. v. American Girl, Inc., supra, 268 Wis.2d at 39, 673 N.W.2d 65. Of course, an exclusion can only affect a claim covered in the insuring agreement, and an exception can only reinstate coverage in the initial grant.

The commercial general liability insurance policy in the present case contains fifteen lettered exclusions limiting the scope of coverage in the insuring agreement. The parties primarily focus on exclusion ( l ), the “your work” exclusion, and the accompanying “subcontractor exception” in the coverage form of the policy. Exclusion ( l ) provides:

“ l. Damage To Your Work

“ ‘Property damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products-completed operations hazard’.

“This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.”

When read together, the “your work” exclusion and the “subcontractor exception” eliminate coverage for property damage caused by an insured contractor's work, but restore coverage for property damage caused by a subcontractor's work. The exclusion and exception are triggered, however, only when there is an initial grant of coverage in the insuring agreement.

Applying the exclusion's language to the facts of this case, the entire Hilltop project meets the definition of “your work” because it was completed by the plaintiffs or their subcontractors. All “property damage” arising out of an “occurrence” is therefore initially excluded by the “your work” exclusion. The “subcontractor exception,” however, restores coverage for subcontractors' work which caused damage under the insuring agreement of the policy. Whether the “work out of which the damage arises” was performed by a subcontractor is a matter of fact, to be determined in each case. Here, insofar as the plaintiffs' claims meet the definition of “occurrences” causing “property damage,” the plaintiffs allege that they arose from faulty heating, venting, and mechanical work performed by their subcontractors. We hold that the “subcontractor exception” to the “your work” exclusion would reinstate coverage if the plaintiffs ultimately prove that property damage was caused by its subcontractors' defective work. Property damage resulting from the plaintiffs' own faulty work, however, is precluded from coverage by the “your work” exclusion.

D

AMICO also argues that covering damages to the insured's property resulting from defective workmanship inappropriately turns the commercial general liability policy into a performance bond. As an initial matter, overlapping coverage does not negate a commercial general liability policy's express terms. “The ... policy covers what it covers. No rule of construction operates to eliminate coverage simply because similar protection may be available through another insurance product.” Lamar Homes, Inc. v. Mid–Continent Casualty Co., supra, 242 S.W.3d at 10. Although the historical trend demonstrates that commercial general liability coverage has expanded from tort liability to third parties to today's much broader coverage, our analysis is guided by the plain language of the current policy's provisions.

Moreover, there are important differences between performance bonds and commercial general liability contracts. “[T]he obligation of a surety is an additional assurance to the one entitled to the performance of an act that the act will be performed.” (Internal quotation marks omitted.) Southington v. Commercial Union Ins. Co., 254 Conn. 348, 358, 757 A.2d 549 (2000). “The purpose of a performance bond is to guarantee the completion of the contract upon default by the contractor.” (Internal quotation marks omitted.) United States Fire Ins. Co. v. J.S.U.B., Inc., supra, 979 So.2d at 887. Accordingly, suretyship is properly viewed as “a form of credit enhancement” in which “[p]remiums ... are charged in consideration of the fundamental underwriting assumption that the surety will be protected against loss by the principal.” 4A P. Bruner & P. O'Connor, Construction Law (2009) c. 12, § 12:9, pp. 50–51; see, e.g., United States Fire Ins. Co. v. J.S.U.B., Inc., supra, at 888 (performance bonds are “based on what amounts to a credit evaluation of the particular contractor and its capabilities to perform its contracts” [internal quotation marks omitted] ). Importantly, the surety, unlike the insurer, may seek indemnification from the contractor, as principal, when the bond is invoked to benefit the owner-obligee. Lamar Homes, Inc. v. Mid–Continent Casualty Co., supra, 242 S.W.3d at 10 n. 7. While a performance bond may, in the appropriate case, cover the costs to remedy property damage under a commercial general liability contract, its main purpose is to benefit the owner upon the default by a general contractor.

In light of the differences in coverage and risk allocation between commercial general liability insurance policies and performance bonds, any similarities between these policies do not preclude our conclusion that the commercial general liability policy in the present case covers property damage caused by unintentional faulty workmanship.

In summary, we conclude that unintended construction defects may form the basis of an “occurrence” or “accident” under commercial general liability policies. Furthermore, damage to an insured's nondefective work is “property damage” within the commercial general liability policy's initial grant of coverage. Claims limited to damages for the replacement of defective components or poor workmanship, however, without more, do not constitute “property damage” under the policy. Finally,the policy excludes damage caused by the plaintiffs' work, but does not exclude damage caused by a subcontractor's defective work.

III

We now turn to discuss the second question certified by the District Court: “Can an insurer's bad faith conduct in investigating an insurance claim provide a basis for a cause of action for bad faith under Connecticut law?” We understand the certified question to refer solely to a cause of action for bad faith in investigating the claim, as opposed to the breach of AMICO's duties to defend and to indemnify under the policy. Under our precedent, a bad faith action must allege denial of the receipt of an express benefit under the policy. Renaissance Management Co. v. Connecticut Housing Finance Authority, 281 Conn. 227, 240, 915 A.2d 290 (2007). Accordingly, under the facts of the present case, we do not recognize a cause of action based solely on the insurer's failure to investigate because the insurance policy at issue provides that the decision of whether and how to investigate lies exclusively with the insurer.

We begin by setting forth the required elements for bad faith claims. “[I]t is axiomatic that the ... duty of good faith and fair dealing is a covenant implied into a contract or a contractual relationship.... In other words, every contract carries an implied duty requiring that neither party do anything that will injure the right of the other to receive the benefits of the agreement.... The covenant of good faith and fair dealing presupposes that the terms and purpose of the contract are agreed upon by the parties and that what is in dispute is a party's discretionary application or interpretation of a contract term....

“To constitute a breach of [the implied covenant of good faith and fair dealing], the acts by which a defendantallegedly impedes the plaintiff's right to receive benefits that he or she reasonably expected to receive under the contract must have been taken in bad faith.... Bad faith in general implies both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive.... Bad faith means more than mere negligence; it involves a dishonest purpose.” (Citations omitted; internal quotation marks omitted.) De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 269 Conn. 424, 432–33, 849 A.2d 382 (2004).

Accordingly, because the covenant of good faith and fair dealing only “requir[es] that neither party [to a contract] do anything that will injure the right of the other to receive the benefits of the agreement,” it is not implicated by conduct that does not impair contractual rights. (Internal quotation marks omitted.) Home Ins. Co. v. Aetna Life & Casualty Co., 235 Conn. 185, 200, 663 A.2d 1001 (1995), quoting Habetz v. Condon, 224 Conn. 231, 238, 618 A.2d 501 (1992). In Renaissance Management Co. v. Connecticut Housing Finance Authority, supra, 281 Conn. at 240, 915 A.2d 290, for example, we held that the defendant housing authority's refusal to accept mortgage prepayments, in order to facilitate new loans for owners of low income housing, did not violate the covenant of good faith and fair dealing when the agency was not contractually obligated to accept prepayments. In so holding, we reasoned that “[t]he covenant of good faith and fair dealing presupposes the terms and purpose of the contract are agreed upon by the parties and that what is in dispute is a party's discretionary application or interpretation of a contract term.” (Emphasis added; internal quotation marks omitted.) Id.

Because bad faith actions require the denial of benefits under the policy, we must analyze the plaintiffs' proposed cause of action based on the actual terms of the insuring agreement. Unless the alleged failure to investigate led to the denial of a contractually mandated benefit in this case, the plaintiffs have not raised a viable bad faith claim. See, e.g., Home Ins. Co. v. Aetna Life & Casualty Co., supra, 235 Conn. at 200, 663 A.2d 1001. The insuring agreement at issue provides: “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages. However, we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’ to which this insurance does not apply. We may, at our discretion, investigate any ‘occurrence’ and settle any claim or ‘suit’ that may result.” (Emphasis added.) These terms (1) specifically disclaim any duty to investigate claims not qualifying as occurrences, and (2) commit the decision to investigate to AMICO's discretion. Because the express terms of the commercial general liability policy in this case gave AMICO the sole discretion to decide whether to investigate, the plaintiffs cannot argue that they reasonably expected an investigation for every claim submitted. Heyse v. Case, 114 Conn.App. 640, 652, 971 A.2d 699 (no bad faith liability when defendant did not “[impair the plaintiff's] right to enforce any benefits to which she was entitled under [the] policy”) cert. denied, 293 Conn. 905, 976 A.2d 705 (2009).

The implied duty of good faith and fair dealing is “a purely instrumental duty intended to protect insureds' rights to receive their policy benefits.” D. Richmond, “Bad Insurance Bad Faith Law,” 39 Tort Trial & Ins. Prac. L.J. 1, 18 (2003), citing Love v. Fire Ins. Exchange, 221 Cal.App.3d 1136, 271 Cal.Rptr. 246 (1990). Although we recognize that a discretionary investigation is often necessary to assess the duty to defend or indemnify under the policy, a bad faith action is properly addressedto the insurer's conduct depriving the insured of these contractual benefits, rather than the precedent, investigatory step. See, e.g., Renaissance Management Co. v. Connecticut Housing Finance Authority, supra, 281 Conn. at 240, 915 A.2d 290. A bad faith cause of action not tied to duties under the insurance policy must therefore fail as a matter of law.

A review of our cases involving the duty of good faith and fair dealing reveals that violations of express duties are necessary to maintain a bad faith cause of action. In PSE Consulting, Inc. v. Frank Mercede & Sons, Inc., 267 Conn. 279, 306, 838 A.2d 135 (2004), the performance bond contained mandatory terms obligating the surety to “send an answer to [the principal] within forty-five days after receiving formal notice of the [principal's] claim against the bond,” and to “identify what part of the claim it had determined to be undisputed, as well as to provide the basis for challenging any disputed amounts.” Unlike the inadequate discretionary investigation alleged by the plaintiffs in the present case, the bad faith action in PSE Consulting, Inc., was based on a breach of the surety's express duties under the contract. Moreover, in considering the principal's bad faith, we concluded that “[the failure] to investigate [the principal's] claim properly is not, by itself, sufficient evidence of bad faith.” (Emphasis in original.) Id., at 309, 838 A.2d 135. Accordingly, in the absence of an underlying breach of a contractual duty, PSE Consulting, Inc., does not support a bad faith cause of action based solely on an allegedly inadequate discretionary investigation.

Our discussion in Buckman v. People Express, Inc., 205 Conn. 166, 169–72, 530 A.2d 596 (1987), also supports this conclusion. In that case, we held that a self-insured employer who violated his statutory duty to provide a terminated employee with notice of his right to continue health benefits was liable under a cause of action for bad faith. Although the employer-insurer's failure to give notice did not conclusively deny coverage to the plaintiff, the cause of action arose from the breach of the employer's independent, statutory duty. Id., at 171, 530 A.2d 596. Unlike the bad faith claim in Buckman, the plaintiffs' proposed cause of action would rest solely on the alleged nonperformance of an expressly discretionary procedure.

Our conclusion that bad faith is not actionable apart from a wrongful denial of a benefit under the policy finds support in both authoritative treatises and cases from other jurisdictions. For example, one treatise on insurance references the “duty of investigation” while clarifying that “[i]f a claim is beyond the scope of coverage,however, the duty to investigate is not separately actionable, as that would be outside the entire contractual basis for both the duty to investigate, and the duty of good faith and fair dealing.” 14 L. Russ & T. Segalla, Couch on Insurance (3d Ed.2007) § 198:28; see also id., at § 204:20 (“if there is no potential for coverage and hence no duty to defend under [the] terms of [the] insurance policy, there can be no action for breach of implied covenant of good faith and fair dealing, since the covenant is based on the contractual relationship between insured and insurer”); 46A C.J.S. 160, Insurance § 1873 (2007) (“an insurer's negligent or subpar investigation or evaluation of a claim is relevant in [a] bad-faith action to the fact finder's determination of whether the insurer should have known its denial lacked a reasonable basis”).

Likewise, the majority of jurisdictions to consider the matter would also disallow independent actions for bad faith investigation. As the California Supreme Court explained, “if there is ... no duty to defend under the terms of the policy, there can be no action for breach of the implied covenant of good faith and fair dealing because the covenant is based on the contractual relationshipbetween the insured and the insurer.... In sum, the covenant is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct that frustrates the other party's rights to the benefits of the agreement.... Absent that contractual right, however, the implied covenant has nothing upon which to act as a supplement, and should not be endowed with an existence independent of its contractual underpinnings.” (Citations omitted; internal quotation marks omitted.) Waller v. Truck Ins. Exchange, Inc., 11 Cal.4th 1, 36, 900 P.2d 619, 44 Cal.Rptr.2d 370 (1995); see also Federated Mutual Ins. Co. v. Vaughn, 961 So.2d 816, 820 (Ala.2007) (“[t]o recover for bad-faith failure to investigate an insurance claim, the insured must show that the insurer breached the insurance contract when it refused to pay the insured's claim”); Board of Directors of Assn. of Apartment Owners of the Discovery Bay Condominium v. United Pacific Ins. Co., 77 Hawai‘i 358, 361, 884 P.2d 1134 (1994) (no bad faith action for failure to investigate when insured did not prevail on claim that insurer was liable under policy); Bellville v. Farm Bureau Mutual Ins. Co., 702 N.W.2d 468, 474 (Iowa 2005) (“[a]n insurer's negligent or sub-par investigation or evaluation of a claim is relevant to the fact finder's determination of whether the insurer should have known its denial lacked a reasonable basis”); Brethorst v. Allstate Property & Casualty Ins. Co., 334 Wis.2d 23, 48, 798 N.W.2d 467 (2011) (no claim for bad faith duty to investigate can exist unless there was “a wrongful denial of some contracted-for benefit”). We find these cases persuasiveand conclude that, in the absence of a breach of an express duty under the insurance policy, there is no independent cause of action for deficiencies in the insurer's investigation.

It is important to note, however, that an insurer's “failure to conduct an adequate investigation of a claim ... when accompanied by other evidence, reflecting an improper motive, properly may be considered as evidence of ... bad faith.” (Emphasis in original.) PSE Consulting, Inc. v. Frank Mercede & Sons, Inc., supra, 267 Conn. at 310, 838 A.2d 135. “As a technical matter, failure to investigate a claim is not a cause of action in itself. Rather, it is evidence of bad faith, which may entitle an insured to additional damages, beyond the recovery of the benefits due under the insurance policy, if the insurer denies the claim. That is, failure to investigate is evidence of an unreasonable denial of a claim.” 46 Am.Jur.3d 297, Proof of Facts § 2 (1998). Consequently, although not actionable separate from the bad faith denial of a substantive benefit, an insurer's investigation will often be key evidence in a bad faith cause of action.

Although we decline to extend bad faith actions to allegations based solely on a failure to investigate where the investigation is not mandated under the policy, our holding today should not create an incentive for insurers to fail to investigate claims. Insurers disclaiming their duty to defend or indemnify under the policy, subsequent to a failure to investigate, risk extracontractual liability for consequential economic and noneconomic losses. In addition, the Connecticut Unfair Insurance Policies Act (CUIPA), General Statutes § 38a–815 et seq., and the ConnecticutUnfair Trade Practices Act (CUTPA), General Statutes § 42–110a et seq., provide a statutory remedy against insurers with a “general business practice” of inadequate investigations.

In contrast, allowing independent bad faith actions based on a failure to investigate could spawn a number of undesirable consequences. By way of example, imposing liability for bad faith investigation, even in the absence of any duty to defend or indemnify, would open a new avenue for the litigation of claims that, by definition, are outside of the policy's coverage, and burden our courts with litigation on peripheral issues. Conversely, to the extent that the rule would incentivize insurers to investigate meritless claims, these costs would be passed on to all consumers of commercial general liability policies. Lastly, it would be difficult to calculate damages where the insured was, by definition, not deprived of any benefit under the policy.

IV

We next turn to the third certified question posed by the District Court: “Does Alderman v. Hanover Ins. Group, [supra, 169 Conn. at 603, 363 A.2d 1102], apply to pre-suit settlement cases wherein the insurer, under a commercial general liability insurance policy, wrongfully denies coverage, but where only some of the underlyingclaims should have been covered under the policy?” This is another question of first impression for this court. At the outset, we note that answering this certified question requires the assumption that at least some of the allegations would have formed the basis of claims for which AMICO had a duty to defend under the policy. We conclude that, although an insurer breaching its duty to defend is generally liable for the amount of the settlement and costs, the insured has the burden of proving that the settlement is reasonable in proportion to the insurer's liability under its duty to defend.

A brief summary of the duty to defend, as established in our cases, is relevant to the resolution of this legal question. We have consistently held that the duty to defend is broader than the duty to indemnify. Schilberg Integrated Metals Corp. v. Continental Casualty Co., 263 Conn. 245, 256, 819 A.2d 773 (2003). An insurer's duty to defend is triggered if at least one allegation of the complaint “falls even possibly within the coverage.” (Emphasis in original; internal quotation marks omitted.) Hartford Casualty Ins. Co. v. Litchfield Mutual Fire Ins. Co., supra, 274 Conn. at 463, 876 A.2d 1139. Indeed, “[i]t is well established ... that a liability insurer has a duty to defend its insured in a pending lawsuit if the pleadings allege a covered occurrence, even though facts outside the four corners of those pleadings indicate that the claim may be meritless or not covered.” (Internal quotation marks omitted.) Id., at 464, 876 A.2d 1139. “The obligation of the insurer to defend does not depend on whether the injured party will successfully maintain a cause of action against the insured but on whether he has, in his complaint, stated facts which bring the injury within the coverage. If the latter situation prevails, the policy requires the insurer to defend, irrespective of the insured's ultimate liability.... In contrast to the duty to defend, the duty to indemnify is narrower: while the duty to defend depends only on the allegations made against the insured, the duty to indemnify depends upon the facts established at trial and the theory under which judgment is actually entered in the case.” (Citations omitted; internal quotation marks omitted.) DaCruz v. State Farm Fire & Casualty Co., 268 Conn. 675, 687–88, 846 A.2d 849 (2004). “Thus, the duty to defend is triggered whenever a complaint alleges facts that potentially could fall within the scope of coverage....” (Emphasis in original.) Id., at 688, 846 A.2d 849.

An insurer asserting that a claim is not covered under its policy can “either refuse to defend or it [can] defend under a reservation of its right to contest coverage under the various avenues which would subsequently be open to it for that purpose.” Missionaries of the Co. of Mary, Inc. v. Aetna Casualty & Surety Co., 155 Conn. 104, 113, 230 A.2d 21 (1967)( Missionaries ). If the insurer declines to provide its insured with a defense and is subsequently found to have breached its duty to do so, it bears the consequences of its decision, including the payment of any reasonable settlement agreed to by the plaintiff and the insured, and the costs incurred effectuating the settlement up to the limits of the policy. Alderman v. Hanover Ins. Group, supra, 169 Conn. at 611–12, 363 A.2d 1102;Schurgast v. Schumann, 156 Conn. 471, 491, 242 A.2d 695 (1968); Missionaries of the Co. of Mary, Inc. v. Aetna Casualty & Surety Co., supra, at 114, 230 A.2d 21. Moreover, an insurer, “after breaking the contract by its unqualified refusal to defend, should not thereafter be permitted to seek the protection of that contract in avoidance of its indemnity provisions. Nor should [the insurer] be permitted, by its breach of the contract, to cast upon the [insured] the difficult burden of proving a causal relation between the [insurer's] breach of the duty to defend and the results which are claimed to have flowed from it.” Missionaries of the Co. of Mary, Inc. v. Aetna Casualty & Surety Co., supra, at 114, 230 A.2d 21.

In Alderman, this court extended the rule enunciated in Missionaries to situations in which the insured settled claims before the claimant had filed an action. Alderman v. Hanover Ins. Group, supra, 169 Conn. at 610–12, 363 A.2d 1102. The court reasoned that requiring the insured to remain passive subsequent to a clear denial of coverage “could serve no useful purpose: it would have been a gesture of futility, and would have fostered unnecessary litigation, with attendant delays and additional expenses.” (Internal quotation marks omitted.) Id., at 611, 363 A.2d 1102. Accordingly, the court in Alderman recognized that the duty to defend may arise before an action is initiated by the claimant. “Where an insurer refuses to acknowledge any duty or obligation arising under the contract of insurance, the insured is in much the same position whether or not suit has actually been filed.” Id., at 612, 363 A.2d 1102. In the context of presuit demands by an insured, the insurer's duty is triggered when the demand is “sufficiently detailed for the defendant to discern whether the allegations ... [are] within the scope of the plaintiff's insurance coverage.” R.T. Vanderbilt Co., Inc. v. Continental Casualty Co., 273 Conn. 448, 471, 870 A.2d 1048 (2005).

Thus, under Alderman and Missionaries, the insured need not prove, and the insurer is estopped from contesting, actual liability for settled claims for which the insurer wrongly denied defense. “[T]he insured need not establish actual liability to the party with whom it settled so long as ... a potential liability on the facts known to the [insured is] shown to exist....” (Internal quotations mark omitted.) Black v. Goodwin, Loomis & Britton, Inc., 239 Conn. 144, 160, 681 A.2d 293 (1996). Accordingly, “[w]here ... an insured alleges that an insurer improperly has failed to defend and provide coverage for underlying claims that the insured has settled the insured has the burden of proving that the claims were within the policy's coverage [for defense] and that the settlements were reasonable.” (Emphasis in original.) Metropolitan Life Ins. Co. v. Aetna Casualty & Surety Co., 249 Conn. 36, 55, 730 A.2d 51 (1999), citing Black v. Goodwin, Loomis & Britton, Inc., supra, at 160, 681 A.2d 293.

In the present case, Capstone Building received a denial of coverage letter from AMICO on December 6, 2004. Although AMICO never expressly denied Capstone Development's separate coverage request, AMICO initially declined to provide any coverage position, and subsequently filed a declaratory judgment action against Capstone Development in the Alabama federal District Court on May 31, 2006, denying any responsibility for the claims. Subsequently, after UConn formally requested that the plaintiffs participate in mediation as provided in the building contract, the plaintiffs again demanded AMICO's defense in conjunction with the mediation, and was again rebuffed. Consequently, the mediation proceeded without AMICO's participation. As apart of the mediation, UConn submitted an extensive list of deficiencies, for which it claimed damages in excess of $25 million. In the final agreement, however, Capstone Building and Capstone Development each agreed to pay UConn $1 million to settle all claims. In addition, the plaintiffs incurred substantial attorney's fees.

Under these facts, it is apparent that AMICO “refuse[d] to acknowledge any duty or obligation arising under the contract of insurance”; Alderman v. Hanover Ins. Group, supra, 169 Conn. at 612, 363 A.2d 1102; with respect to both plaintiffs. Even if we were to assume, for the purposes of deciding this certified question, that AMICO wrongfully denied the requested defense, the plaintiffs argue that AMICO is liable for the reasonable amount and costs of the settlement up to the limit of the policy under Missionaries and Alderman.

A closer inspection of those cases, however, reveals that they are distinguishable from the facts of the present case. In each of those cases, the action to recover settlement costs from the insurer was based on a single claim for which the insurer was found to have wrongfully denied a defense. In Missionaries of the Co. of Mary, Inc. v. Aetna Casualty & Surety Co., supra, 155 Conn. at 110, 230 A.2d 21, for example, the insurer invoked a policy exclusion to refuse to defend a suit against the insured. In holding that the complaint's allegations stated facts that triggered the insurer's duty to defend, we necessarily concluded that the insurer had breached its duty with regard to the single claim at issue. Similarly, Alderman v. Hanover Ins. Group, supra, 169 Conn. at 607–12, 363 A.2d 1102, involved an insurer's invocation of policy exclusions to disclaim its duty to defend against a manufacturer whose facilities were damaged by the insured contractor. Our conclusion therein that the policy exclusions did not apply necessarily meant that the insurer had breached its duty to defend as to the single claim. Thus, in both Missionaries and Alderman, the insurer's duty to defend applied to the claims in toto. Additionally, in neither case was there any allegation that the settlement was unreasonable, in bad faith, or fraudulent. Missionaries of the Co. of Mary, Inc. v. Aetna Casualty & Surety Co., supra, at 114, 230 A.2d 21 (insurer made no claim “that the amount of the settlement, the expenses incurred by the plaintiff or its attorney's fees were unreasonable”); Alderman v. Hanover Ins. Group, supra, at 609, 363 A.2d 1102 (insurer conceded that “in the event coverage is found, the amounts paid in settlement” were proper).

In contrast, the certified question in this case assumes that the plaintiffs' demand for defense contained allegations that would have obligated AMICO to defend against at least one, but not all, of UConn's claims. Consequently, we must decide whether Missionaries and Alderman are applicable to settlements in which some of the claims would not independently trigger the insurer's duty to defend.

While not dispositive of the certified question in the present case, this court's reasoning in Alderman and Missionaries does provide some guidance. Significantly, as we noted previously, although an insurer who improperly fails to defend an insured is liable for the value and costs of the settlement, the insured “is required to prove that the settlement ... was reasonable.” Black v. Goodwin, Loomis & Britton, Inc., supra, 239 Conn. at 160, 681 A.2d 293, citing Alderman v. Hanover Ins. Group, supra, 169 Conn. at 611, 363 A.2d 1102.

In Black v. Goodwin, Loomis & Britton, Inc., supra, 239 Conn. at 160–61, 681 A.2d 293, this court addressed the tension between the rule in Missionaries, which estops an insurer in breach of its duty to defend from contesting liability for a settlement, and the requirement of reasonableness. “It is well settled that when an insurer improperly fails to defend an insured who subsequently settles the case with the injured party, the insurer is estopped from raising the issue of the insured's liability as a defense to an action arising from the insurer's failure to defend.... Nevertheless, the [insured] is required to prove that the settlement—whether it be by stipulated judgment or otherwise—was reasonable.... In order to recover the amount of the settlement from the insurer, the insured need not establish actual liability to the party with whom it has settled so long as ... a potential liability on the facts known to [the insured] is shown to exist, culminating in a settlement in an amount reasonable in view of the size of possible recovery and degree of probability of [ a ] claimant's success against the [ insured ].” (Citations omitted; emphasis in original; internal quotation marks omitted.) Id., at 160, 681 A.2d 293.

We see two options, consistent with Alderman, for determining whether a settlement reached subsequent to an insured's unheeded demand for defense is reasonable. First, we could hold the breaching insurer liable for the entire settlement amount, without regard to the portion of the settlement attributable to allegations that could form the basis of claims for which the insurer had an independent duty to defend. This procedure would provide a powerful incentive for insurance companies to defend under a reservation of rights or seek a declaratory judgment, when the allegations in the demand for defense contain a potentially covered claim under the policy. Missionaries of the Co. of Mary, Inc. v. Aetna Casualty & Surety Co., supra, 155 Conn. at 113, 230 A.2d 21. On the other hand, this approach would constrain the reasonableness inquiry to the amount of the settlement, without regard for other reasonableness factors. Black v. Goodwin, Loomis & Britton, Inc., supra, 239 Conn. at 160–61, 681 A.2d 293. Moreover, because it would create coverage, via estoppel, even for allegations for which the insurer did not have an independent obligation to defend, much less indemnify, this approach would constitute a significant extension of the rule enunciated in Missionaries.

The second option would tie the insurer's liability, subsequent to a wrongful refusal to defend an insured under a reservation or seek a declaratory judgment, solely to allegations which, considered independently, trigger the insurer's broad duty to defend under the policy. This approach avoids creating liability, via estoppel, for claims for which even the insurer's broad duty to defend does not attach. DaCruz v. State Farm Fire & Casualty Co., supra, 268 Conn. at 688, 846 A.2d 849. Moreover, by holding the insurer liable for the portion of a pretrial settlement that may be reasonably allocated to allegations that form the basis of claims for which the insurer had an independent duty to defend, this approach preserves the penalties enunciated in Alderman for abandoning the insured before an action has been filed. Missionaries of the Co. of Mary, Inc. v. Aetna Casualty & Surety Co., supra, 155 Conn. at 110, 230 A.2d 21 (“[t]he duty to defend has a broader aspect than the duty to indemnify and does not depend on whether the injured party will prevail against the insured”). We believe that the second approach is more appropriate in global settlements with multiple claims.

We acknowledge that the insurer's duty to defend against all claims when even one claim falls “ ‘even possibly ’ ” within the policy's coverage; (emphasis in original) Hartford Casualty Ins. Co. v. Litchfield Mutual Fire Ins. Co., supra, 274 Conn. at 463, 876 A.2d 1139; suggests that an insurer who declines to either defend under a reservation or seek a declaratory judgment is technically in breach of his duty to defend against all claims in a global settlement. For the purposes of determining the reasonableness of settlements under the equitable estoppel rule of Missionaries and Alderman, however, we believe that the proper inquiry is whether the insurer would have had the duty to defend against each claim, contained in the complaint or fairly discernible from the demand for defense, when considered independently. To hold otherwise would be to expand coverage by estoppel to claims for which the insurer owes no duties under the policy. Because the duty to defend is broader than the duty to indemnify; DaCruz v. State Farm Fire & Casualty Co., supra, 268 Conn. at 688, 846 A.2d 849; holding a breaching insurer liable for settlement amounts attributable to claims for which there was no duty to defend is unreasonable.

Accordingly, the breaching insurer's liability for reasonable costs should be limited to the portion of the settlement corresponding to claims for which the insurer had a duty to defend, when consideredindependently. The insured seeking compensation for the settlement, however, bears the burden of proving reasonableness. Black v. Goodwin, Loomis & Britton, Inc., supra, 239 Conn. at 160, 681 A.2d 293. “In short, an insurer cannot avoid paying for a settlement on the ground that the insured was not liable. What it can do is argue that, in light of the insured's defenses to liability, the amount of the settlement was unreasonably high.” 2 A. Windt, Insurance Claims and Disputes: Representation of Insurance Companies and Insureds (5th Ed.2007) § 6:29, available at https:// a. next. westlaw. com/ Document/ I 26 b 7971814 d 011 daa 1 fd 912 bf 881 a 0 c 3.

We see no reason why the reasonableness standard should not apply to the allocation of settlement costs between claims. See, e.g., Connecticut Indemnity Co. v. Perrotti, 390 F. Sup.2d 158, 170–71 (D.Conn.2005) (applying Black to hold that insurer's liability in global settlement, subsequent to breach of duty to defend, is limited to “an amount that is reasonable considering [the insured's] potential liability in the underlying case”). Because we find that holding an insurer liable for the settlement of claims which it had no duty to defend is per se unreasonable, we hold today that an insurer may challenge the reasonableness of global settlements on the basis of the allocation of damages.

We acknowledge that this procedure erodes some of the advantages of the rule in Missionaries for the insured in settlements with multiple claims. Although the insurer is estopped from contesting liability subsequent to a wrongful denial of a request for defense, the insured bears the burden of proving the reasonable allocation of the settlement in relation to the claims for which, when considered independently, the insurer had a duty to defend. In the context of global settlements for more than one claim, this procedure may require a trial to determine the reasonable allocation of the settlement. Black v. Goodwin, Loomis & Britton, Inc., supra, 239 Conn. at 155, 681 A.2d 293 (“we are satisfied that the right of the insurer to challenge the settlement entered into by its insured on grounds of ... unreasonableness provides it with ample opportunity to contest the propriety of such a settlement”).

We stress, however, that the insured is not required to prove actual liability, only “potential liability on the facts known to the [insured]”; (internal quotation marks omitted) id., at 160, 681 A.2d 293; in light of the terms of the insurance policy. We believe that this approach balances the legitimate interests of both parties, without undermining the central holding of our cases, which estop an insurer in breach of its duty to defend from “seek[ing] the protection of [the] contract in avoidance of its indemnity provisions.” Missionaries of the Co. of Mary, Inc. v. Aetna Casualty & Surety Co., supra, 155 Conn. at 114, 230 A.2d 21. Accordingly, in a hearing contesting the reasonablenessof a global settlement disposing of multiple claims, the issue to be decided will be the reasonable allocation of the settlement amount and associated costs in proportion to the claims for which the insurer had an independent duty to defend.

The certified questions are answered as follows: (1) allegations of unintended defective construction work by a subcontractor that damages nondefective property may constitute an “occurrence” resulting in “property damage” under certain circumstances, however, defective work standing alone or repairs to that defective work do not constitute property damage and, therefore, are not covered under the particular insurance policy in the present case, and work by a contractor, as opposed to a subcontractor, is excluded from coverage under the terms of the policy; (2) under the plain language of the insurance policy in the present case, we do not recognize a cause of action based on the insurer'sfailure to conduct a discretionary investigation of claims for coverage; and (3) in global settlements encompassing multiple claims, the insured has the burden of proving that the settlement is reasonable in proportionto claims that, considered independently, the insurer had a duty to defend.

No costs shall be taxed in this court to either party.

In this opinion the other justices concurred.