Litigation over whether a Commercial General Liability insurance (CGL) policy provides coverage for faulty workmanship claims is rapidly evolving. Since 2012, six state supreme courts (CT, WV, ND, AL, GA, and OH)1 have ruled on whether faulty work can be an “occurrence;” whether the cost to repair the damage to the work constitutes “property damage”; how the “your work” exclusion and the subcontractor exception applies and whether providing such coverage converts a CGL policy into a bond. In addition, a few states have enacted legislation mandating CGL policies to define “occurrence” to include property damage resulting from faulty workmanship.2
Of the six rulings, only the Supreme Court of Ohio ruled definitively against coverage, holding “claims of defective construction or workmanship brought by a property owner are not claims for ‘property damage’ caused by an ‘occurrence’ under a commercial general liability policy….” Westfield Ins. Co. v. Custom Agri Sys. Inc. 979 N.E.2d 269 (Ohio 2012)
Is Faulty Workmanship an Occurrence? Although all of the rulings are nuanced, the other five states’ supreme courts have generally ruled that faulty workmanship can be an occurrence under the CGL policy. Rejecting the argument that faulty workmanship is foreseeable and therefore never fortuitous, the Supreme Court of Connecticut observed:
“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. 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.” Capstone Building Corp. v. American Motorists Ins. Co. 67 A.3d 961 (Conn. 2013)
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