Contractor's Shoddy Work

Georgia Court Holds Insurer Accountable for Contractor's Shoddy Work

Jeff Jeffrey
March 12, 2011

Georgia's Supreme Court has determined that a general contractor may recover from its subcontractors' insurers the cost of repairs for property damages stemming from the subcontractor's shoddy workmanship.

Property damages caused by a subcontractor's faulty workmanship meet the definition of an "occurrence" under state laws dealing with commercial general liability policies, according to the court's opinion.

The opinion, written by Justice Hugh Thompson on behalf of the Georgia Supreme Court, stems from work performed by a plumbing subcontractor hired by Hathaway Development Co. Inc. in late 2006.

The subcontractor, Whisnant Contracting Co. Inc., had been hired to work on three separate projects in Florida and Georgia. The opinion says that on one project, Whisnant improperly installed a dishwater supply line. On another project, Whisnant installed four-inch pipe on an underslab despite the fact that the contract specified six-inch pipe. On the third, Whisnant improperly installed a pipe, which separated once it was subjected to the pressure of water flowing through it.

In each circumstance, the opinion said, Whisnant's faulty workmanship caused thousands of dollars worth of damage to property near the site of the subcontractor's work.

Hathaway, which was represented by Craig Cowart, filed suit against American Empire Surplus Lines Insurance Co. in late 2007, seeking to recover the cost of the repairs to the damaged property in addition to the cost of fixing the faulty work. Cowart said the court's decision, and its determination of what can be considered an accident, could have far-reaching effects in Georgia. "The focus on the opinion was not on whether the damage was intentional but rather that it was accidentally caused by intentional acts. That type of analysis of what kinds of accidents are to be accepted as occurrences could play out in all types of situations, and not just CGLs," Cowart said.

After the trial court determined that Whisnant's negligent workmanship could not be deemed an "accident" under the terms of the company's commercial general liability policy, American Empire was granted summary judgment. That decision was reversed on appeal by the state Court of Appeals.

When it reached the state Supreme Court, American Empire's lawyers argued that because the property damage was caused by the intentional actions of Whisnant -- the company's negligent work -- it couldn't be considered an accident. American Empire was represented by J. David Hopkins, an Atlanta-based partner at Locke, Lord & Bissell; and Garrett Pendleton, an Atlanta-based solo practitioner.

The State Supreme Court disagreed, finding that even though Whisnant's conduct was intentional it caused unforeseen damage to property and was therefore an accident. "We reject out of hand the assertion that the acts of Whisnant could not be deemed an occurrence or accident under the CGL policy because they were performed intentionally," Thompson wrote for the majority. "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."

Efforts to reach Hopkins and Pendleton for comment were unsuccessful.

The Georgia Supreme Court's decision differs from a recent decision out of the Supreme Court of South Carolina. In that case, Crossman Communities of North Carolina Inc. v. Harleysville Mutual Insurance Co., the South Carolina court found that an insurer wasn't required to cover damages caused by faulty workmanship under a contractor's CGL policy (BestWire, Feb. 23, 2011).

American Empire Surplus Lines Insurance Co. currently has a Best's Financial Strength Rating of A+ (Superior).

In 2009, the top five writers of commercial multiperil (liability) in Georgia, according to BestLink, which provides online access to A.M. Best's database of insurance information, were: Travelers Group, with a 10.3% market share; Auto-Owners Insurance Group, with 8.6%; Liberty Mutual Insurance Cos., with 5.9%; State Farm Group, with 5.2%; and Nationwide Group, with 4.7%.

http://insurancenewsnet.com/article.aspx?id=251626&type=lawregulation&inl=1