Insurance Claims
Whether Faulty Workmanship Constitutes an "Occurrence" Continues to be Revisited by Courts Across the Country
Melito & Adolfsen PC
July 25, 2014
Is there a shift in the longstanding majority view, including in New York, New Jersey and Connecticut, that construction defect claims do not constitute an occurrence when the damage is to the insured’s own work because it lacks the requisite fortuity? The issue needs to be watched. The NJ State Assembly is considering a bill to redefine the term “occurrence” in a CGL policy to include damages resulting from a contractor’s faulty workmanship. Other courts have even claimed that there is a new “majority rule” that inadvertent faulty workmanship is an “occurrence.”
In their view, why is damage from the same faulty work not an occurrence for purposes of the insured’s work while the damage to third-party property is an occurrence? See, e.g., Cherrington v. Erie Ins. Prop. & Cas. Co., 231 W.Va. 470 (2013) (changing the law in W. Va.). According to them, the question should be whether the damage resulting from faulty construction is unexpected or unintended. If so, then it constitutes an “occurrence.”
There also is a policy language argument based on the “your work” exclusion and its exception for property damage arising out of work performed by a subcontractor. A GC’s scope of work often includes an entire project, including the work of its subs. So, the argument goes, if “faulty workmanship is not an “occurrence,” then the exclusion and its subcontractor exception would serve no purpose because faulty workmanship claims would not be covered in the first instance. And that violates a basic rule of contract interpretation. See, e.g., K&L Homes, Inc. v. Amer. Family Mut. Ins. Co., 829 N.W.2d 724 (ND 2013) (overruling prior “occurrence” decision).
More to follow as the situation develops…
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