Defective Construction Constitutes an "Occurrence'

The Georgia Supreme Court holds that defective construction constitutes an “occurrence” under a CGL insurance policy as long as the resulting damage or injury is neither expected nor intended

Julie A. Lierly, Caroline W. Spnagengerg and Ellen P. McCarley
March 9, 2011

In a 6-to-1 decision, Monday the Georgia Supreme Court held that faulty workmanship is an “occurrence” under a commercial general liability (CGL) insurance policy as long as the resulting property damage or bodily injury is neither expected nor intended. American Empire Surplus Lines Insurance Company v. Hathaway Development Company, Inc., __ S.E.2d __, 2011 WL 768117 (Ga. Mar. 7, 2011). In so holding, the Georgia Supreme Court joined the growing number of jurisdictions that hold that an “occurrence” can arise where faulty workmanship causes unforeseen or unexpected injury or damage to “other property.” The Court “reject[ed] out of hand the assertion that the acts of [the contractor] could not be deemed an occurrence or an accident under the CGL policy because they were performed intentionally.” Quoting the 2007 Texas Supreme Court decision Lamar Homes v. Mid-Continent Casualty Company, 242 S.W. 3d 1, 16 (Tex. 2007), the Georgia Supreme Court held that “‘[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.’”    

In Hathaway, a general contractor (Hathaway) sued its plumbing subcontractor (Whisnant) on three projects. In one, Whisnant installed 4 inch pipe on an underslab, rather than the specified 6 inch pipe. In the other projects, Whisnant improperly installed a dishwasher supply line and a pipe which separated under hydrostatic pressure. Hathaway recovered a default judgment against Whisnant and sought payment from Whisnant’s CGL insurance carrier, American Empire. American Empire denied coverage because it claimed that the property damage did not result from an “occurrence,” which the CGL policy defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” American Empire claimed that because Whisnant intentionally performed the plumbing work, the resulting property damage did not arise from an “occurrence.”

The trial court agreed and granted summary judgment to American Empire. On appeal, the Georgia Court of Appeals reversed the trial court’s decision. The Court of Appeals held that Whisnant’s faulty workmanship, which damaged the surrounding apartments Hathaway built, constituted an “occurrence.” The Court of Appeals expressly rejected the insurer’s argument that CGL policies “cover only injury resulting from accidental acts and not injury accidentally caused by intentional acts” (emphasis in original).

The Georgia Supreme Court granted certiorari to address whether the Georgia Court of Appeals erred in its construction of the term “occurrence.” The Supreme Court affirmed, holding that the Court of Appeals correctly determined that Whisnant’s acts constituted an “occurrence” under the CGL policy.

The highest courts in many other states, including Indiana, Mississippi, Texas, Florida, Tennessee, Kansas, North Dakota, Nebraska, Wisconsin, South Dakota, Arkansas, and New Hampshire have reached the same conclusion that there is an “occurrence” where faulty workmanship causes damage to property other than the defective work itself. With its opinion in Hathaway, the Georgia Supreme Court also resolves the current conflict that exists among the federal district courts in the Northern District of Georgia and Middle District of Georgia.Compare Gentry Mach. Works, Inc. v. Harleysville Mut. Ins. Co., 621 F. Supp. 2d 1288, 1291 n.4 (M.D. Ga. 2008) (“Georgia courts recognize that unintended faulty workmanship can constitute an ‘occurrence’ under the standard language contained in a CGL policy.”), with Owners Insurance Co. v. James, 295 F. Supp. 2d 1354 (N.D. Ga. 2003) (“[T]he insurance policies at issue in this case provide coverage for injury resulting from accidental acts, but not for an injury accidentally caused by intentional acts.”).

In short, the Georgia Supreme Court has soundly repudiated the insurers’ contention that “defective construction” is not an “occurrence” and has reiterated the long-standing Georgia principle that there is an “occurrence” as long as the insured does not expect or intend the resulting injury or damage—a holding which is likely to be significant in other contexts, including product liability cases.  


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