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Faulty Workmanship an Occurrence

Is Faulty Workmanship an Occurrence Under a CGL Policy? West Virginia Now Says Yea

Laura R. Thomson
September 25, 2013

After more than a decade in the “no” column, West Virginia can now be counted among—as its highest court reports—the majority of states that recognize that defective construction causing bodily injury or property damage is an “occurrence” under standard CGL policies. Cherrington v. Erie Ins. Property & Cas. Co, [Case No. 12-0036]. In this June 2013 decision, the court expressly overruled its prior pronouncements on this issue in Erie Ins. Property & Cas. Co v. Pioneer Home Improvement, Inc., [206 W.Va 506 (1999)];Corder v. William W. Smith Excavating Co., [210 W. Va. 110 (2001)]; Webster County Solid Waste Auth’y v. Brackenrich & Assoc’s, Inc., [217 W. Va. 304 (2005)]; as well as McGann v. Hobbs Lumber Co., [150 W. Va. 364 (1965)] and their progeny.

Cherrington is a case involving coverage for defective construction of a home under the general contractor’s CGL policy and under its principal’s homeowner’s and umbrella policies, all issued by Erie Insurance Property & Cas. Company. In the underlying complaint against Pinnacle Group (the general contractor), Cherrington (the homeowner), sued for negligent construction and breach of fiduciary duty and sought to recover for emotional distress as well as for damages resulting from defects in her home discovered after completion—defects resulting from the work of Pinnacle’s subcontractors. The trial court had granted summary judgment in favor of third party defendant insurer, Erie, concluding, inter alia, that allegations of emotional distress without physical manifestation were not “bodily injury” under the policies, that no “occurrence” had caused the damages alleged, and that, nevertheless, certain exclusions, specifically the “your work” (Exclusion L), “damage to impaired property or property not physically injured” (Exclusion M) and “sistership” (Exclusion N) exclusions, all barred covered. Additionally, the trial court determined that the coverage was barred under the homeowner/umbrella policies issued to Pinnacle’s principal under a “business pursuits” exclusion. On appeal, the Supreme Court of Appeals affirmed the trial court as to bodily injury and the “business pursuits” exclusion, but reversed as to whether defective construction constitutes an occurrence and the applicability of the cited CGL exclusions.

On the first issue of whether defective construction constitutes an occurrence under standard CGL policies, the court reported that “many cases have emerged since this Court’s 2001 definitive holding in Corder” in which it previously held that defective construction does not constitute an occurrence. (The opinion collects cases in the minority and the majority, and also cites states where legislative amendments have been made to the state’s insurance statutes regarding the definition of “occurrence.”) As the court explained, “With the passage of time comes the opportunity to reflect upon the continued validity of this Court’s reasoning in the face of judicial trends that call into question a former opinion’s current soundness.” Evoking Justice Frankfurter, the court added “[w]isdom too often never comes, and so one ought not to reject it merely because it comes late.”

In addition to recognizing “ a definite trend in the law”, the court grounded its ruling that defective construction can constitute an “occurrence”—defined in the CGL policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions”—on the meaning of “accident,” which itself is not defined in the policy. As the court explained, to be an “accident” the circumstances giving rise to the claimed damage or injuries must not have been deliberate, intentional, expected, desired, or foreseen by the insured. According to the court, common sense cuts against finding defective workmanship to be that: “had Pinnacle expected or foreseen the allegedly shoddy workmanship its subcontractors were destined to perform, it would not have hired them in the first place”; “[n]or can it be said that Pinnacle deliberately intended or even desired the deleterious consequences” as “[t]o find otherwise would suggest that [the contractor] deliberately sabotaged the very same construction project it worked so diligently to obtain.”

The court reported that its conclusion was further supported by the express language of Exclusion L, which by exception, provides coverage for work performed by subcontractors. Finally, said the court, its “prior proscriptions limiting the scope of the coverage afforded by CGL policies to exclude defective workmanship” were “so broad” “as to be unworkable in their practical application.”

The court went on to reverse the trial court on its ruling that no property damage had been alleged, citing “an extensive list of damaged items in her home resulting from the allegedly defective construction and completion work.” It also reversed the trial court on the applicability of Exclusion L, M and N to bar coverage, concluding first that Exclusion L, by its express terms, does not operate to preclude coverage for work performed by Pinnacle’s subcontractors. As to Exclusion M, the court would not read it to directly conflict with Exclusion L. And, Exclusion N—applicable to the products recalled or withdrawn from the market—did not apply on the facts in this case.

The court affirmed the trial court’s ruling of no coverage under the homeowners and umbrella policies of Pinnacle’s principal. Those policies both included exclusions for bodily injury, property damage or personal injury “arising out of business pursuits of anyone we protect.” Although it was unclear what role Mr. Mamone played in the construction, the court found that he was both the president and agent of Pinnacle, and that his actions fell squarely within the business pursuit exclusions of both policies issued to him, and did not fall under any exceptions.

The content of this article is intended to provide general information and as a guide to the subject matter only. Please contact an Advise & Consult, Inc. expert for advice on your specific circumstances.

SOURCE: www.lexology.com

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