If a Tree Falls in a Forest, Is It an Occurrence?
Not If You Cut More Trees Than Called For in Your Contract. That’s Faulty Workmanship, Not an Accident, Massachusetts Appeals Court Rules; Business Risk Exclusions Also Bar Coverage.
In light of a recent Appeals Court case, parties disputing construction defects coverage in Massachusetts, where such disputes have typically focused on the business risk exclusions, now need to pay more attention to the more fundamental question whether there was a covered occurrence. Whether the damage was caused by an accident, or by faulty workmanship, is a factual determination for which the case law does not provide clear guidance.
In Pacific Indemnity Co. v. Lampro, _ Mass. App. Ct. _ (2014), the owners of land on a lake hired a contractor to remove trees and brush in accordance with permits issued by the local conservation commission. The contractor hired a subcontractor, who, for reasons not clear on the record, failed to abide by the permits or the engineering plans and clear-cut the area sloping to the lake, resulting in an environmental nightmare for the landowners. The contractor met with the commission and accepted responsibility for the subcontractor’s error. The landowners’ homeowners insurer paid over $100,000 to restore the land, and brought a subrogation claim against the contractor and its general liability insurer.
The general liability insurer defended the contractor, and the claims against the contractor, along with third party claims against the subcontractor, the architect and the engineer, were settled for $90,000 while the jury was deliberating. The homeowners insurer’s unfair claim settlement practices count against the general liability insurer in the same case had been stayed, and, after the settlement, the general liability insurer moved for judgment on the pleadings on that count. The trial judge allowed the motion, ruling that the claim against the contractor was not covered. The Appeals Court agreed. Even though the contractor accepted responsibility for the clear-cutting, since there was no coverage, liability was not reasonably clear under Massachusetts General Laws c. 93A and 176D.
An occurrence is an accident, that is, an unexpected happening without intention or design, the Appeals Court observed. The court agreed with the trial judge that cutting unintended trees is a normal, foreseeable, and expected incident of the business of landscaping. Based on this analysis, the court concluded that the clear-cutting was not an occurrence within the meaning of the contractor’s general liability policy. The court went on to conclude that two business risk exclusions also barred coverage, noting that the goal of general liability coverage is to protect from claims of injury to others, but not against economic loss to the insured due to its own defective work or products.
Putting aside the exclusions, the court’s holding on the occurrence issue is worth a closer look, particularly in light of precedent on this issue. In Beacon Textiles Corp. v. Employer’s Mut. Liab. Ins. Co. of Wis., 355 Mass. 643 (1969), the Supreme Judicial Court, noting that the term accident in an insurance policy is to be broadly construed, applied the same definition of accident cited by the court in Lampro and concluded that an unexplained latent defect that caused a manufacturer’s yarn to change color was an accident.
It’s not easy to reconcile Lampro with Beacon Textiles. Cutting the right trees is surely a part of a landscape contractor’s business, but no more so than making color-fast yarn is the business of a textile manufacturer. There is no bright line separating an accident from faulty workmanship, and it remains a fact-sensitive issue.
Posted In: Insurance