Between the Lines

A Discussion of Case Law and Statutory Law Affecting Commercial Lines of Insurance


Are Construction Defects an Occurrence? Some State Legislatures Say Yes.

Windows are falling out of a prominent skyscraper.  Has there been an “occurrence” under the contractor’s general liability policy?

Coverage for construction defects has been a hotly contested commercial general liability policy issue in recent years.  In broad terms, the battle has been fought on two fronts: the applicability of the “business risk” exclusions, which eliminate coverage for property damage to the policyholder’s work or product, and the more fundamental issues whether and under what circumstances construction defects constitute “property damage” from an “occurrence” triggering coverage under commercial general liability policies in the first place.  Recently, several states have enacted legislation intended to resolve the “occurrence” issue in favor of policyholders.

Colorado Revised Statutes Section 13-20-808 creates a presumption that “the work of a construction professional that results in property damage, including damage to the work itself or other work”, is an accident (and therefore an “occurrence”) unless the damage is expected or intended by the insured.  This provision does not affect any other policy provisions or exclusions.  Hawaii Revised Statutes Chapter 431, Article 1, an attempt to avoid the application of a specific appellate decision on the issue to policies issued before the date of the decision, requires the term “occurrence” to be construed in accordance with the law in effect at the time the policy was issued.  In 2011, both Arkansas and South Carolina enacted statutes mandating a specific definition of “occurrence” for all commercial general liability policies.  Again, these statutes do not affect exclusions.

Between challenges to the statutes, and in particular to their retroactive application, and the fact that they only address one aspect of the construction defects issue, these statutes appear unlikely to simplify, and may even complicate, coverage disputes in this area.  However, because they address the fundamental applicability of coverage, and because exclusions are strictly construed in favor of the insured, they seem likely to result in more policyholders obtaining at least a defense to construction defect claims.  In any case, an evaluation of coverage for construction defects should now look not only to the policy language and the allegations in the claim, but ask whether there is an applicable statute.

Harvey Nosowitz
(617) 621-6555

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Harvey Nosowitz

Posted In: Construction Defects

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