Between the Lines

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


Accidents Happen, But GL Coverage Doesn’t Necessarily Follow

When your roof looks like this at the end of a construction project, what resulting damage will your GL policy cover?

I recently wrote about the Connecticut Supreme Court’s decision addressing the often-contested question of whether the standard form CGL policy covers damage caused by defective construction. Connecticut found that where faulty workmanship causes physical damage to non-defective property, CGL policies cover that damage, but not the defective construction itself or any non-physical, non-tangible damage that the faulty workmanship caused. Since the Connecticut decision, the Alabama and Georgia supreme courts addressed the same question, and each answered it slightly differently.

Both courts focused on the threshold issue of whether faulty workmanship constitutes an “occurrence,” which the CGL policy defines as an “accident.” The Alabama court concluded that faulty workmanship is not necessarily an “occurrence,” but it may qualify as one if it results in damage to personal property or parts of the structure outside the scope of the construction project. If, for example, you hire a contractor to replace your roof and the new roof leaks, resulting in water damage to your furniture and walls and floors, you have an “occurrence” under Alabama law. On the other hand, if you hire a contractor to build a house, and the roof leaks, resulting in water damage to other parts of the house, there’s likely no “occurrence” under Alabama law, because the damage is to property that was within the scope of the construction project.

The Georgia court took a different approach, which is closer to that of Connecticut, holding that faulty workmanship may constitute an “occurrence” even if the only damage is to work done by the insured contractor. The court was careful to point out, however, that its holding does not automatically translate to GL coverage for defective construction. Among other things, the claimant or insured still must show “property damage” for coverage to apply. On that point, the court observed that property that is inherently defective because of faulty workmanship (e.g., the leaking roof) cannot be said to have been injured or rendered unusable by the same faulty work that rendered it defective in the first place. Under Alabama law, “property damage” thus would seem to require damage to property other than the defective property (e.g., the walls and floors damaged by a leaking roof, but not the roof itself).

As in Connecticut, these decisions no doubt will lead to further litigation, including disputes (in Alabama) about whether the damage was inside or outside the scope of the construction project and (in Georgia) whether the damage was to defective or nondefective property.

The decisions are Owners Insurance Co. v. Jim Carr Homebuilder, LLC, 2013 WL 5298575 (Ala. Sept. 20, 2013) and Taylor Morrison Services, Inc. v. HDI-Gerling America Insurance Co., 746 S.E.2d 587 (Ga. July 12, 2013).

About the Author

Anne Robbins – Counsel

Anne represents insurers and insureds in complex insurance coverage and bad faith cases.

Posted In: Construction Defects

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