Case Law Takes Away Construction Defect Coverage

As we’ve discussed, Exclusion CG2294 cuts off coverage for construction defect claims for builders. However, there is another way that builders can lose coverage for construction defect. The court system can take away coverage by adverse rulings that set precedent.

Under the General Liability policy, coverage must be triggered by bodily injury or property damage resulting from an “occurrence”. An “occurrence” is synonymous with the term “accident”. Many courts rule that faulty construction is not an “accident” and thus not covered under a General Liability policy. An “accident” is defined by the use of terms such as unexpected result, unforeseen, and not planned. These courts reason that faulty workmanship that is the ordinary and natural consequence of the failure to comply with contractual and governmental regulations is not an accident. Other courts have ruled that the General Liability policy was not meant to act as a warranty or performance bond for faulty construction and as a result faulty workmanship is not an occurrence.

I disagree with the logic behind the court cases that rule that faulty workmanship is not an accident. I think that most contractors that have claims intended to perform the work properly but unknowingly made some type of mistake that resulted in a problem. Therefore, I believe that these claims are unexpected and are accidents as a result. But, my opinion doesn’t matter.

The only thing that matters is that the courts in about one-third of the states have ruled that property damage to a contractor’s own work resulting from faulty workmanship is not an “occurrence” and not covered as a result.

In South Carolina, the state supreme court has flip flopped on this issue over the past several years. As of the date of this video, the supreme court has ruled that resulting property damage to non faulty work is an “occurrence”.

You need to be aware of the position of your state on the issue of the “no occurrence” claim denial as this will have a major bearing on your coverage for construction defect.