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September 17, 2013
A standard commercial general liability (CGL) policy insures against liability for “bodily injury” or “property damage” arising from an “occurrence,” and subject to certain policy exclusions. Georgia appellate courts have struggled with the question of whether an insured contractor is entitled to coverage for claims arising from the contractor’s faulty workmanship. In July 2013, the Georgia Supreme Court resolved some of that confusion when answering certified questions from the Eleventh Circuit in Taylor Morrison Servs., Inc. v. HDI-Gerling Am. Ins. Co., ___ Ga. ___, 746 S.E.2d 587 (July 12, 2013), but the more lasting legacy of the decision may be in the analytical framework it endorses for such claims:
The limits of coverage do not all have to be found in the word “occurrence,” inasmuch as the other words of the insuring agreement – as well as the policy exclusions – have their own roles to play in marking the limits of coverage. The sounder analytical approach is to avoid conflating the several requirements of the insuring agreement and the exclusions, and instead, to let each serve its proper purpose.
Following that framework, the Court reaffirmed prior holdings that an “occurrence,” defined in the standard CGL policy as an “accident,” can still arise when faulty workmanship causes unforeseen or unexpected damage to other property (i.e., property other than the insured’s work). The Court broke new ground, however, when it ruled that an “occurrence” may also include damage to the insured’s work that is caused by the insured’s defective workmanship.
The Court went on to address whether an “occurrence” could also encompass faulty workmanship claims that are plead as fraud or breach of warranty. Because the tort of fraud requires intentional conduct on the part of the insured, the Court held that it cannot constitute an “occurrence.” The Court reached a different conclusion with respect to the breach of warranty claim because, while the making of a warranty is an intentional act, the breaching of a warranty may not be. Thus, whether the claim is plead as negligence or breach of warranty, it may find coverage under a CGL policy.
Consistent with its endorsed analytical framework, the Supreme Court reminded readers that determining whether the claim is an “occurrence” is only one step in the analysis because the “occurrence” must still cause “property damage,” which is defined as “physical injury to tangible property,” or “loss of use to tangible property that is not physically injured.” In a dicta statement that will surely spawn additional litigation, the Court reasoned that, “property damage …, necessarily must refer to property that is nondefective, and to damage beyond mere faulty workmanship.” The Court also reminded practitioners that the standard exclusions in every CGL policy may also bar coverage. Thus, while Taylor Morrison is a victory for policyholders, it must be viewed as one battle in a larger war.
If you have questions about your insurance, contrract or construction issues, contact Parks, Chesin partner Matthew Macguire, who regularly practices in these areas. You can reach him at 877-986-5529, or you can email him at firstname.lastname@example.org.