Are Construction Defects An Occurrence for Insurance?
In construction, there is always a risk of construction defects whether the result of bad design, poor workmanship, negligent design, or various other defect causes. Due to the complexities of the construction industry, these issues can progress into litigation for contractors, subcontractors, and project owners. Beyond covering and repairing these defects with bonds, the question is whether these defects trigger coverage under Commercial General Liability (CGL).
The answer is not always straightforward, and because the definition of an occurrence varies from jurisdiction to jurisdiction, a Nashville contractor attorney is highly recommended when applicable statutes to determine if the defect is indeed covered.
What is an Occurrence?
Under a CGL, an “occurrence” is an accident that includes continuous exposure to the same harmful conditions. Bodily injury or property damage must be caused by an occurrence during the policy period in order to trigger coverage.
Examples of Defects Counted As Occurrences
Many construction defect litigations occur as a result of whether certain defects qualify as an occurrence and triggers coverage. When determining defect coverage, an analysis of coverage should be completed with your Nashville contractor lawyer to determine if the claim is within the scope of the policy. An occurrence cannot be assumed; however, there are cases in which defects have been ruled as occurrences:
In a 2007 case, a window contractor was sued for negligent design and installation which caused water damage and wall deterioration. The unforeseeable water penetration was determined as an accident and occurrence under the insurance policy.
In a 2013 case, a contractor was sued for defective construction of a home which led to cracks and a damaged foundation. This led to a qualification of an occurrence due to the faulty work which led to damage to the property and unsafe living conditions.
Typically, defective workmanship was not considered an occurrence and therefore was not a covered occurrence under a CGL policy. However, many U.S. courts are now finding that defective workmanship can be an occurrence. Yet, the issue lies with each state coming to its own conclusion as to whether defective workmanship is deemed an occurrence.
Most states believe that construction defects are an occurrence as long as the damage was unexpected by the policyholder or where property other than the work performed by the policyholder is damaged. Again, contractors should scrutinize their CGL policies and contact our Nashville contractor lawyers should they need further assistance.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.