Over the past several years, decisions from the highest courts in several states have given some clarity to policyholders who have long attempted to determine whether their exposure to construction defect claims is covered by their standard CGL policies. These decisions have almost uniformly hinged on whether the deciding court believes that the particular construction defect, and resulting damage, fall within the definition of an “occurrence,” or qualify as “property damage” arising from an occurrence, as those terms are used in the standard CGL policy.
As a result of these decisions, the common law has developed in most states to a point where policyholders can distinguish between states whose courts broadly recognize construction defects to be a covered occurrence under CGL policies, those who do not, and those who have fallen somewhere in between.
Yet despite this apparent clarity, insurers and policyholders have not simply waved the white flag and accepted their fate in states where decisions have gone against them. Further, trial and intermediate appellate courts have continued to grapple with applying the guidance from their states’ higher courts to cases that are often fact-intensive and present a seemingly innumerable amount of varying fact patterns that can result in unpredictable coverage decisions.
In light of several court decisions focusing on the insured party’s “scope of work” for the project at issue when resolving coverage disputes, it is more important than ever for policyholders in the construction industry to clearly define “their work” during the contracting phase of any project. It is also more important than ever for general contractors and higher-tier subcontractors to clearly define the work that will be performed by subcontractors.