When a construction defect claim is made against a policyholder, the claim is typically reported to the broker/agent, and a basic review of the coverage provisions and exclusions is undertaken. But there are several other critical considerations that should not be overlooked when analyzing the extent of coverage for a construction defect claim under a commercial general liability (CGL) insurance policy. This article examines two of these matters: whether faulty work constitutes an occurrence and the number of occurrences likely to be at issue.
Whether Faulty Work Constitutes an Occurrence
The insuring clause of the standard CGL policy form promulgated by the Insurance Services Office (ISO) obligates the carrier to pay those sums the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage,” if the “bodily injury” or “property damage” occurs during the policy period and is caused by an occurrence that takes place in the “coverage territory.”[1] The standard form defines “occurrence” as “an accident, including continuous and repeated exposure to substantially the same general harmful conditions.”[2]
Because the standard form leaves the term “accident” undefined, states have struggled—and some continue to struggle—with the question of whether faulty work can constitute an “occurrence.” The law of the jurisdiction at issue will thus need to be consulted to determine whether and to what extent property damage stemming from faulty work qualifies as an “occurrence.” The majority position[3] is that faulty work can constitute an occurrence where there is damage to property other than the insured’s own work or product.[4]
Provided below is an overview of recent cases addressing the issue of whether and under what circumstances faulty work constitutes an occurrence under a CGL policy.