In
July 2013, the Supreme Court of Appeals of West Virginia joined with a majority
of states and ruled that defective workmanship resulting in property damage constitutes
an “occurrence” under a standard Commercial General Liability (“CGL”) insurance policy. The case was
styled Cherrington v. Erie Insurance
Property and Casualty, Co.
The
underlying case involved defects to a family’s home. There were three insurance
policies in place: CGL, homeowners, and personal catastrophe. The lower court
ruled that none of the three policies covered various defects in the home
including an uneven concrete floor, water infiltration through the roof and
chimney joints, and cracks in the drywall. The court found that these problems
were economic losses and not property damage because the defects were caused by
faulty workmanship, which was not an “occurrence” triggering coverage under a
CGL policy.
The
Supreme Court of Appeals reversed the decision, holding that property damage
resulting from faulty workmanship is an “occurrence” under the CGL policy. In
prior cases, the Court had held that faulty workmanship was not an occurrence
under a CGL policy unless coverage is specifically included in the policy. It
also had stated that CGL policies are not designed to cover poor workmanship. In
this case, the Supreme Court of Appeals recognized that a majority of other
jurisdictions had either legislatively or judicially found that poor
workmanship was an occurrence under a CGL policy. The Court decided to join the
majority.
The
Court relied on two lines of reasoning. First, it examined the property damage in
light of the policy’s definition of “occurrence,” which included an “accident.”
The court found that faulty workmanship must be accidental because no
contractor would hire subcontractors that would intentionally perform defective
work. Thus, the property damage defective resulting workmanship was an “accident,”
and therefore an “occurrence.” Second, the Court explained that excluding
subcontractors’ defective work from coverage would violate the intent of the
CGL policy, which is to provide coverage for subcontractors’ acts.
This
case shows a continuing national shift towards expanding the scope of CGL
policies and helps to resolve uncertainty about the scope of CGL policies in
West Virginia.
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