Friday, February 21, 2014

West Virginia Recognizes that Property Damage Caused by Defective Construction Is an “Occurrence” Under a CGL Policy

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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