Revisiting Construction Defects as 'Occurrences' Under CGL Insurance Policies

Abstract

Imagine a situation in which a homeowner hires a contractor to redo a bathroom, for example, and the work is done incompetently such that the plumbing leaks and causes damage to other parts of the house. If the homeowner sues the contractor to recover the costs of repairing the faulty workmanship and the damage caused by the faulty workmanship, has there been an “occurrence” that is covered by the contractor’s Commercial General Liability (“CGL”) insurance policy? This article provides an answer to that question.

The issue of whether construction defects are occurrences under CGL insurance policies has been litigated frequently in recent years. Historically, courts have been divided in their approaches to deciding the issue and in their conclusions. This article contains a comprehensive, nationwide analysis and critique of state courts’ approaches and decisions on the issue. It also proposes an analytical framework in which courts can decide the issue with the theoretical and public policy concerns, such as moral hazard, the compensation of injured parties, and the enforcement of contracts in mind.

Keywords: construction defects, faulty workmanship, insurance, CGL, commercial general liability, occurrence, property damage, moral hazard, business risk, expected or intended, accident