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Insurance coverage denied for faulty workmanship




By Sean McLean

Policy coverage
The policy language provided coverage for only property damage caused by an “occurrence” which was defined as an “accident, event, or happening, including continuous or repeated exposure to substantially the same general harmful conditions.”  Various exclusions were made from this coverage, including one for professional services, also known as professional liability exclusion.  As such, the insurance company claimed that the construction defects alleged in the suit did not constitute occurrences covered under the policy, but are instead were subject to the applicable liability exclusions.  In response, the general contractor and subcontractor argued that the policy’s incorporation of the term “event, or happening” into the definition of occurrence effectively expands the definition’s scope to cover claims for faulty workmanship.

Court’s determination

In its analysis, the court noted that a loss must result from chance, and not by design, is a necessary element of any insurance policy covering an occurrence.  The addition of an event or happening to the definition of occurrence did not alter this legal requirement.  A claim for faulty workmanship does not involve the chance required to constitute an accident.  The court noted that by adopting the interpretation suggested by the general contractor and subcontractor to cover breach of contract and poor workmanship claims against them would essentially transform the policy into a surety or performance bond, which is not the nature of the coverage obtained by the owner.  Accordingly, the court found that the insurance company was not obligated to defend or indemnify the general contractor and subcontractor in the underlying action.



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