Recently, courts across the country have been called upon to decide the issue of whether the average commercial general liability (“CGL”) policy provides coverage for construction defect claims against contractors. Edward Weiman and Audrey Jing, Recent Developments in Construction Defect Insurance, InsideCounsel, July 2012, at 1. Some courts have taken extreme positions and held that construction defect claims never implicate CGL coverage. Id. See also John S. Torigian and Carol K. Watson, Construction Defects Coverage and the CGL Policy, Construction SuperConference, Dec. 2010, at 4. To challenge these court decisions, several states, including Hawaii, have passed legislation effectively reversing the decisions of their highest courts. Id.
To determine whether CGL policies cover construction defect claims, the policy must be reviewed as a whole. The reader should first consider the initial grant of coverage. He should next evaluate the exclusions to coverage, and then the exceptions to the exclusions. Generally, CGL policies cover an “occurrence” resulting in “property damage.” An “occurrence” is usually defined as an “accident,” which is often undefined by the policy. Therefore, coverage analysts are compelled to review case law to determine what is meant by an “accident.” A majority of state courts, which have considered the issue, have defined “accident” as an unforeseen, unexpected, or unintended event. See, e.g., Travelers Indem. Co. of America v. Moore & Associates, Inc., 216 S.W. 3d 302, 308 (Tenn. 2007); Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W. 3d 1, 8 (Tex. 2007); Auto Owners Ins. Co., Inc. v. Newman, 385 S.C. 187, 192 (S.C. 2009); PMA Capital Ins. Co. v. American Safety Indem. Co., 695 F. Supp.2d 1124, 1127 (E.D. Cal. 2010). An insured’s faulty workmanship surely could fall under this definition of an “accident.” After all, it is probably a rare happenstance that a contractor would intentionally perform substandard work causing “property damage.” Further, Exclusion 2(j) set forth above would be superfluous if no defects were covered by the policy.