ful conditions.” (See CG 00 01 12 07, Sec.
V, ¶ 13). While that definition may seem
fairly straightforward, many insurance
coverage disputes alleging faulty workmanship or construction defects focus
on the issue of what constitutes an “
occurrence” under a standard CGL policy.
Insurers typically contend that faulty
workmanship or defective products do
not constitute an occurrence because doing so arguably shifts the burden to the
insured to demonstrate that there is an
“occurrence,” thereby relieving the insurer of its burden to prove that a coverage
exclusion applies. However, courts have
increasingly rejected these arguments
over time. In fact, the majority view is
that faulty workmanship triggers an occurrence if resulting property is damaged. (See, e.g., BPI, Inc. v. Nationwide
Mut. Ins. Co., 235 W. Va. 303, 311 (W. Va.
2015) (collecting cases)).
Recently, courts in North Dakota, West
Virginia, Connecticut, and Georgia all
rejected insurers’ “no occurrence” arguments in the context of construction defect cases. (See K&L Homes, Inc. v. Am.
Family Mut. Ins. Co., 829 N.W.2d 724
(N.D. 2013); Cherrington v. Erie Ins. Prop.
& Cas. Co., 231 W. Va. 470 (2013);
Capstone Bldg. Corp. v. Am. Motorists Ins. Co.,
67 A.3d 961 (Conn. 2013); Taylor Morrison Servs. v. HDI-Gerling Am Ins. Co., 746
S.E.2d 587 (Ga. 2013)).
Pennsylvania is another jurisdiction that has recently shifted course. For
years, courts determined that contractual
claims of faulty workmanship or product
defects did not constitute occurrences in
Pennsylvania. See for example, Kvaerner
Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 589 Pa. 317, 322
(2006). In Kvaerner, the court held that
a coke oven battery that failed to meet
specifications did not constitute an occur-
rence. The Kvaerner decision was limited
to situations where a defective product
did not cause damage to anything other
than the product itself, although court
decisions that followed Kvaerner did not
recognize this critical distinction. Never-
theless, in 2013, a Pennsylvania appellate
court held that claims asserted against a
manufacturer constituted an occurrence,
and found coverage because the underly-
ing claims alleged damage to persons or
Construction companies, for example,
also face significant exposure for claims
arising out of alleged faulty workmanship
or defective construction. These policy-
holders look to their insurance companies
to provide them with a defense against
any such claims, and for indemnity in the
event of a judgment or a settlement.
If the policyholder is able to establish
that a claim falls within its policy’s cov-
erage grant, the burden then shifts to the
insurer to prove that an exclusion or other
policy provision operates to preclude cov-
erage. Insurers often attempt to minimize
or eliminate their exposure to products li-
ability claims by citing the “your product”
or “your work” exclusions (among oth-
ers) that appear in standard-form CGL
policies. Insurers have also attempted to
argue that the underlying claims asserted
against the policyholder do not constitute
an “occurrence” under the CGL policy.
Although there are many reasons why
an insurer may disclaim coverage for a
claim that involves faulty products or
workmanship, this article addresses these
critical policy provisions, as they are
among the most frequently cited.
Property damage caused
by an occurrence
The standard CGL policy provides coverage for “property damage” that is caused
by an “occurrence.” The term “
occurrence” is often defined as “an accident, including continuous or repeated exposure
to substantially the same general harm-
Is that Product
By Matthew D. Stockwell and Amanda Senske