West Virginia’s High Court Holds Defective Workmanship Causing Bodily Injury or Property Damage Does Constitute an “Occurrence” Under Standard CGL Policy

by K&L Gates LLP
Contact

West Virginia has left the shrinking minority of states still precluding coverage for bodily injury and property damage claims arising out of defective workmanship. Influenced by the growing number of states allowing for such coverage, the Supreme Court of Appeals of West Virginia recently held that defective workmanship causing bodily injury or property damage constitutes an “occurrence” under a policy of commercial general liability (“CGL”) insurance. Cherrington v. Erie Insurance Prop. & Cas. Co., Case No. 12-0036, 2013 WL 3156003 (W.Va. June 18, 2013) (“Cherrington”). In so holding, the Cherrington Court expressly overruled three of its prior decisions, decided between 1999 and 2005, holding that CGL policies do not cover defective workmanship claims.

In Cherrington, Lisbeth Cherrington (“Cherrington”) entered into a contract with The Pinnacle Group, Inc. (“Pinnacle”), for the construction of a home in Greenbrier West Virginia. During the period of the home’s contract negotiation and construction, Pinnacle had in effect a CGL insurance policy issued by Erie Insurance Property and Casualty Company (“Erie”). Pinnacle’s CGL policy provided coverage for “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies,” so long as the “bodily injury” or “property damage” was “caused by an ‘occurrence.’” The policy defined “occurrence,” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Noticeably absent from the policy’s definitional section, however, was the term “accident.”

After the house was completed, Cherrington alleged various defects it, including an uneven concrete floor on the ground level of the house; water infiltration through the roof and chimney joint; a sagging support beam; and numerous cracks in the drywall and partitions throughout the house. She sued Pinnacle alleging that “Pinnacle was negligent in the construction of said home.…” Pinnacle asserted that, “other than some of the trim work and siding work,” all of the work about which Cherrington complained was performed by subcontractors. Erie denied coverage to Pinnacle, and Pinnacle filed a third-party complaint seeking a declaration of coverage. Erie won summary judgment that Cherrington had not established that an “occurrence” or “accident” had caused the damages she allegedly sustained because faulty workmanship, in and of itself, or absent a separate event, is not sufficient to give rise to an “occurrence.” Pinnacle appealed.

The Supreme Court of Appeals, however, reversed the lower court’s decision, holding that defective workmanship does, in fact, give rise to an occurrence under a CGL policy. At the outset of its opinion, the Supreme Court recounted its earlier decisions concluding that CGL policies do not cover faulty workmanship, but explained that while it “appreciate[s its] duty to follow prior precedents, [it is] also… cognizant that stare decisis does not require this Court’s continued allegiance to cases whose decisions were based upon reasoning which has become outdated or fallen into disfavor.” The Court explicitly recognized “that a definite trend in the law has emerged since we rendered our [prior decisions] sufficient to warrant this Court’s reconsideration of the issues decided therein….” This “definite trend” is the majority view that defective workmanship may be an occurrence under a CGL policy.

Ultimately, the Court relied upon two lines of reasoning to support its conclusion that defective workmanship constitutes an “occurrence” under a CGL policy. First, the Court pointed to the fact that Erie did not define the term “accident,” which is used in the policy’s definition of “occurrence.” The Court found that pursuant to West Virginia law, circumstances giving rise to claimed damages or injuries must not have been “deliberate, intentional, expected, desired, or foreseen” by the policyholder to be accidental. Columbia Casualty Co. v. Westfield Insurance Co., 217 W. Va. 250, 617 S.E.2d 797 (2005). The Court determined the alleged damages were unintended, stating that “[i]t goes without saying that the damages incurred by Ms. Cherrington during the construction and completion of her home, or the actions giving rise thereto, were not within the contemplation of Pinnacle when it hired the subcontractors alleged to have performed most of the work…. Nor can it be said that Pinnacle deliberately intended or even desired the deleterious consequences that were occasioned by its subcontractors’ substandard craftsmanship.” For these reasons, the Court did not find that the alleged damages incurred by Ms. Cherrington were “deliberate, intentional, expected, desired or foreseen” by Pinnacle.

Second, the Court held that excluding the defective workmanship from coverage in this case would be incongruous with the policy’s express language providing coverage for the acts of subcontractors. The Court explained that the CGL’s policy Exclusion L specifically excepts coverage for work performed by subcontractors by the “your work” exclusion. According to the Court, “[a]pplication of our prior holdings to find that the defective work of subcontractors does not constitute an “occurrence” and thus is not covered by the subject CGL policy would, indeed, create an absurd result when the policy expressly provides coverage for damages occasioned by subcontractors acting on behalf of the insured.”

Finally, the Court noted that the defective workmanship must result in “bodily injury” or “property damage” in order to satisfy the remainder of the policy’s insuring clause. The Court then focused its analysis on whether Cherrington had sustained any “property damage,” which was defined in the policy as either “[p]hysical injury to tangible property, including all resulting loss of use of that property,” or “[l]oss of use of tangible property that is not physically injured.” According to the Court, the extensive list of damaged items in Cherrington’s home resulting from the allegedly defective construction satisfied either definition.

Cherrington, which strayed from a fourteen year precedent, eliminates uncertainty as to whether and when coverage exists under West Virginia law for property damage caused by defective workmanship under standard-type CGL insurance policies. Although application in any particular case may be fact-sensitive, and various exclusions contained in a CGL policy may nonetheless bar coverage, West Virginia’s high court no longer sides with the minority of states holding that defective workmanship is not an “occurrence” under CGL policies. Policyholders facing construction-related claims under policies governed by West Virginia law should understand the rules to assess how to maximize their insurance recovery.

 

Written by:

K&L Gates LLP
Contact
more
less

K&L Gates LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!