Hathaway Development Company (“Hathaway”), a general contractor, sued its plumbing subcontractor, Whisnant Contracting, Inc. (“Whisnant”), for negligent work at three jobsites, seeking to recover the costs of repairs caused by Whisnant’s faulty workmanship. The costs went beyond those required to fix Whisnant’s plumbing mistakes per se; rather they were costs associated with water and weather damage to surrounding property. Hathaway sued Whisnant which failed to answer and after entry of a default judgment against Whisnant, Hathaway sought payment from Whisnant’s insurer, American Empire Surplus Lines Insurance Company (“American Empire”).
American Empire denied liability, asserting that Hathaway’s claim was not covered under Whisnant’s CGL policy because it did not arise out of an “occurrence,” defined under the policy as “accident, including continuous or repeated exposure to substantially the same, general harmless conditions.” American Empire argued that Whisnant’s negligent workmanship could not be deemed an “accident.” The trial court agreed and granted summary judgment to American Empire but the Georgia Court of Appeals reversed and found that because Whisnant’s faulty workmanship caused damage to the surrounding properties, the acts of Whisnant constituted “occurrences” under the policy. Last year, the Georgia Supreme Court agreed to review this decision.
The standard CGL policy provides insurance coverage for damages resulting from an “occurrence.” As mentioned above, the policy defines an occurrence as an “accident.” However, the term “accident” is not defined in the standard CGL policy. Georgia case law has traditionally defined an accident as “an event happening without any human agency, or, if happening through such agency, an event which, under circumstances, is unusual and not expected by the person to whom it happens . . . [I]n its common signification the word means an unexpected happening without intention or design.” American Empire contended that because Whisnant intended to perform its work, it could not be deemed an “unexpected happening.” The Supreme Court rejected this argument and found that “a deliberate act, performed negligently, is an accident if the effect is not the intended or expected result; that is, the result would have been different had the deliberate act been performed correctly.”
The Supreme Court’s decision, with on only one dissent, closes the door on insurers’ argument that faulty or negligent workmanship cannot be an “occurrence.” However, this case does not address the standard “business risk” and other exclusions under a CGL policy which may also come into play in these circumstances. Depending on the specific facts of each case, the policy should be closely reviewed in any situation in which there is damage flowing from the work of an insured contractor.
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