Georgia Court Extends CGL to Negligent Construction
A general contractor can recover from its subcontractor’s insurers for the cost of repairs for damage to surrounding property resulting from the subcontractor’s faulty workmanship, the Georgia Supreme Court has held.
The state’s highest court found that negligent construction is an “occurrence” under a commercial general liability (CGL) policy and that damage to surrounding property caused by faulty work that is neither intend¬ed nor expected is covered.
The court rejected the assertion that the acts of the subcontractor could not be deemed an occurrence or accident under the CGL policy because they were performed intentionally.” [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 court said in its 6-1 decision in American Empire Surplus Lines Ins. Co. v. Hathaway Dev. Co.
Jim Leonard, an Atlanta attorney with Barnes & Thornburg, said the ruling is “very significant” because it eliminates one of the most often cited defenses by insurers in construction cases. “[T]he Hathaway opinion makes it clear that an intentionally performed act – such as the act of construction work – that results in unintended damage because it was improperly performed can be an occurrence,” he said.
In the case of American Empire Surplus Lines Insurance Co. v. Hathaway Development Co., Hathaway, a general contractor, hired a plumbing subcontractor, Whisnant Contracting, which installed a four-inch pipe under a slab as opposed to the six-inch pipe called for in the building plans. The subcontractor also improperly installed a dishwasher line and a pipe that separated under hydrostatic pressure.
As a result of the damage, Hathaway sued Whisnant not only for damage to the property in total, but also for the cost of fixing water and weather damage to surrounding properties. After gaining a summary judgment against the subcontractor, Hathaway sued Whisnant’s insurer, American Empire, for the damage.
American Empire denied coverage, arguing that it did not constitute an occurrence, which the policy defined as “an accident, including continuous or repeated exposure to substantially the same general conditions.” American Empire argued that Whisnant’s shoddy workmanship could not be construed as an “accident.”
A lower court awarded a summary judgment to American Empire. The Georgia Court of Appeals, however, reversed, concluding that the policy covered damages arising out of an “occurrence,” since the term “accident” is never defined. Absent such a definition, the court said the law must accept the commonly held definition that an accident is “an event happening without any human agency, or it happening through such agency, an event which, under circumstances, is unusual and not expected by the person to whom it happens.”