Is that claim covered?

The Supreme Court of West Virginia recently decided what types of claims fall under the definition of “occurrence” in a Commercial General Liability (“CGL”) insurance policy.  

Nationwide Mutual Insurance Company v. Wilson arose out of an agreement between property owners and a contractor for construction of a house.  The relationship between the owners and contractor deteriorated when the owners discovered the contractor had failed to pay subcontractors and suppliers on the project out of funds he received from the owners and then lied about the reasons for his non-payment.  

The owners sued, seeking damages for funds they paid to the contractor for work he never performed, mechanic’s liens filed on the property by unpaid subcontractors and suppliers, damages to their reputation, and damages to the house caused by the contractor’s negligent work.  The contractor’s insurer intervened in the case, asking the court to determine what, if any, obligation it had to indemnify and/or defend the contractor for the owners’ claims.  

On appeal, the Supreme Court of West Virginia analyzed whether the contractor’s insurance policy provided coverage for the owners’ claims.  Focusing on the policy’s definition of “occurrence” and the court’s own definition of “accident”, it found that most of the owners’ claims arose out of the contractor’s intentional acts or breaches of contract, which did not constitute “occurrences” or “accidents” or under the policy, and therefore were not covered. 

With regard to the claim for defective work, the court found that although the defective work, itself, was not covered, damages causedby the defective work (e.g., cracks in the foundation and associated damage to doors, windows, walls, and lights resulting from the contractor’s negligent construction) triggered coverage because they were “caused by an ‘occurrence.’”  The court nonetheless found there was no coverage based on the policy’s “Your Work” exclusion, which excepted coverage for these damages because they resulted from work performed by the contractor (versus work done by some other party, such as a subcontractor).  

The court found that the insurer had no duty to provide coverage, defend, or otherwise indemnify the contractor in his lawsuit with the owners.  In a broader context, the court held that claims for breach of contract, defamation, unfair and deceptive acts, fraud, and conversion are not “occurrences” under a CGL policy.  

Although coverage interpretations are fact-specific, most commercial insurance policies use definitions and language similar to the language at issue in Wilson.  Also, although the case was decided in West Virginia, the court’s opinion was not based on any unique facet of West Virginia law, meaning that a Virginia court could apply the same or a similar analysis.  No matter where your business is located, Wilson is a reminder to read your insurance policy and understand what is and is not covered.