The Iowa Supreme Court has weighed in on the issue of whether damage arising from defective construction work can be an “occurrence” triggering insurance coverage. It appears that the damages awarded after a jury trial included both remedial work to the original construction as well as repair to other building components that were damaged.
In order to determine whether there was an “occurrence,” the court had to parse the definition of that word, and applicable exclusions in the policy. A divided court held in favor of coverage.
The policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same harmful conditions.” Which then led to the definition of “accident.” In the case at hand, the lower court had instructed the jury to consider an “accident” as “an unplanned, sudden, and unexpected event.” Further, this determination by the jury was to be from the perspective of what the insured party expected or reasonably should have expected. Stated another way, the court noted that an “accident” would mean “an unexpected or unintended event” from the perspective of the insured.
A critical analysis of the Iowa high court was this: “An unintentional act resulting in property damage the insured did not expect or intend qualifies as an accident amounting to an occurrence as defined in the modern standard-form CGL policy so long as the insured did not expect and did not intend both the act itself and the resulting property damage.” (emphasis added)
Put a different way: “Considered from the standpoint of the insured, ‘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 also noted that the policy must have been intended to cover some property damage caused by defective work, else some of the exclusions would be of no effect. And to interpret the policy terms so narrowly as to exclude coverage for all property damage from negligent work of a sub would be “unreasonable in light of the exceptions and exclusions” in the policy in question.
The dissenting opinion by three justices would have held that there was no “accident.” Per the dissent, “[t]here is nothing sudden about the gradual infiltration of rainwater through leaky window frames over several seasons,” citing an Eighth Circuit Court of Appeals decision. The dissent also claimed that the majority ignored persuasive decisions on point in other jurisdictions, and relied on inapplicable Iowa cases.
Thus, one more state joins the group of those who would expand a standard GL policy to cover the cost of defective workmanship, and not just the consequential damage arising from that work. In the long run, if this case represents a gradual trend, the cost of insurance will have to rise to meet the higher scope of risk. The case is National Surety Corp. v. Westlake Investments, LLC, 2016 Iowa Sup. LEXIS 71 (June 10, 2016).