This article was originally published in the June 2016 edition of Claims magazine, a PropertyCasualty360 publication.
Commercial General Liability ("CGL") insurance policies broadly provide defense and indemnity coverage for claims of bodily injury and property damage asserted against an insured. Product manufacturers are frequently called upon to defend against claims that their products caused bodily injury or property damage. Construction companies, for example, also face significant exposure for claims arising out of alleged faulty workmanship or defective construction. These policyholders look to their insurance companies to provide them with a defense against any such claims, and for indemnity in the event of a judgment or a settlement.
If the policyholder is able to establish that a claim falls within its policy's coverage grant, the burden then shifts to the insurer to prove that an exclusion or other policy provision operates to preclude coverage. Insurers often attempt to minimize or eliminate their exposure to products liability claims by citing the "your product" or "your work" exclusions (among others) that appear in standard-form CGL policies. Insurers have also attempted to argue that the underlying claims asserted against the policyholder do not constitute an "occurrence" under the CGL policy.
Although there are many reasons why an insurer may disclaim coverage for a claim that involves faulty products or workmanship, this article addresses these critical policy provisions, as they are among the most frequently cited.
Property damage caused by an occurrence
The standard CGL policy provides coverage for "property damage" that is caused by an "occurrence." The term "occurrence" is often defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (See CG 00 01 12 07, Sec. V, ¶ 13). While that definition may seem fairly straightforward, many insurance coverage disputes alleging faulty workmanship or construction defects focus on the issue of what constitutes an "occurrence" under a standard CGL policy.
Insurers typically contend that faulty workmanship or defective products do not constitute an occurrence because doing so arguably shifts the burden to the insured to demonstrate that there is an "occurrence," thereby relieving the insurer of its burden to prove that a coverage exclusion applies. However, courts have increasingly rejected these arguments over time. In fact, the majority view is that faulty workmanship triggers an occurrence if resulting property is damaged. (See, e.g., BPI, Inc. v. Nationwide Mut. Ins. Co., 235 W. Va. 303, 311 (W. Va. 2015) (collecting cases)).