In a 6-1 opinion issued on March 7, 2011, the Supreme Court of Georgia joined a growing national trend and held that negligent construction that results in damage to property other than the contractor’s work is an “occurrence” under a commercial general liability (CGL) insurance policy.
In the decision, American Empire Surplus Lines Ins. Co. v. Hathaway Dev. Co. (Ga. Sup. Ct., March 7, 2011), the Court held that a general contractor could recover from its subcontractor’s insurers for the cost of repairs for damage to surrounding property resulting from the subcontractor’s faulty workmanship. The Court stated: “[W]e … hold that an occurrence can arise when faulty workmanship causes unforeseen or unexpected damage to other property. In reaching this holding, we reject out of hand 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.’” (quoting Lamar Homes v. Mid-Continent Cas. Co., 242 SW3d 1, 16 (Tex. 2007)).
This decision is very significant because it confirms an avenue for recovery for owners and other contractors whose property or work has been damaged by negligent construction. The Court’s decision is also significant because it is written in broad and straight-forward terms. In its holding, the Court affirmed an opinion previously issued by the Georgia Court of Appeals, and confirmed the holdings of prior Court of Appeals decisions. The Court rejected a line of cases in the federal courts, applying Georgia law, suggesting that if an act began as being intentionally performed, it could not be an “occurrence,” even if negligently performed and resulting in completely unintended consequences. Insurers had long relied on this line of cases to deny claims. In contrast, the 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.”
The Supreme Court of Georgia’s decision definitively establishes the law in Georgia, and will be binding on federal courts applying Georgia law in future decisions, and on all lower state courts in Georgia.