Over the years, swimming pools have given rise to more than their share of reported decisions. One of the most recent, and relevant to the insurance industry, is the US Court of Appeals for the Fifth Circuit's recent decision affirming a finding that a contractor's faulty work in installing a swimming pool may be deemed an "occurrence" for purposes of general liability insurance coverage. Maryland Casualty Company v. Acceptance Indemnity Insurance Company, No. 10-50283 (5th Cir. Mar. 24, 2011). A copy of the decision is available here.
The two insurance carriers had issued consecutive primary general liability policies to Russell Guidry, who did business as Olympic Pools. Maryland Casualty's policy was in force in 2002-2003, and Acceptance Indemnity's policies were in force for three years thereafter. In 2002, a Hugh McGee hired Guidry to install a "negative edge" (sometimes called "infinity") swimming pool at his house in Texas. The pool was beset with problems, springing a leak in April 2003 and then subsequent leaks in March and August 2005. The March 2005 leak was particularly severe, causing the pool itself to drop two feet within sixteen hours and to drain completely within two days. When the pool was empty, McGee's property manager noticed that a long crack, running the length of the pool along the negative-edge wall, had also developed.
In 2006, McGee sued Guidry in Texas state court, alleging a host of claims sounding in general negligence, which resulted in damage to and loss of use of the pool, as well as other damage due to the leaks. Guidry tendered to both of his carriers. Only Maryland Casualty accepted the tender, and it ultimately negotiated a settlement of $590,000 on behalf of its insured. Maryland Casualty then filed suit against Acceptance Indemnity, seeking to recover Acceptance's pro rata share of the defense costs and settlement. Maryland Casualty prevailed at trial.
The case raises a number of issues and is worth reading, at least for the Fifth Circuit's thoughtful treatment of Acceptance Indemnity's exclusion-based arguments. What seems most interesting, however, is the preliminary finding that Guidry's faulty work was an "occurrence" that triggered coverage under his insurance policies. A jury ultimately agreed with Maryland Casualty that an "occurrence" had taken place when the pool cracked and leaked. Neither the district court nor the appellate court ever disturbed that finding.
The case is interesting because faulty work, in itself, is typically excluded from coverage under the terms of most general liability insurance policies, either because the policy has an express exclusion for an insured's faulty work or because damage to the work itself does not constitute an occurrence. The Fifth Circuit's decision seems to imply that the water leaking from the pool caused damage to property other than the pool itself, which would tend to trigger coverage; but the point is not clearly spelled out in the decision.