The Arkansas Supreme Court recently found two certified questions from a federal court regarding faulty workmanship moot and reaffirmed that a CGL policy does not extend coverage for breach of contract. Columbia Ins. Grp., Inc. v. Cenark Project Mgmt. Servs., Inc., 2016 Ark. 185, 2016 WL 1732833 (April 28, 2016).

Homeowners contracted with the insured to construct building pads on lots in a subdivision. The contract required the insured to perform the work in accordance with plans, specifications and drawings developed by an engineering firm. The homeowners sued the insured, alleging it failed to construct the building pads in accordance with the engineering plans.

The insured’s CGL insurer sought a declaration of no coverage in federal court and filed a motion for summary judgment that the policy did not provide coverage for the claims. The insured filed a motion for summary judgment that the insurer breached its duty to defend. The court ruled the insurer had a duty to defend, but certified the following questions to the Arkansas Supreme Court:

  1. Whether faulty workmanship resulting in property damage to the work or work product of a third party (as opposed to the work or work product of the insured) constitutes an “occurrence?”
  2. If such faulty workmanship constitutes an “occurrence,” and an action is brought in contract for property damage to the work or work product of a third person, does any exclusion in the policy bar coverage for this property damage?

In considering the first certified question, the Arkansas Supreme Court concluded that the question rests on the premise that the underlying claim involves defective workmanship by the insured. However, the Supreme Court concluded that the homeowners’ claim was one for breach of contract, and that the coverage issue is controlled by Unigard Sec. Ins. Co. v. Murphy Oil USA, Inc., 331 Ark. 211, 962 S.W.2d 735 (1998). The Court reasoned that the claim was that the insured breached the contract by not adhering to the engineering firm’s plans, specifications, and drawings and sought economic losses from that breach and that although the underlying litigation touched on property damage, it did not alter the nature of the lawsuit as one for breach of contract. Therefore, the Court found no coverage owed. In light of that conclusion, the Supreme Court found the certified questions moot and declined to respond to them.