On July 12, 2013, the Supreme Court of Georgia confirmed in Taylor Morrison Servs., Inc. v. HDI Gerling Am. Ins. Co., No. S13Q046 (Ga. July 12, 2013), that damage to a builder’s completed work can constitute an "occurrence" under a standard commercial general liability (CGL) policy. The decision rejects an argument commonly made by insurers, that damage to the property or work of a third party is required before there can be an "occurrence" for coverage purposes.
Taylor Morrison, a homebuilder, held a standard CGL policy issued by HDI-Gerling. The policy covered, among other things, "property damage" caused by an "occurrence," and it defined "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Taylor Morrison was sued by homeowners in a class action alleging the builder was liable for various categories of damage to the plaintiffs’ homes caused by faulty foundation work. HDI-Gerling filed suit in the US District Court for the Northern District of Georgia seeking a declaratory judgment that the homeowners’ claims were not covered under the policy. Applying Georgia law, the district court granted summary judgment to HDI-Gerling, finding there to be no "occurrence" under the policy when the only property damage alleged was damage to the homes — the work of the insured.
On appeal, the Eleventh Circuit certified two questions to the Supreme Court of Georgia: (1) whether Georgia law requires there to be damage to property other than the insured’s completed work for an "occurrence" to exist; and (2) whether Georgia law allows certain specific claims, such as breach of warranty and fraud, to form the basis of an "occurrence."
The Supreme Court of Georgia held that damage to an insured’s work can constitute an "occurrence" under Georgia law. In reaching this holding, the Court relied heavily on the everyday meaning of the word "accident" — something that occurs unexpectedly or unintentionally – as that term is used in the definition of "occurrence." Applying that plain meaning, the court determined that the language of the CGL policy does not require damage to the property or work of someone other than the insured for there to be an "occurrence." Based on similar reasoning, the court also held that the policy’s definition of "occurrence" can apply to a breach of warranty claim, since a warranty can presumably be breached unintentionally. Nevertheless, the court opined that, because fraud claims require the claimant to prove intentional malfeasance, such claims will generally not constitute an accident or, therefore, an "occurrence."
The Taylor Morrison decision is the latest in a line of appellate cases across the country rejecting insurers’ arguments that faulty workmanship must result in damage to third-party property before there can be an "occurrence" sufficient to trigger coverage. However, while the decision confirms that damage caused by faulty construction services will usually constitute an "occurrence" under a contract for ordinary general liability insurance, the court clarified that coverage generally does not extend to repairs of the defective work itself. Insurers will, therefore, undoubtedly continue to argue for narrow interpretations of coverage in the context of faulty workmanship or product defects. Taylor Morrison provides Georgia insureds ammunition to refute such overly restrictive policy interpretations. The decision also serves as a timely reminder that insurers must generally afford policies their plain and ordinary meanings under Georgia law and that a failure to do so may constitute a breach of contract.