The Supreme Court of Georgia recently held that an insured’s faulty workmanship constitutes an “occurrence” within the meaning of the insured’s commercial general liability policy. American Empire Surplus Lines Ins. Co. v. Hathaway Development Comp., Inc., 2011 WL 768117 (Ga., 2011).
In American Empire, Hathaway, a general contractor, sued Whisnant, its plumbing subcontractor, for costs of repairs and damage to surrounding properties caused by Whisnant’s faulty workmanship. After obtaining a default judgment, Hathaway sought payment from American Empire, Whisnant’s insurer. American Empire denied liability, asserting that Hathaway’s claim was not covered under Whisnant’s policy because it did not arise out of an “occurrence,” defined under the policy as “an accident, including continuous or repeated exposure to substantially the same, general harmful conditions.” In granting summary judgment to American Empire, the trial court held that Whisnant’s negligent workmanship could not be deemed an “accident.” The Georgia Court of Appeals reversed, holding that because Whisnant caused damage to surrounding properties, Whisnant’s acts constituted “occurrences” within the meaning of the policy. American Empire appealed.
Because Whisnant’s policy did not define the term “accident,” the Georgia Supreme Court looked to the commonly accepted meaning of the term. When used in an insurance policy, an “accident” is deemed to be “an event happening without any human agency, or, if happening through such agency, an event which, under circumstances, is unusual and not expected by the person to whom it happens.” It also means “an unexpected happening rather than one occurring through intention or design.” Applying this definition, the Court found that policies with similar “occurrence” language provided coverage for “the risk that…defective or faulty workmanship will cause injury to people or damage to other property.” Because Whisnant’s faulty workmanship caused damage to neighboring properties, such acts constituted an “occurrence” under Whisnant’s policy. In affirming the decision of the Court of Appeals, the Supreme Court held that an occurrence can arise where faulty workmanship causes unforeseen damage to other property. The Court also rejected the notion that Whisnant’s acts could not be deemed accidents because they were performed intentionally, holding that a deliberate act, performed negligently, is an accident if the effect is not the intended or expected result.
For more information, please contact Denny Brown at (404) 633-9230.
