The Michigan Supreme Court has ruled a subcontractor’s unintentionally faulty work was an “accident” as it relates to commercial general liability insurance and therefore is a valid claim under the subcontractor’s insurance coverage, according to www.constructiondive.com.
The case reviewed was Skanska USA Building Inc. v. MAP Mechanical Contractors Inc. Skanska USA Building sued MAP Mechanical Contractors and two Amerisure insurance companies for $1.4 million regarding damage caused by MAP Mechanical Contractors’ faulty work on a medical center in Michigan. While working on the project’s HVAC system, the company installed expansion joints backward, leading to significant damage to the center’s concrete, steel and heating system. Amerisure rejected Skanska’s initial insurance claim submitted under one of the subcontractor’s CGL policies.
In its decision, the court defined an “accident” as “an undefined contingency, a casualty, a happening by chance, something out of the usual course of things, unusual, fortuitous, not anticipated, and not naturally to be expected.” Amerisure left the term “accident” undefined in MAP Mechanical Contractors’ policy.
In a statement, the Associated General Contractors of America said the decision would not apply if the CGL policy specifically excluded defective work; commercial construction insurance policies regularly exclude many items, including exterior insulation and finishing systems.
The Michigan court did not address the issue of whether Skanska USA Building’s being named an additional insured on MAP Mechanical Contractors’ CGL policy, which had a “your work” exclusion, barred coverage of the defective work. The purpose of a CGL policy in general is to cover damages to others—not the insured’s work. An additional insured endorsement amends the CGL policy to include another party as an insured to the policy. It reportedly is common for general contractors to be added to their subcontractors’ CGL policies.
In May, the U.S. Eighth Circuit Court of Appeals in St. Louis had a different opinion regarding whether construction defects were accidents and, therefore, occurrences under CGL policies. In that ruling, the court said construction defects were not accidents because defective work was normal in the industry, so damages resulting from that work could not be considered unexpected, as an accident would imply. Therefore, inferior work was not a covered occurrence under the CGL policy.
