The debate of whether construction defects are covered by commercial general liability (“CGL”) insurance continues. The West Virginia Supreme Court recently reversed its longstanding position that construction defects were not covered by CGL insurance and joins the growing majority of state courts that have determined that defective work is covered by commercial general liability insurance.
In West Virginia’s recent case, Cherrington v. Erie Insurance Property & Casualty Co., Ms. Cherrington contracted with the Pinnacle Group for the construction of her home. Most of the work on the home was performed by subcontractors. After completion, Ms. Cherrington discovered various construction defects and sued Pinnacle.
Pinnacle tendered the claim to its insurer, Erie Insurance. Erie refused to defend and Pinnacle sued Erie for coverage. The trial court, relying on West Virginia Supreme Court’s earlier opinions, ruled that there was no coverage. Pinnacle appealed and in a surprising turn of events, the West Virginia Supreme Court reversed the trial court.
As explained by the West Virginia Supreme Court, an insured’s defective work does constitute an accident and occurrence under the CGL policy unless the claimed damages or injuries were deliberate, intentional, expected, desired, or foreseen by the insured. Additionally, the “Your Work Exclusion” within the subcontractor exclusion (this exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor) cannot eliminate coverage when work performed by subcontractors is involved. Finally, the court held that the impaired property exclusion does not apply because applying it would contradict the policy’s obvious intent to cover completed work when the subcontractor’s work is involved.
This is a fundamental change in the law for West Virginia construction. We will have to wait and see if the Nebraska Supreme Court reconsiders its position that construction defects are not covered by CGL policies and joins the growing trend of cases that have found coverage.