After last week’s blog about what is covered by a CGL policy, I received a number of questions about whether Nebraska courts would cover faulty workmanship. So, what is covered by a CGL policy in Nebraska? The latest Nebraska Supreme Court case on this issue, Auto-Owners Ins Co v Home Pride Companies Inc, in 2004, ruled that faulty workmanship is not covered under a CGL policy. But, the insurer was still required to defend Home Pride. Here’s why.
Home Pride was hired to shingle an apartment complex. Home Pride hired a subcontractor to do the work. The owner was dissatisfied with the work and filed a suit against Home Pride claiming that it failed to install the shingles in a workmanlike manner and that the faulty workmanship caused substantial damage to the roof and buildings.
The insurer filed suit asking the court to decide whether Home Pride’s insurance policy covered the faulty workmanship of a subcontractor that Home Pride hired. The insurer argued that that faulty workmanship does not constitute an “occurrence” under the policy. The policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
The Court’s Analysis
The court looked to the policy and found that faulty workmanship, standing alone, is not covered under a CGL policy, but an accident caused by faulty workmanship is a covered occurrence. So, what’s that mean? The court found that an example provided the best explanation. A subcontractor was hired to clear, grub, grade, and construct the subbase for a road construction project. The subcontractor failed to remove a number of tree stumps in the roadbed and moisture seeped into the road base, deteriorating the road. Had the pavement not failed and the developer brought an action to recover the cost of removing the tree stumps from the roadbed, the defective work, standing alone, would not have been “property damage” or an “occurrence” under the policy. The damages, however, extend beyond the cost of removing the tree stumps because the failure to properly compact the roadbed led to property damage, namely, the failure of the road surfaces. The damage to the road was an “accident” and thus covered under the policy.
What Does this Mean?
CGL insurance will not cover all faulty workmanship claims. In essence, if a contractor’s work is faulty and has to be redone, it will not be considered an occurrence under the policy and an insurer will likely deny the claim. But, if the faulty work causes problems elsewhere, such as a leaking roof causing structural damage to the building, the insurer will likely have to provide coverage.