A recent 8th Circuit Court of Appeals case, applying Missouri law, reminds us that shoddy workmanship may not be covered by your commercial general liability insurance.  This also means that if an owner claims your faulty workmanship caused problems on the project, you may have to pay those damages out of your own pocket, not the insurers.

In this case, American Family Mutual Insurance Co., S.I. v. Mid-American Grain Distributors, LLC, the owner hired Mid-American to build a grain storage facility.  After a year of work, the owner terminated Mid-American and refused to pay the remaining amount owed on the contract.  Mid-American sued the owner for breach of contract and the owner counter-claimed, alleging that Mid-American poorly designed the facility and had shoddy construction practices.

Mid-American tendered its defense of the claim to its insurer, American Family.  American Family then filed its own lawsuit asking the court to determine whether coverage existed under the commercial general liability (CGL) insurance for the owner’s counterclaims.

To understand the issue in this case, we need to explain coverage under a CGL policy.  Under a typical CGL policy, the insurer will pay for damage caused by an occurrence. An occurrence is generally defined as an accident.  An accident, under Missouri law, is an event that takes place without one’s expectation.

Here, the faulty workmanship resulted in damages to the property.  The court held that the owner’s damages were the normal consequence of faulty work and the cost of repairs were not an unexpected event that would constitute an accident.

Courts around the country are split on the issue of whether shoddy workmanship is covered by CGL insurance.  This recent Missouri case certainly indicates that faulty workmanship is not covered.  If you are wrestling with whether you have coverage for claims of faulty workmanship, we recommend you contact an experienced construction attorney to help you with your analysis.