Faulty Workmanship of Subcontractor
December 10, 2012
The insurer filed an action against its insured seeking a declaratory judgment that its CGL form did not afford coverage for liability associated with a negligent pipe installation that resulted in property damage to third party. This case is Maxum Indemnity Company v. Jimenez, 2012 WL 5857279.
The underlying lawsuit involved a construction project for a dormitory on the campus of Georgia Southern University. Gill Plumbing Company and Jose Jimenez were hired as subcontractors to install pipes. Subsequent to the construction, a pipe burst occurred at the dorm that caused damage to several units, including the flooring, carpet, and walls. The underlying lawsuit was filed to recover the costs to repair the property damage in the dorm.
Following a trial, the jury found Jimenez was at fault for causing the damage and that he was liable for $191,382.01 in damages due to his negligent pipe work. Jimenez was insured under a CGL policy by Maxum Indemnity. The insurer filed a declaratory judgment action seeking a declaration of no coverage. The trial court ruled in favor of the insured and the insurer appealed.
Maxum asserted that the underlying claim did not fall within the policy's coverage for property damage caused by an occurrence. The Court of Appeals of Georgia disagreed. The court said that Maxum's arguments in this regard have been decided adversely by judicial precedents in the state. The court said that the rulings in the previous cases established the point that a subcontractor's faulty workmanship that causes unforeseen or unexpected damage to other property constitutes an occurrence under a CGL policy. Moreover, there was no evidence or suggestion in this case that Jimenez's plumbing mistakes were expected or intentional, so under those circumstances, his acts constituted an occurrence, an accident as defined in the policy.
The insurer argued also that its policy with Jimenez did not afford coverage since the judgment entered against Jimenez in the underlying lawsuit was for contractual indemnity and breach of contract that was outside the scope of the coverage for property damage arising out of tort liability. The court found this argument unavailing. The court said that, although the complaint against Jimenez set forth both a breach of contract claim and a tort claim, both claims were based upon his defective workmanship in the pipe installation and the resulting property damage to the dorm. The court found that the sole basis for the jury's award of damages against Jimenez was the claim for damage to the property caused by negligent workmanship and this was covered under the CGL policy.
Maxum also argued that coverage was barred by the policy's contractual liability exclusion and did not fall within the insured contract exception to the exclusion. Contrary to Maxum's argument, the court ruled that the contractual liability exclusion did not apply in this case. Jimenez's obligation to pay the damages award was not based upon a contractual assumption of liability, but rather, was based upon his tort liability arising from his own negligent pipe workmanship. The court rejected Maxum's attempts to mischaracterize the underlying claims as for contractual indemnity only. To the extent that Jimenez was directly liable in tort for the property damage caused by his negligence, regardless of the contract, the court said that the exclusion did not apply.
The trial court's decision granting summary judgment to Jimenez was affirmed.
Editor's Note: The Court of Appeals of Georgia heard the standard arguments put forth by an insurer that property damage due to faulty workmanship is not covered under a CGL form: there was no occurrence; and, the claim was based on contractual liability and breach of contract. The court rejected each argument made by the insurer.
The court found that the damage caused by the insured's work was accidental. Jimenez did faulty work, but the results of that faulty work were not intentional. An unforeseen and unexpected result came about due to the insured's negligence and this was an occurrence as defined in the policy.
As for the argument that the claim against the insured was contractual in nature, the court found that the sole basis for the jury's award of damages was the claim for damage to property. The underlying claim against the insured was to recover the cost of repairing the damage to the dorm caused by his negligent workmanship. This was not a claim of contractual assumption of liability, but rather a claim of tort liability based on faulty workmanship, and that was covered by the CGL form.