Latent Manifestation of Chemical Reaction Is an Occurrence
October 8, 2013
In Westfield Insurance Co., v. B.H. Green & Son, Inc., No. 5:11-CV-00010-R, 2013 WL 5278243 (W.D. Kentucky Sept. 18, 2013), the court was asked to determine one of the industry's timeless queries: what is an occurrence?
Defendant, B.H. Green & Son, Inc., was in the construction industry. Green held both a commercial general liability and commercial umbrella policy with the plaintiff, Westfield Insurance Co. Green contracted with the Lyon County School Board of Kentucky to construct a middle school. The project was controlled by the school board and its architect, Pleck Flannery Gream Warren, Inc. Together, the board and architect were responsible for determining the building's design function. In addition, they carried on-site inspection authority and set quality and safety control specifications for construction material. It was in this way that Green submitted a purchase order for concrete to Federal Materials Co., LLC, which incorporated the specifications set by the architect and identified the board project as the particular work for which the concrete was to be supplied. The concrete later was referred to as “uncommon mixes.” Federal mixed the concrete in a made-to-order fashion at its own facility with its own equipment. It would then deliver the concrete mix to Green for use at the site, where it satisfied the specifications of the board and architect and passed all requisite testing.
It was only after Green completed the project that cracks began to develop in the building's concrete, at which time the board filed a flurry of suits, including an action against Green. Under a reservation of rights Westfield retained attorney's to defend Green in the action filed in state court. Seeking to avoid further defense and indemnity, Westfield filed in federal court for summary judgment to determine policy coverage. It claimed its policies with Green required coverage only in the event of an occurrence. Since it was alleged that property damage to the building resulted from a latent chemical reaction known as alkali carbonate reaction, the issue before the court was whether or not the latent manifestation of ACR constituted an occurrence under the policy.
The court defined “occurrence” in light of the term's common meaning under the policy and in partnership with its interpretations from relevant case law. Put simply, on its surface an occurrence is an accident. But what is an accident? According to the court, an accident is known by its fortuity. The question then is not what an occurrence is, but what is fortuitous? The court painted a fortuitous event as having two requisite elements: intent and control.
Under this framework, the court held that the damages sought by the board constituted an occurrence under the policy's terms. The compromised nature of the concrete was not known by Green and not discovered by him while he was in control of the project. Westfield argued that the your work exclusion would, in any event, relieve it of its duty to provide coverage for the building's damage, claiming Federal was merely a supplier and not a subcontractor of Green. However, Federal did not manufacture the concrete to the specifications of Green, but rather from the explicit specifications of the architect, which were carefully incorporated by Green's purchase order. Thus, the court found Federal was a subcontractor of Green within the terms of the policies and did not relieve Westfield of its duty to defend Green against the LCBOE claims.
Editor's Note: This case is noteworthy for its method of interpretation. It illustrates the importance of asking the right question and recognizes the need for a manageable approach when defining what constitutes an occurrence. By navigating the analysis to two manageable elements, intent and control, the court laid out a roadmap for industry professionals attempting to analyze liability coverage under their commercial general liability policies.