Occurrence and Coverage under the CGL Form
January 6, 2014
The insurer brought an action seeking a declaratory judgment that it had no duty to defend or indemnify the insured under the commercial general liability policy. This case is Taylor Morrison Services v. HDI—Gerling America Insurance Company, 746 S.E.2d 587 (2013).
Taylor Morrison is a homebuilder and it was sued by homeowners alleging that the concrete foundations of their homes were improperly constructed insofar as Taylor Morrison failed to lay four inches of gravel beneath the foundations and failed to use adequate moisture barriers. These failures resulted in water intrusions, cracks in the floors and driveways, and warped and buckling flooring. HDI—Gerling, as the insurer of Taylor Morrison, at first undertook to defend the insured but later filed a declaratory judgment action seeking a ruling that it had no duty to defend or indemnify the insured. The district court ruled in favor of HDI—Gerling and an appeal followed.
In order to address the appeal, the U.S. Court of Appeals for the Eleventh Circuit certified questions of state law to the Georgia Supreme Court. That court was requested to answer two questions: whether, for an occurrence to exist under a standard CGL form, Georgia law requires there to be damage to other property, that is, property other than the insured's completed work itself; and, if the answer to question 1 is in the negative, whether, for an occurrence to exist under a standard CGL form, Georgia law requires that the claims being defended not be for breach of contract, fraud, or breach of warranty from the failure to disclose material information.
The Supreme Court of Georgia noted the definition of “occurrence” in the CGL policy. The term meant “an accident, including continuous or repeated exposure to substantially the same, general harmful conditions”. The court also noted that the policy did not define “accident”. Therefore, the court said, an accident, as it is commonly accepted, means an unexpected happening without intention or design. Upon this finding, the court concluded that an occurrence can arise where faulty workmanship causes unforeseen or unexpected damage to other property. As for damage to the work of the insured, the court more fully explored its previous rulings and rulings from other jurisdictions on the subject.
The court found that its previous rulings and the strong recent trend in the case law of other jurisdictions construes the term “occurrence” without regard to the identity of the person whose property or work is damaged. Therefore, the court held that an occurrence does not require damage to the property or work of someone other than the insured; the CGL form must provide coverage for damage caused by the insured's faulty work and nothing in the policy requires that there be damage to property other than the insured's work. The answer to the first certified question was in the negative.
As for the second certified question, the Georgia Supreme Court ruled that in most circumstances, a claim for fraud will prove incompatible with the notion of an accident and will not, therefore, involve an occurrence. However, the court decided that breach of warranty is a different story. The court said that while the making of an express warranty is an intentional act, the breach of warranty may not be; in other words, an occurrence might be found in the context of a claim for breach of warranty. Thus, for an occurrence to exist for purposes of a standard CGL form, it is not always necessary that the claim be for something other than breach of warranty and so, as to breach of warranty, the court answered the second question in the negative.
Editor's Note: The Georgia Supreme Court rules that the CGL form does not require damage to the property or work of someone other than the insured in order for the insuring agreement requiring an occurrence to be fulfilled. In other words, an occurrence does not require damage to the property or work of someone other than the insured in order to exist. Of course, the relevant exclusions in the CGL form were not discussed in this opinion, but the point being made is that an occurrence can include damage to the insured's own work. The court listed several rulings from other jurisdictions to bolster its position.
The court also noted that for an occurrence to exist, the liabilities for which coverage is claimed cannot be based on fraud, but may include breach of warranty. As the Georgia Supreme Court said, the making of an express warranty is an intentional act, but the breach of this warranty may not be.