The Eighth Circuit refused to retroactively apply an Arkansas statute establishing coverage for faulty workmanship. J-McDaniel Const. Co., Inc. v. Mid-Continent Cas. Co., 2014 U.S. App. LEXIS 14911 (8th Cir. Aug. 4, 2014).
The homeowners sued J-McDaniel for faulty workmanship in constructing their home. The defective construction work was performed by subcontractors. Mid-Continent refused to defend or indemnify J-McDaniel.
The insured sued Mid-Continent. The district court dismissed the claim pursuant to Essex Ins. Co. v. Holder, 261 S.W. 3d 456, 460 (Ark. 2008). In Essex, the Arkansas Supreme Court held that defective workmanship resulting in damages only to the work product itself was not an occurrence. Although The Arkansas legislature overruled Essex by statute, the district court found that the Arkansas case law barred retroactive application of the statute.
On appeal, J-McDaniel conceded that under Arkansas law at the time the suit was filed, the Essex decision, meant the CGL policy did not cover faulty workmanship.It contended, however, that states were now trending toward including faulty workmanship within CGL coverage. Further, the Arkansas statute effectively overruled Essex in 2011.
The Eighth Circuit refused to overrule Essex, thus effectively giving retroactive effect to the Arkansas statute. By case law, Arkansas recognized a presumption against retroactive application of statutes. At the relevant time, the Arkansas Supreme Court definitively answered the question of whether subcontractor work product was included within the bounds of CGL coverage. Further, the Essex court specifically contemplated the now-majority rule and found it unpersuasive.