Coverage under a CGL policy for the subcontractor's construction defects was at issue in Architex Assoc., Inc. v. Scottsdale Ins. Co., No. 2008-CA-01353-SCT, 2010 Miss. LEXIS 71 (Miss. Feb. 11, 2010).  Although the lower court determined there was no occurrence under the policy, and thus no coverage, the Supreme Court reversed.

   Architex, the insured, contracted with CIS Pearl, Inc. to construct a hotel.  Multiple subcontractors were used.  After completion, CIS complained that testing revealed serious rebar deficiencies in the foundation of the hotel.  Architex notified Scottsdale of the claim.  Scottsdale denied coverage under the liability policy, reasoning there had not been any occurrence which would trigger coverage.

   Suit was filed.  The trial court granted Scottsdale's motion for summary judgment, agreeing there was no occurrence.  Relying on a Fifth Circuit case that purported to interpret Mississippi law on occurrence, ACS Construction Co. v. CGU, 332 F.3d 885 (5th Cir. 2003), the circuit court determined that whatever work was improper or defective was the result of intended action by Architex in intentionally hiring the subcontractor.  This hiring was not an accident and thus there was no occurrence.

   On appeal, Architex argued that allegations of insufficient rebar, if proven true, were unexpected from its standpoint and therefore constituted an occurrence.  The relevant act was not simply subcontracting, but rather, the improper placement of rebar, an accidental, not intentional, act.

   The policy extended coverage to Architex for unexpected or unintended "property damage" resulting from negligent acts of a subcontrator, if not excluded by other applicable terms and conditions of the policy.  The Fifth Circuit's interpretation in ACS was inconsistent with Mississippi law.  The case was reversed and remanded for a determination on whether the complaint of "property damage" was proximately caused by a breach of duty which was accidental or intentional.

   As we noted in a prior post, the majority of state courts agree that a liability policy should cover unexpected property damage caused by subcontractors.