The Georgia Supreme Court has determined that an "occurrence" may arise under a CGL policy even if "other property" is not damaged. Taylor Morrison Servs. v. HDI-Gerling Am. Ins. Co., 2013 Ga. LEXIS 618 (Ga. July 12, 2013).

   Taylor Morrison, the insured, was a homebuilder. It was sued in a class action by more than 400 homeowners in California alleging that the concrete foundations of their homes were improperly constructed. This led to water intrusion, cracks in the floors and driveways, and warped and buckled flooring.

   At first, HDI-Gerling defended under a reservation of rights. Subsequently, however, HDI-Gerling sued Taylor Morrison in federal district court in Georgia, seeking a declaratory judgment that there was no coverage. The district court granted summary judgment to HDI-Gerling after determining that there was no "occurrence" when the only "property damage" alleged was damage to work of the insured. Georgia law was applied to the dispute.

   On appeal, the Eleventh Circuit presented certified questions to the Georgia Supreme Court. The first question asked whether an "occurrence" under Georgia law required that property other than the insured's completed work itself by damaged. The court was guided by its prior decision in Am. Empire Surplus Lines Ins. Co. v. Hathaway Dev. Co., 707 S.E. 2d 369 (2011) [post here]. There, the court established that faulty workmanship sometimes can amount to an "occurrence," at least when the property of someone other than the insured was damaged. The same outcome was required when the insured's own property suffered from "property damage." Therefore, an "occurrence" did not require damage to the property or work of someone other than the insured.

    The second certified question asked whether an "occurrence" required that the liabilities for which coverage was sought must be based on some legal theory other than fraud or breach of warranty. Fraud was inconsistent with the notion of an '"accident." Therefore, a claim for fraud could not possibly involve an "occurrence."

   Breach of warranty, however, was different. Breach of warranty could be intentional and therefore not covered. On the other hand, faulty workmanship could cause a product or other work to amount to a breach of a warranty for the work. Therefore, in many cases, an "occurrence" could be found in the context of a claim for breach of warranty.

   However, when faulty workmanship was the "occurrence," "property damage" could be found only when the faulty workmanship caused physical injury to, or the loss of use of, nondefective property or work. Therefore, it would only be a breach of warranty of nondefective property from which coverage might arise, as liability for a breach of warranty of the defective property would not involve "damages because of" "property damage" to the nondefective property.