Following Kentucky law, the Sixth Circuit determined there was no coverage for a construction defect claim. Liberty Mut. Fire Ins. Co. v. Kay & Kay Contracting, LLC, 2013 U.S. App. LEXIS 23587 (6th Cir. Nov. 19, 2013).

   Walmart hired a contractor to build a new store. The contractor hired Kay and Kay to perform site preparation work and construct the building pad for the new store. 

   After Kay and Kay completed the building pad and the store was erected, cracks were noticed in the building's walls. Walmart contended there was settling in the some of the fill areas. Kay and Kay denied liability, but demanded coverage under its CGL policy with Liberty Mutual. 

   Liberty Mutual filed a complaint for declaratory relief alleging the claims for a defense and indemnity were not covered because there was no "occurrence" and no "property damage." The district court denied Liberty Mutual's motion for summary judgment. 

   The Sixth Circuit reversed. The leading case in Kentucky, Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W. 69, (Ky. 2010), held that claims of faulty workmanship, standing alone, were not "occurrences" under CGL policies. The Kentucky court left the door open, however, for coverage where faulty workmanship caused damage to other property.

   Kay and Kay argued the damage here was not due to their allegedly defective work product itself (the building pad), but was rather collateral damage to other property (the building). The Sixth Circuit decided control was a significant factor in the eyes of the Kentucky Supreme Court. The damages that occurred here were within the control of Kay and Kay, and were not covered under the Cincinnati Ins. Co. decision.