In an earlier post, Robert discussed the impact of the Ninth Circuit’s decision in Burlington Ins. Co. v. Oceanic Design & Constr., 383 F.3d 940 (9th Cir. 2004) on Hawaii insurance law. Robert pointed out in Burlington, the Ninth Circuit predicted that under Hawaii insurance law, the Hawaii Supreme Court would find that claims related to a contract would not trigger coverage unless an independent basis sounding in tort was alleged. The post pointed out the distinction between the Weedo v. Stone-E-Brick, Inc. line of cases, finding that a construction defect constitutes an “occurrence” only if there is damage to “other property” and the American Family Mut. Ins. Co. v. American Girl, Inc. analysis, holding that damage caused by a soil engineer was “property damage” caused by an “occurrence” as defined by CGL policies.
Hawaii insurance practitioners will want to take note of a recent construction defect case in which the Florida Supreme Court adopted the American Girl line of cases. See United States Fire Ins. Co. v. J.S.U.B., Inc., No. SC05-1295 (Fla. Sup. Ct., Dec. 20, 2007). The court determined that defective work performed by a soil compacting subcontractor that causes damage to the contractor’s completed project and is neither expected nor intended from the standpoint of the contractor can constitute “property damage” caused by an “occurrence” under a standard commercial general liability policy.
Relying on American Girl, the Florida Supreme Court rejected U.S. Fire’s argument that a breach of contract can never result in an “accident” because this was not supported by the language of the policies. U.S. Fire’s assertion that damage resulting from a breach of contract is expected was also unpersuasive. This position would make the definition of “occurrence” dependent on whether the property damage is part of the construction contract or the homeowner’s separate property. The appropriate analysis focused on whether the damage was expected or intended from the standpoint of the insured, not whose property was damaged.
Further, reading the business risk exclusions, including the “your work” and “your product”, in conjunction with the insuring agreement supported the conclusion that a subcontractor’s defective work resulting in damage to the completed project can constitute an “occurrence.” Therefore, faulty workmanship that is neither intended nor expected from the standpoint of the contractor can constitute an “accident” and, thus, an ‘occurrence.” In the Florida case, the subcontractor’s defective soil preparation, which the insured contractor did not intend or expect, was an “occurrence.”
Finally, the Florida Supreme Court rejected U.S. Fire’s argument that faulty workmanship injuring only the work product itself does not result in “property damage.” Again relying on American Girl, the court determined the claim was not for the cost of repairing the subcontractor’s defective work, but rather a claim for repairing the structural damage to the completed homes caused by the subcontractor’s defective work. It was the subsequent soil settlement due to the subcontractor’s faulty workmanship that caused the structural damage to the homes. Because there was “physical injury to tangible property,” the court concluded that the structural damage to the homes was “property damage.”
