In a unanimous decision issued on Monday, June 29th, the Michigan Supreme Court held that unintended damage to an insured’s work caused by a subcontractor’s defective workmanship is an “occurrence” under the plain language of a Commercial General Liability (CGL) insurance policy. In Skanska USA Building Inc. v. M.A.P Mechanical Contractors, Inc. et al, the Court distinguished prior controlling Michigan appellate law, Hawkeye-Security Ins. Co. v. Vector Constr. Co., 185 Mich. App. 369 (1990), as addressing CGL policy language (pre-1986) that is no longer applicable. The Court then examined the plain meaning of “occurrence,” simply defined as “accident,” and concluded that such term can encompass unintended damage to an insureds own work caused by its subcontractor:
This Court has said that an “accident” is “an undefined contingency, a casualty, a happening by chance, something out of the usual course of things, unusual, fortuitous, not anticipated and not naturally to be expected.” Allstate Ins Co v McCarn, 466 Mich. 277, 281; 645 NW2d 20 (2002). Generally, faulty work by a subcontractor may fall within the plain meaning of most of these terms. It happens by chance, is outside the usual course of things, and is neither anticipated nor naturally to be expected.
SDV attorneys David Jordan and Jeffrey Vita prepared an Amici Curiae on behalf of Turner Construction Company and Gilbane Building Company, in support of Skanska’s position that the property damage at issue involved an “occurrence” under Michigan law. That brief highlighted the flawed reasoning often relied upon by insurers in support of the alternative position that property damage to projects from defective construction is not accidental. A number of these insurer arguments (namely that an “occurrence” is limited to damage to third parties, and that a CGL policy cannot overlap with a performance bond) were squarely debunked by the Court.
This decision is a significant victory for policyholders in the construction industry. It applies a common-sense meaning of the term “occurrence” as called for by the authors of the standard CGL language (the Insurance Services Office – ISO) and invalidates any insurer arguments that project damages caused by defective work of a subcontractor are never covered by a CGL policy under Michigan law.
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