The Georgia Supreme Court recently addressed the definition of
"occurrence" in a CGL policy. American Empire
Surplus Lines Ins. Co. v. Hathaway Development Co., Inc., 2011
Ga. LEXIS 177 (Ga. Mar. 7, 2011). The specific issue was
whether a general contractor could recover under a
subcontractor's CGL policy for damages to neighboring property
caused by work negligently performed by the
subcontractor.
Hathaway Development Co. Inc. ("Hathaway"), the general
contractor, sued its plumbing subcontractor, Whisnant Contracting
Co., Inc. ("Whisnant"), for alleged negligence in
installing plumbing work at three jobsites. On one project,
Whisnant installed a four-inch pipe instead of a six-inch pipe; on
the second project, Whisnant improperly installed a dishwasher
supply line; and on the third project, Whisnant improperly
installed a pipe which separated under pressure. Each error
resulted in damage to surrounding property. Hathaway sued
Whisnant for the costs associated with the water and weather damage
to surrounding property. Whisnant failed to answer the
complaint, and a default judgment was entered.
Hathaway then filed an action to collect from Whisnant's
insurer, American Empire Surplus Lines Insurance Company
("AESLIC"). AESLIC denied liability, arguing that
the loss did not arise out of an "occurrence." The
policy defined an "occurrence" as "an accident,
including continuous or related exposure to substantially the same,
general harmful conditions." Based on this definition,
AESLIC argued that Whisnant's negligent work could not be
deemed an "accident" because the work was done
intentionally. The trial court agreed and granted summary
judgment to AESLIC.
The Georgia Court of Appeals reversed, holding that the faulty
workmanship was covered under the CGL policy because it caused
damage to surrounding properties. Hathaway Development
Co. Inc. v. American Empire Surplus Lines Ins. Co., 686
S.E.2d 855 (Ga. App. 2009). While the Court of Appeals found
coverage for damage to surrounding property, it found no coverage
for the cost of repairing the faulty workmanship itself.
Id. at 863.
The Georgia Supreme Court granted certiorari and found coverage for
the damage to surrounding property. Using a legal dictionary,
the Court defined an "accident" to be "an event
happening without any human agency, or, if happening through such
agency, an event which, under circumstances, is unusual and not
expected by the person to whom it happens. . . . [I]n its
common signification, the word means an unexpected happening
without intention or design." Citing BLACK'S LAW
DICTIONARY, 15 (6th ed. 1990). In applying the BLACK'S
LAW DICTIONARY's definition of "accident", the Court
held that Whisnant's actions constituted an occurrence under
the CGL policy because the actual cause of the harm was
unanticipated, unintended and unexpected. Therefore, under
Georgia law, a construction defect can be an "occurrence"
under a CGL policy where the insured's faulty workmanship
causes unforeseen or unexpected damage to property
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