In a 6-1 opinion issued on March 7, 2011, the Supreme Court of
Georgia joined a growing national trend and held that negligent
construction that results in damage to property other than the
contractor's work is an "occurrence" under a
commercial general liability (CGL) insurance policy.
In the decision, American Empire Surplus Lines Ins. Co. v.
Hathaway Dev. Co. (Ga. Sup. Ct., March 7, 2011), the Court
held that a general contractor could recover from its
subcontractor's insurers for the cost of repairs for damage to
surrounding property resulting from the subcontractor's faulty
workmanship. The Court stated: "[W]e ... hold that an
occurrence can arise when faulty workmanship causes unforeseen or
unexpected damage to other property. In reaching this holding, we
reject out of hand the assertion that the acts of [the
subcontractor] could not be deemed an occurrence or accident under
the CGL policy because they were performed intentionally. '[A]
deliberate act, performed negligently, is an accident if the effect
is not the intended or expected result; that is, the result would
have been different had the deliberate act been performed
correctly.'" (quoting Lamar Homes v. Mid-Continent
Cas. Co., 242 SW3d 1, 16 (Tex. 2007)).
This decision is very significant because it confirms an avenue for
recovery for owners and other contractors whose property or work
has been damaged by negligent construction. The Court's
decision is also significant because it is written in broad and
straight-forward terms. In its holding, the Court affirmed an
opinion previously issued by the Georgia Court of Appeals, and
confirmed the holdings of prior Court of Appeals decisions. The
Court rejected a line of cases in the federal courts, applying
Georgia law, suggesting that if an act began as being intentionally
performed, it could not be an "occurrence," even if
negligently performed and resulting in completely unintended
consequences. Insurers had long relied on this line of cases to
deny claims. In contrast, the Hathaway opinion makes it
clear that an intentionally performed act – such as the
act of construction work – that results in unintended
damage because it was improperly performed can be an
"occurrence."
The Supreme Court of Georgia's decision definitively
establishes the law in Georgia, and will be binding on federal
courts applying Georgia law in future decisions, and on all lower
state courts in Georgia.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
