United States: Utah Joins the Growing Fold: Damage From a Faulty Product is an Occurrence Under a CGL Policy

Last Updated: December 16 2014
Article by Peter D. Laun

Joining a clear trend of state and federal courts rejecting insurance industry arguments that property damage resulting from faulty workmanship or defective products cannot be an "occurrence" under a CGL policy, the 10th Circuit, applying Utah law, held that damage to third-party property caused by allegedly defective windows constitutes an occurrence, triggering a duty to defend.

In The Cincinnati Insurance Co. v. AMSCO Windows (10th Cir. November 26, 2014), http://www.ca10.uscourts.gov/opinions/13/13-4155.pdf, AMSCO, a window manufacturer, was sued in lawsuits alleging that its defective windows had caused property damage to homes in which the windows were installed by contractors.  The insurer, Cincinnati, argued that it had no duty to defend or indemnify AMSCO under its CGL policies, because the claims (which involved damage to wallboard, paint, floorboards, and other parts of the home) could not be occurrences, because they are "a natural and probable result of faulty workmanship."  Id., p. 7.  Affirming the trial court's decision, the 10th Circuit found that Cincinnati's arguments were unsupportable under Utah law.

Like other recent decisions rejecting this insurance industry argument (see, e.g., http://www.insurancepolicyholderadvocate.com/?p=802; http://www.law360.com/articles/455624/w-va-s-take-on-scope-of-cgl-in-defective-construction), the 10th Circuit found the insurer's argument to be inconsistent with the plain language of a CGL policy, as well as core principles of state insurance law.  In particular, the court emphasized that Cincinnati's argument that assessing whether property damage was foreseeable if a window failed was not the proper test; rather, the proper question was whether AMSCO specifically intended that the property damage occur.  Id. at pp. 8-9.  The court also rejected Cincinnati's argument that property damage resulting from negligence cannot be an occurrence.  Surveying a number of Utah cases, the court stated that Cincinnati was conflating cases involving only damage to a product itself with claims involving damage to other property.  Id., pp. 11 -12.  Wrapping up its analysis, the 10th Circuit stated:  "The Utah Supreme Court has spoken clearly that negligence can give rise to an occurrence, and federal case law does not require us to find otherwise."  Id., p. 12 (emphasis in original).

The AMSCO decision represents yet another outright rejection of the insurance industry's attempt to get courts to accept the plainly incorrect argument that claims involving faulty workmanship or defective products can never constitute an occurrence, even where the claims involve third-party property damage.  Undoubtedly, the insurance industry will continue to press this argument in other states, but Utah has joined a number of other states (including Pennsylvania, West Virginia, North Dakota, and Colorado) that have recently rebuked this coverage-defeating position.

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