The Arkansas Court of Appeals recently issued a ruling determining that insurance coverage must be provided for both defense and indemnification in a dispute arising from faulty workmanship during flooring installation. The decision, in Nationwide Mutual Insurance Co. v. NWA Restore-It, Inc., 2025 Ark. App. 218, 710 S.W.3d 475 (Ark. Ct. App. 2025), clarifies how exclusions related to completed work and intended use apply in cases where damage occurs during installation rather than afterward.
The dispute began when a contractor installed replacement flooring after a water damage event. Approximately six months after the installation was completed, the flooring started exhibiting defects such as rippling and cracking. Attempts to repair the damage were unsuccessful, leading to a lawsuit alleging improper installation.
The contractor was listed as an additional insured under the installation subcontractor's commercial general liability policy. After coverage was denied, the contractor sought a judicial declaration that defense and indemnification should be provided. The insurer contested coverage, citing policy exclusions that bar liability for property damage occurring after work has been completed or put to its intended use.
The court rejected these arguments, citing state law that explicitly defines an "occurrence" to include property damage resulting from faulty workmanship. The court found that the underlying complaint alleged damage occurring during installation rather than after completion, meaning that the cited exclusions did not apply.
The ruling distinguished the case from others in which damages were confined to the contractor's own product. Here, the damage stemmed from the installation, rather than the product itself, which resulted in the court determining that the exclusions did not preclude coverage.
This ruling underscores the significance of statutory definitions in resolving insurance coverage disputes in construction. It establishes that insurers cannot rely solely on policy exclusions when state law has its own definition of covered occurrences.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.
