General contractors obtain commercial general liability (“CGL”) policies to cover their liability for property damage or personal injury. A general contractor might assume that their CGL policy also covers liability for construction defects. In some instances, that assumption is correct. But in others, they might be surprised to find themselves exposed.
The heart of the issue is the interpretation of the term “occurrence” in a CGL policy. These policies cover personal injury and property damage caused by an “occurrence.” An occurrence in turn is defined as an “accident.” But courts in different states do not agree on whether damage due to a construction defect should be considered an accident and therefore a covered occurrence under a CGL policy.
In Kansas, an “occurrence” under a CGL policy includes damage caused by defective work so long as it was not intended or foreseeable. Therefore, a general contractor operating in Kansas generally can expect that its CGL policy will provide coverage for construction defects.
In Missouri, the answer might be very different, depending on what is alleged in the petition. The rule in Missouri has been that a CGL policy will cover tort claims resulting from construction defects but not contract claims. The distinction is odd because it puts the focus on what the plaintiff pleads rather than on what actually caused the defect. However, a recent Missouri Supreme Court case indicates that Missouri courts might begin following a rule similar to Kansas courts and instead focusing on whether the damage was foreseeable, regardless of the claim alleged in the petition.
In Colorado, the state legislature recently decided to reverse the rule followed by Colorado courts. Due to disagreement with the then-current court doctrine, the legislature enacted statutory law that defines damage resulting from construction defects to be an “accident,” in order to cause this type of damage to be covered under CGL policies.
The uncertainty from state to state is troubling for general contractors. But as the recent changes above demonstrate, state courts and legislatures are moving to the view that CGL policies cover construction defects.