Jerome H. Sturhahn – November 17, 2011
The last couple of years have seen Colorado courts disagree over the question whether faulty workmanship is an “occurrence” covered under a commercial general liability policy. In previous client advisories we have tracked the evolution of this issue in Colorado. Last year, the Colorado General Assembly, responding to a number of decisions in state and federal courts concluding faulty workmanship is not an occurrence, passed legislation making clear that defective construction is presumed to be an “accident,” rendering it an “occurrence” eligible for coverage under a CGL policy.
There is now additional, good news to report for insured construction professionals. The Tenth Circuit U.S. Court of Appeals, which covers Colorado, recently issued a decision that further reinforces what the Colorado General Assembly made plain – property damage caused by faulty workmanship is an occurrence where the insured did not intend to cause the property damage. Thus, the faulty workmanship itself is an accident for purposes of coverage under a commercial general liability policy. The decision, Greystone Construction Company, Inc. v. National Fire & Marine Insurance Co., interpreted the term “occurrence” to encompass unanticipated damage to nondefective property resulting from poor workmanship, and “nondefective property is property that has been damaged as a result of poor workmanship.” The court concluded that a deliberate act, performed negligently, is not intended by the policyholder to cause damage to a third party. The Greystone decision should provide insureds with additional comfort that a Colorado court is unlikely to deny coverage of faulty workmanship claims solely on the basis of the “occurrence” argument.
Despite the Greystone decision, and the earlier statutory amendments, CGL claims for faulty workmanship are always difficult and dynamic, with the insurer’s ultimate coverage decision based on a fact-specific inquiry. We recommend that anyone either pursuing or defending a faulty workmanship claim carefully consider how that claim is articulated and consult with your lawyer. Never assume the insurer’s decision about coverage is final and without challenge.