Number of “Occurrences” for Determining Policy Limits in California Construction Defect Cases

Kelly Smith | Snell & Wilmer

Insurance policies generally have different policy limits depending on the number of “occurrences.” For example, the amount of money recoverable under an insurance policy may be $5 million per occurrence with a $20 million aggregate limit. Therefore, when determining policy limits, deductible liability or considering settlement in a construction defect case, the parties should consider two questions. First, what constitutes an occurrence in the construction defect context? Second, how do courts determine the number of occurrences?

First, parties should be aware that what constitutes an occurrence typically will be defined by the applicable policy. In construction defect cases, insurance policies commonly define an occurrence as “an accident, including continuous or repeated exposure to the same or similar harmful conditions” which results in property damage. See, e.g., Safeco Ins. Co. of America v. Fireman’s Fund Ins. Co., 148 Cal.App.4th 620, 631 (Cal. App. 2007); Tidwell Enterprises, Inc. v. Financial Pacific Ins. Co., Inc., 6 Cal.App.5th 100, 107 (Cal. App. 2016). However, parties should look to the definition of an occurrence in the specific policy applicable to their project to determine coverage.

Second, parties should be aware that courts generally determine the number of occurrences under an insurance policy (and thus policy limits) based on the causes of damage, not the type or amount. For example, in Landmark American Ins. Co. v. Liberty Surplus Ins. Co., a subcontractor’s defective work caused water intrusion in several areas of a casino. 2014 WL 12558121, at *1 (C.D. Cal. Apr. 9, 2014). The California court found there were two separate occurrences—(1) improperly installed handrails and (2) defective installation of window systems and sliding doors. Id. at *6. The court explained that if a single injury, like water intrusion, has multiple causes, there have been multiple occurrences under an insurance policy. Id. at *5. If, however, widespread water intrusion had been caused by only the failure to apply sealant, that would likely have constituted a single occurrence. Id. at *6.

Similarly, in Liberty Mutual Fire Ins. Co. v. Bosa Devel. California II, Inc., a developer and insurance company were disputing how many occurrences arose under an insurance policy after defects were discovered in a condominium project. 2020 WL 1864645, at *1 (S.D. Cal. Apr. 13, 2020). The developer argued there was one occurrence—its negligent supervision of multiple subcontractors. Id. at *6. The court disagreed and held there were three occurrences: (1) the negligent installation of concrete flatwork, balconies, and waterproofing, (2) defective plumbing installation, and (3) selection of improper building materials. Id. at *8. The court struck down the developer’s argument, explaining that if a general contractor’s general negligent supervision constituted a single occurrence, “there would never be more than a single occurrence in the course of a single construction project, no matter how disparate the harms.” Id.

Accordingly, parties involved in a construction defect case should pay close attention to the cause of the alleged damages. If all damage arises from a single source or process, that may constitute a single occurrence for purposes of determining policy limits. Conversely, if there is a single type of damage caused by multiple failings, that may constitute more than one occurrence and trigger higher policy limits. Consultation with a knowledgeable insurance coverage attorney may be an appropriate first step.

Michigan Supreme Court Holds a Contractor’s Defective Work Is an ‘Occurrence’

Scott R. Murphy and Anthony C. Sallah | Barnes & Thornburg

In Skanska USA Building v M.A.P Mechanical Contractors, Inc., Docket No. 159510, ____ Mich ____, 2020 WL 3527909, the Michigan Supreme Court found that a subcontractor’s inadvertent faulty work may constitute an “accident” under Michigan law, and therefore constitute an accidental “occurrence” under current standard form commercial general liability (CGL) policy. This landmark decision on July 29, 2020 changes the law in Michigan, and reverses many years of lower court rulings that denied coverage for Michigan contractors on the ground that inadvertent construction defects do not constitute an accidental occurrence under the CGL policy.

Skanska served as a construction manager on a hospital renovation project involving the replacement of certain HVAC equipment. Skanska subcontracted the HVAC work to MAP Mechanical Contractors who procured a commercial general liability policy for the project. Sometime after the project was completed, the owner discovered that some of the expansion joints were installed backwards by the subcontractor, thereby causing significant damage to concrete, steel and the heating system. The cost to repair the subcontractor’s defective work exceeded $1.4 million. Skanska sued both the subcontractor and its insurer seeking payment for the cost of the repair and replacement work.  

After the trial court found a genuine issue of material fact concerning whether coverage was triggered under the CGL policy, the court of appeals reasoned that there was no “occurrence” under the policy because the only damage was to the insured’s own work product. The court of appeals relied upon prior appellate court precedent from Michigan in reaching its decision and, according to the Michigan Supreme Court, ignored the express language of the CGL policy. In reversing the decision from the court of appeals, the court reasoned: 

Nor is there any support for the Court of Appeals’ conclusion that “accident” cannot include damage limited to the insured’s own work product. Amerisure does little to defend that holding, and focuses mainly on its fortuity argument. Most significantly, the Court of Appeals accepted that an insured can seek coverage for its damage to a third party’s property. Id. at 9-10. But the policy does not limit the definition of “occurrence” by reference to the owner of the damaged for distinguishing between damage to the insured’s work . . . the Court of Appeals failed to recognize that an insured’s own defective workmanship is excluded from coverage via the explicit exclusions, not in the initial grant of coverage.

The court went on to reject the carrier’s historical argument that including faulty subcontractor work essentially converts the policy into a performance bond. According to the court, “coverage may overlap with a performance bond is not a reason to deviate from the most reasonable reading of the policy language.” Id. at 4. The court summarized its holding as follows: 

For these reasons, given the plain meaning of the word “accident,” we conclude that faulty subcontractor work that was unintended by the insured may constitute an “accident” (and thus an “occurrence”) under a CGL policy.

Notably, the Michigan Supreme Court’s decision is limited to cases involving policy language revised by the 1986 ISO revisions to commercial general policies. Those revisions incorporated the “broad form” property endorsement as well as damage caused by faulty workmanship to other parts of work in progress including damage to, or caused by a subcontractor’s work after the insured’s operations are completed. 

This landmark decision tracks with the majority of states that recognize the changes to the standard language found in a CGL policy over the years and is a big win for policyholders in Michigan and elsewhere. For further information about this decision or coverage issues in other states, please refer to Barnes & Thornburg’s 50 state analysis of coverage decisions throughout the United States.

Inadvertent Construction Defects Are an ‘Occurrence’ Under the CGL Insurance Policy

Clifford J. Shapiro | National Law Review

Whether property damage caused by defective construction work constitutes an accidental “occurrence” under the standard form Commercial General Liability (CGL) insurance policy is now highly dependent on which state’s law applies. Determining which state’s law applies to a particular construction defect claim is therefore critical and often outcome determinative. 

The current status of each’s state’s law can be found in the Barnes & Thornburg Construction Law Practice Group’s 50 state survey of the “occurrence” issue.

This article discusses some of the correct and the incorrect ways that courts are currently addressing this issue. In particular, it focuses on the failed state of the law in Illinois, a state that continues to use an incorrect and outdated analysis to determine whether construction defects constitute an “occurrence” under the CGL insurance policy. 

A majority of jurisdictions find that defective or faulty workmanship can constitute an “occurrence” under the modern day CGL insurance policy. Generally, these jurisdictions find that defective construction work that occurs unintentionally is a fortuitous “accident,” and therefore an “occurrence” within the meaning of the coverage grant in the CGL policy. Other jurisdictions find that unintentional defective work can constitute an accidental “occurrence” if the defective work causes property damage to something other than the defective work itself. In all of these jurisdictions, a policyholder can potentially trigger coverage for a construction defect claim, assuming other terms and exclusions in the policy do not apply to bar coverage.

A minority of jurisdictions still hold that construction defect claims do not, and cannot, give rise to an accidental “occurrence” within the meaning of the CGL insurance policy, and therefore refuse to provide any coverage at all for construction defect claims. This is the situation in Illinois, and frankly the law in Illinois needs to be corrected. 

Understanding ‘Occurrence’ Under the CGL Policy

The modern day CGL insurance policy contains two key parts: the coverage grant and the policy exclusions. The coverage grant broadly provides insurance coverage up to the policy limits for amounts the policyholder becomes legally obligated to pay because of “property damage” caused by an accidental “occurrence.” The CGL policy then narrows and defines the actual scope of insurance coverage for a particular claim through the many policy exclusions.

The correct legal analysis recognizes that there is an accidental “occurrence” under the CGL policy coverage grant when a claim alleges that a general contractor or subcontractor caused property damage by accidentally (not intentionally) performing faulty construction work. Whether or not coverage exists for the claim is then determined by examining the various construction-specific policy exclusions that may apply to the particular situation. 

The correct legal analysis then examines the kind of property damage at issue only as required by the analysis of the policy exclusions, and not to determine in the first instance if the claim involves an accidental “occurrence.” This is a very important difference. A threshold finding of no “occurrence” is an absolute bar to coverage, which means there is no possibility of coverage and therefore no duty to defend the policyholder against the claim. 

On the other hand, a finding that the claim involves an accidental “occurrence” then requires analysis of the claim under the policy exclusions. This often leads to a finding that there is at least potential coverage for part of the claim, and the insurance company is therefore required to provide its policyholder with a defense at the carrier’s cost. As a result, the applicable law regarding the “occurrence” issue can, and often does, dramatically affect the policyholder’s financial posture for a construction defect claim.

The Important ‘Your Work’ Exclusion

A policyholder is more likely to have coverage in jurisdictions that recognize construction defects can be an “occurrence” and properly examine the applicable policy exclusions. For example, in the completed operations context, the “your work” exclusion generally applies to bar coverage for the cost to repair or replace property damage caused by the work of the policyholder, but it also has a specific “subcontractor exception” that does not bar coverage for property damage arising out of the work of the policyholder’s subcontractors. Thus, in a jurisdiction that recognizes that construction defects can be an accidental “occurrence,” a general contractor generally will have coverage for property damage caused by the work of its subcontractors. 

While a subcontractor does not have the benefit of the subcontractor exception in the “your work” exclusion, a subcontractor can still have coverage under the correct analysis of the CGL policy if its work causes property damage to other work (i.e., property damage outside of the subcontractor’s own scope of work). The reason for this is not that the claim alleges an accidental “occurrence” because there is damage to other work. Rather, the correct conclusion is based on the “your work” exclusion, which generally excludes coverage for the cost to repair or replace the policyholder’s own defective work, but does not exclude the cost to repair or replace damage to other work.

Illinois Courts Get It Wrong

The legal framework used by the Illinois courts is fundamentally flawed. In fact, it fails to apply the terms of the CGL insurance policy as intended by the insurance companies themselves. 

Illinois decisions currently hold (incorrectly) that inadvertent construction defects cannot be an “occurrence” unless the defective work causes property damage to something other than the “project,” “building” or “structure.” Most, but not all, of these decisions address the coverage question in situations where the policy holder was a general contractor. The cases find that there can never be an “occurrence” – and that there is therefore no insurance coverage at all for the claim – if the alleged property damage was to any property within the general contractor’s scope of work. Because the general contractor’s scope of work usually includes construction of the entire building or project, this analysis finds that a CGL insurance policy provides no coverage at all to a general contractor for any claim that involves property damage to the building or project. This virtually eliminates insurance coverage for construction defect claims for general contractors. Under this analysis, there can only be insurance coverage if the claim includes property damage to something other than the project or building being constructed.

Among other things, this analysis fails to apply the “your work” exclusion as intended by the insurance contract. The correct legal analysis recognizes that there would be no reason to have an exclusion for property damage caused by the “work” of the policyholder if the “occurrence” requirement in the coverage grant did not allow any possible coverage for property damage caused by inadvertent construction defects in the first place. And there would certainly be no reason for the same exclusion to have an exception that specifically restores coverage for property damage caused by the policyholder’s subcontractors if there never could have been an accidental “occurrence” within the meaning of the policy’s coverage grant in the first place. In short, the Illinois analysis makes the “your work” exclusion essentially meaningless.

Unfortunately, the incorrect analysis is now very established in Illinois. For more than twenty years, Illinois appellate courts have repeatedly applied the incorrect analysis to deny insurance coverage for construction industry policyholders facing construction defect claims, and the Illinois Supreme Court has never decided the issue. Illinois appellate court cases continue to hold that there can never be an “occurrence” if the policyholder is a general contractor and the alleged damage was to any part of the project or building itself. As a result, Illinois decisions continue incorrectly to collapse what should be a second and separate analysis of coverage under the applicable policy exclusions (including the “your work” exclusion) into the initial threshold coverage determination of whether the claim involves an accidental “occurrence.” 

Illinois decisions also continue to disregard or fail to apply the well accepted requirement that an insurance policy must be read and interpreted as a whole. Instead of applying the “your work” exclusion as intended, Illinois decisions often simply state that the legal analysis does not need to even consider the “your work” exclusion. The decisions find that construction defect claims for property damage within the policyholder’s scope of work are simply not sufficiently “fortuitous” or “accidental” to constitute an “occurrence.” This reasoning is based on an outdated judicial gloss that is not found in the insurance policy itself. It is based on old reasoning used by certain courts and commentators before the CGL policy terms were materially changed, including in 1986. Those changes to the policy modified the exclusions (including the “your work” exclusion) to clarify that the CGL policy provides coverage for certain kinds of property damage caused by inadvertent faulty workmanship, and that the scope of that coverage is found in the policy exclusions. 

Illinois Coverage for Subcontractors: Correct Result, Wrong Analysis

Until recently, there was uncertainty whether the same incorrect “scope of work” analysis for the “occurrence” issue would be applied in Illinois to claims against subcontractors. Some federal decisions held that there could be an “occurrence” if the subcontractor’s defective work caused property damage to some other part of the project or building outside of its scope of work. But other decisions held that the subcontractor, like the general contractor, could not show the existence of any accidental “occurrence” if the claim involved property damage to any part of the entire project or building.

On March 29, 2019 the First District of the Illinois Appellate Court issued an opinion in Acuity Insurance Co. v. 950 W. Huron Condominium Association that directly answers the “occurrence” question for insured subcontractors. The decision finds that a subcontractor can have insurance coverage for an inadvertent construction defect claim under a CGL policy in Illinois if the claim involves property damage to a part of the project that is outside of the subcontractor’s scope of work. A 2017 Seventh Circuit decision in Westfield Ins. Co. v. National Decorating Service also finds that a general contractor can have coverage under its subcontractor’s insurance policy as an additional insured where the general contractor is being sued for defective work performed by its subcontractor that caused damage to property outside of the subcontractor’s scope of work.

Applying Illinois’ flawed analysis, Acuity and Westfield essentially arrive at the correct outcome for claims that involve resulting property damage caused by subcontractors – but for an absolutely wrong reason. Worse, the decisions do nothing to remedy current Illinois law that continues to deny coverage for general contractors even when the claim involves property damage that arises out of the work of subcontractors. Under that law, the general contractor who worked on the same project at issue in Acuity would not be able to obtain any insurance coverage for the loss under its own CGL policy even if the claim involved the exact same property damage caused by the same subcontractor. This is absurd, as the subcontractor exception in the “your work” exclusion should apply in this circumstance to allow coverage for the general contractor under these circumstances.

Similarly, while the insured subcontractor in the Acuity case should have insurance coverage for part of the cost to repair the property damage, it is not because the existence of property damage outside of the subcontractor’s scope of work somehow created an “occurrence.” Instead, the “occurrence” requirement in the policy was satisfied by the accidental and inadvertent nature of subcontractor’s defective work, and the scope of coverage for the claim should have been determined by the applicable policy exclusions. Here, the subcontractor’s defective work itself should be excluded from coverage under the “your work” exclusion in the subcontractor’s CGL policy. But that exclusion does not apply to the resulting property damage to the other non-defective parts of the work, including the damage that the subcontractor caused to other parts of the project. It is for this reason, and not because the claim somehow fails to allege an accidental “occurrence,” that the subcontractor has coverage for the resulting damage it caused to other parts of the project.

Will Illinois Law Ever Be Corrected? 

The Acuity case presented a rare opportunity for the Illinois Supreme Court to reconsider and correct Illinois law, but unfortunately the court recently refused to accept the opportunity to decide the case on appeal. Illinois therefore continues to have an incorrect analysis in its case law for determining whether construction defect claims are covered by the CGL insurance policy. The Illinois Supreme Court needs to consider this issue and publish a decision that finally addresses and corrects the law in Illinois, or the Illinois legislature needs to take up and pass corrective legislation. 

CGL Coverage and Coronavirus: Is Causing Exposure an “Occurrence”?

Randy Maniloff and Margo Meta | White and Williams

There is only one thing that can be said for sure about the extent of consequences — human and economic — of the new coronavirus outbreak. Nobody knows. But, as things stand now, minor, and even moderate, have left the barn.

History shows that, in the wake of widespread injuries and financial losses, focus often turns to the possible role of insurance to mitigate the damages. The new coronavirus — COVID-19 — will be no exception. Indeed, lots of lawyers have already published articles discussing the issue. History also teaches that, when novel claims arise, not everyone sees eye-to-eye on if or how insurance policies apply.

As policyholder lawyer Kirk Pasich put it in The Wall Street Journal last week: “There is no guesswork here: There will be insurance-coverage disputes.” He added that “[t]here is so much money at stake and strong differences of opinions as to whether insurance applies.”

Most of the coronavirus-insurance chatter so far has focused on possible coverage under business interruption policies. That makes sense. A business that has suffered a financial downturn, on account of the impact of the virus, would certainly describe it as an “interruption.” But Business Interruption policies typically require that there be direct physical loss of or damage to the insured property. And most business losses will likely be the result of a general decline in economic activity and not physical loss or damage to a structure.

But expect to see disputes over satisfaction of this requirement if a business is disrupted because the virus was present on its premises, say, in the HVAC system. Some policyholder-counsel are already beating this drum.

Other potential business interruption issues being bantered-about involve coverage for the consequences of supply chain disruptions and if a business is closed on account of a government mandate.

Coverage questions are likely to arise under a variety of other policies, including event cancellation. The Wall Street Journal reported that the South By Southwest festival in Austin is uninsured for its cancellation as its policy does not cover a shut-down caused by a disease.

According to the Journal, on account of its losses, the future of the mega-gathering is up in the air. The Chief Executive of SXSW told the paper: “We’ve had to show our insurance policy to all kinds of people, and nobody ever said, ‘Hey, there’s a big hole here.’”


Another history lesson: Injuries and financial losses are often followed by an assessment of blame. This is the tort system. Enter the plaintiffs’ lawyers. Some in the business of seeking compensation, for those that have been harmed, may be thinking that someone must pay for all this chaos.

Of course nobody here can expect to be sued for causing the coronavirus. But the same may not be said for those who allegedly failed to prevent others from becoming infected. Consider schools that did not close and its students became infected, conferences that did not cancel, stores and restaurants that should have shut down, sporting events that should not have gone on. The list is long. Some businesses, and employees, may be forced for reasons of economic necessity — survival even — to put financial interests ahead of safety.

Consider the suit filed on March 9th by Ronald and Eva Weissberger, passengers on the Grand Princess cruise liner, which was docked off the coast of California for several days on account of passengers and crew infected by the coronavirus. In their California federal court complaint, the couple alleges that Princess Cruise Lines had actual knowledge that two passengers, who had previously disembarked, had symptoms of the coronavirus. In addition, 62 passengers now on board were allegedly exposed to them. Yet, despite all this, the suit alleges that the ship still sailed, on account of the cruise liner choosing “to place profits over the safety of its passengers.”

Needless to say, there will be proximate cause challenges to tying one’s infection to another’s conduct. After all, the exposure could have happened in umpteen locations. There will also be duty of care issues that look at whether the business satisfied its obligations to invitees or others on the premises.

Such suits would presumably be reserved for those seriously injured or who succumbed to the virus. [Think egg-shell plaintiff for those who died and had other underlying illnesses.] So far that is not most people. Although those with minor injuries may still want lost wages, which is because of bodily injury. So how prevalent these suits are remains to be seen. But ruling them out entirely would be premature.

And what about if one’s conduct, in conjunction with taking coronavirus measures or not, causes another business to shut down. [The CGL definition of “property damage” usually includes “loss of use” of property.]


Claims that seek to hold people responsible for causing others to contract coronavirus will put insurance in the spotlight. A business facing such a suit will turn to its commercial general liability policy. Despite the availability of defenses against these premises liability claims, the duty to defend does not consider the merits of the suit.

How might insurers respond to such suits?

Many CGL policies contain a Fungi or Bacteria exclusion. While it is often colloquially called the Mold exclusion, is it more than that. The endorsement typically also excludes coverage for “bodily injury” “which would not have occurred, in whole or in part, but for the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of, any bacteria on or within a building or structure,” et seq. But COVID-19 is a viral infection and not bacterial.

There is a liability policy exclusion for communicable diseases. In Koegler v. Liberty Mutual Insurance Company, 623 F. Supp. 2d 481 (S.D.N.Y. 2009), the court held that no liability coverage was owed to an individual, for claims that he transmitted the human papillomavirus and herpes virus to his girlfriend and her daughter. The court held that the communicable disease exclusion, which excluded coverage for bodily injuries arising out of the “transmission of a communicable disease, virus, or syndrome,” precluded coverage. But the Communicable Disease exclusion is not seen often in CGL policies.

The pollution exclusion? Policyholders will maintain that, even states that apply it broadly, won’t go that far.


While the possible role of exclusions come to mind, they are only reached if a claim first satisfies the relevant terms of the policy’s insuring agreement: “bodily injury” caused by an “occurrence,” usually defined these days as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

And that’s where the fight over the availability of general liability coverage, for insureds that allegedly caused others to contract coronavirus, is likely to take place: the gateway to the policy, its insuring agreement. Was the “bodily injury” caused by an “occurrence”/accident? [Coverage B — “personal and advertising injury” — does not require an “occurrence.” But only false detention or imprisonment — think wrongful quarantine — would seem relevant here.]

In general, whether there has been an accident, for purposes of securing insurance, is the oldest and most litigated of all coverage issues. The first “accident” coverage case that I know of goes back to 1835 — Howell v. Cincinnati Insurance Company (Ohio Sup. Ct.).

An interesting “accident” case from way, way back is Schneider v. The Provident Life Insurance Company (Wis. 1869). A man was killed when he fell under a slow moving train while attempting to board it. The push and pull in Schneider, over whether his death was caused by an “accident,” reads like the opinion was written last week. When an issue has been debated for nearly 200 years, and the arguments haven’t changed much, it would be fair to call it vexing.

There may be no better description of this confounding issue than how it was put by the Pennsylvania Supreme Court in Brenneman v. St. Paul Fire & Marine Insurance Company (1963). Nearly 60 years ago Justice Musmanno made this observation:

What is an accident? Everyone knows what an accident is until the word comes up in court. Then it becomes a mysterious phenomenon, and, in order to resolve the enigma, witnesses are summoned, experts testify, lawyers argue, treatises are consulted and even when a conclave of twelve world-knowledgeable individuals agree as to whether a certain set of facts made out an accident, the question may not yet be settled and it must be reheard in an appellate court.

So is “bodily injury,” on account of an insured’s failure to prevent exposure to coronavirus on its premises, caused by an accident?

At the outset, the standard for determining if bodily injury has been caused by an accident differs substantially between states. Even within states the standards are sometimes all over the board. Throw in that the cases can be wildly different factually. And there also seems to be an element of I-know-an-accident-when-I-see-one in the decisions. Did I mention that courts have been trying to figure out what’s an accident since Andrew Jackson was in the White House?

Liberty Mutual Insurance Company v. Estate of Bobzien, 377 F. Supp. 3d 723 (W.D. Ky. 2019) provides guidance on whether “bodily injury,” on account of an insured’s failure to prevent exposure to coronavirus, was caused by an accident?

Michael Bobzien sued his deceased father, Hugo Bobzien, for various injuries and conditions caused by exposure to second-hand smoke while Michael was a minor living in his father’s house. Hugo was insured under a series of homeowners’ insurance policies issued by Liberty Mutual. Each of the policies defined an occurrence as “an accident, including continuous and repeated exposure to substantially the same general harmful conditions, which results, during the policy period…in ‘bodily injury.’”

In the coverage case, the court concluded that Michael failed to allege an “accident” under the Liberty Mutual policies, as his complaint alleged that: (1) Hugo intentionally smoked in the presence of his children, and (2) Michael’s injuries and conditions were a direct, natural and foreseeable result of Michael’s exposure to second-hand smoke.

The court in the very recent decision of Campanella v. Northern Properties Group, LLC, No. 19-171 (D. Minn. Feb. 28, 2020) saw the accident issue differently. Matthew Campanella rented a residence from Northern Properties. Unfortunately it contained toxic levels of chicken feces. Campanella claimed he contracted histoplasmosis on account of Northern Properties carelessly and negligently failing to clean and maintain the residence. Histoplasmosis is a serious infection caused by a fungus in the environment, particularly in soil containing large amounts of bird or bat droppings.

Northern Properties sought coverage for Campanella’s suit under a CGL policy issued by Auto-Owners. At issue was whether the bodily injury was caused by an “occurrence,” defined as an accident.

As Auto-Owners saw it, no way, no how could Campanella’s injury have been caused by an accident: “[I]t is difficult to imagine any scenario in which the accumulation of chicken feces in a residential dwelling to a ‘toxic level’ due to a failure to clean the premises would be accidental.”

But the court disagreed: “Even if Northern Properties intentionally allowed a toxic build-up of chicken feces on the premises, Auto-Owners cannot point to any facts suggesting that any party foresaw Campanella contracting histoplasmosis. In fact, Auto-Owners admits that ‘most people who breathe in the [histoplasma fungi] spores don’t get sick.’ In other words, Campanella contracting histoplasmosis was unexpected and unforeseen—an ‘accident’ as both Minnesota and Wisconsin have defined it.”

Whether “bodily injury,” on account of an insured’s failure to prevent exposure to coronavirus, is caused by an accident, will generally turn on whether the insured foresaw the claimant’s injury. Given the vast warnings, about the need to take action to prevent exposure to coronavirus — not to mention if the insured had reason to know of a risk — some courts may answer this question in the affirmative and conclude that the bodily injury was not caused by an accident.


For sure there are legal and factual challenges to bringing suits against entities for failing to prevent exposure to coronavirus on their premises. And such hurdles may be what keeps the extent of efforts low.

But the duty to defend determination does not take the merits of a claim into consideration. In addition, while such “bodily injury” may not have been caused by an “occurrence,” that determination may not be possible at the complaint stage based on how the allegations are pleaded. Therefore, insurers may find themselves defending claims that their insureds failed to prevent others from contracting coronavirus.

These are strange times. And coronavirus coverage cases will be strange too. But despite their novelty, insurance coverage jurisprudence has long been in place to sort them out.

Supplying Wrong Construction Materials Resulting in Rip-and-Tear Damage Not an “Occurrence,” 7th Circuit Holds

Timothy Carroll and Anthony Miscioscia | White and Williams

The construction contract calls for International Building Code-compliant lumber. The insured doesn’t supply that. What the insured does supply gets installed but then ripped out and replaced, causing damage to the surrounding property into which the lumber was integrated. Such circumstances — not uncommon in the construction industry — do not constitute an “occurrence” under Illinois law, according to the U.S. Court of Appeals for the Seventh Circuit in an opinion published yesterday. Lexington Insurance Company v. Chicago Flameproof & Wood Specialties Corporation, No. 19-1062, 2020 U.S. App. LEXIS 6006 (7th Cir. Feb. 27, 2020).

The insured in Chicago Flameproof was an Illinois-based “distributor of commercial building materials, including fire retardant and treated lumber (‘FRT lumber’).” A residential and commercial contractor contracted with the insured for “a particular brand of FRT lumber, D-Blaze lumber, for use in the four projects.” Despite the insured’s alleged knowledge that the lumber was being purchased to comply with International Building Code (IBC) standards adopted in Minnesota, the site of the construction projects, the insured allegedly “made a ‘unilateral decision’ to instead deliver its in-house FlameTech brand lumber, which purportedly was not IBC-compliant FRT lumber, and “thereby ‘did not meet the IBC definition of FRT lumber’ and therefore ‘was not actually FRT lumber.’” Not aware of using the wrong lumber, the contractor installed it but, after later discovering it, was instructed to remove it and replace it with IBC-certified FRT lumber. Doing so resulted in damage to the “surrounding materials into which the lumber had been integrated.” The insured was sued for breach of contract, breach of warranties, negligent misrepresentation, and on other related causes of action.

The insurer in Chicago Flameproof filed suit, seeking a declaration that it did not owe a duty to defend the insured in the underlying suit. Entering judgment for the insurer, the Illinois federal district court held that if, as alleged, the insured “knowingly supplied non-IBC-compliant lumber and concealed that it did so, . . . then the property damage that allegedly resulted from tearing out that non-compliant lumber cannot be said to have been caused by an accident.” On appeal, the Seventh Circuit Court of Appeals affirmed that holding, concluding the underlying suit did not allege an “occurrence,” defined in the policy as “an accident.”

Under Illinois law, the Court observed, an accident is “an unforeseen occurrence, usually of an untoward or disastrous character or an undesigned sudden or unexpected event of an inflictive or unfortunate character,” and that if damage “ ‘is the rational and probable consequence of the act or, stated differently, the natural and ordinary consequence of the act,’ then the act ‘is not an accident.’ ” The Court of Appeals also observed that “[f]aulty workmanship may constitute an occurrence if it results in damages that exceed the scope of the insured’s work product,” or “where the insured ‘was unaware of the defective nature’ of its component until after it was incorporated into a finished product.”

Concluding that the underlying suit did not allege an “occurrence,” as so defined, the Court reasoned that “[t]here was nothing regarding the natural and ordinary consequences of supplying uncertified lumber for projects that require certified lumber that was unknown or hidden to [the insured] at the time it shipped the uncertified lumber.” The rip-and-tear damage alleged, therefore, “was the natural and ordinary result of [the insured’s] deliberate decision to supply, and conceal that it had supplied, uncertified lumber,” and thus not an “occurrence.”