Texas Court Says Defective Workmanship Not An “Occurrence”

The Court of Appeals of Texas (Fort Worth) found an insurer had no duty to defend or indemnify a construction company for defective workmanship that caused no further property damage or bodily injury. The case is Grimes Construction, Inc. v. Great American Lloyd’s Ins. Co., 2006 WL 563286 (March 9, 2006). This is a good opinion to read for the prevailing judicial view on coverage of construction defects.
Most courts now analyze defects that cause no damage beyond the defective work itself as not constituting an “occurrence” under a Commercial General Liability (CGL) policy. Remember, something is an occurrence in a CGL only if it is an accident that causes bodily injury or property damage that is unexpected and unintended from the standpoint of the insured during the policy period. The majority of courts, realizing that trying to wade through the “business risk” exclusions of a CGL is a frustrating and often fruitless endeavor, choose to look at the coverage grant itself instead.
Defects could fit under the rubric of “property damage,” which is usually defined as “physical injury to tangible property,” but coverage of defective workmanship is analyzed as violating the fortuity principle of a CGL. A practical policy reason for court decisions like Grimes is that many contractors are already priced out of the CGL market due to premium increases imposed to cover the greater risk of claims against contractors. If defective workmanship were covered, of course, most insurers would stop insuring contractors completely, and what insurance could be purchased would be impossibly expensive. Interestingly, the people who sued the contractor apparently tried their best to create coverage, alleging negligence in the construction. But the court said the gravamen of the allegations was poor workmanship no matter what the label on the claim.

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One Response to Texas Court Says Defective Workmanship Not An “Occurrence”

  1. UPDATE: The Texas Supreme Court reversed to intermediate court of appeals in a per curiam opinion released February 29, 2008
    Grimes Construction, Inc. v. Great American Lloyds Ins. Co., No. 06