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Georgia Supreme Court Weighs in on “Occurrences” under Commercial General Liability Policies



By Chase Fisher

In the Georgia case, the court addressed two primary issues: 1) whether Georgia law requires damage to “other property” for an “occurrence” to exist (e.g., damage to property other than the insured contractor’s work); and 2) if the answer to No. 1 is no, whether Georgia law requires the claims being defended against the insured not be for fraud or breach of warranty.  As to the first primary issue, the court held that there is no requirement that “other property” be damaged for an “occurrence” to exist under a standard CGL policy.  Thus, coverage may kick in merely by the fact that the insured’s own work sustained property damage.  The court then looked to the next issue and reasoned that since an “occurrence” is defined, in part, as an “accident,” then fraud could not be covered because it requires an intentional act (i.e., one that could not be accidentally committed).  The court held, however, breach of warranty, in contrast to fraud, could occur by accident.

For want of a foundation, homeowners brought suit
The case was originally brought by sixteen California homeowners seeking to represent a class of over 400 homeowners.  The basis of the lawsuit was that the homebuilder of all of their homes improperly constructed their concrete foundations. The homeowners alleged the homebuilder failed to lay four inches of gravel beneath the foundations, failed to use adequate moisture barriers, and built foundations with concrete containing too much water.  The homeowners maintained that the foundations were failing and that cracks were forming in the floors and driveways. 

For want of a favorable ruling, the homebuilder appealed 
The homebuilder sought to rely upon his CGL policy in defense of the homeowners’ suit. At first, the insurer defended the homebuilder, but it later filed its own lawsuit against the homebuilder, seeking a declaration that the homebuilder was not entitle to coverage under the CGL.  Eventually, after the homebuilder appealed the decision entered in favor of the insurer, the two questions at the beginning of this article were submitted to the Georgia Supreme Court.

Ultimately, this case comes down to who is responsible for the construction defects under Georgia law; thus, who must pay.  The insurer argued that a covered “occurrence” under the standard CGL policy only applies to physical damage to a third party, which did not occur here.  Instead, the court held that an “occurrence” under a CGL policy can involve damage solely to the insured’s completed work. 

The court next held that a fraud claim could involve an “occurrence” under a CGL policy because the concepts are mutually exclusive.  In particular, fraud claims in Georgia must involve an element of intent.  Since the CGL policy defines “occurrence” only as an “accident,” the court noted that an intentional act of fraud was incompatible with the general understanding of an accident. 

A breach of warranty, on the other hand, may be considered an “accident” under the right circumstances.  Although some warranty breaches are intentional, some breaches may not be intentional.  Generally, a party breaching a warranty is equally liable for a breach of warranty despite their level of intent.  Thus, the court held there could be situations of an accidental breach of warranty by a homebuilder that would enable it to be covered by a CGL policy. 

Take away
In light of the recent decisions by the state high courts for Georgia, Alabama, Connecticut and North Dakota, contractors and subcontractors should be vigilant as to what state they are building in and/or what state their CGL policy or contract relates to.  This area of law is becoming increasingly complex, and it is important to get legal advice regarding contracts of this nature before it is too late.


Georgia Supreme Court Weighs in on “Occurrences” under Commercial General Liability Policies

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