A recent unpublished opinion by the Sixth Circuit Court of Appealshas held that a contractor’s allegedly poor workmanship did not constitute an “occurrence” under the contractor’s policy of insurance. The facts in this matter can be summarized, as follows: Wal-Mart contracted with MW Builders (“Contractor”) to construct a new store in Kentucky. Contractor subcontracted the site preparation and some preliminary foundation work to a subcontractor specializing in infrastructure related work. (“Site Subcontractor”)
Wal-Mart put Contractor on notice when cracks and other blemishes began to appear in the concrete areas constructed by Subcontractor. The Contractor subsequently notified Subcontractor and demanded remedy. Subcontractor put its insurer on notice, and the claim was denied under the “your work” exclusion, citing that damage was contained to the concentrated work area where Subcontractor had supplied labor and materials. Subcontractor challenged its insurer’s decision and prevailed in a summary judgment motion which was appealed.
The Sixth Circuit Court of Appeals reversed the trial court’s decision, holding that the damages caused by Subcontractor’s deficient workmanship were damages to the part of the project that was “within the control” of Subcontractor. The Sixth Circuit distinguished this from situations in which a general contractor’s work, or the work of a subcontractor, damaged other parts of a project.
The matter discussed in this entry is not anymore significant from similar rulings from other states discussed in this blog before. I bring your attention to Liberty Mutual Fire Insurance Co. v. Kay & Kay Contracting L.L.C. and MW Builders Inc., however, because it illustrates how facts, and not contract law, may govern the court’s ruling in certain instances.
In the MW Builders case, Subcontractor’s scope of work was limited to offsite fabrication of a building pad. This type of offsite construction, which is limited to one specific trade, can be factually distinguished from situations in which a subcontractor’s work is performed onsite, in and around the work of the general contractor and other subcontractors. Kentucky may not be stating, per se, that faulty work will never be covered under a policy of insurance in that state. The localized damage, in this case, is clearly to the insured’s work product and this might have provided the most significant factor in the court’s reasoning.
This blog discussed the “occurrence” issue at length during 2009 and 2010. In sum, not too much has changed as the norm remains that states treat this issue in varying ways. Some attempt to organize holdings from state to state in an attempt to determine exactly what each state’s position is with regard to the issue of faulty work and the existence of an occurrence. In reality, however, it is not always black letter law which governs each state.