Insurance coverage for faulty workmanship is certainly not a new topic on this blog, and states have entertained the issue with varying conclusions for years. The U.S. District Court for the Western District of North Carolina will take this issue on in a case styled Nationwide Mutual Insurance Company v. Hyde. (1:2015cv00137)
In Nationwide Mutual Insurance Company v. Hyde, Nationwide requests a declaratory judgment that coverage is not owed to a builder who was sued by homeowners for property damage that occurred as a result of the insured constructing the home on top of improperly compacted fill soil. The homeowners were awarded $350,000.00 in damages in an underlying suit against the builder.
Nationwide provided the insured a defense in the underlying suit, but filed the declaratory action subsequent to the $350,000 judgment. pursuant to a reservation of rights, once a judgment was entered against the insured, Nationwide filed the declaratory judgment action seeking the extent of its responsibilities. so that the court could determine Nationwide’s obligations.
Nationwide contends that the policies at issue only provide coverage for property damage caused by an “occurrence,” which is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Since faulty workmanship is not an “accident,” Nationwide argues that the policy does not provide coverage and Nationwide is not obligated to pay any damages on behalf of the insured. This is the same argument typically advanced in these cases.
Second, Nationwide argues that even if the policies did offer coverage, the exclusions for “Damage to Your Product” and “Damage to Your Work” preclude coverage for the damages to the house. Under these exclusions, property damage to the insured’s product or work arising out of the product or work itself is not covered. This argument is not new either, and has been reviewed by numerous states over the past ten years.
Nationwide distinguishes itself by relying on the “Subsidence of Land” exclusion in the policies, which excludes coverage for earth movement, including earth sinking and earth rising or shifting. The homeowners in the underlying action alleged that that house was constructed over improperly compacted fill soil, so Nationwide argues that the shifting of the land underneath the house that caused the damages is not covered by the policies.
More to come on this case as it will certainly have the potential to create precedent.