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Morris Manning & Martin, LLP

Georgia Supreme Court Defines "Occurrence" Expansively in CGL Policy

The Georgia Supreme Court recently addressed the definition of “occurrence” in a CGL policy.  American Empire Surplus Lines Ins. Co. v. Hathaway Development Co., Inc., 2011 Ga. LEXIS 177 (Ga. Mar. 7, 2011).  The specific issue was whether a general contractor could recover under a subcontractor’s CGL policy for damages to neighboring property caused by work negligently performed by the subcontractor. 

Hathaway Development Co. Inc. (“Hathaway”), the general contractor, sued its plumbing subcontractor, Whisnant Contracting Co., Inc. (“Whisnant”), for alleged negligence in installing plumbing work at three jobsites.  On one project, Whisnant installed a four-inch pipe instead of a six-inch pipe; on the second project, Whisnant improperly installed a dishwasher supply line; and on the third project, Whisnant improperly installed a pipe which separated under pressure.  Each error resulted in damage to surrounding property.  Hathaway sued Whisnant for the costs associated with the water and weather damage to surrounding property.  Whisnant failed to answer the complaint, and a default judgment was entered. 

Hathaway then filed an action to collect from Whisnant’s insurer, American Empire Surplus Lines Insurance Company (“AESLIC”).  AESLIC denied liability, arguing that the loss did not arise out of an “occurrence.”  The policy defined an “occurrence” as “an accident, including continuous or related exposure to substantially the same, general harmful conditions.”  Based on this definition, AESLIC argued that Whisnant’s negligent work could not be deemed an “accident” because the work was done intentionally.  The trial court agreed and granted summary judgment to AESLIC.  

The Georgia Court of Appeals reversed, holding that the faulty workmanship was covered under the CGL policy because it caused damage to surrounding properties.  Hathaway Development Co. Inc.  v. American Empire Surplus Lines Ins. Co.,686 S.E.2d 855 (Ga. App. 2009).  While the Court of Appeals found coverage for damage to surrounding property, it found no coverage for the cost of repairing the faulty workmanship itself.  Id. at 863.  

The Georgia Supreme Court granted certiorari and found coverage for the damage to surrounding property.  Using a legal dictionary, the Court defined an “accident” to be “an event happening without any human agency, or, if happening through such agency, an event which, under circumstances, is unusual and not expected by the person to whom it happens. . . .  [I]n its common signification, the word means an unexpected happening without intention or design.”  Citing BLACK’S LAW DICTIONARY, 15 (6th ed. 1990).  In applying the BLACK’S LAW DICTIONARY’s definition of “accident”, the Court held that Whisnant’s actions constituted an occurrence under the CGL policy because the actual cause of the harm was unanticipated, unintended and unexpected.  Therefore, under Georgia law, a construction defect can be an “occurrence” under a CGL policy where the insured’s faulty workmanship causes unforeseen or unexpected damage to property.