Unsafe foundation frames contractor’s “property damage” coverage

January 25, 2013

Insurance LawOn January 14, 2013, we posted an article about a recent case involving covered “Property Damage” issues decided under Floridalaw.  We headlined our article, “Court Says $2 Million in ‘Remediation Costs’ Not Covered Under CGL Policy“.  The Court in that case held that there was no Commercial General Liability Insurance coverage for a contractor which was sued only for damages incurred by a landowner for “remedial root work” after roots and trees and other organic debris were allegedly buried while the contractor was grading the construction site.

In the recent case the Court confronted allegations that triggered potential coverage and therefore a duty to defend a contractor under a similarly worded standard CGL Policy.  In Forrest Construction, Inc. v. Cincinnati Insurance Co., the Court held that the CGL insurer has a duty to defend the homeowners’ counterclaim against the Named Insured contractor “based on alleged defects in the workmanship of the construction, particularly the foundation.” Forrest *1.  More specifically, the homeowners alleged that they “‘discovered significant cracking in the foundation'” of their home which allegedly made for “‘an unsafe and potentially life-threatening condition,'” one which has the potential to cause a “‘deadly collapse of the residence.'”  Forrest *3.

The Forrest Construction Court viewed these allegations as going beyond simple allegations of damage to the contractor’s work.  These allegations went further to include other potential damage allegedly caused by the faulty foundation to other work and even other persons.  As such, these allegations triggered in turn the potential for covered “Property Damage” and thus triggered the CGL carrier’s duty to defend the contractor against these claims in this case.  Forrest *5.

The differences between the decisions in these two cases probably do not include the fact that National Trust, which we wrote about in our January 14, 2013 post, was decided under Florida law whereas Forrest Construction was decided under Tennessee substantive law, or that one case involves issues of a duty to indemnify while the other case involves issues of a duty to defend.  Both cases, however, involve similar issues of whether they present covered “Property Damage” under contractors’ standard CGL Policies.

In National Trust, the damages involved were costs incurred by the plaintiff for remediation or replacement of the contractor’s work, and were simply not covered in most if not all jurisdictions under standard CGL Policies.  In Forrest Construction, in contrast, there is at least the potential for damage to the work of third parties or to persons, which is ordinarily covered under standard CGL Policies.  In these twin cases, the property damage involved in them determined the CGL coverage outcomes.