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Raising the roof: what's hot in construction defect litigation.

THE PERIOD spanning from the mid1990's to the crash of the real estate market in 2007 saw an unprecedented explosion of new construction throughout the United States, particularly in the Sun Belt. As with any boom, the frenzy of ever-increasing real estate prices tempted many of the players involved to cut corners and increase profits. Thus, the term "value engineering" took on a new meaning in the construction field. The basic tenet of "value engineering" is to increase the ratio of function to cost. This can be done either by increasing functionality or decreasing cost. The fast buck artists chose the latter with obvious consequences.

Unfortunately for the purchasers of "value engineered" projects, the reduction of cost generally resulted in a decrease in function. However, the decreased function generally did not make itself evident until years after the developer had packed up and left town. Just like Sylvester McMonkey McBean in Dr. Seuss's The Sneetches, "... when every last cent of their money was spent, [t]he fix-it-up Chappie packed up. And he went." (1) Years after construction was completed, owners of properties, riddled with defects, sued the developer, builder and/or subcontractor(s) to recover the cost of repairing the defective construction.

Ever eager to share the misery, the sued entities then turned to their general liability insurers, claiming the defective construction was an "accident" and therefore covered under their general liability policies. Not since asbestos litigation has any one coverage issue spawned so much litigation. As of the date of this article, only seven states have escaped addressing whether defective construction meets the definition of an "accident" and therefore constitutes a covered "occurrence" within the meaning of the I.S.O. general liability policy in use since 1986. (2) This article explores the various approaches courts have taken on the issue. It then presents other issues that are beginning to be addressed by courts who have found defective construction to be an "occurrence." In addition, state legislatures in at least four states have addressed the issue, spurred by decisions purportedly unfavorable to insureds in those jurisdictions.

I. Is Defective Construction an "Occurrence?"

The broad form general liability policy widely in use since the 1960's grants the following coverage:
   We will pay those sums that the
   insured becomes legally obligated to
   pay as damages because of "bodily
   injury" or "property damage" to
   which this insurance applies ....


b. This insurance applies to "bodily injury" and "property damage" only if:

(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory"; and

(2) The "bodily injury" or "property damage" occurs during the policy period. (3)

From this language, it is clear that in order to trigger the coverage agreement in the first instance, there must be "property damage ... caused by an 'occurrence.'" What then is an "occurrence?" The I.S.O. policy defines an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (4) Enter the fortuity principle--that which is accidental is necessarily fortuitous. The policy is obviously intended only to cover fortuitous events--those which are foreseeable, but not within the insured's control. Arguably, if the resultant defect was "accidental" then the loss was an "occurrence."

Other courts have reached the same result looking instead to policy exclusions to justify their decisions. Comprehensive General Liability ("CGL") policies contain a number of exclusions, which might apply to bar coverage even where the court finds the defective construction to be an occurrence. The I.S.O. broad form general liability policy currently in use contains three exclusions, generally referred to collectively as the "business risk exclusions," as follows:

This insurance does not apply to:

j. Damage to Property

"Property damage" to:

(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations; or

(6) That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.

Paragraph (6) of this exclusion does not apply to "property damage" included in the "products-completed operations hazard".

k. Damage to Your Product

"Property damage" to "your product" arising out of it or any part of it.

l. Damage to Your Work

"Property damage" to "your work" arising out of it or any part of it and included in the "products-completed operations hazard".

This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.

The policy then defines the "products-completed operations hazard" as:

all "bodily injury" and "property damage" occurring away from premises you own or rent and arising out of "your product" or "your work" except:

(1) Products that are still in your physical possession; or

(2) Work that has not yet been completed or abandoned. However, "your work" will be deemed completed at the earliest of the following times:

(a) When all of the work called for in your contract has been completed.

(b) When all of the work to be done at the job site has been completed if your contract calls for work at more than one job site.

(c) When that part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project.

Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed. (5)

A state-by-state review of the decisions on this subject reveals a broad spectrum of interpretations spanning the gap from those which find that defective construction is never an "occurrence" (therefore, regardless of the extent of damage beyond the insured's own work product, the claim is not covered), to those which find not only that defective construction is an "occurrence" but that the business risk exclusions are ambiguous and do not bar coverage for repair and replacement of the insured's own work product. Those positions define the extremes, while the overwhelming majority of decisions within the two extremes may be harmonized into a distinct set of broad principles.

The true majority rule as to construction defects is that claims of defective construction, standing alone, do not meet the element of fortuity necessary to constitute an accident and are therefore not covered. However, where the work in question was performed by the insured's subcontractor, the damage is either considered "accidental from the standpoint of the insured" or fits within the subcontractor exception to the "your work" exclusions. Similarly, to the extent the insured's defective work results in damage to other property not the subject of the insured's work, that damage is also generally covered. Leading decisions of each state are summarized in Appendix I following this article.

A. Defective Construction is Never an "Occurrence"

The Supreme Court of New Jersey first recognized the requirement of a fortuity analysis as a bedrock principle of insurance law in 1979 in what was and remains a landmark case, Weedo v. Stone-E-Brick. (6) Weedo involved a contractor who installed stucco on the side of its customer's house. The stucco later cracked and peeled. The homeowners sued the contractor, Stone-E-Brick, for the cost of removing and replacing the defective stucco. The New Jersey Supreme Court was thus faced with the question of whether defective construction, standing alone, constitutes an "occurrence." The court held that it did not.

The Weedo court distinguished between the kinds of risks faced by a typical contractor, namely: 1) the risk that his work will not meet the customer's expectation, thereby exposing him to liability in contract; and 2) the risk that some mistake on his part may result in bodily injury or property damage to a third party. In this regard, the court noted:
   While it may be true that the
   same neglectful craftsmanship
   can be the cause of both a
   business expense of repair and a
   loss represented by damage to
   persons and property, the two
   consequences are vastly different
   in relation to sharing the cost of
   such risks as a matter of
   insurance underwriting. (7)


Quoting Dean Roger Henderson, who espoused the principle in the Nebraska Law Review, the court noted:
   The risk intended to be insured is
   the possibility that the goods,
   products or work of the insured,
   once relinquished or completed,
   will cause bodily injury or
   damage to property other than to
   the product or completed work
   itself, and for which the insured
   may be found liable. The insured,
   as a source of goods or services,
   may be liable as a matter of
   contract law to make good on
   products or work which is
   defective or otherwise unsuitable
   because it is lacking in some
   capacity. This may even extend
   to an obligation to completely
   replace or rebuild the deficient
   product or work. This liability,
   however, is not what the
   coverages in question are
   designed to protect against. The
   coverage is for tort liability for
   physical damages to others and
   not for contractual liability of the
   insured for economic loss
   because the product or completed
   work is not that for which the
   damaged person bargained.

   An illustration of this
   fundamental point may serve to
   mark the boundaries between
   "business risks" and occurrences
   giving rise to insurable liability.
   When a craftsman applies stucco
   to an exterior wall of a home in a
   faulty manner and discoloration,
   peeling and chipping result, the
   poorly-performed work will
   perforce have to be replaced or
   repaired by the tradesman or by a
   surety. On the other hand, should
   the stucco peel and fall from the
   wall, and thereby cause injury to
   the homeowner or his neighbor
   standing below or to a passing
   automobile, an occurrence of
   harm arises which is the proper
   subject of risk-sharing as
   provided by the type of policy
   before us in this case. (8)


Another prime example of the extreme on the "occurrence" spectrum is the recent decision of the Kentucky Supreme Court in Cincinnati Insurance v. Motorists Mutual Insurance. (9) In Motorists Mutual, the Court considered a claim against the insured general contractor brought by a couple which purchased a home built by the insured (the decision is silent regarding whether the contractor used subcontractors to perform any of the work). Relying on the fortuity principle, the Court held simply:
   Inherent in the plain meaning of
   "accident" is the doctrine of
   fortuity. Indeed, "[t]he fortuity
   principle is central to the notion
   of what constitutes insurance ...."

   Although we have used the term
   fortuity in the past, we have not
   fully explored its breadth and
   scope. In short, fortuity consists
   of two central aspects: intent,
   which we have discussed in
   earlier opinions, and control,
   which we have not previously
   discussed. (10)


Obviously, intent is relevant in determining fortuity. That which is intended is, by definition, not accidental. The applicability of the second concept, control, is less obvious but equally compelling. A general liability policy is not intended to provide coverage for those risks which are within the insured's control, such as the selection of competent subcontractors and the furnishing of quality building materials properly installed to provide protection from the elements. Since the quality of construction is always within the control of the contractor, whether the work is performed by a subcontractor or the contractor's own employees, any loss which results from poor workmanship cannot possibly be considered fortuitous. No fortuity, no accident, no occurrence, no coverage.

In Hawkeye-Security Insurance v. Davis, the Missouri Court of Appeals followed this rationale in concluding that a claim against a builder for building a defective home was not covered even though much of the work was performed by subcontractors. (11) The court simply held that the construction was entirely within the insured's control and therefore any damage resulting therefrom could not be fortuitous. The Court also chose to rest its decision on the distinction between tort and contract theories:
   These uncontroverted facts
   establish that Appellants'
   losses stem solely from
   Davis's breach of his
   contractual obligations,
   breach of his express
   warranties, or breach of
   implied warranties in
   connection with this
   construction. However,
   "breach of a defined
   contractual duty cannot fall
   within the term 'accident.'"
   [American Stats Ins. Co. v.]
   Mathis, 974 S.W.2d 647, 650
   [(Mo. Ct. App. 1998)]. As
   the Mathis court explained:
   "Performance of [the]
   contract according to the
   terms specified therein was
   within [the insured
   contractor's] control and
   management and its failure to
   perform cannot be described
   as an undesigned or
   unexpected event." (12)


B. Defective Construction, Standing Alone, is not an "Occurrence"

The next position on the spectrum is well illustrated by the decision of the Nebraska Supreme Court in Auto-Owners Insurance Company v. Home Pride Companies. (13) In Home Pride, the court considered a claim against a contractor who replaced a number of roofs in an apartment complex. The insured contractor used a subcontractor to perform the work. Following completion of the work, the shingles began to fall off the roofs and they leaked, resulting in damage to portions of the buildings other than the roofs themselves. The court drew a distinction between damage to the roofs (the insured's work) and damage to the buildings resulting from water intrusion (other property):
   Important here, although faulty
   workmanship standing alone, is
   not an occurrence under a CGL
   policy, an accident caused by
   faulty workmanship is a covered
   occurrence.... Stated otherwise,
   although a standard CGL policy
   does not provide coverage for
   faulty workmanship that
   damages only the resulting work
   product, if faulty workmanship
   causes bodily injury or property
   damage to something other than
   the insured's work product, an
   unintended and unexpected event
   has occurred, and coverage
   exists. (14)


This approach seems entirely reasonable and consistent with Dean Henderson's statements quoted in Weedo. Since the insured has full control over the quality of its work, whether it uses subcontractors or not any damage to the work product of the insured itself is inherently non-fortuitous. Dean Henderson drew this precise distinction in the context of the defective stucco wall:
   [S]hould the stucco peel and fall
   from the wall, and thereby cause
   injury to the homeowner or his
   neighbor standing below or to a
   passing automobile, an
   occurrence of harm arises which
   is the proper subject of risk-sharing
   as provided by the type
   of policy before us in this case. (15)


In Home Pride, the damage to property resulting from water intrusion is a perfect analogue to the damage to the passing automobile referenced above. The only difference (and it is truly a difference without a distinction) is that the passing automobile is not connected to the work of the insured. It is logically much easier to understand why that damage to the other property is covered, whereas the damage to the roof itself is not. The fact that the property damaged by the insured's faulty work happens to be connected to the work product of the insured should not be treated differently than the passing automobile; it is damage to property other than the insured's work which was damaged as a result of the insured's work. Like the passing automobile, the water intrusion damage is covered.

C. Defective Construction is an "Occurrence" but the Business Risk Exclusions Apply

The next line along the spectrum consists of those courts who have found that defective construction is an "occurrence" (or the courts who skipped that analysis completely), but that the business risk exclusions apply to bar coverage entirely. This viewpoint is illustrated by the decision of the Massachusetts Supreme Judicial Court in Commerce Insurance v. Betty Caplette Builders. (16) In Betty Caplette, the insured was a general contractor who was sued based upon defective septic systems installed by subcontractors. The court skipped the "occurrence" analysis and instead interpreted the business risk exclusions. After referring to Weedo and quoting Dean Henderson, the court took a novel approach and held that the houses were the insured's "product" and the claims were therefore excluded by exclusion (k) of the broad form general liability policy. (The exclusion at issue in Betty Caplette was actually numbered (n), but it was the identical "your product" exclusion to exclusion (k) in the current broad form policy.)

Since the court applied the "your product" exclusion, the fact that the septic systems were installed by subcontractors was irrelevant. The court considered the insured's contention that the home was more properly characterized as "your work," such that the subcontractor exception to the exclusion would apply. It rejected that argument, relying on precedent which held that the entire house is a builder's "product." (17) Many of the cases relied upon by the court have since been superseded by opinions considering the post-1986 I.S.O. coverage form (although in only one was the result at all different (18)). The end result in these cases seems to be dictated more by policy than interpretation.

Ironically, a builder who uses subcontractors in Massachusetts will enjoy the same coverage as the same builder in Nebraska despite the fact that in Massachusetts defective construction is considered an "occurrence." Obviously, different approaches to the same question can yield the same result. This approach, which was originally described by the Massachusetts Supreme Judicial Court as the majority approach, is now the approach of only a single court--Massachusetts.

D. Defective Construction is an "Occurrence" and the Business Risk Exclusions Do Not Apply

Finally, at the most liberal end of the spectrum, we find decisions that have made builders very happy, such as the Florida Supreme Court's decision in J.S.U.B., which followed the same rationale as that of the Texas Supreme Court in Lamar Homes v. MidContinent Casualty Company. (19)

In J.S.U.B., the builder built several homes under contract. After delivery of the homes, the homeowners began discovering cracks in the ceilings, drywall and concrete slabs of the homes. Investigation revealed that the cracking was a result of differential settlement caused by poor soil compaction and failure to remove loose organic material by the site preparation contractors. When sued by the homeowners, the builder sought coverage under its policy with U.S. Fire. This insurer, relying on a prior decision of the Florida Supreme Court, LaMarche v. Shelby Mutual Ins. Co., (20) denied coverage for anything other than personal property of the homeowners damaged by the settlement.

J.S.U.B. repaired the homes and filed suit against U.S. Fire to determine coverage. On appeal, the intermediate court held that LaMarche did not apply and found coverage for all of the damages sought by the homeowners. The Florida Supreme Court agreed with the intermediate court and issued a lengthy decision in an attempt to justify the wholesale abandonment of decades of precedent.

First, the Court considered the "occurrence" issue. Putting the cart well before the horse, the Court engaged in a lengthy expose of the history of the "your work" exclusion in the broad form general liability policy. Putting aside its own rule that exclusionary clauses cannot be relied upon to create coverage, it chose instead to read the policy "as a whole" to determine whether work performed by a subcontractor came within the definition of an "occurrence." The Court found that the subcontractor exception to the "your work" exclusion indicated that work performed by a subcontractor was meant to be covered in the first instance.

In doing so, the Court explained that its prior decision in LaMarche was based not on whether defective construction was an "occurrence," but whether the business risk exclusions were ambiguous. From that unremarkable proposition, the Court concluded that consideration of the "your work" exclusion was a proper method of determining whether the defective work constituted an "occurrence" in the first instance. Its justification was as follows:
   We conclude that the holding in
   LaMarche, which relied on
   Weedo and involved the issue of
   whether there was coverage for
   the contractor's own defective
   work, was dependent on the
   policy language of pre-1986
   CGL policies, including the
   relevant insuring provisions and
   applicable exclusions....

   Because LaMarche involved a
   claim of faulty workmanship by
   the contractor, rather than a claim
   of faulty work by the
   subcontractor, and because the
   policy being interpreted involved
   distinct exclusions and
   exceptions, we do not regard
   LaMarche as binding precedent
   in this case. (21)


The problem with this transparent justification is that it fails to explain how considering the language of an exclusion can aid in the determination of the insuring agreement. In LaMarche, the coverage grant was identical to that at issue in J.S.U.B., requiring an "occurrence" resulting in "property damage." The exclusion at issue in LaMarche was the former exclusion (o), which equates to the current exclusion (1), or the damage to "your work" exclusion. The former provision stated that the insurance did not apply:
   to property damage to work
   performed by or on behalf of the
   named insured arising out of the
   work or any portion thereof, or
   out of materials, parts or
   equipment furnished in
   connection therewith. (22)


By contrast, the current exclusion (1), excludes coverage for:
   "Property damage" to "your
   work" arising out of it or any part
   of it and included in the
   "products-completed operations
   hazard".


This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.

So, the newer provision removes work performed on the insured's behalf from the exclusion, whereas the older version expressly included work performed on the insured's behalf.

Having recited the foregoing differences, the Court then resumed its analysis of whether defective construction constituted an "occurrence." After citing to several other state decisions which found that such defects were "occurrences," it then completely omitted any analysis of the issue and simply put forth the bold proposition that:
   If U.S. Fire intended to preclude
   coverage based on the cause of
   action asserted, it was incumbent
   on U.S. Fire to include clear
   language to accomplish this
   result.... In fact, there is a
   breach of contract endorsement
   exclusion, not present in the CGL
   policies at issue in this case, that
   excludes coverage for breach of
   contract claims.... (23)


Of course, the court did not explain why U.S. Fire needed to include an endorsement to exclude coverage which the Florida Supreme Court had already announced did not exist. Analyzing whether the insuring agreement of the policy is triggered in the first instance is certainly different from analyzing whether the exclusions bar coverage which otherwise exists. In other words, the Court put the proverbial cart before the horse by concluding that U.S. Fire failed to use clear language to preclude coverage.

The question of whether defective construction is an "occurrence" asks whether the loss itself is the type contemplated by the policy. Only if the answer to that question is "Yes" is there any need to consider whether any other provision of the policy precludes that coverage. Therefore, the Court's reliance on U.S. Fire's failure to use clear preclusionary language in support of its conclusion that defective construction constitutes an "occurrence" is nonsensical. Its analysis demonstrates that the Court never really analyzed whether defective construction is accidental or fortuitous. Rather, it simply cited to changes in the relevant exclusions to justify its departure from decades of settled precedent.

E. Harmonization of the Decisions

Despite what appear to be a fairly significant divergence of views on the scope of coverage under the broad form general liability policy, the reality is that only in a few states will builders have the equivalent of performance bond coverage (but without the insurer's concomitant right to recoup any payments thereunder from the insured). Obviously, contractors in Florida and Texas and the other states which apply their rationale (see Appendix I) will enjoy broad coverage. Even in those states, it is fair to assume that work done by the contractor itself will not be covered. In J.S.U.B., the contractor subcontracted all of the work on the home. Therefore, all of the property damage was covered. But even the J.S.U.B. decision makes it fairly clear that defective work that is performed by the contractor itself will not be covered.

As a result, we discern a broad theme running through the great majority of decisions, such that several broad principles of law can be said to be the overwhelming majority rule. First, claims of defective construction, standing alone, do not meet the element of fortuity necessary to constitute an accident and are therefore not covered. Second, where the work in question was performed by a subcontractor, the damage is either considered accidental from the standpoint of the insured or fits within the subcontractor exception to the "your work" exclusion. Third, to the extent the insured's defective work results in damage to other property not the subject of the insured's work, that damage is likely covered. In essence, after forty-two years of litigation, we end up at the same place Dean Henderson described in 1971. (24)

II. Other Issues

In the aftermath of the construction defect litigation explosion, insurers, claims professionals and attorneys continue to struggle with other issues. While it is simple to say that damage to the insured's work is not covered, application of that principle is more difficult, particularly in the context of the all-too-common water intrusion claim that seems to define much of the current litigation. In the event the stucco is defective, resulting in rotting of structural framing members and damage to drywall, how do we parse the cost of removing and replacing the stucco (which may or may not be covered, depending on whether it was performed by a subcontractor) from the cost of repairing the damaged structural elements (alleged "other property")?

This issue becomes more complex on close examination. For example, a wise insured will argue that it is not possible to access the framing members without removing the stucco. Therefore, for argument's sake, even if the water intrusion resulted from a different cause, even non-defective stucco would have to be removed and replaced as part of the cost of repairing the damaged structural elements. The players involved are just beginning, relatively speaking, to address that kind of issue, sometimes referred to as "rip and tear" damages.

In addition, as a result of the subcontractor exception, which is almost universally recognized, contractors simply use subcontractors for all work on a project. Clearly, had the builder in J.S.U.B. done its own site preparation, it would have deprived itself of coverage which it otherwise enjoyed. Of course, subcontractors purchasing the same form CGL policy usually do not have that option.

There are also the ever-present issues of indemnity, subrogation and contribution. The builder who utilized subcontractors and/or its insurer will have an excellent argument that the entire liability should be passed down the line to the subcontractors. Certainly, U.S. Fire should have a right of subrogation to pursue the site preparation contractor for indemnity since the builder cannot have contributed to the loss. In that case, is the subcontractor's insurer in any better position to deny coverage than the builder's insurer would have been since the subcontractor exception should not apply? That question is debatable given the "rationale" used by the Florida Supreme Court to conclude that defective construction is an "occurrence." One could certainly cite that decision for the proposition that defective construction is only an "occurrence" when the work is performed by a subcontractor. For the subcontractor then, is there no "occurrence" because the subcontractor did not use a sub-subcontractor? That is a question which will also likely be litigated in the coming years.

III. Legislating Coverage

In states where the courts' decisions have been unfavorable to policyholders, policyholders have turned to lobbyists, the plaintiffs' bar and state legislatures to enact change. For example, recent legislation reversed a decision by the South Carolina Supreme Court in Crossmann Communities of North Carolina v. Harleysville Mutual Insurance. (25) The court (which later withdrew the opinion and reversed itself), held that damages resulting from faulty workmanship were the "natural and probable cause" of the faulty work and, as such, did not qualify as an "occurrence." In response, the South Carolina Legislature passed a statute providing:

Commercial general liability insurance policies shall contain or be deemed to contain a definition of "occurrence" that includes:

(1) an accident, including continuous re repeated exposure to substantially the same general harmful conditions; and

(2) property damage or bodily injury resulting from faulty workmanship, exclusive of the faulty workmanship itself. (26)

The statute, which applies to any pending or future disputes, makes clear that any damage flowing from faulty workmanship constitutes a covered "occurrence" under CGL policies.

In Hawaii, the legislature enacted Hawaii Revised Statutes 431:1-217, attempting to preserve the meaning of "occurrence" that existed prior to a Court of Appeals decision in Group Builders v. Admiral Ins. Co., (27) which was not favorable to insureds. The Hawaii statute provides that "For purpose of a liability insurance policy that covers occurrences of damage or injury during the policy period and insures a construction professional for liability arising from construction related work, the meaning of the term 'occurrence' shall be construed in accordance with the law as it existed at the time that the insurance policy was issued." (28)

In addition, Colorado (29) and Arkansas (30) have recently adopted legislation regarding coverage under CGL policies for construction defects. The Colorado statute requires courts to presume that work resulting in property damage is an accident under a CGL policy unless the damage was intended and expected by the insured. The statute only applies to policies expiring after May 21, 2010. (31) The Arkansas statute, while expressly not intended to limit exclusionary language, provides that all CGL policies must include a definition of occurrence that includes "property damage or bodily injury resulting from faulty workmanship."

IV. New Endorsements

As a result of the flood of construction defect litigation concerning the I.S.O. broad form general liability policy, the industry has developed several new endorsements, which may be added to the general liability policy (presumably for a reduced premium). The first is the Breach of Contract Endorsement, referenced in the J.S.U.B. decision, which states:
   This insurance does not apply to
   claims for breach of contract,
   whether express or oral, nor
   claims for breach of an implied
   in law or implied in fact contract,
   whether "bodily injury,"
   "property damage," "advertising
   injury," "personal injury" or an
   "occurrence" or damages of any
   type is alleged; this exclusion
   also applies to any additional
   insureds under this policy.


Furthermore, no obligation to defend will arise or be provided by us for such excluded claims. (32)

In addition, I.S.O. has made available two endorsements which have the effect of deleting the subcontractor exception to the "your work" exclusion. That endorsement simply provides:

Exclusion I. of Section I--Coverage A--Bodily Injury And Property Damage Liability is replaced by the following:

2. Exclusions

This insurance does not apply to:

1. Damage To Your Work

"Property Damage" to "your work" arising out of it or any part of it and included in the "products-completed operations hazard". (33)

Finally, I.S.O. has created a site-specific endorsement for deleting the subcontractor exception to the "your work" exclusion. That endorsement states:
   With respect to those sites or
   operations designated in the
   Schedule of this endorsement,
   Exclusion I. of Section I--Coverage
   A--Bodily Injury And
   Property Damage Liability is
   replaced by the following:


2. Exclusions

This insurance does not apply to:

1. Damage To Your Work

"Property Damage" to "your work" arising out of it or any part of it and included in the "products-completed operations hazard". (34)

Contractors will likely be offered policies with one or more of the foregoing endorsements included automatically. Presumably, the endorsements could be removed for an additional premium. While these endorsements appear to provide a simple solution to a complex problem, even these endorsements are likely to engender further litigation as courts grapple with their interpretation.

V. Conclusion

Have forty-two years of litigation really changed anything? On the judicially conservative end of the spectrum, things are as Dean Henderson described them in 1971. Builders who build shoddy buildings will have to bear the cost of replacement of their own shoddy work. This is, of course, the way it should be. Perhaps the real point of demarcation should be the distinction between tort liability and contract liability. Without saying so, Dean Henderson's example certainly drew the line there. For the person injured by the falling stucco wall or the passing car damaged by that same falling stucco, the only remedy against the person responsible is in tort. While it is true that, but for the contract between the builder and the stucco contractor, there would be no liability for the injured person or the passing car. But that does not mean that the liability arises out of contract.

The problem arises when the damage becomes internal. When the insured's work damages only itself, there is no coverage even in Florida and Texas. But when the insured's faulty work damages "other property," it is likely covered by the builder's general liability policy. Is it a coincidence that these principles seem to mirror those of the economic loss rule before it became whittled away by exceptions? Under that rule, a defective product which damages only itself gives rise to a cause of action in contract only. Only when the product damages "other property" does the breach of contract (the defect) become actionable in tort.

Perhaps the erosion of the economic loss rule runs parallel to the erosion of the concept that insurance is meant to cover accidents, not business risks. Certainly in Dean Henderson's time, a complaint against a builder based on negligence would have been summarily dismissed under the economic loss rule. Today, it might well stand based upon the many exceptions courts have created to what was otherwise a bright-line rule. Just as the line between tort and contract is blurring, so too is the line between accidents and business risks.

APPENDIX I

STATE BY STATE INDEX

Alabama: Town and Country Prop., LLC v. Amerisure Ins. Co., No. 1100009, 2011 WL 5009777 (Ala. Oct. 21, 2011).
   Occurrence? Yes. Defective
   construction can be an "occurrence"
   if it subjects personal property or
   other parts of the structure to
   "continuous or repeated exposure" to
   harmful conditions resulting in
   damage.

   Insured's work covered? No. The
   business risk exclusions preclude
   coverage for the repair of the
   insured's defective product. Only
   damage to "other property" is
   covered.


Alaska: Fejes v. Alaska Ins. Co., Inc., 984 P.2d 519 (Alaska 1999).
   Occurrence? Yes. Defective
   construction can be an "occurrence"
   where the insured did not expect or
   intend the result of the defective
   construction.

   Insured's work covered? Yes, if
   performed by a subcontractor. No, if
   performed by the insured.


Arizona: United States Fidelity & Guaranty Corp. v. Advance Roofing & Supply Co., Inc., 788 P.2d 1227 (Ariz. Ct. App. 1989).
   Occurrence? No.

   Insured's work covered? No.


Arkansas: Lexicon v. ACE American Ins. Co., 634 F.3d 423 (8th Cir. 2010).
   Occurrence? Damage to work itself
   is not occurrence while collateral
   damage caused by faulty work is an
   occurrence.

   Insured's work covered? No.
   Defective workmanship standing
   alone is not an occurrence. (35)


California: Standard Fire Ins. Co. v. Spectrum Community Ass'n, 46 Cal.Rptr.3d 804 (Cal. Ct. App. 2006).
   Occurrence? Yes, implicitly.
   California courts seem to have
   glossed over this question. There are
   a number of opinions like Standard
   Fire that address the question of
   whether a defect which occurs over
   time triggers multiple policies.
   However, none of the decisions
   actually addresses the threshold issue
   of whether such defects constitute an
   "occurrence" in the first instance.

   Insured's work covered? Yes,
   implicitly, based upon the same
   rationale.


Colorado: General Security Indemnity Co. of Arizona v. Mountain States Mut. Casualty Co., 205 P.2d 529 (Colo. Ct. App. 2009).
   Occurrence? No. Defective
   construction lacks the fortuity
   implicit in the concept of an accident.

   Insured's work covered? No.


Connecticut: Travelers Prop. Casualty Co. of Am. v. Laticrete, Int'l, Inc., CV044002006S, 2006 WL 2349079 (Conn. Super. Ct. July 27, 2006).
   Occurrence? Yes, implicitly. Like
   the California court in Standard Fire,
   the court glossed over the initial
   "occurrence" analysis and analyzed
   when property damage occurred for
   trigger purposes.

   Insured's work covered? Yes,
   implicitly.


Delaware: Charles E. Brohawn & Bros, Inc. v. Employers Commercial Union Ins. Co., 409 A.2d 1055 (Del. 1979).
   Occurrence? Yes, implicitly. The
   court assumed that defective
   construction constituted property
   damage caused by an occurrence and
   decided the case based upon the
   "sistership" exclusion.

   Insured's work covered? Possibly,
   depending upon the applicability of a
   "sistership" or other exclusion.


Florida: United States Fire Ins. Co. v. J.S.U.B., Inc., 979 So.2d 871 (Fla. 2007).
   Occurrence? Yes. Defective work
   performed by a subcontractor was
   not expected or intended by the
   general contractor and is therefore an
   "accident."

   Insured's work covered? Yes, if the
   work was performed by a
   subcontractor. No, if it was
   performed by the insured. However,
   damage to work other than the
   insured's work is covered regardless.


Georgia: American Empire Surplus Line Ins. Co. v. Hathaway Development Co., Inc., 707 S.E.2d 369 (Ga. 2011).
   Occurrence? Yes. Faulty
   workmanship causing damage to
   neighboring property constitutes an
   accident.

   Insured's work covered? No. (36)


Hawaii: Group Builders, Inc. v. Admiral Ins. Co., 231 P.3d 67 (Haw. Ct. App. 2010).
   Occurrence? No. Whether couched
   as contractual or tort-based claims,
   claims of defective construction do
   not constitute an "occurrence."

   Insured's work covered? No.


Idaho: Undecided.

Illinois: Country Mutual Ins. Co. v. Carr, 867 N.E.2d 1157 (Ill. Ct. App. 2007).
   Occurrence? Yes. If the insured did
   not intend or expect damage to result
   from his work, then the resulting
   damage is accidental and therefore an
   "occurrence."

   Insured's work covered? Unknown.
   Since the business risk exclusions
   were not addressed in the trial court,
   the appeals court remanded for the
   trial court to consider the exclusions in
   the first instance.


Indiana: Sheehan Const. Co., Inc. v. Continental Casualty Co., 935 N.E.2d 160 (Ind. 2010).
   Occurrence? Yes. As long as the
   resulting damage is an event that
   occurs without expectation or
   foresight, defective construction can
   constitute an accident and therefore
   an "occurrence."

   Insured's work covered? No. Only
   damage to property other than the
   insured's work is covered. The
   business risk exclusions clearly
   exclude coverage for damage to the
   insured's work.


Iowa: Pursell Const., Inc. v. Hawkeye Security Ins. Co., 596 N.W.2d 67 (Iowa 1999).
   Occurrence? No. Defective work
   standing alone is not an accident and
   therefore not an "occurrence."

   Insured's work covered? No, but
   damage to property other than the
   insured's work would presumably be
   covered.


Kansas: Lee Builders, Inc. v. Farm Bureau Mutual Ins. Co., 137 P.3d 486 (Kan. 2006).
   Occurrence? Yes. As long as the
   damage resulting from defective
   construction was unforeseen and
   unintended by the insured, it is
   accidental and therefore an
   "occurrence."

   Insured's work covered? Yes,
   implicitly. The Lee Builders court
   could have considered the business
   risk exclusions, but did not, choosing
   instead to hold simply that the
   defective construction was an
   "occurrence" and therefore covered.


Kentucky: Cincinnati Ins. Co. v. Motorists Mutual Ins. Co., 306 S.W.3d 69 (Ky. 2010).
   Occurrence? No. Although an
   insured would almost never have
   intended to perform substandard
   work, the concept of fortuity has a
   second aspect: control. For the
   defective construction to be an
   accident, it must be a chance event,
   beyond the insured's control.

   Insured's work covered? No. (37)


Louisiana: Joe Banks Drywall & Acoustics, Inc. v. Transcontinental Ins. Co., 753 So.2d 980 (La. Ct. App. 2000).
   Occurrence? Yes. As long as the
   complaint does not allege that the
   insured intended the damage, the
   defective construction was accidental
   and therefore an "occurrence."

   Insured's work covered? No. The
   business risk exclusions clearly apply
   to bar coverage for damage to the
   insured's work. Damage to other
   property would presumably be
   covered.


Maine: Massachusetts Bay Ins. Co. v. Ferraiolo Construction Co., 584 A.2d 608 (Me. 1990); Peerless Insurance Co. v. Brennon, 564 A.2d 383 (Me. 1989).
   Occurrence? Yes. Comprehensive
   general liability insurance is intended
   to cover occurrence of harm risks,
   but not business risks. Occurrence of
   harm risks are those involving harm
   to others due to faulty work or
   products, while business risks are
   those involving business expenses
   incurred by the insured for repair or
   replacement of unsatisfactory work.

   Insured's work covered? No.


Maryland: French v. Assurance Co. of Am., 448 F.3d 693 (4th Cir. 2006) (applying Maryland law).
   Occurrence? No. The defective
   performance of work can never be an
   accident and therefore is not an
   "occurrence."

   Insured's work covered? No, unless
   the damage was to non-defective
   work of the insured which resulted
   from defective work performed by a
   subcontractor (under the
   subcontractor exception to the "your
   work" exclusion).


Massachusetts: Commerce Ins. Co. v. Betty Caplette Builders, Inc., 647 N.E.2d 1211 (Mass. 1995).
   Occurrence? Yes. The court
   appeared to gloss over this question
   since the insurer did not dispute that
   the claims would be covered in the
   absence of the "your work"
   exclusions.

   Insured's work covered? No. The
   court rejected the applicability of the
   "your work" exclusion and its
   subcontractor exception, choosing
   instead to hold that the entire house
   was the insured's "product." Thus,
   the "your product" exclusion applies
   to bar coverage entirely.


Michigan: Auto Owners Ins. Co. v. Long's Tri-County Mobile Home, Inc., No. 252580, 2005 WL 1522169 (Mich. Ct. App. June 28, 2005).
   Occurrence? No, unless the defective
   construction causes damage to
   property other than the insured's
   work. (38)


   Insured's work covered? No. Only
   damage to property other than the
   insured's work is covered.


Minnesota: Bor-Son Bldg. Corp. v. Employers Commercial Union Ins. Co., 323 N.W.2d 58 (Minn. 1982).
   Occurrence? No, in concept. A
   general liability policy is intended to
   cover tort risks, not contractual risks
   which are within the insured's
   control. However, damage to
   property other than the insured's
   work is caused by an "occurrence"
   and therefore covered. (39)

   Insured's work covered? No.


Mississippi: Architex Ass'n., Inc. v. Scottsdale Ins. Co., 27 So.3d 1148 (Miss. 2010).
   Occurrence? Yes, in certain
   instances. The court distinguished
   between intentional and negligent
   acts by the insured and its
   subcontractors, holding that the
   question of whether the damage was
   accidental from the standpoint of the
   insured will govern the question of
   whether there was an "occurrence."

   Insured's work covered? Possibly. If
   the insured negligently performed its
   work, then presumably the damage to
   the insured's work would be covered.
   Work performed by a subcontractor
   would presumably be covered since
   the damage would not be intended or
   expected from the standpoint of the
   insured.


Missouri: Hawkeye-Security Ins. Co. v. Davis, 6 S.W.3d 419 (Mo. Ct. App. 1999).
   Occurrence? No. A builder's breach
   of contract and warranty is inherently
   not an accident and therefore not an
   "occurrence."

   Insured's work covered? No.


Montana: Story v. Hawkeye-Security Ins. Co., No. DV-99-38, 2001 WL 35735573 (Mont. Ct. App. May 24, 2001).
   Occurrence? Yes, implicitly. The
   court simply applied the business risk
   exclusions as being unambiguous to
   negate coverage for construction
   defects, even where the work was
   performed by a subcontractor.

   Insured's work covered? No. The
   business risk exclusions clearly bar
   coverage for any damage to the
   insured's work or arising out that
   work.


Nebraska: Auto-Owners Ins. Co. v. Home Pride Co 's, Inc., 684 N.W.2d 571 (Neb. 2004).
   Occurrence? No. Faulty
   workmanship, standing alone, is not
   an "occurrence" because the element
   of fortuity is lacking. However,
   faulty workmanship which causes an
   accident is an "occurrence."

   Insured's work covered? No.
   However, damage to property other
   than the insured's work is covered.


Nevada: United States Fidelity & Guaranty Co. v. Nevada Cement Co., 561 P.2d 1335 (Nev. 1977).
   Occurrence? Yes. While the court
   did not directly address the issue, its
   conclusion is implicit in its holding
   that the "your product" exclusions do
   not otherwise bar coverage.

   Insured's work covered? Yes.
   Where the insured's defective
   product is incorporated into another
   structure and weakens that structure,
   property damage has occurred, which
   is covered by a general liability
   policy.


New Hampshire: High Country Associates v. New Hampshire Ins. Co., 648 A.2d 474 (N.H. 1994).
   Occurrence? Yes. The court found
   the term "occurrence" to be
   ambiguous and therefore interpreted
   it to encompass events which were
   not expected or intended by the
   insured.

   Insured's work covered? Possibly.
   The court distinguished between an
   "occurrence of negligent
   construction" and "negligent
   construction which causes an
   occurrence." This ethereal language
   presumably distinguishes between
   coverage for the insured's work
   (occurrence of negligent
   construction) and damage to other
   property (negligent construction
   which causes an occurrence). The
   court did not consider the business
   risk exclusions because they were not
   considered by the trial court.


New Jersey: Firemen's Insurance Co. of Newark v. Nat'l Union Fire Ins. Co., 904 A.2d 754 (N.J. 2006). (40)
   Occurrence? No. The court followed
   the Weedo v. Stone-E-Brick logic that
   mere defective work, standing alone,
   is not an "occurrence." However,
   damage to other property can be
   covered as an "occurrence." (41) The
   court applied the familiar distinction
   between sub-standard work which
   must be removed and replaced (not
   an "occurrence") and sub-standard
   work which results in accidental
   damage to other property (an
   "occurrence"), which came from the
   Weedo opinion.

   Insured's work covered? No.


New Mexico: Undecided.

New York: Pavarini Construction Co. v. Continental Insurance Co., 759 N.Y.S.2d 56 (N.Y. App. Div. 2003); George A. Fuller Co. v. U.S. Fid. & Guaranty Co., 613 N.Y.S.2d 152 (N.Y. App. Div. 1994).
   Occurrence? No. Defective
   construction which results only in
   damage to the insured's work
   product lacks the element of fortuity
   necessary to constitute an
   "occurrence." However, defective
   work which results in consequential
   damage to other property which is
   not the subject of the insured's work
   is covered as an "occurrence."

   Insured's work covered? No.


North Carolina: Production Systems, Inc. v. Amerisure Ins. Co., 605 S.E.2d 663 (N.C. Ct. App. 2004).
   Occurrence? Yes, implicitly. The
   court decided the case based upon the
   lack of property damage and appears
   to have assumed the existence of an
   "occurrence."

   Insured's work covered? No.
   Damages resulting from the insured's
   defective construction are not
   "property damage" but instead the
   cost to repair the defects in the
   insured's own work product.


North Dakota: Acuity v. Burd & Smith Const., Inc., 721 N.W.2d 33 (N.D. 2006).
   Occurrence? Yes. Faulty
   workmanship which causes damage
   to property other than the insured's
   work is an accidental "occurrence."
   Insured's work covered? No.
   Damage to the insured's work is
   excluded by the business risk
   exclusions. Only damage to other
   property is covered.


Ohio: Heile v. Herrmann, 736 N.E.2d 566 (Ohio Ct. App. 1999).
   Occurrence? No. Faulty
   workmanship standing alone lacks
   fortuity and therefore is not an
   accident, and not an "occurrence."

   Insured's work covered? No. Only
   damage to property which is not the
   subject of the insured's work is
   covered.


Oklahoma: Undecided.

Oregon: Oak Crest Const. Co. v. Austin Mutual Ins. Co., 998 P.2d 1254 (Ore. 2000).
   Occurrence? No. Damage which is
   redressable under pure contract
   principles cannot be an accident and
   therefore is not an "occurrence."

   Insured's work covered? No.
   However, damage to other property
   as a result of the insured's breach of
   contract may be covered.


Pennsylvania: Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006).
   Occurrence? No. Defective work
   standing alone lacks the element of
   fortuity necessary to constitute an
   accident.

   Insured's work covered? No. (42)


Rhode Island: Undecided.

South Carolina: Crossmann Communities of North Carolina, Inc. v. Harleysville Mutual Ins. Co., No. 26909, 2011 WL 3667598 (S.C. Jan. 7, 2011).
   Occurrence? No. Defective
   construction, which only results in
   damage to the insured's work, is not
   a claim for "property damage" and
   therefore not an "occurrence."
   However, if the insured's defective
   work results in damage to other
   property, that damage is a covered
   "occurrence." (43)

   Insured's work covered? No.


South Dakota: Corner Const. Co. v. United States Fidelity & Guaranty Co., 638 N.W.2d 887 (S.D. 2002).
   Occurrence? Yes. To the extent a
   subcontractor's work results in
   damage to the insured's work, it is
   the result of an "occurrence,"
   because it was not expected or
   intended by the insured.

   Insured's work covered? Yes, but
   only if it is the result of a
   subcontractor's faulty work. If the
   damage to the insured's work is a
   result of the insured's faulty work,
   there is no "occurrence."


Tennessee: Travelers Indemnity Co. of Am. v. Moore & Assoc., Inc., 216 S.W.3d 302 (Tenn. 2007).
   Occurrence? Yes. Where damage to
   the insured's work was caused by a
   subcontractor's defective work, the
   damage was accidental from the
   insured's standpoint and therefore an
   "occurrence."

   Insured's work covered? Yes, but
   only if it is the result of a
   subcontractor's faulty work. If the
   damage to the insured's work is a
   result of the insured's faulty work,
   there is no "property damage."


Texas: Lamar Homes, Inc. v. Mid-Continent Casualty Co., 242 S.W.3d 1 (Tex. 2007).
   Occurrence? Yes. As long as the
   damage in question results from an
   accident, i.e., negligence by the
   insured, and is not intentional, the
   damage resulted from a covered
   "occurrence." There is no logical
   basis to determine whether the
   damage was accidental based simply
   on whether the property damaged
   was the work product of the insured
   or some other property.

   Insured's work covered? Yes, as long
   as the work was done by a
   subcontractor. The court held that
   the subcontractor exception to the
   "your work" exclusion resurrected
   coverage which would otherwise be
   barred.


Utah: Great Am. Ins. Co. v. Woodside Homes Corp., 448 F. Supp.2d 1275 (D. Utah 2006) (applying Utah law).
   Occurrence? Yes. Defective
   construction performed by a
   subcontractor is accidental from the
   standpoint of the insured and
   therefore a covered "occurrence."

   Insured's work covered? No.
   Defective work performed by the
   insured itself is not accidental and
   therefore not an "occurrence."


Vermont: Undecided.

Virginia: Nationwide Mutual Ins. Co. v. Wenger, 278 S.E.2d 874 (Va. 1981).
   Occurrence? Yes, implicitly. The
   court simply considered the business
   risk exclusions and concluded that
   they unambiguously barred coverage
   for the insured's own defective
   work. (44)

   Insured's work covered? No. The
   business risk exclusions bar coverage
   for the insured's own faulty work.


Washington: Yakima Cement Products Co. v. Great Am. Ins. Co., 608 P.2d 254 (Wash. 1980) (en banc).
   Occurrence? Yes. The insured
   would almost never be seen to have
   wrongly constructed a building or
   portion thereof on purpose.
   Therefore, even from the insured's
   perspective, defects in the insured's
   own work product are accidental and
   therefore an "occurrence."

   Insured's work covered? No. Even
   when the insured's defective work is
   incorporated into other non-defective
   work, there is no "property damage"
   within the meaning of the policy.


West Virginia: Corder v. William W. Smith Excavating Co., 556 S.E.2d 77 (W. Va. 2001).
   Occurrence? No. Damage to the
   insured's work product based on
   defective construction is not
   accidental and therefore not an
   "occurrence." However, if the
   defective work results in damage to
   other property, that damage is
   accidental and therefore an
   "occurrence."

   Insured's work covered? No.


Wisconsin: Am. Family Mutual Ins. Co. v. Am. Girl, Inc., 673 N.W.2d 65 (Wis. 2004).
   Occurrence? Yes. Regardless of
   whether the damage is actionable in
   tort or contract, defective
   construction will rarely be intended
   or expected by the insured,
   particularly where the defective work
   is performed by a subcontractor.

   Insured's work covered? Yes, if
   performed by a subcontractor.
   Implicit in the court's decision is the
   recognition that if the work is
   performed by the insured, the
   defective construction would be
   excluded by the business risk
   exclusions.


Wyoming: Great Divide Ins. Co. v. Bitterroot Timberframes of Wyoming, LLC, No. 06-CV-020, 2006 WL 3933078 (D. Wyo. Oct. 20, 2006).
   Occurrence? No. Defendant's
   inadequate preparation and
   installation of the siding on the resort
   was not an "accident" since
   defendant intended to perform in
   compliance with the contract, but
   allegedly failed to do so. Defendant
   could foresee the natural
   consequences of any negligence or
   poor workmanship, thus, any
   resulting damage is not considered an
   "accident" triggering an
   "occurrence" under the Policy.

   Insured's work covered? No.


(1) THEODOR S. GEISEL, THE SNEETCHES, (Random House, 1961).

(2) See Appendix I.

(3) Insurance Services Office, Form CG 00 01 12 04, available at http://www.ramsgate. com/forms/CG0001.pdf.

(4) See United States Fire Ins. Co. v J.S.U.B., Inc., 979 So.2d 871 (Fla. 2007).

(5) Insurance Services Office, Form CG 00 01 12 04.

(6) 405 A.2d 788 (N.J. 1979).

(7) Weedo, 405 A.2d at 791.

(8) Roger Henderson, Insurance Protection for Products Liability and Completed Operations. What Every Lawyer Should Know, 50 NEB. L. REV. 415, 441 (1971).

(9) 306 S.W.3d 69 (Ky. 2010).

(10) Motorists Mutual, 306 S.W.3d at 74 (internal footnote omitted).

(11) See Hawkeye-Security Ins. Co. v. Davis, 6 S.W.3d 419 (Mo. Ct. App. 1999).

(12) Id.

(13) 684 N.W.2d 571 (Neb. 2004).

(14) Home Pride, 684 N.W.2d at 577-578 (internal citations omitted) (emphasis in original).

(15) See Henderson, supra note 8, at 441.

(16) 647 N.E.2d 1211 (Mass. 1995).

(17) See Gary L. Shaw Builders, Inc. v. State Automobile Mutual Ins. Co., 355 S.E.2d 130 (Ga. 1987); Indiana Ins. Co. v. DeZutti, 408 N.E.2d 1275 (Ind. 1980); Owings v. Gifford, 697 P.2d 864 (Kan. 1985); Allen v. Lawton & Moore Builders, Inc., 535 So. 2d 779 (La. Ct. App. 1988); Gene & Harvey Builders, Inc. v. Pennsylvania Mf'r Ass'n Ins. Co., 517 A.2d 910 (Pa. 1986).

(18) See Lee Builders, Inc. v. Farm Bureau Mutual Ins. Co., 137 P.3d 486 (Kan. 2006) (holding that defective construction was an "occurrence" but not considering the business risk exclusions).

(19) See J.S.U.B. 979 So. 2d 871 (Fla. 2007); Lamar Homes, Inc. v. Mid-Continent Casualty Co., 242 S.W.3d 1 (Tex. 2007).

(20) 390 So. 2d 325 (Fla. 1980).

(21) J.S.U.B., 979 So. 2d at 882.

(22) LaMarche, 390 So. 2d at 326.

(23) J.S.U.B., 979 So. 2d at 884.

(24) See supra note 8.

(25) No. 26909, 2011 W.L. 93716 (S.C. Jan 7, 2011).

(26) S.C. CODE ANN. Sec. 38-61-70 (2011).

(27) 123 Haw. 142, 231 P.3d 67 (Haw. Ct. App. 2010).

(28) H.R.S. 431:1-217.

(29) COLO. REV. STAT. 13-20-808 (2011).

(30) ARK. CODE, 23-79-155 (2011).

31) See TCD, Inc. v. American Family Mut. Ins. Co., 2012 COA 65 (Col. Ct. App. 2012).

(32) Insurance Services Office, Form IC0238099. See also Insurance Services Office, Form IC02381006.

(33) Insurance Services Office, Form CG 22 94 10 01.

(34) Insurance Services Office, Form CG 22 95 10 01.

(35) Essex Ins. Co. v. Holder, 261 S.W.2d 456 (Ark. 2008).

(36) See Custom Planning & Development v. American National Fire Ins. Co., 606 S.E.2d 39 (Ga. 2004).

(37) See McBride v. Acuity, No. 5:10-CV-173, 2011 WL 6130922 (W.D. Ky. Dec. 11, 2011).

(38) See also Kent Companies v. Wausau Ins. Co., No. 295237, 2011 WL 1687676 (Mich. App. May 3, 2011).

(39) See Integrity Mutual Ins. Co. v. Klampe, A08-0443, 2008 WL 5335690 (Minn. Ct. App. Dec. 23, 2008).

(40) See also Pennsylvania Nat'l Mutual Ins. Co. v. Parkshore Development, Inc., 403 Fed. Appx. 770 (3d Cir. 2010).

(41) 405 A.2d 788 (N.J. 1979).

(42) See Nationwide Mutual Ins. Co. v. CPB International, Inc., 562 F.3d 591 (3d Cir. 2009); Millers Capital Ins. Co. v. Gambone Brothers Development Co., 941 A.2d 706 (Pa. Super. 2007).

(43) See L-J, Inc. v. Bituminous Fire & Marine Ins. Co., 621 S.E.2d 33 (S.C. 2004).

(44) See also Stanley Martin Cos., Inc. v. Ohio Cas. Group, 313 Fed. Appx. 609 (4th Cir. 2009) (applying Virginia law) (damage that subcontractor's defective work caused to general contractor's non-defective work constituted an "occurrence" under CGL policy).

By Kathleen J. Maus, Julius F. "Rick" Parker III and Michael Hamilton

Kathleen Maus is a partner with Butler Pappas Weihmuller Katz Craig LLP, having joined the firm in 1991. Julius F. "Rick" Parker III is a senior associate with the firm, having joined the firm in 2004. Ms. Maus and Mr. Parker both practice in the firm's Tallahassee office and focus their practices on first and third party extracontractual litigation defense, casualty litigation and first and third-party coverage matters. Ms. Maus serves on IADC's Board of Directors. She also serves on DRI's Insurance Law Committee Steering Committee and is a past member of DRI's Board of Directors. Michael Hamilton chairs Nelson, Levine, de Luca & Hamilton's National Insurance Coverage Group. He concentrates his practice in the areas of insurance coverage disputes, bad faith defense and commercial litigation. Mr. Hamilton is a member of DRI, the IADC, the Pennsylvania Bar Association, the New Jersey Bar Association, Insurance Law Section, the American Bar Association, Tort and Insurance Practice Sections, the Pennsylvania Defense Institute, and the Philadelphia Association of Defense Counsel.
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