Tred R Eyerly | Insurance Law Hawaii
The Michigan Supreme Court held that under a CGL policy, an “accident” may include unintentional subcontractor work that damages the insured’s work product. Skanska USA Building Inc. v. M.A.P. Mechanical Contractors, Inc., et al., 2020 Mich. LEXIS 1194 (Mich. June 29, 2020).
Skanska USA Building Inc. was the construction manager on a renovation project for a medical centre. The heatng and cooling portion of the project was subcontracted to M.A.P. Mechanical Contractors, Inc. (MAP). MAP installed a steam builder and piping for the heating system. The installation included several expansion joints. After completion, Skanska learned that MAP had installed some of the expansion joints backward. This caused significant damage to concrete, steel and the heating system. The medical center sent a demand letter to Skanska, who send a demand letter to MAP. Skanska did the repairs and replacement of the damaged property. Skanska then submitted a claim of $1.4 million for its work to Amerisure Insurance Company. The claim was denied.
Skanska sued Amerisure. The trial court rejected Amerisure’s motion for summary judgment which argued MAP’s defective construction was not a covered “occurrence.” The Court of Appeals reversed and ordered that summary judgment be granted to Amerisure. The court reasoned that there was no “occurrence” because the only damage was to the insured’s own work product.
The Michigan Supreme Court reversed the Court of Appeals. Under Michigan law, an “accident” was “an undefined contingency, a casualty, a happening by chance, something out of the usual course of things, unusual, fortuitous, not anticipated and not naturally to be expected.” Generally, faulty work by a subcontractor could fall within the plain meaning of most of these terms. The accident happened by chance, was outside the usual course of things, and was neither anticipated nor naturally expected.
The policy as a whole confirmed this interpretation. The policy contained an exclusion precluding coverage for an insured’s own work product, but it contained an exception for work performed by a subcontractor on the insured’s behalf. If faulty workmanship by a subcontractor could never constitute an “accident” and therefore never be an “occurrence” triggering coverage in the first place, the subcontractor exception would be nugatory. Therefore, given the plain meaning of the word “accident,” faulty subcontractor work that was unintended by the insured could constitute an “accident” under a CGL policy.
The context and history of CGL policies supported the court’s conclusion that an “accident” could include damage to an insured’s own work product. In 1986, the ISO added the policy language on a subcontractor’s faulty work. It adopted changes to expand coverage to include some of the business risks that were previously excluded, specifically damage caused by a subcontractor’s faulty workmanship (with no carveout based on whose property was damaged). The 1986 reformation of the scope of coverage under the CGL policies underscored a plain reading of “accident” – that faulty subcontractor work may fall within the policy’s coverage.