Insurance Claim – Coverage

Listen to this article

WI Court of Appeals – District II

Case Name: 5 Walworth, LLC, v. Engerman Contracting, Inc., et al.,

Case No.: 2019AP1085; 2019AP1086

Officials: Reilly, P.J., Gundrum and Davis, JJ.

Focus: Insurance Claim – Coverage

These consolidated appeals require us to address two common, and somewhat related, perceptions concerning standard commercial general liability (CGL) insurance policies. The first is that such policies never cover an insured who is sued for the cost of replacing or repairing defective workmanship; the second is that such polices only cover liability for so-called “third-party” property damage. Neither perception is entirely accurate. Insurance policies “cover” what they say they cover. By their terms, standard CGL policies—like those in this case—cover liability for damages the insured is legally required to pay because of property damage caused by an “occurrence,” defined in pertinent part as simply an “accident.” A series of “business risk” exclusions preclude coverage for property damage that is to the insured’s own work or product, thereby limiting coverage to “third-party” property damage—but these exclusions have important exceptions. Likewise, court decisions construing the term “accident” have ruled that defective workmanship is not itself a covered accident—but have also found that defective workmanship might cause a covered accident.

Here, we explore the contours of these principles in the context of a residential construction project: a pool complex consisting of two pools, a patio, and surrounding retaining walls. The swimming pool bowl portion of the complex is alleged to have been negligently installed by a subcontractor of the insured, which led to cracking and water leaks, and, ultimately, required the demolition and reconstruction of the entire complex. Alternatively, it is alleged that the problems with the pool were caused by defective shotcrete material; the supplier of that material, and its insurer, have been joined as defendants as well. Although the facts remain murky and to a large extent undeveloped, there is enough in this record for us to conclude that the circuit court erred in finding that there could be no coverage as a matter of law as to either of the insureds present on appeal. We therefore reverse and remand for further proceedings so that the coverage issues may be addressed under the standards set forth in this opinion.

Recommended for Publication

Full Text

Derek A Hawkins is Corporate Counsel, at Salesforce.