West Virginia High Court: No 'Occurrence' in Faulty Workmanship

West Virginia's highest court has held that a commercial general liability ('CGL') policy does not provide coverage for faulty workmanship claims because such claims do not constitute an 'occurrence.' Webster County Solid Waste Auth. v. Brackenrich & Assocs., et al., Nos. 31861 & 31862 (W.Va. June 30, 2005). This case reinforces the core concept ' long recognized in insurance law ' that general liability coverage protects against liability to others due to third-party property damage or bodily injury and does not serve as a performance bond for the policyholder's own work.

A county solid waste authority (the 'Authority') brought an action against the policyholder, an engineering firm. The Authority asserted causes of action based in contract, breach of warranty, negligence, and nuisance arising from the policyholder's alleged faulty design and supervision of the construction of certain upgrades to a landfill. The court was asked to decide whether the CGL policy required the insurer (which sought a declaratory judgment when it was brought into the action by the Authority) to indemnify the policyholder for the claims.

The court agreed with the trial court that the CGL policy did not provide coverage because the underlying complaint did not allege an 'occurrence,' which the policy defined as 'an accident, including continuous or repeated exposure to substantially the same general harmful conditions.' The trial court had rejected the policyholder's argument that coverage was provided under the 'products-completed operations hazard' provision, reasoning that the policy could not provide coverage absent an 'occurrence.' The trial court, relying on Corder v. William W. Smith Excavating Co., 556 S.E.2d 77 (W.Va. 2001), had further explained that the 'products-completed operations hazard' '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.' The trial court, further relying on Corder, concluded that all of the underlying claims were based on the policyholder's faulty workmanship, which did not constitute an 'occurrence.'

On appeal, the Authority conceded that ”faulty workmanship' resulting in damage to the work itself is clearly excluded,' but argued that the policy provided coverage because the 'professional liability' exclusion did not apply. The Authority also argued that the policy provided coverage because it claimed 'property damage,' specifically, as defined in the policy, 'loss of use of tangible property that is not physically injured.' The court rejected both of these arguments, stating that '[d]espite its attempts to locate coverage under the [CGL] policy, the Authority never squarely deals with the fundamental issue that … [a]bsent an occurrence … there can be no coverage under the policy at issue, or any other

[CGL] policy.'

The court further rejected the Authority's argument that its allegations of negligent inspection, negligent testing, and negligent quality assurance constituted an 'occurrence.' The court stated that such claims involved acts of professional negligence, and that the Authority's

argument was thus 'significantly at odds with the clear line of authority from th[e] Court recognizing the validity of professional liability exclusionary language that exempts faulty or negligent service of workmanship claims from the coverages provided by a [CGL] policy.'

The court also found no ambiguity with respect to the CGL's 'products-completed operations hazard' coverage. Specifically, the court concluded that a conflict did not exist, as argued by the Authority, between exclusionary language for 'products or operations for which the classifications in this Coverage Part … includes products or completed operations,' and, on the declarations page, the classification of 'Engineers or Architects' which referenced products/completed operations. The court concluded that 'there is no basis upon which to conclude that the exclusionary language at issue was not clear,' and found support in the record, 'which indicate[d] that the [policyholder] … never understood the policy at issue to provide … 'products-completed operations hazard' coverage pertinent to its engineering services,' and in the fact that the policyholder never requested coverage from the insurer.

Finally, the court rejected the Authority's argument that the professional liability exclusion did not apply because the construction-related inspection services provided by the policyholder were allegedly 'outside the ambit of engineering services.' The court noted that the underlying contract 'clearly envisioned and required that the necessary inspections related to the landfill construction would be performed by [the policyholder] ' an engineering firm,' therefore concluding that the Authority's argument was without merit. The court thus recognized the validity of the professional liability exclusion and rejected the Authority's argument that 'coverage is available under the policy based on the inapplicability' of that exclusion.

Laura A. Foggan is a partner and Alicia Ritter is an associate at Wiley Rein & Fielding LLP.

West Virginia's highest court has held that a commercial general liability ('CGL') policy does not provide coverage for faulty workmanship claims because such claims do not constitute an 'occurrence.' Webster County Solid Waste Auth. v. Brackenrich & Assocs., et al., Nos. 31861 & 31862 (W.Va. June 30, 2005). This case reinforces the core concept ' long recognized in insurance law ' that general liability coverage protects against liability to others due to third-party property damage or bodily injury and does not serve as a performance bond for the policyholder's own work.

A county solid waste authority (the 'Authority') brought an action against the policyholder, an engineering firm. The Authority asserted causes of action based in contract, breach of warranty, negligence, and nuisance arising from the policyholder's alleged faulty design and supervision of the construction of certain upgrades to a landfill. The court was asked to decide whether the CGL policy required the insurer (which sought a declaratory judgment when it was brought into the action by the Authority) to indemnify the policyholder for the claims.

The court agreed with the trial court that the CGL policy did not provide coverage because the underlying complaint did not allege an 'occurrence,' which the policy defined as 'an accident, including continuous or repeated exposure to substantially the same general harmful conditions.' The trial court had rejected the policyholder's argument that coverage was provided under the 'products-completed operations hazard' provision, reasoning that the policy could not provide coverage absent an 'occurrence.' The trial court, relying on Corder v. William W. Smith Excavating Co., 556 S.E.2d 77 (W.Va. 2001), had further explained that the 'products-completed operations hazard' '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.' The trial court, further relying on Corder, concluded that all of the underlying claims were based on the policyholder's faulty workmanship, which did not constitute an 'occurrence.'

On appeal, the Authority conceded that ”faulty workmanship' resulting in damage to the work itself is clearly excluded,' but argued that the policy provided coverage because the 'professional liability' exclusion did not apply. The Authority also argued that the policy provided coverage because it claimed 'property damage,' specifically, as defined in the policy, 'loss of use of tangible property that is not physically injured.' The court rejected both of these arguments, stating that '[d]espite its attempts to locate coverage under the [CGL] policy, the Authority never squarely deals with the fundamental issue that … [a]bsent an occurrence … there can be no coverage under the policy at issue, or any other

[CGL] policy.'

The court further rejected the Authority's argument that its allegations of negligent inspection, negligent testing, and negligent quality assurance constituted an 'occurrence.' The court stated that such claims involved acts of professional negligence, and that the Authority's

argument was thus 'significantly at odds with the clear line of authority from th[e] Court recognizing the validity of professional liability exclusionary language that exempts faulty or negligent service of workmanship claims from the coverages provided by a [CGL] policy.'

The court also found no ambiguity with respect to the CGL's 'products-completed operations hazard' coverage. Specifically, the court concluded that a conflict did not exist, as argued by the Authority, between exclusionary language for 'products or operations for which the classifications in this Coverage Part … includes products or completed operations,' and, on the declarations page, the classification of 'Engineers or Architects' which referenced products/completed operations. The court concluded that 'there is no basis upon which to conclude that the exclusionary language at issue was not clear,' and found support in the record, 'which indicate[d] that the [policyholder] … never understood the policy at issue to provide … 'products-completed operations hazard' coverage pertinent to its engineering services,' and in the fact that the policyholder never requested coverage from the insurer.

Finally, the court rejected the Authority's argument that the professional liability exclusion did not apply because the construction-related inspection services provided by the policyholder were allegedly 'outside the ambit of engineering services.' The court noted that the underlying contract 'clearly envisioned and required that the necessary inspections related to the landfill construction would be performed by [the policyholder] ' an engineering firm,' therefore concluding that the Authority's argument was without merit. The court thus recognized the validity of the professional liability exclusion and rejected the Authority's argument that 'coverage is available under the policy based on the inapplicability' of that exclusion.

Laura A. Foggan is a partner and Alicia Ritter is an associate at Wiley Rein & Fielding LLP.