Article Date: 10/04/2013

New Insurance Case: Georgia High Court Rules that Construction Defects Satisfy Commercial General Liability Policy’s ‘Occurrence’ Requirement

By Scott Turner




The Supreme Court of Georgia recently issued its decision in Taylor Morrison Services, Inc. v. HDI-Gerling America Ins. Co., --- S.E.2d --- , 2013 WL 3481555 (Ga. 2013) and joined a rapidly snowballing national trend by holding that defective construction work can be covered under the standard commercial general liability (CGL) policy as an “occurrence.” 




Taylor Morrison is a homebuilder that was sued in California by 16 homeowners who sought to represent a class of more than 400 homeowners, all of whom owned homes built by Taylor Morrison in three California subdivisions. The homeowners alleged that the concrete foundations of their homes were improperly constructed. They alleged that the foundations were failing and that the defects in the foundations caused “tangible physical damage” to the homes built atop them. The homeowners asserted both breach of warranty and fraud theories of recover.


Taylor Morrison was insured under a CGL policy issued by HDI-Gerling, which undertook to defend Taylor Morris subject to a reservation of its rights. It then filed a lawsuit against Taylor Morrison in U.S. District Court for the Northern District of Georgia, seeking a declaratory judgment that the claims did not involve potential liabilities for which Taylor Morrison has coverage under its standard CGL policy. The district court awarded summary judgment to HDI-Gerling on the basis that the “occurrence” requirement could not be satisfied by a policyholder’s own defective work. Taylor Morrison appealed, and the Eleventh Circuit certified the following questions to the Georgia Supreme Court:


“(1) Whether, for an ‘occurrence’ to exist under a standard CGL policy, Georgia law requires there to be damage to ‘other property,’ -- that is, property other than the insured’s completed work itself.


“(2) If the answer to (1) is in the negative, whether, for an ‘occurrence’ to exist under a standard CGL policy, Georgia law requires that the claims being defended not be for breach of contract, fraud, or breach of warranty from the failure to disclose material information.”


First, the court held that “an ‘occurrence’ . . . does not require damage to the property or work of someone other than the insured.”


Second, the court held that fraud claims do not satisfy the “occurrence” requirement.


Third, the court held that breach-of-warranty claims could satisfy the “occurrence” requirement.


Fourth, the court declined to rule on whether or not breach-of-contract claims could satisfy the “occurrence” requirement because the homeowners in the underlying case had not asserted a claim for such.


Author’s Commentary:


The court easily could have ruled on coverage of breach-of-contract claims if it had wanted to do so. Apparently, the court is unsure where it stands on the issue and is reserving that decision for another day, when it can focus exclusively on that issue. Nevertheless, as the court found that breach-of-warranty claims can satisfy the “occurrence” requirement, it very likely will find that a breach-of-contract claim will too, as the fortuity, intent, and expectation analyses basically are the same.


The ConstructionPro Network member version of this article includes a link to the court's complete opinion. To sign up for a membership, click here.



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