Until recently, it was well settled in West Virginia that claims for defective workmanship were not covered by commercial general liability (“CGL”) policies because a claim for faulty workmanship is not a covered “occurrence” causing covered “bodily injury” or “property damage.” In Cherrington v. Erie Insurance Property and Casualty Company, --- W.Va. --- , --- S.E.2d --- (June 18, 2013), the trial court granted summary judgment to an insurance company based on this long-standing rule.
In that case, Lisbeth Cherrington entered into a contract with The Pinnacle Group, Inc. (“Pinnacle”) for the construction of a home in Greenbrier County, West Virginia. In addition to the construction of the home, Ms. Cherrington’s contract called for exterior landscaping and interior furnishings. During construction of the home, disputes arose between Ms. Cherrington and Pinnacle as to the costs associated with construction and the quality of the home. Ms. Cherrington ultimately brought suit against Pinnacle and its agent, Anthony Mamone, for negligent construction, breach of fiduciary duty and misrepresentation.
Both Pinnacle and Mamone were insured by Erie Insurance Property and Casualty Company (“Erie”). Pinnacle had a CGL policy and Mamone had a homeowner’s insurance and personal catastrophe (“umbrella”) policy. Pinnacle and Mamone each requested that Erie provide coverage and defense in accordance with their policies. Erie denied both coverage and a duty to defend. Pinnacle and Mamone filed a third-party claim against Erie seeking a declaration of coverage, and Erie filed a motion for summary judgment. Granting Erie’s motion for summary judgment, the trial court cited numerous West Virginia cases holding that a claim for defective workmanship is not covered under CGL policies.
In a frank and almost rueful opinion, the Supreme Court of Appeals of West Virginia reversed the trial court’s decision and held that claims for defective workmanship of a subcontractor are covered under a CGL policy. In so doing, the Court acknowledged its prior decisions but explained that a growing number of jurisdictions had reached the opposite conclusion since those cases were decided. Citing its duty to reconsider prior holdings in light of a definite and changing trend in the law, the Court formally adopted the majority view and held that Erie’s CGL policy did provide coverage for the allegedly defective work.
Cherrington set forth the following rules: (1) a claim for defective workmanship arising out of the work of a subcontractor is an “occurrence” for purposes of coverage unless the claimed damages were “deliberate, intentional, expected, desired or foreseen” by the insured (which is unusual); (2) damages to the subject property, including uneven concrete floor, leaking roof, numerous cracks in the walls and foundation and other damages, constitute “physical injury to tangible property” for purposes of coverage; and (3) exclusions for “your work” cannot preclude coverage when the exclusion specifically excludes work performed by subcontractors.
With Cherrington, West Virginia joins the growing number of jurisdictions holding that construction defects often satisfy the requirements in an Insuring Agreement in a CGL policy. In most jurisdictions, including West Virginia, insurers will want to remember that the duty to defend is greater than the duty to indemnify. As a result, an insurance company’s duty to defend will now usually be triggered in a construction defect case. The coverage aspect of a case will need to be thoroughly developed and pursued with the liability case to avoid potential claims of bad faith.
If you would like a full copy of this case, or have any other questions related to construction liability matters, please feel free to contact one of our Construction Liability Attorneys.
