On July 12, 2013, the Supreme Court of Georgia issued a ruling in Taylor Morrison Services, Inc. v. HDI-Gerling America Ins. Co., further interpreting and defining the term “occurrence” as used in the context of a “standard” CGL policy.[1] (No. S13Q0462; 2013WL3841555).
The case was before the Supreme Court of Georgia at the request of the Eleventh Circuit to answer two specific questions under Georgia law: (1) whether an “occurrence” under the insurance policy only exists if damage occurs to other property (as opposed to an insured’s own work); and (2) if not, whether an “occurrence” exists for claims of breach of contract, breach of warranty, and fraud. It is important to note that the Court was not asked to determine whether coverage existed for the alleged loss.
In answering the first question, the Court held that for an “occurrence” to exist (under a standard CGL policy), it is not necessary that damage occur to “other property”. To arrive at this conclusion, the Court looked at what it quoted as the plain language of the policy, which defined “occurrence” as an “accident”. Because the term “accident” was not defined by the policy, the Court then looked to the usual and ordinary meaning of “accident”, and found that the term “accident” did not require damage or injury to any specific category of property. Accordingly, even if the only work damaged was the insured’s own work, an “occurrence” exists under a standard CGL policy.
Coverage, however, is a separate and distinct issue. The Court was careful to point out that an occurrence under the policy does not equal coverage. Specifically, the Court stated:
Remember that an “occurrence” alone is not enough to give rise to coverage under a standard CGL policy. The “occurrence” also must cause “bodily injury” or “property damage”, and the insured must incur a liability to pay “damages because of such ‘bodily injury’ or ‘property damage’”. Along with applicable exclusions, these other requirements of coverage are inherently better suited than the requirement of an “occurrence” to limit coverage in faulty workmanship cases […]
In holding that an “occurrence” may exist even when there is only damage to a insured’s own work, the Court did not hold that such damage would actually be covered under a standard CGL policy. Rather, the business-risk exclusion “your work” would still apply to exclude coverage for any damage to an insured’s own work. Accordingly, this case does not necessarily negate this CGL exclusion.
In answering the second question, the Court held that an “occurrence” could exist in claims for breach of warranty, but not for fraud claims.[2] The Court’s analysis again turned to what it said is the usual and ordinary definition of “accident”, which typically means “something that occurs unexpectedly or unintentionally”. Fraud claims in Georgia require “scienter” or intent; therefore, fraud cannot occur unexpectedly or unintentionally under Georgia law. For that reason, an “occurrence” cannot exist for claims of fraud.
Conversely, the Court held that a breach of warranty claim does generally occur unexpectedly or unintentionally. For example, a breach of warranty often occurs where there is faulty workmanship. In 2009, the Supreme Court held that faulty workmanship can amount to an “occurrence”. Hathaway Dev. Co. v. American Empire Surplus Lines Ins. Co., 301 Ga. App. 65 (2009). As such, this holding extends Hathaway to apply to breach of warranty claims under “certain circumstances”, but gives little guidance as to those “circumstances”.
In sum, while the Court expanded the meaning of the term “occurrence”, it noted that an occurrence does not equal coverage and that the standard exclusions will still preclude coverage for damage to an insured’s work. The Court did rule as black letter law that fraud is not within the definition of “occurrence” in a CGL policy. This broad interpretation may be limited to the extent that some “personal injury” endorsements appended to a CGL policy are written to provide coverage for some misrepresentations. How those will be reconciled remains a question.
[1] As noted by the Court, the “standard” CGL policy includes five ‘business risk’ exclusions: Exclusion j (“Damage to Property”); Exclusion k (“Damage to Your Product”); Exclusion l (“Damage to Your Work”); Exclusion m (“Damage to Impaired Property or Property Not Physically Injured”); and Exclusion n (“Recall of Products, Work or Impaired Property”). citing Evans & Berry, GA. GEN. LIABILITY INS., § IV.J, p. 128 (2010).
[2] The Court did not answer the question as it relates to claims for breach of contract.