The Nebraska Court of Appeals ruled that the insurer must defend claims of faulty workmanship causing property damage to something other than the insured’s work product. Grinnell Mut. Reinsurance Co. v. Fisher, 2018 Neb. App. LEXIS 47 (Neb. Ct. App. March 13, 2018).
Fisher was a contractor who was hired in November 2009 by Smith to build a new house. The contract price was no lower than $106,200 and no more than $113,280, depending on the cost of supplies. Smith paid $60,000 up front and another $15,000 for materials on March 22, 2010, and an additional $10,000 for materials on June 16. Smith claimed that Fisher stopped work on the house while it was largely incomplete. Smith sued Fisher, asserting breach of contract. negligence for failing to perform the work in a good, workmanship-like manner, and other claims.
Fisher testified in his deposition that he entered a single page contract with Smith that did not cover all of the extra details and add-ons Smith asked for. He got into a dispute with Smith about payment for the extras on the house in July 2010 and quit working when she refused to give him more money. When Fisher left the house, he was aware there was a leak near the fireplace, but it was not something Smith was complaining about.
Grinnell Mutual Insurance (GMR), Fisher’s CGL carrier, agreed to defend Fisher under a reservation of rights. GMR also filed a complaint for declaratory judgment against Fisher and moved for summary judgment. In her deposition in the coverage case, Smith claims that water damage to her property was due to the faulty installation of the roof by Fisher. She claimed that the fireplace, sheetrock, and insulation were damaged. The trial court ruled there was no occurrence and granted summary judgment to GMR.
The Nebraska Supreme Court had previously ruled that faulty workmanship, standing alone, was not covered under a CGL policy because it was not a fortuitous event. Auto-Owners Ins. Co. v. Home Pride Cas., 684 N.W. 2d 571 (Neb. 2004). But an accident caused by faulty workmanship was a covered occurrence. If faulty workmanship caused bodily injury or property damage to something other than the insured’s work product, an unintended and unexpected event occurred, and coverage existed.
Here, Smith claimed damages to property owned by herself, as well as to subcontractor property, as a result of Fisher’s alleged faulty workmanship. She claimed water damaged the home due to Fisher’s negligent roofing. She further claimed the fireplace was damaged, as well as the sheetrock and insulation. This damage went beyond damages related to Fisher’s own work product and sufficiently alleged an occurrence.
The business risk exclusions raised by GMR to deny coverage were inapplicable. The exclusion for contractual liability, however, excluded coverage for property damage for which the insured was obligated to pay damages by reason of the assumption of liability in a contract or agreement. The exclusion did not apply to liability for damages that the insured would have in the absence of the contract or agreement. This exclusion was applicable here to Smith’s claims for breach of contract.
Therefore, some of Smith’s claims against Fisher for breach of contract were not covered. Further, any of Smith’s claims related to faulty workmanship by Fisher were not covered. However, none of the other exclusions asserted by GMR served to exclude Smith’s allegations of damage to property owned by her or others, although some of the endorsements limited the amount of coverage available.
Consequently, the case was affirmed in part, reversed in part, and vacated and remanded for further proceedings.
Source: Insurance Law Hawaii / www.insurancelawhawaii.com