ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE

David F. McNamar CONTINENTAL CASUALTY COMPANY

McNamar & Associates, P.C. Mary K. Reeder

Indianapolis, Indiana Riley Bennett & Egloff, LLP

Indianapolis, Indiana

OF COUNSEL

Joseph Borders

Peter G. Daniels

Walker Wilcox Matousek LLP

Chicago, Illinois

ATTORNEYS FOR APPELLEE

INDIANA INSURANCE COMPANY

Joseph Dietz

Meils Thompson Dietz & Berish

Indianapolis, Indiana

ATTORNEYS FOR APPELLEE

MJ INSURANCE, INC.

Philip E. Kalamaros

Hunt Suedhoff Kalamaros LLP

St. Joseph, Michigan

______________________________________________________________________________

In the

Indiana Supreme Court 

_________________________________

No. 49S02-1001-CV-32

SHEEHAN CONSTRUCTION COMPANY, INC.,

VINCENT B. ALIG, M.D. AND MARY JEAN ALIG

INDIVIDUALLY, CO-TRUSTEES OF THE MARY

JEAN ALIG REVOCABLE TRUST, AND AS

REPRESENTATIVES OF A CLASS OF ALL 

OTHERS SIMILARLY SITUATED,

Appellants (Petitioners below),

v.

CONTINENTAL CASUALTY COMPANY,

INDIANA INSURANCE COMPANY, AND

MJ INSURANCE, INC.,

Appellees (Respondents below).
2

_________________________________

Appeal from the Marion Superior Court,

Civil Div. F-12, No. 49F12-0702-PL-007751

The Honorable Michael D. Keele, Judge

_________________________________

On Petition To Transfer from the Indiana Court of Appeals, No. 49A02-0805-CV-420

_________________________________

September 30, 2010

Rucker, Justice.

Continental Casualty Company filed a declaratory judgment action to determine its 

obligation to its insured, Sheehan Construction Company. The trial court determined that the 

policy issued by Continental to Sheehan did not cover Sheehan‟s claim and granted summary 

judgment in favor of Continental. The main issue in this case is whether a standard commercial 

general liability (“CGL”) insurance policy covers an insured contractor for the faulty 

workmanship of its subcontractor.

Background

Before discussing the issues at stake in this case, we provide some background 

information. CGL insurance policies are designed to protect an insured against certain losses 

arising out of business operations. Most CGL policies are written on standardized forms 

developed by an association of domestic property insurers known as the Insurance Services 

Office (“ISO”).1 Hartford Fire Ins. Co. v. California, 509 U.S. 764, 772 (1993). “[These] 

policies begin with a broad grant of coverage, which is then limited in scope by exclusions. 

Exceptions to exclusions narrow the scope of the exclusion and, as a consequence, add back 

coverage. However, it is the initial broad grant of coverage, not the exception to the exclusion,

that ultimately creates (or does not create) the coverage sought.” David Dekker, Douglas Green 

 

1 Continental‟s Commercial General Liability Coverage Form provides at the bottom of each page 

“Copyright, Insurance Services Office, Inc., 1997.” See Appellee Continental‟s App. at 102-13. Indiana‟s 

two CGL policies relevant to this case also include this copyright notice, dated 1994 for one policy and 

1997 for the other. See Appellee Indiana‟s App. at 125-47.
3

& Stephen Palley, The Expansion of Insurance Coverage for Defective Construction, 28 Constr. 

Law, Fall 2008, at 19, 20 . 

The precursor of today‟s standard commercial liability insurance contracts was 

promulgated in 1940 and has since undergone five principal revisions, the most recent of which 

came into use in 1986. Prior to 1986, the ISO had not significantly revised its standard 

commercial general liability form since 1973. Ernest Martin, Jr., Daniel T. Mabery, Erika L. 

Blomquist & Jeffrey S. Lowenstein, Insurance Coverage for the New Breed of Internet-Related 

Trademark Infringement Claims, 54 S.M.U.L. Rev. 1973, 1987-88 (2001) (“ISO frequently 

makes minor revisions to its CGL form, but rarely undertakes a major, substantive overhaul. . . . 

The standard ISO form in existence before the 1986 revision was promulgated in 1973 . . . .”). 

“In the 1973 version of the [ISO‟s CGL policy form], the work performed exclusion precluded 

coverage for property damage to work performed by or on behalf of the named insured arising 

out of the work or any portion thereof, or out of materials, parts or equipment furnished in 

connection therewith.” French v. Assurance Co. of Am., 448 F.3d 693, 700 (4th Cir. 2006) 

(internal citations and quotations omitted) (emphasis added); see also 9A Eric Mills Holmes, 

Holmes‟ Appleman on Insurance 2d § 132.9 at 152 (2002). The “on behalf of” language was 

interpreted to mean that no coverage existed for damage to a subcontractor's work or for damage 

to the insured's own work resulting from a subcontractor‟s work. See 9A Lee R. Russ, et al., 

Couch on Insurance 3d § 129:18 (2005); Holmes, supra, at 153.

Many contractors were dissatisfied with this state of affairs because more and more 

projects were being completed with the help of subcontractors. See Russ, et al., supra, § 129:18 

(“Due to the increasing use of subcontractors on construction projects, many general contractors 

were not satisfied with the lack of coverage provided under [the 1973 ISO CGL] commercial 

general liability policies where the general contractor was not directly responsible for the 

defective work.”). In response to this dissatisfaction, beginning in 1976 an insured under the 

1973 ISO CGL policy form could pay a higher premium to obtain a broad form property damage 

endorsement (the BFPD Endorsement) which effectively eliminated the “on behalf of” language 

and excluded coverage only for property damage to work performed by the named insured. Id. 

Thus, liability coverage was extended to the insured's completed work when the damage arose 

out of work performed by a subcontractor. Id..
4

In 1986, as part of a major revision, the subcontractor exception aspect of the BFPD 

Endorsement was added directly to the body of the ISO‟s CGL policy in the form of an express 

exception to the “Your Work” exclusion. Id.; Limbach Co. LLC v. Zurich Am. Ins. Co., 396 

F.3d 358, 362-63 (4th Cir. 2005) (internal citations omitted). Thus, under the 1986 ISO CGL 

Policies, the “Your Work” exclusion specifically provides that it “does not apply if the damaged 

work or the work out of which the damage arises was performed on [the insured contractor's] 

behalf by a subcontractor.” Appellants‟ App. at 245. Copyrighted in 1994 and 1997, see supra

n.1, the CGL Polices at issue in this case post date the 1986 revisions and include a subcontractor 

exception to the “Your Work” exclusion. With this background in mind we proceed to the 

merits of the case before us. 

Facts and Procedural History

Because this action is based upon an underlying claim filed in November 2004, we begin 

by tracing the history of the original action. In April 2000 Vincent B. Alig and his wife Mary 

Jean Alig purchased a home in the Crystal Lake residential subdivision located in Marion 

County. Sheehan Construction Company was the general contractor on the project and was 

responsible for hiring subcontractors who actually built the houses. After experiencing water 

leaks in their home, the Aligs notified their homeowner‟s insurance carrier which in turn hired an 

engineering company to investigate. Among other things the investigation revealed leaking 

windows, fungus growth on the siding, decayed OSB sheathing, deteriorating and decaying floor 

joists, and water damage to the interior of the home including water stained carpeting. Appellee 

Continental‟s App. at 37, 38, 40. These problems were caused by the faulty workmanship of 

Sheehan‟s subcontractors which included lack of adequate flashing and quality caulking around 

the windows, lack of a weather resistant barrier behind the brick veneer to protect the wood 

components of the wall, improperly installed roofing shingles, improperly flashed or sealed 

openings for the chimney and vents, and inadequate ventilation in the crawl space. Id. at 74-76. 

In November 2004, the Aligs filed a complaint in the Marion Circuit Court against 

Sheehan pursuant to Indiana Code sections 32-27-3-1 to 14 (concerning cause of action for 

construction defects). During the period in which the home was built Sheehan was insured under 

a CGL policy issued by Continental Insurance Company. Sheehan was also included as an 

additional named insured in a CGL policy issued by Indiana Insurance Company to Somerville 
5

Construction – one of Sheehan‟s subcontractors. The policies provided coverage for the “sums 

that the insured becomes legally obligated to pay as damages because of „bodily injury‟ or 

„property damage‟ . . . . caused by an „occurrence‟ that takes place in the „coverage territory‟” 

during the policy period. Appellee Continental‟s App. at 102; Appellee Indiana‟s App. at 125, 

139. As defined in the policies, an “occurrence” is “an accident, including continuous or 

repeated exposure to substantially the same general harmful conditions,” and “property damage” 

includes “[p]hysical injury to tangible property, including all resulting loss of use of that 

property.” Appellee Continental‟s App. at 112, 113; Appellee Indiana‟s App. at 133-34, 146, 

147. The coverage provisions were limited by numerous exclusions. Of particular relevance in 

this case is the exclusion, with its exception, that excludes coverage for damage to the insured‟s 

property and work:

2. Exclusions.

This insurance does not apply to: 

. . . .

l. Damage To Your Work

“Property damage” to “your work” arising out of it or any part 

of it and included in the “products-completed operations 

hazard”.

This exclusion does not apply if the damaged work or the work 

out of which the damage arises was performed on your behalf 

by a subcontractor.

Appellee Continental‟s App. at 102, 105; Appellee Indiana‟s App. at 125, 128; 139, 142.

After the Aligs filed suit, Sheehan contacted Continental which agreed to represent 

Sheehan under a reservation of rights. When other homeowners in the subdivision began 

experiencing problems with their homes similar to those experienced by the Aligs, they sought to 

be joined as plaintiffs. Consequently counsel filed, and the trial court granted, a motion to 

convert the Aligs‟ complaint into a Class Action lawsuit. After the Class was certified the trial 

court ordered the parties into mediation. Continental participated therein and the mediation 

resulted in a settlement of approximately $2.8 million. Among other things the settlement 

provided that the Class would not pursue its claims against Sheehan. Instead, Sheehan assigned 

to the Class any rights it might have against Continental in addition to certain non-settling 

subcontractors and MJ Insurance – Sheehan‟s insurance broker.
6

Continental filed this declaratory judgment action in the Marion Superior Court seeking a 

declaration that it was not obligated to indemnify Sheehan. Sheehan and the Class filed an 

answer, counter-claim, and a third-party complaint against Indiana Insurance. Sheehan and the 

Class also filed a third party complaint against MJ insurance for negligent failure to procure 

insurance. All parties moved for summary judgment. The trial court determined the designated 

materials showed there was no “property damage other than to the structural components of the 

homes themselves.” Appellants‟ App. at 27. Accordingly, the trial court reasoned, under the 

terms of the insurance policies there was no “occurrence” or “property damage,” and thus 

granted summary judgment in favor of Continental and Indiana Insurance (collectively, 

“Insurers”). Id. at 27, 29. The trial court also granted summary judgment in favor of MJ 

Insurance on statute of limitations grounds. Sheehan and the Class (hereafter referred to 

collectively as “Sheehan”) appealed and Indiana Insurance cross-appealed.2 In a divided opinion 

the Court of Appeals affirmed the judgment of the trial court. See Sheehan Constr. Co. v. 

Continental Cas. Co., 908 N.E.2d 305 (Ind. Ct. App. 2009). The majority concluded among 

other things there was no property damage within the meaning of the Insurers‟ CGL policies 

because the damage to the homes “cannot be treated as distinct from the underlying faulty 

workmanship . . . .” Id. at 309. We granted transfer to explore this issue. We summarily affirm 

the portion of the Court of Appeals opinion affirming summary judgment in favor of MJ 

Insurance. 

 

2 Although the trial court entered summary judgment in favor of Indiana Insurance, it nonetheless cross 

appeals contending the trial court erred in failing to strike portions of an affidavit by Thomas Corridan – a 

witness on behalf of Sheehan with expertise in handling insurance claims. Indiana Insurance complains 

that the affidavit includes legal conclusions and opinions about Indiana law. Indiana Insurance does not 

say so in express terms, but we presume it is “[i]nvoking the rule that a reviewing court can affirm a trial 

court‟s grant of summary judgment on any theory the Trial Rule 56 materials support.” See Estate of 

Mintz v. Conn. Gen. Life Ins. Co., 905 N.E.2d 994, 999 (Ind. 2009). We decline to address this issue for 

several reasons. First, Sheehan tendered the eight-page affidavit in support of its own motion for 

summary judgment, which the trial court denied. Second, although portions of the affidavit were 

inadmissible, other portions were not, and Indiana Insurance made no effort to identify precisely which 

portions it thought should be deleted. In fact at a hearing on the parties‟ motions for summary judgment,

Indiana Insurance moved more broadly that “the affidavit of Mr. Corydon [sic] be stricken.” Appellants‟ 

App. at 86. It was entitled to no such relief. Third, although the record does not reveal whether the trial 

court actually ruled on Indiana Insurance‟s motion to strike, nothing before us suggests the trial court 

considered the affidavit in its summary judgment ruling. Finally, even if the entire affidavit were stricken 

from the record, its absence would have no bearing on the outcome of this appeal. 
7

Standard of Review

In the appellate review of a grant or denial of summary judgment, we apply the same 

standard as the trial court. Reeder v. Harper, 788 N.E.2d 1236, 1240 (Ind. 2003). Summary 

judgment “shall be rendered forthwith if the designated evidentiary matter shows that there is no 

genuine issue as to any material fact and that the moving party is entitled to a judgment as a 

matter of law.” Ind. Trial Rule 56(C). During our review, all facts and reasonable inferences 

drawn from them are construed in favor of the non-moving party. Reeder, 788 N.E.2d at 1240.

Discussion

I.

Broadly speaking this appeal requires us to determine whether damage caused by faulty 

workmanship is covered under a standard CGL policy. This issue has been frequently litigated 

in a number of jurisdictions. Our Court last broached the subject in Indiana Insurance Co. v. 

DeZutti, 408 N.E.2d 1275 (Ind. 1980). We examine DeZutti today because language appearing 

in that decision has provided the bases for at least two Court of Appeals opinions declaring in 

part that the risk intended to be insured by a CGL policy is “the possibility that the goods, 

products, or work of the insured, once relinquished or completed, will cause bodily injury or 

damage to property other than to the product or completed work itself.” Amerisure, Inc. v. 

Wurster Constr. Co., 818 N.E.2d 998, 1003 (Ind. Ct. App. 2004) (quoting R.N. Thompson & 

Assocs., Inc., v. Monroe Guar. Ins. Co., 686 N.E.2d 160, 162 (Ind. Ct. App. 1997) (citing

DeZutti, 408 N.E.2d at 1279)) (emphasis in original). Amerisure and R.N. Thompson provide 

the primary authority for the opinion of the Court of Appeals in this case.3 

In DeZutti the homeowners sued the general contractor for damages allegedly caused by 

the contractor‟s faulty construction of their house, namely, serious cracking of the mortar and 

bricks. The contractor in turn called upon his insurance carrier to provide a defense pursuant to 

the terms of its CGL policy. The insurer declined and filed a declaratory judgment action. The 

trial court determined that the insurer was obligated to provide a defense and the Court of 

 

3

For the same proposition see also T.R. Bulger, Inc. v. Ind. Ins. Co., 901 N.E.2d 1110, 1115 (Ind. Ct. 

App. 2009); Jim Barna Log Sys. Midwest, Inc. v. Gen. Cas. Ins. Co. of Wis., 791 N.E.2d 816, 824 (Ind. 

Ct. App. 2003); Schultz v. Erie Ins. Group, 754 N.E.2d 971, 975 (Ind. Ct. App. 2001).
8

Appeals affirmed. On transfer this Court reversed holding that the CGL policy did not provide 

coverage to correct, repair or replace the contractor‟s own poor workmanship. In doing so the 

Court quoted with approval a law review article that declared in part:

The risk intended to be insured is the possibility that the goods, 

products or work of the insured, once relinquished or completed, 

will cause bodily injury or damage to property other than to the 

product or completed work itself, and for which the insured may be 

found liable. . . . The 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.

DeZutti, 408 N.E.2d at 1279 (quoting Roger C. Henderson, Insurance Protection for Products 

Liability and Completed Operations - What Every Lawyer Should Know, 50 Neb. L. Rev. 415, 

441 (1971)) (emphasis added). The Court continued, 

The same neglectful craftsmanship may cause both a business 

expense of repair and a loss represented by damage to persons and 

property other than the insured‟s own product or work. If, as in 

this case, the damage is confined to the insured‟s own product or 

work, it is a business risk and expense not intended to be covered 

under the policy and is excluded by [certain] exceptions. . . . The 

policy in question does not cover an accident of faulty 

workmanship but rather faulty workmanship which causes an 

accident.

Id. at 1279 (internal citation and quotation omitted). The Court of Appeals relied upon the 

foregoing language to conclude in Amerisure, R.N. Thompson, and the instant case that the 

Insurers‟ CGL polices do not cover damage to the Class members‟ homes. 

We make the following observations. In DeZutti the Court was addressing the impact 

on the insurer‟s duty to defend not based on the insuring provisions or the definition of 

“property damage” or “occurrence” but rather because faulty workmanship by a contractor was 

specifically excluded based on the clear and unambiguous “business risk” exclusionary clauses. 

The policy at issue in DeZutti had several exclusionary clauses one of which provided that the 

policy did not apply to “property damage to the named insured‟s products arising out of such 

products or any part of such products.” Id. at 1277. Another exclusionary provision provided 

that the policy did not apply to “property damage to work performed by or on behalf of the 
9

named insured arising out of the work or any portion thereof, or out of materials, parts or

equipment furnished in connection therewith . . . .” Id. Examining these provisions we 

concluded, “[t]hese provisions clearly exclude insurance coverage for damages to the insured‟s 

product or work when such damages are confined to the product or work and caused by the 

product or work, or any part thereof. It is only damage to other property arising out of the 

insured‟s product or work which would be covered.” Id. at 1280 (emphases in original). 

In essence DeZutti relied on the exclusions to determine that no coverage existed in that 

case. There was no intent to suggest that the broad language regarding the purpose of CGL 

polices stand for the proposition that faulty workmanship that damages the contractor‟s own 

work can never constitute a covered “occurrence.” Further, the CGL policy at issue in DeZutti

predated the 1986 ISO revisions. Indeed we agree with the observations of the Wisconsin 

Supreme Court that “CGL policies generally do not cover contract claims arising out of the 

insured‟s defective work or product, but this is by operation of the CGL‟s business risk 

exclusions, not because a loss actionable only in contract can never be the result of an 

„occurrence‟ within the meaning of the CGL‟s initial grant of coverage.” Am. Family Mut. Ins. 

Co. v. Am. Girl, Inc., 673 N.W.2d 65, 76 (Wis. 2004); see also Travelers Indem. Co. of Am. v. 

Moore & Assocs., Inc., 216 S.W.3d 302, 307 (Tenn. 2007) (declaring that “[r]eliance upon a 

CGL‟s „exclusions‟ to determine the meaning of „occurrence‟ has resulted in regrettably 

overbroad generalizations concerning CGLs” (internal citation and quotation omitted)).

II.

The Insurers‟ CGL policies insure against liability for “property damage” caused by an 

“occurrence.” Appellee Continental‟s App. at 102; Appellee Indiana‟s App. at 125, 139. The 

policies follow the widely used CGL form defining “occurrence” as “an accident, including 

continuous or repeated exposure to substantially the same general harmful conditions.” Appellee 

Continental‟s App. at 112; Appellee Indiana‟s App. at 133, 146. Whether faulty workmanship 

fits within the insurance policy‟s definition of “occurrence” under standard CGL polices has 

been the subject of much debate and litigation throughout the country and the jurisdictions are 

divided on the issue. Some states have held that faulty workmanship or improper construction is 
10

not an “occurrence” because it does not constitute an “accident.”4 Other states have found 

improper or faulty construction to be an “accident” and therefore an “occurrence” where the 

resulting damage occurs without the insured‟s expectation or foresight.5 Many of these cited 

 

4

See, e.g., U.S. Fid. & Guar. v. Advance Roofing & Supply Co., 788 P.2d 1227, 1233 (Ariz. Ct. App. 

1989) (“mere faulty workmanship, standing alone, cannot constitute an occurrence as defined in the 

policy, nor would the cost of repairing the defect constitute property damages”); Gen. Sec. Idem. Co. of 

Ariz. v. Mountain States Mut. Cas. Co., 205 P.3d 529, 535 (Colo. Ct. App. 2009) (“claims of poor 

workmanship, standing alone, are not occurrences that trigger coverage under CGL policies similar to 

those at issue here”); State Farm Fire and Cas. Co. v. Tillerson, 777 N.E.2d 986, 991 (Ill. Ct. App. 2002) 

(“[w]here the defect is no more than the natural and ordinary consequences of faulty workmanship, it is 

not caused by an accident”); Pursell Constr. v. Hawkeye-Security Ins. Co., 596 N.W.2d 67, 71 (Iowa 

1999) (“defective workmanship standing alone, that is, resulting in damages only to the work product 

itself, is not an occurrence under a CGL policy”); Auto-Owners Ins. Co. v. Home Pride Cos., 684 N.W.2d 

571, 578 (Neb. 2004); (“although a standard CGL policy does not provide coverage for faulty 

workmanship that damages only the resulting work product, if faulty workmanship causes bodily injury 

or property damage to something other than the insured‟s work product, an unintended and unexpected 

event has occurred, and coverage exists”); Heille v. Herrmann, 736 N.E.2d 566, 568 (Ohio Ct. App. 1999) 

(holding that faulty workmanship is not an accident and therefore not an occurrence); Oak Crest Constr. 

Co. v. Austin Mut. Ins. Co., 998 P.2d 1254, 1257 (Or. 2000) (“there can be no „accident‟ within the 

meaning of a commercial liability policy, when the resulting damage is merely a breach of contract”); 

Kvaerner Metals Div. of Kvaerner U.S., Inc. v Commercial Union Ins. Co., 908 A.2d 888, 899 (Pa. 2006) 

(holding that “the definition of „accident‟ required to establish an „occurrence‟ under the policies cannot 

be satisfied by claims based upon faulty workmanship); L-J, Inc. v. Bituminous Fire & Marine Ins. Co., 

621 S.E.2d 33, 37 (S.C. 2005) (finding that “faulty workmanship does not constitute an „occurrence‟”); 

Corder v. William W. Smith Excavating Co., 556 S.E.2d 77, 83 (W. Va. 2001) (“commercial general 

liability policies are not designed to cover poor workmanship”); Burlington Ins. Co. v. Oceanic Design & 

Constr., Inc., 383 F.3d 940, 948 (9th Cir. 2004) (applying Hawaii law and declaring “General liability 

policies . . . are not designed to provide contractors and developers with coverage against claims their 

work is inferior or defective.”); Lenning v. Commercial Union Ins. Co., 260 F.3d 574, 583 (6th Cir. 2001) 

(applying Kentucky law and declaring “there is no „occurrence‟ to the extent [a] complaint alleges 

property damage arising out of defective or faulty craftsmanship”); J.Z.G. Resources, Inc. v King, 987 

F.2d 98 (2d Cir. 1993) (applying New York law for the proposition that defective workmanship, standing 

alone, is not an occurrence). 

5

See, e.g., Fejes v. Alaska Ins. Co., 984 P.2d 519, 523 (Alaska 1999) (standing for the general 

proposition that improper or faulty workmanship constitutes an accident); Lee Builders, Inc. v. Farm 

Bureau Mut. Ins. Co., 137 P.3d 486, 493 (Kan. 2006) (agreeing that the “damage occurring as a result of 

faulty or negligent workmanship constitutes an occurrence as long as the insured did not intend for the 

damage to occur”); Joe Banks Drywall & Acoustics, Inc. v. Transcontinental Ins. Co., 753 So. 2d 980 

(La. Ct. App. 2000) (standing for the general proposition that improper or faulty workmanship constitutes 

an occurrence within the meaning of a general commercial liability policy); Architex Ass‟n, Inc., v. 

Scottsdale Ins. Co., 27 So. 3d 1148, 1162 (Miss. 2010) (concluding that “the term „occurrence‟ cannot be 

construed in such a manner as to preclude coverage for unexpected or unintended „property damage‟ 

resulting from negligent acts or conduct of a subcontractor, unless otherwise excluded or the insured 

breaches its duties after loss”); High Country Assoc. v. N.H. Ins. Co., 648 A.2d 474, 478 (N.H. 1994) 

(property damage to condominium units caused by defective workmanship is an “occurrence” within the 

meaning of CGL policy); Erie Ins. Exchange v. Colony Dev. Corp., 736 N.E.2d 941, 947 (Ohio Ct. App. 

1999) (property damage caused by contractor‟s negligence in constructing and designing a condominium 

complex “reasonably fall[s] within the policy‟s definition of property damage caused by an occurrence, –
11

cases are discussed in numerous articles advancing both sides of the issue. Compare, e.g., 

Clifford J. Shapiro, Point/Counterpoint: Inadvertent Construction Defects Are an “Occurrence” 

under CGL Policies, 22 Constr. Law., Spring 2002, at 13, 44 (“The better-reasoned decisions 

give effect to the actual intent of CGL insurance by holding that construction-defect claims 

allege an „occurrence‟ . . . .”), with Linda B. Foster, Point/Counterpoint: No Coverage Under the 

CGL Policy for Standard Construction Defect Claims, 22 Constr. Law., Spring 2002, at 18, 47 

(“When the proper analysis is done – starting with the insuring agreement – the correct 

conclusion is reached. There is no coverage for standard construction defect claims for repair 

and replacement of defective work.”). 

At least one court has observed that there appear to be two different rationales for the 

proposition that faulty workmanship is not covered under a standard CGL policy. On the one 

hand the rule has been justified on public policy grounds; namely, the cost to repair and replace 

the damages caused by faulty workmanship is a business risk not covered under a CGL policy. 

Auto-Owners Ins. Co. v. Home Pride Cos., 684 N.W.2d 571, 577 (Neb. 2004); see also Aetna 

Life & Cas. v. Patrick Indus. Inc., 645 N.E.2d 656, 662 (Ind. Ct. App. 1995); Weedo v. Stone-EBrick, Inc., 405 A.2d 788, 791 (N.J. 1979). However, the business risk rule has been a part of 

standard CGL policies since at least 1986 in the form of “your work” exceptions to coverage. 

We therefore do not interpret the business risk rule as an initial bar to coverage, but rather we 

view it as potentially excluding certain events from coverage under the “your work” exclusion, 

where the policy is found to grant coverage initially. On the other hand a competing rationale 

 

i.e., an accident”); Travelers Idem. Co. v. Moore & Assocs. Inc., 216 S.W.3d 302 (Tenn. 2007) (defective 

installation of windows causing water penetration “constitute[s] „property damage‟ for purposes of the 

CGL”); Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 9 (Tex. 2007) (Damage to the 

insured‟s work as well as damage to a third party‟s property can result from an occurrence as defined in 

commercial general liability policy; no basis exists in the definition of “occurrence” to distinguish 

between the two.); Am. Family Mut. Ins. Co., 673 N.W.2d at 70 (Excessive settlement of soil after 

building was completed caused the building‟s foundation to sink. This caused the rest of the structure to 

buckle and crack. Held: There was “„property damage‟ caused by an „occurrence‟ within the meaning of 

the CGL policies‟ general grant of coverage.”); French v. Assurance Co. of Am., 448 F.3d 693, 706 (4th 

Cir. 2006) (applying Maryland law and holding that a standard 1986 commercial general liability policy 

form “provides liability coverage for the cost to remedy unexpected and unintended property damage to 

the contractor‟s otherwise nondefective work-product caused by the subcontractor‟s defective 

workmanship”); Great Am. Ins. Co. v. Woodside Homes Corp., 448 F. Supp. 2d 1275, 1283 (D. Utah 

2006) (applying Utah law and declaring, “Certainly, different jurisdictions have approached and answered 

the question presented in this case in various ways. But the better-reasoned approach, and the approach 

that is most consistent with Utah law, views faulty subcontractor work as an occurrence from the 

standpoint of the insured.”). 
12

supporting the determination that faulty workmanship is not covered under a CGL policy is that 

as a matter of contract interpretation, “„[t]he fortuity implied by reference to accident or 

exposure is not what is commonly meant by a failure of workmanship.‟” Auto-Owners Ins. Co., 

684 N.W.2d at 577 (quoting McAllister v. Peerless Ins. Co., 474 A.2d 1033, 1036 (N.H. 1984)). 

We find however that this rationale provides little guidance and is unhelpful to our analysis. 

Rather, we align ourselves with those jurisdictions adopting the view that improper or faulty 

workmanship does constitute an accident so long as the resulting damage is an event that occurs 

without expectation or foresight. As explained in more detail below this rationale is consistent 

with this jurisdiction‟s definition of “accident” as contained in standard CGL policies. 

III.

Insurance policies are contracts that are subject to the same rules of construction as are 

other contracts. Eli Lilly & Co. v. Home Ins. Co., 482 N.E.2d 467, 470 (Ind. 1985). When the 

language of an insurance contract is clear and unambiguous, we will assign to the language its 

plain and ordinary meaning. Id. An insurance policy that is unambiguous must be enforced 

according to its terms, even those terms that limit an insurer‟s liability. Ramirez v. Am. Family 

Mut. Ins. Co., 652 N.E.2d 511, 514 (Ind. Ct. App. 1995). Thus, we may not extend insurance 

coverage beyond that provided by the unambiguous language in the contract. Shelter Ins. Co. v. 

Woolems, 759 N.E.2d 1151, 1155 (Ind. Ct. App. 2001), trans. denied. Also, insurers have the 

right to limit their coverage of risks and, therefore, their liability by imposing exceptions, 

conditions, and exclusions. Allstate Ins. Co. v. Boles, 481 N.E.2d 1096, 1098 (Ind. 1985).

As indicated earlier Insurers‟ CGL policies insure against liability for “property damage” 

caused by an “occurrence.” In turn the policies define “occurrence” as “an accident, including 

continuous exposure to substantially the same general harmful conditions.” The term “accident” 

is not defined in the policies. However, this Court has defined accident to mean “an unexpected 

happening without an intention or design.” Tri-Etch, Inc., v. Cincinnati Ins. Co., 909 N.E.2d 

997, 1002 (Ind. 2009) (quoting Auto-Owners Ins. Co. v. Harvey, 842 N.E.2d 1279, 1283 (Ind. 

2006)). Implicit in the meaning of “accident” is the lack of intentionality. Id. The question 

presented is whether faulty workmanship is an accident within the meaning of a standard CGL 

policy. In our view the answer depends on the facts of the case. For example, faulty 
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workmanship that is intentional from the viewpoint of the insured cannot be an “accident” or an 

“occurrence.” See Lamar Homes, 242 S.W.3d at 8-9. On the other hand if the faulty 

workmanship is “unexpected” and “without intention or design” and thus not foreseeable from 

the viewpoint of the insured, then it is an accident within the meaning of a CGL policy. The 

following example illustrates the point. 

[I]f a contractor improperly installs a shingle that later falls and 

hits a passerby, this event is unforeseeable and is an “occurrence” 

or “accident.” . . . A shingle falling and injuring a person is a 

natural consequence of an improperly installed shingle just as 

water damage is a natural consequence of an improperly installed 

window. If we assume that either the shingle or the window 

installation will be completed negligently, it is foreseeable that 

damages will result. If, however, we assume that the installation of 

both the shingle and the window will be completed properly, then 

neither the falling shingle nor the water penetration is foreseeable 

and both events are “accidents.”

Travelers Indem., 216 S.W.3d at 309. As applied to the case before us, if the faulty 

workmanship was the product of unintentional conduct then we start with the assumption, from 

Sheehan‟s viewpoint, that the work on the Class members‟ homes would be completed properly. 

The resulting damage would therefore be unforeseeable and constitute an “accident” and 

therefore an “occurrence” within the meaning of the Insurers‟ CGL policies.6

 

6 We disagree with Justice Sullivan‟s proposition that a performance bond, as opposed to a CGL policy, is 

the appropriate avenue for insuring against damages for defective workmanship. This issue has also 

generated a considerable amount of discussion and debate. As one court has observed: 

[A]lthough defective construction may constitute an “occurrence,” the 

insurer indemnifies the insured only for resulting “property damage”

arising after the project is completed. In contrast, a performance bond is 

broader than a CGL policy in that it guarantees the completion of a 

construction contract upon the default of the general contractor. 

Therefore, a variety of deficiencies that do not constitute “property 

damage” may be covered by a performance bond, and not all deficiencies 

cause additional property damage. Consequently, allowing coverage for 

some “property damage” resulting from defective construction does not 

transform a CGL policy into a performance bond and require a CGL 

carrier to pay anytime an insured fails to complete, or otherwise comply 

with, its contract.

Lennar Corp. v. Great Am. Ins. Co., 200 S.W.3d 651, 673-74 (Tex. App. 2006) (internal citations and 

quotations omitted); see also U.S. Fire Ins. Co. v. J.S.U.B, 979 So. 2d 871, 887-88 (Fla. 2007) (“The 

purpose of a performance bond is to guarantee the completion of the contract upon default by the 
14

For an additional reason we find support for our conclusion that “accident” within the 

meaning of the CGL policies at issue in this case includes faulty workmanship. Although 

exclusionary clauses “do not grant or enlarge coverage,” DeZutti, 408 N.E.2d at 1278, contract 

construction principles instruct us to read the pertinent provisions of insurance policies together. 

See Id. (“The property damages covered can only be determined by resort to the contract as a 

whole, including all exclusionary provisions.”). As previously noted, the faulty workmanship on 

the Class members‟ homes was performed by subcontractors that Sheehan – the general 

contractor – hired to do the work. The CGL policies include an exclusion for damage to “your 

work” and then narrow the exclusion by expressly declaring that it does not apply “if the 

damaged work or the work out of which the damage arises was performed on your behalf by a 

subcontractor.” Appellee Continental‟s App. at 105; Appellee Indiana‟s App. at 128, 142. If the 

insuring provisions do not confer an initial grant of coverage, then there would be no reasons for 

a “your work” exclusion. As one commentator observed: 

A court need only ask why the CGL policy includes an exclusion 

for property damages to the insured‟s own work and that of its 

subcontractors to understand that it would be nonsensical for the 

policy to include such a provision if this kind of property damage 

could never be caused by an “occurrence” in the first place. A 

court need only ask why the CGL policy specifically includes an 

express exception to the “your work” exclusion for property 

damage arising out of the work of a subcontractor to understand 

that this kind of property damage must be included in the broad 

scope of the term “occurrence” in the coverage grant, and that the 

coverage determination for this kind of property damage must be 

made based on the construction-specific policy exclusions.

Clifford J. Shapiro, The Good, the Bad, and the Ugly: New State Supreme Court Decisions 

Address Whether an Inadvertent Construction Defect is an “Occurrence” Under CGL Policies, 

25 Constr. Law., Summer 2005, at 9, 12; see also Lamar Homes, 242 S.W.3d at 12 (“By 

incorporating the subcontractor exception into the „your-work‟ exclusion, the insurance industry 

specifically contemplated coverage for property damage caused by a subcontractor‟s defective 

 

contractor. Thus, unlike an insurance policy, a performance bond benefits the owner of a project rather 

than the contractor. Further, a surety, unlike a liability insurer, is entitled to indemnification from the 

contractor.” (internal citations and quotation omitted)); Fid. & Deposit Co. of Md. v. Hartford Cas. Ins. 

Co., 189 F. Supp. 2d 1212, 1218 (D. Kan. 2002) (rejecting the argument that “if the structural damage 

caused by faulty workmanship constitutes an „occurrence,‟ then the CGL and umbrella policies will be 

transformed into a performance bond” because the bond “in no way” protected the contractor or 

subcontractor from liability).
15

performance.”). We agree with these authorities, and also agree that “if the insurer decides that 

this is a risk it does not want to insure, it can clearly amend the policy to exclude coverage, as 

can be done simply by either eliminating the subcontractor exception or adding a breach of 

contract exclusion.” J.S.U.B., 979 So. 2d at 891. See also Lamar Homes, 242 S.W. 3d at 12 

(“More recently, the Insurance Services Office has issued an endorsement that may be included 

in the CGL to eliminate the subcontractor exception to the „your-work‟ exclusion.”). 

In this case the trial court entered summary judgment in favor of Insurers on grounds that 

there was no damage to property “other than to the structural components of the homes 

themselves” and thus there was no “occurrence” or “property damage.” Appellants App. at 27. 

On this point the trial court erred. As we have explained faulty workmanship may constitute an 

accident and thus an occurrence depending on the facts. More specifically, if the defective work 

of the subcontractors were done intentionally instead of “without intention or design”, then it is 

not an accident. Otherwise the opposite is true. Here, none of the parties‟ Trial Rule 56 

materials address the question of whether the faulty workmanship was the product of intentional 

versus unintentional conduct. And accordingly the trial court reached no conclusion on this 

point.

Conclusion

The judgment of the trial court is reversed. This cause is remanded for further 

proceedings.

Dickson and Boehm, JJ., concur.

Shepard, C.J., dissents with separate opinion.

Sullivan, J., dissents with separate opinion in which Shepard, C.J., joins.
SHEPARD, Chief Justice, dissenting.

My colleague‟s majority opinion is a genuine tour de force on the development of 

widely-used forms of commercial general liability policies and the interpretations given them by 

state and federal courts. Still, I conclude that it leads Indiana to the wrong result.

To make a long story short, I think these policies are neither designed nor priced as 

coverage for whatever demands the insured may face in the nature of ordinary consumer claims 

about breach of warranty. Inquiry during oral argument suggested that there may not even exist 

in the marketplace an insurance product that “covers me when I don‟t do a very good job,” if you 

will. 

As the majority recognizes, there is in the country a divide in the case law on the point 

we decide today. I would put us on the other side of this divide.
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Sullivan, Justice, dissenting.

My review of the authorities convinces me that an “occurrence” under a CGL policy in 

the context of these cases is accidental damage caused by an insured (or an insured‟s subcontractors) to property owned by third parties, but not the costs of repairing defective work performed 

by an insured (or an insured‟s subcontractors).

To draw from the hypothetical that the Court deploys, it would be an “occurrence” under 

a CGL policy when a roof shingle that had been negligently installed by an insured‟s subcontractor falls and injures a passerby or breaks a window in a passing car. Why? Because it is an “accident” that causes “bodily injury” or “property damage.” But the costs of repairing the defective shingle installation and resulting damage to the roof is not an occurrence. Such defective 

workmanship or failure to perform according to the terms of a construction contract is not an accident. To the extent that person wishes to insure against damages from defective workmanship, 

a performance bond and not a CGL policy provides such protection. A new case from New York 

makes this clear:

A surety‟s performance bond and an insurer‟s commercial general liability 

policy provide two different scopes of coverage. A performance surety is to be 

held liable, upon the default of its principal, for the costs of completing the Contract or conforming the principal‟s defective work to the terms of the Contract, 

whereas the general liability insurer is liable for accidental damage caused by the 

insured to property owned by third parties (see J.Z.G. Res., Inc. v. King, 987 F.2d 

98, 103 (2d Cir. 1993); Transp. Ins. Co. v. AARK Constr. Group Ltd., 526 F. 

Supp. 2d 350, 356 (E.D.N.Y. 2007); Bonded Concrete, Inc. v. Transcon. Ins. Co., 

784 N.Y.S.2d 212 (2004); Parkset Plumbing & Heating Corp. v. Reliance Ins. 

Co., 448 N.Y.S.2d 739 (1982)).

400 15th St., LLC v. Promo-Pro, Ltd., 2010 N.Y. Misc. LEXIS 4339 at **27-28 (N.Y. Sup. Ct. 

Sept. 10, 2010). Each of the cases cited squarely stands for this limitation on CGL coverage, as 

does Auto-Owners Ins. Co. v. Home Pride Cos., Inc., 684 N.W.2d 571, 578 (Neb. 2004), where 

the court said “although a standard CGL policy does not provide coverage for faulty workmanship that damages only the resulting work product, if faulty workmanship causes bodily injury or 
2

property damage to something other than the insured‟s work product, an unintended and unexpected event has occurred, and coverage exists.”

I respectfully dissent.

Shepard, C.J., joins.