Opinion ID: 616452
Heading Depth: 3
Heading Rank: 3

Heading: Occurrence, Accident, and the CGL Policies at Issue

Text: We conclude the CGL policies at issue may cover damage to nondefective property arising from poor workmanship. In our view, the policyholders' complaints adequately allege an accident that fits within the policies' definition of a covered occurrence. Accordingly, we hold that injuries flowing from improper or faulty workmanship constitute an occurrence so long as the resulting damage is to nondefective property, and is caused without expectation or foresight. As we explain further below, nondefective property is property that has been damaged as a result of poor workmanship. But determining whether faulty workmanship was anticipated or accidental requires an inquiry into the facts and circumstances of the particular case. Our approach to this issue reconciles General Security 's concerns regarding over-broad application of CGL policies with the CGL policies' actual language, which provides coverage to nondefective property that is damaged as a result of subcontractor work. In General Security, the Colorado Court of Appeals concluded that an accident requires an element of fortuity. See 205 P.3d at 535. In light of other Colorado precedents, this is an overly narrow view of CGL-policy language and is inconsistent with the inherent structure of CGL policies. Although the term accident certainly incorporates a fortuitous event, McGowan v. State Farm Fire & Cas. Co., 100 P.3d 521, 525 (Colo.App. 2004), it also incorporates an unanticipated or unusual result flowing from a commonplace cause, see Hottenstein, 83 P.3d at 1201 (applying Carroll, 894 P.2d at 753) (emphasis added). Therefore, fortuity is not the sole prerequisite to finding an accident under a CGL policy. To the contrary, an unanticipated or unforeseeable injury to person or propertyeven in the absence of true fortuitymay be an accident and, therefore, a covered occurrence. See Hoang, 129 P.3d at 1034 ([I]t is the knowledge and intent of the insured that make injuries . . . expected or intended rather than accidental.); see also The Oxford English Dictionary 74 (2d Ed.1989) (defining accident as [a]nything that happens without foresight or expectation); Black's Law Dictionary 15 (7th ed.1999) (noting that [t]he word `accident,' in accident policies, means an event which takes place without one's foresight or expectation). This formulation aligns with the CGL policies' definition of an accident, which includes continuous or repeated exposure to substantially the same harmful conditions. R. at 147. Thus, if the physical damage was unforeseeable and resulted from poor workmanship (which in this case was exacerbated by the continuous exposure to harmful conditions), then the exposure would constitute an accident, and therefore an occurrence, even though it did not necessarily occur by chance. A 1991 Colorado Supreme Court decision, Hecla Mining Co. v. New Hampshire Insurance Co., 811 P.2d at 1083, confirms our view that the unexpected damage caused by the shifting soils was a covered occurrence. [9] The case arose under a previous (but similar) version of a standard-form CGL policy, after an insurer denied it had a duty to defend its policyholders in an action for damages for pollution arising from the policyholders' mining activities. Id. at 1085. The policy in Hecla Mining defined occurrence as an accident, including continuous or repeated exposure to conditions, which result in bodily injury or property damage, neither expected nor intended from the standpoint of the insured. Id. at 1086. Thus, the definition was substantially similar, although slightly more restrictive, to that of the post-1986 occurrence definition at issue here. Even though the policyholders did not contend the damage was fortuitous, the Colorado Supreme Court found the damages were covered because the term occurrence excludes from coverage only those damages that the insured knew would flow directly and immediately from its intentional act.  Id. at 1088 (emphasis added). Under this interpretation, foreseeability, rather than fortuity, is the sine qua non of an occurrence. We see no reason the Colorado Supreme Court would significantly narrow the definition of occurrence for post-1986 policies. [10] In assessing whether damage caused by poor workmanship was foreseeable, we ask whether damages would have been foreseeable if the builder and his subcontractors had completed the work properly. Any other approach renders the doctrine illogical. This is because, by definition, only damage caused by purposeful neglect or knowingly poor workmanship is foreseeable; a correctly installed shingle does not ordinarily fall, and a correctly installed window does not ordinarily leak. See, e.g., Sheehan Constr. Co., 935 N.E.2d at 170 ([I]f the faulty workmanship was the product of unintentional conduct then we start with the assumption . . . that the work on the . . . homes would be completed properly.); Travelers Indemnity Co. of Amer., 216 S.W.3d at 308-09 (same). CGL policies are meant to cover unforeseeable damagesa category that encompasses faulty workmanship that leads to physical damage of nondefective property. Here, the property damagefor example, the movement of the basement floor and damage to the upper living areasallegedly resulted from the house's exposure to expansive soils, which was not otherwise prevented due to the subcontractor's poor design and construction of the house's soil-drainage and structural elements. National does not contend the exposure to the expansive soils or the resulting damage was intended or anticipated by the policyholders. For these reasons, we find the damage suffered by the homeowners may have resulted from an unforeseen occurrence: the damage caused by the faulty workmanship that failed to account for exposure to expansive soils. The damage suffered was an unanticipated or unusual result flowing from a commonplace cause. See Hottenstein, 83 P.3d at 1201. There is simply no allegation the appellants knew the property damage would flow directly and immediately from [] intentional act[s] of the subcontractors. Hecla Mining, 811 P.2d at 1088. Accordingly, we find that the damage to nondefective property could be covered under the insurance policies and, because the work was completed by subcontractors, the your work exclusion does not apply. National has a duty to defend. We do note, however, that CGL policies implicitly distinguish between damage to nondefective work product and damage to defective work product. In this case, the homes' soil-drainage and structural elements were potentially defective. The potential defects in these aspects of the construction may have caused damage to the homes themselvesthe nondefective work product. In line with the Fourth Circuit's holding in French v. Assurance Co. of America, 448 F.3d at 703, the logic of CGL policies require us to conclude that the damage to the homes is covered, while the damage to the soil-drainage and structural elements is not. The obligation to repair defective work is neither unexpected nor unforeseen under the terms of the construction contract or the CGL policies. Therefore, repairing the foundations represents an economic loss that does not trigger a duty to defend under the CGL policies. See id. Conversely, when a subcontractor's faulty workmanship causes unexpected property damage to otherwise nondefective portions of the builder's work, the policies provide coverage. In this scenario, there is simply no anticipation that damage will occur. Thus, damage solely to nondefective work, caused by a subcontractor's faulty workmanship, may be an accident or occurrence. [11] Cf. Newman, 684 S.E.2d at 541, clarified by Crossmann Communities of N.C., ___ S.E.2d at ___, 2011 WL 3667598, at  (supporting this interpretation on similar grounds). This interpretation is also consistent with the logic behind General Security 's corollary rule that injury to third-party property may be covered. 205 P.3d at 535; see also J.Z.G. Resources, Inc. v. King, 987 F.2d 98, 102 (2d Cir.1993); Home Pride Cos., 684 N.W.2d at 578-79. The defective-nondefective principle flows from the recognition that the faulty workmanship, standing alone, is not caused by an accidentbut that damage to other property caused by the faulty workmanship (including both the nondefective work product of the contractor and third-party property) is the result of an accident.