Consider this scenario: a contractor builds a home, and months later gets a call from the homeowner complaining of water infiltration where the deck meets the house. The contractor investigates, and finds out that improper flashing is the culprit and will have to be redone. The adjacent sills were installed correctly, but they are now damaged and need replacing as well.
On reading his insurance policy, he finds the standard exclusion in section (J)(6) for "[t]hat particular part of real property that must be restored, repaired or replaced because 'your work' was incorrectly performed on it." He asks his lawyer whether the clause excludes coverage for replacing the sills, pointing out that no defective work was “incorrectly performed on” the sills themselves. His lawyer checks the latest developments in New Hampshire law, and gives him some good news: the sills should be covered. Cogswell Farm Condo. Ass'n v. Tower Group, Inc., 167 N.H. 245, 252 (2015), held that “exclusion J(6) bars coverage for property damage to the defectively constructed portions” but “does not bar coverage for damage to those portions of the units that were not defectively constructed . . . but were damaged as a result of the defective work.”
When the insurance carrier receives the contractor’s claim, however, it is unimpressed by the Cogswell Farm ruling, and denies coverage on the ground that there has been no “occurrence” – defined in the policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions“ – to trigger coverage in the first place. It notes that Cogswell Farm declined to consider whether there had been a triggering “occurrence” because the insurance carriers in that case raised the issue too late. And it points to the Supreme Court’s admonition in Brown v. Concord Group Ins. Co., 163 N.H. 522, 528 (2012), that “to constitute an ‘occurrence,’ the damage at issue must have been to property other than [the contractor's] work product.” For this purpose, the carrier maintains, the contractor’s “work product” means all of its work, not just the defective work.
Is the carrier right? A definitive answer must await a case squarely presenting the issue that Brown did not present: whether damage to elements of the construction that were not defective is considered damage to a different work product for purposes of defining “occurrence.” But contractors have reason to be optimistic. A popular treatise on insurance law, quoted in Concord General Mutual Ins. Co. v. Green & Co. Bldg. and Development Corp., 160 N.H. 690, 693 (2010), states that “an occurrence is an accident caused by or resulting from faulty workmanship, including damage to any property other than the work product and damage to the work product other than the defective workmanship." 9A S. Plitt, D. Maldonado & J. Rogers, Couch on Insurance 3d § 129:4, at 129-13 to 129-14 (2005) (my emphasis).
Unless all the subsequent dominoes are insured, CGL policies have diminished value. As the Alabama Supreme Court recently observed in Owners Insurance Co. v. Jim Carr Homebuilder, LLC, 157 So.3d 148, 155 (2014), “to read into the term ‘occurrence’ the limitations urged by [the carrier] would mean that, in a case like this one, where the insured contractor is engaged in constructing an entirely new building, or in a case where the insured contractor is completely renovating a building, coverage for accidents resulting from some generally harmful condition would be illusory. There would be no portion of the project that, if damaged as a result of exposure to such a condition arising out of faulty workmanship of the insured, would be covered under the policy.” The court found coverage for the subsequent dominos. Perhaps our Supreme Court will do likewise.