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Contractor’s Faulty Work May Be an “Occurrence” Under a CGL Policy

Insurance Coverage / June 30, 2020

In the context of commercial general liability (“CGL”) coverage, Michigan courts had – until recently – ruled consistently that an occurrence cannot include damages for the insured’s own faulty workmanship. Hawkeye-Security Ins Co v Vector Construction Co, 185 Mich App 369 (1990). 

This had been considered the rule since Hawkeye despite subsequent changes to the standard CGL form.

However, on June 29, 2020, the Michigan Supreme Court held that Hawkeye does not apply to current Insurance Services Office (“ISO”) forms, which “underscore a plain reading” of the term “accident,” as opposed to the more restrictive meaning that controlled pre-1986 ISO CGL forms. Skanska USA Building Inc v Amerisure Ins Co, ___ Mich ___ (2020) (Docket No. 159510); slip op at 16-18.

In Skanska, the Court found that the pre-1986 definition of the term “accident” incorporated a “business risks” limitation that post-1986 forms are not subject to. When this “business risk” limitation is not read into the policy – as cases following Hawkeye had incorrectly done – the plain meaning of the word “accident” may “include unintentionally faulty subcontractor work that damages an insured’s work product.” Id. at ___; slip op at 19.

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