(Article from Insurance Law Alert, July/August 2020)
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Reversing an appellate court, the Michigan Supreme Court ruled that faulty workmanship by a subcontractor may constitute a covered “occurrence” under a general liability policy, even where it damages only the insured’s work product. Skanska USA Building Inc. v. M.A.P. Mechanical Contractors, Inc., 2020 WL 3527909 (Mich. June 29, 2020).
Skanska, the construction manager on a renovation project, used MAP as a subcontractor for heating and cooling work. MAP obtained a general liability policy from Amerisure, which listed Skanska as an additional insured. A few years after construction was complete, it was discovered that MAP had installed expansion joints backward, resulting in significant damage to the heating system. After repairing the damage, Skanska sought coverage from Amerisure. The insurer denied coverage, stating that there had been no covered “occurrence” under the policy.
A Michigan trial court denied the insurer’s summary judgment motion, finding that an occurrence “may have happened” because MAP did not purposefully install the expansion joints backward. The trial court further held that although faulty workmanship “standing alone” does not constitute a covered occurrence, there may be a potential occurrence where damage goes beyond the scope of the insured’s own work. An appellate court reversed, granting summary judgment to Amerisure and finding that there is no occurrence where, as here, the only damage was to the insured’s own work product. The Michigan Supreme Court reversed.
The Michigan Supreme Court noted that while the policy contained an exclusion barring coverage for an insured’s own work product, there was an exception to the exclusion for work performed by a subcontractor. The court explained: “If faulty workmanship by a subcontractor could never constitute an ‘accident’ and therefore never be an ‘occurrence’ triggering coverage in the first place, the subcontractor exception would be nugatory.” Moreover, the court emphasized the lack of support for the appellate court’s ruling that “accident” cannot include damage limited to the insured’s own work product. Finally, the court distinguished Hawkeye-Security Ins. Co. v. Vector Constru. Co., 185 Mich. App. 369 (1990), in which the court held that damage to an insured’s own work due to faulty construction is not an “occurrence.” The court noted that Hawkeye involved a 1973 policy with different language and presented the question of whether an insurer owed coverage to a general contractor for damages resulting from its own defective work, not the work of a subcontractor.