Originally posted Friday, 10 February 2012

Written by John Sier

Suppose a project is complete, but a recurring water leak has made a portion of the building unusable due to interior damage and other moisture-related issues. Adding to that problem, the general contractor is no longer in operation, and the cause of the leaks appear to be due to construction defects. Depending on the state, there could be insurance coverage for the property damage caused by the construction defects. The issue is whether defective construction constitutes an “occurrence” that would trigger insurance coverage, and courts across the country have been inconsistent in their analyses and conclusions.

Arkansas has addressed the issue through legislation. Arkansas Code Section 23-79-155 mandates that general liability insurance policies contain a definition of “occurrence” that includes “property damage or bodily injury from faulty workmanship.” The legislature was frustrated with conflicting court decisions in its own state and across the country, so they decided to codify the solution. Hawaii, Colorado, and South Carolina have also moved forward with legislation that effectively defines defective workmanship as an occurrence for general liability coverage. Several insurance companies have likewise developed policy language to comply with these state requirements.