Litigation

Arkansas Supreme Court Holds Defective Workmanship Not an "Accident" Constitutiing an Occurrence Under a Commercial General Liability Insurance Policy

By H. William Allen et al.

The Arkansas Supreme Court answered a question certified to it by Judge J. Leon Holmes of the Eastern District of Arkansas, in Essex Insurance Company v. John Holder et al., No 07-803.

Tom and Kara Baumgartner contracted with J&H Enterprises to build their new home. They sued J&H in an Arkansas state court under a variety of contract and tort theories alleging damages due to "[J&H]’s delays, employment of incompetent subcontractors, and defective or incomplete construction." The owner of J&H invoked commercial general liability policies issued to him by Essex Insurance Company and demanded that Essex defend him against the Baumgartners. Essex responded by filing a declaratory judgment action in federal court, seeking a ruling that it had no duty to defend J&H under the GCL policies it issued to J&H.

The policies defined an "occurrence"--an event triggering the policy--as an "accident." The Baumgartners argued that the term "accident" in the policy was ambiguous and cited the well-known rule that an ambiguous insurance policy is construed against the drafting insurance company.

After surveying Arkansas precedent and conducting a survey of other jurisdictions, the Court disagreed and held that "[f]aulty workmanship is not an accident; instead, it is a foreseeable occurrence, and performance bonds exist in the marketplace to insure the contractor against claims for the cost of repair or replacement of faulty work." (emphasis supplied).

Full post as published by Arkansas Business Litigation Blog on March 07, 2008 (boomark / email).