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High court divided on faulty workmanship coverage under CGL policy

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The high court split on whether an “occurrence” under a commercial general liability policy covers an insured contract for faulty workmanship of its subcontractor.

In Sheehan Construction Co., Inc., et al. v. Continental Casualty Co., et al., No. 49S02-1001-CV-32, Justices Robert Rucker, Brent Dickson, and Theodore Boehm reversed the trial court ruling in favor of the insurers on grounds that there was no damage to the property and thus there was no “occurrence” or “property damage.”

This class-action suit involves homeowners in a subdivision in which Sheehan Construction Co. was the general contractor. The homeowners had leaking windows, water damage, and other issues caused by the faulty workmanship of Sheehan’s subcontractors. During the period at issue, Sheehan was insured under a CGL policy by Continental Insurance Co.

The class settled with Continental. Continental filed declaratory judgment that it wasn’t obligated to indemnify Sheehan; Sheehan and the class filed a third-party complaint against Indiana Insurance and MJ Insurance, Sheehan’s insurance broker. The trial court granted summary judgment in favor of the insurers and MJ Insurance. The Court of Appeals affirmed.

The high court had to decide whether faulty workmanship fits within the insurance policy’s definition of “occurrence” under standard CGL policies. Jurisdictions have been split on this matter – some held it’s not an occurrence because it doesn’t constitute an “accident”; others have found improper construction be an “accident” and therefore an occurrence where the resulting damage occurs without the insured’s expectation or foresight, wrote Justice Rucker.

The majority aligned themselves with the jurisdictions that held improper or faulty workmanship does constitute an accident as long as the resulting damage is an event that occurs without expectation or foresight. They remanded for further proceedings because none of the parties’ Trial Rule 56 materials addressed the question of whether the faulty workmanship was the product of intentional or unintentional conduct, so the trial court reached no conclusion on that. If the subcontractor’s defective work was done intentionally instead of “without intention or design” then it is not an accident, wrote Justice Rucker.

In his dissent, Chief Justice Randall T. Shepard would align Indiana with those jurisdictions that have held faulty workmanship isn’t an occurrence. He wrote that these insurance policies are neither designed nor priced as coverage for whatever demands the insured may face in the nature of ordinary consumer claims about breach of warranty. He also joined Justice Frank Sullivan’s dissent, in which the justice views an “occurrence” under a CGL policy as accidental damage caused by an insured or insured’s subcontractor to property owned by third parties, but not the costs of repairing defective work. 

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  1. Indiana's seatbelt law is not punishable as a crime. It is an infraction. Apparently some of our Circuit judges have deemed settled law inapplicable if it fails to fit their litmus test of political correctness. Extrapolating to redefine terms of behavior in a violation of immigration law to the entire body of criminal law leaves a smorgasbord of opportunity for judicial mischief.

  2. I wonder if $10 diversions for failure to wear seat belts are considered moral turpitude in federal immigration law like they are under Indiana law? Anyone know?

  3. What a fine article, thank you! I can testify firsthand and by detailed legal reports (at end of this note) as to the dire consequences of rejecting this truth from the fine article above: "The inclusion and expansion of this right [to jury] in Indiana’s Constitution is a clear reflection of our state’s intention to emphasize the importance of every Hoosier’s right to make their case in front of a jury of their peers." Over $20? Every Hoosier? Well then how about when your very vocation is on the line? How about instead of a jury of peers, one faces a bevy of political appointees, mini-czars, who care less about due process of the law than the real czars did? Instead of trial by jury, trial by ideological ordeal run by Orwellian agents? Well that is built into more than a few administrative law committees of the Ind S.Ct., and it is now being weaponized, as is revealed in articles posted at this ezine, to root out post moderns heresies like refusal to stand and pledge allegiance to all things politically correct. My career was burned at the stake for not so saluting, but I think I was just one of the early logs. Due, at least in part, to the removal of the jury from bar admission and bar discipline cases, many more fires will soon be lit. Perhaps one awaits you, dear heretic? Oh, at that Ind. article 12 plank about a remedy at law for every damage done ... ah, well, the founders evidently meant only for those damages done not by the government itself, rabid statists that they were. (Yes, that was sarcasm.) My written reports available here: Denied petition for cert (this time around): http://tinyurl.com/zdmawmw Denied petition for cert (from the 2009 denial and five year banishment): http://tinyurl.com/zcypybh Related, not written by me: Amicus brief: http://tinyurl.com/hvh7qgp

  4. Justice has finally been served. So glad that Dr. Ley can finally sleep peacefully at night knowing the truth has finally come to the surface.

  5. While this right is guaranteed by our Constitution, it has in recent years been hampered by insurance companies, i.e.; the practice of the plaintiff's own insurance company intervening in an action and filing a lien against any proceeds paid to their insured. In essence, causing an additional financial hurdle for a plaintiff to overcome at trial in terms of overall award. In a very real sense an injured party in exercise of their right to trial by jury may be the only party in a cause that would end up with zero compensation.

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