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High court denies rehearing

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A split Indiana Supreme Court has denied rehearing a case involving faulty workmanship being covered under a commercial general liability policy.

On Dec. 17, Justices Brent Dickson, Robert Rucker, and Steven David denied Continental Casualty Company’s petition for rehearing. In October, the justices were divided on whether an “occurrence” under a CGL covers an insured contract for faulty workmanship of its subcontractors. Justices Dickson, Rucker, and Theodore Boehm reversed the trial court ruling in favor of the insurers on grounds that there wasn’t property damage and thus there was no “occurrence” or “property damage.”

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, the majority decided.

Chief Justice Randall T. Shepard and Justice Frank Sullivan dissented from the October ruling and also dissented from the denial to grant Continental’s petition for rehearing. In his three-page dissent, Justice Sullivan reiterated his belief that the damage isn’t covered under a CGL policy. He pointed to a 6th Circuit Court of Appeals case, Cincinnati Insurance Co. v. Beazer Homes Investments, LLC 594 F.3d 441 (6th Circ. 2010), in which that court addressed this exact issue of Indiana law. He believed the Circuit Court more accurately analyzed Indiana law on the subject than the Supreme Court’s opinion. The 6th Circuit Court of Appeals concluded that because it is neither “property damage” nor an “occurrence”, faulty workmanship causing damage to the insured property isn’t covered by CGL polices under Indiana law.

Justice Sullivan and Chief Justice Shepard, who joined him in the dissent, agreed with the alternatives available to provide appropriate recourse to general contractors who are faced with damage from faulty workmanship, including requiring performance bonds.

Also on Dec. 17, the justices issued an opinion on rehearing from Indiana Insurance in the same matter. They granted the rehearing to address the timeliness of Sheehan Construction Company’s notice to Indiana Insurance. Neither the Indiana Court of Appeals nor the Supreme Court addressed this issue on appeal. The justices unanimously affirmed summary judgment in favor of the insurer on this matter.

“In this case Sheehan conceded it did not give Indiana Insurance timely notice of Sheehan’s claims under the CGL policy. Because prejudice to the insurer was therefore presumed, Indiana Insurance carried its initial burden of demonstrating it had no liability to Sheehan under the policy of insurance. Sheehan has not directed this Court to any evidence it presented to the trial court rebutting the presumption of prejudice,” wrote Justice Rucker.

In all other respects, the original opinion was affirmed.

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