Skanska Usa Building Inc V Map Mechanical Contractors IncSkanska Usa Building Inc V Map Mechanical Contractors Inc
Syllabus
This syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader.
Skanska USA Building Inc. filed an action in the Midland Circuit Court against M.A.P. Mechanical Contractors, Inc. (MAP), Amerisure Insurance Company (Amerisure), and Amerisure Mutual Insurance Company, seeking coverage under an Amerisure policy for the cost of repairs Skanska performed to correct faulty work performed by MAP in the renovation of a medical center. Skanska, acting as the construction manager, subcontracted the heating and cooling portion of the renovation project to MAP. In connection with the project, Amerisure issued a commercial general liability insurance policy (the CGL policy) to MAP; Skanska and the medical center were additional named insureds on the CGL policy. In 2009, MAP performed the work on the medical center’s heating system; two years later, Skanska determined that MAP had installed some of the expansion joints backward, resulting in damage to concrete, steel, and the heating system. Skanska repaired and replaced the damaged property and sent a demand letter to MAP, asserting that MAP was responsible for all repair costs. Skanska submitted a claim to Amerisure for the costs, seeking coverage as an additional insured under the CGL policy; Amerisure denied the claim. Skanska filed this action, and Amerisure moved for summary disposition, asserting, in part, that MAP’s defective work was not a covered “occurrence,” which was defined in the policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions“; the term “accident” was not defined in the policy. Applying the definition of “accident” set forth in Hawkeye-Security Ins Co v Vector Constr Co, 185 Mich App 369 (1990), the court, Michael J. Beale, J., denied Amerisure’s motion. Amerisure later filed a renewed motion for summary disposition, and Skanska moved for summary disposition on the issue of Amerisure’s liability to Skanska. The court denied both motions, reasoning that it was bound to follow Hawkeye because the case had not been overruled. However, the court did not determine whether an accident occurred and therefore did not determine whether the defective workmanship resulted in an “occurrence.” Amerisure and Skanska separately appealed by leave granted, and the Court of Appeals consolidated the appeals. Relying on Hawkeye, the Court of Appeals, SAWYER, P.J., and CAVANAGH and K. F. KELLY, JJ., reversed the trial court’s orders and remanded the case for entry of summary disposition in favor of Amerisure. The Court reasoned that although Skanska could seek coverage for any damage its work did to a third party’s property, it could not recover for damage to its own work. The Court concluded that there was no “occurrence” under the CGL policy because the only damage was to Skanska’s own work product, which did not constitute an “accident.” Skanska USA Bldg, Inc v MAP Mech Contractors, Inc, unpublished per curiam opinion of the Court of Appeals, issued March 19, 2019 (Docket Nos. 340871 and 341589). Skanska filed an application for leave to appeal in the Supreme Court, and the Supreme Court granted the application. 504 Mich 980 (2019).
In a unanimous opinion by Chief Justice McCormack, the Supreme Court held:
Under the current standard language of CGL policies, an “accident” may include unintentionally faulty subcontractor work that damages an insured’s work product. Accordingly, Skanska may be able to recover under the Amerisure policy the cost of repairs Skanska incurred when it corrected faulty work performed by MAP in the renovation of the medical center. The holding in Hawkeye, which interpreted a 1973 CGL policy that did not cover damage caused by a subcontractor’s faulty workmanship, was limited to cases involving pre-1986 insurance policies and was, therefore, not controlling in this case.
- Under Allstate Ins Co v McCarn, 466 Mich 277 (2002), an “accident” is an undefined contingency, a casualty, a happening by chance, something out of the usual course of things, unusual, fortuitous, not anticipated, and not naturally to be expected. Faulty work by a contractor falls within the definition of “accident“; that is, it may happen by chance, is outside the usual course of things, and is neither anticipated nor naturally to be expected. To hold otherwise would render nugatory CGL policy language that precludes coverage for an insured’s own work product but contains an exception for work performed by a subcontractor on the insured’s behalf. In addition, the word “accident” plainly has a broader meaning than “fortuity.” That is, while fortuity is one way to show that an incident is an accident, it is not the only way. Instead, an unanticipated or unforeseeable injury to a person or property—even absent true fortuity—may be an accident that is a covered occurrence; thus, an insured need not act unintentionally for the act to constitute an “accident.” That an insured may recover under a CGL policy for faulty subcontractor work does not convert the policy into a performance bond, which is different in that the performance bond benefits the owner of the project by guaranteeing the completion of the project in the event the contractor defaults. For those reasons, faulty subcontractor work that was unintended by the insured may constitute an “accident” (and thus an “occurrence“) under the CGL policy language at issue. That an “accident” may include damage to an insured’s own work product is supported by the context and history of CGL policies and is reflective of significant changes in the insurance industry since the 1970s. Specifically, the 1973 CGL policy language developed by the Insurance Services Office, which was interpreted in Hawkeye, contained language that excluded many risks inherent in doing business, causing many earlier courts to read a general business-risk exception into the initial grant of coverage; the distinction between damage to a third party’s property and an insured’s own work product in relation to coverage is grounded in that policy language related to the business-risk doctrine. In contrast, the 1986 policy language at issue in this case expanded the scope of CGL coverage to include some of the previously excluded business risks, including damage caused by a subcontractor’s faulty workmanship, with no differentiation based on whose property is damaged; thus, the 1986 reformation of CGL policy coverage emphasizes a plain reading of “accident,” specifically, that faulty subcontractor work may fall within a policy’s coverage.
- In this case, the CGL policy did not limit the definition of “occurrence” based on the owner of the damaged property; therefore, the Court of Appeals erred by concluding that the word “accident” cannot include damage limited to the insured’s own work product. While the CGL policy excluded coverage for damage to an insured’s own work product arising out of that work, the exclusion expressly did not apply if the damaged work or the work out of which damage arose was performed on the insured’s behalf by a subcontractor, a fact the Court of Appeals failed to recognize. Because an “accident” may include unintentionally faulty subcontractor work that damages an insured’s work product, Skanska may be able to recover under the policy for the cost of repairs it incurred to correct MAP’s faulty work. The Court of Appeals erred by reversing the trial court and ordering the court to enter summary disposition in favor of Amerisure. Hawkeye, which interpreted a 1973 CGL policy that did not cover damage caused by a subcontractor’s faulty workmanship, was not persuasive, and its holding was limited to cases involving pre-1986 insurance policies.
Court of Appeals judgment reversed and case remanded to the Court of Appeals for consideration of any remaining issues.
OPINION
BEFORE
McCORMACK, C.J.
May unintentionally faulty subcontractor work that damages an insured’s work product constitute an “accident” under a commercial general liability insurance policy? Because we conclude the answer is yes, we reverse the Court of Appeals’ judgment to the contrary. We also cabin the Court of Appeals’ decision in Hawkeye-Security Ins Co v Vector Constr Co, 185 Mich App 369; 460 NW2d 329 (1990), to cases involving pre-1986 comprehensive general liability insurance policies. We remand to the Court of Appeals for consideration of any remaining issues.
I. FACTS AND PROCEDURAL HISTORY
The plaintiff, Skanska USA Building Inc., served as the construction manager on a renovation project for Mid-Michigan Medical Center–Midland (the Medical Center); the plaintiff subcontracted the heating and cooling portion of the project to defendant M.A.P. Mechanical Contractors, Inc. (MAP). MAP obtained a commercial general liability insurance policy
In 2009, MAP installed a steam boiler and related piping for the Medical Center’s heating system. MAP’s installation included several expansion joints. Sometime between December 2011 and February 2012, the plaintiff determined that MAP had installed some of the expansion joints backward. Significant damage to concrete, steel, and the heating system occurred as a result. The Medical Center sent a demand letter to the plaintiff, asserting that it must pay for all costs of repair and replacement.
The next day, the plaintiff sent a demand letter to MAP, asserting that MAP was responsible for all costs of repair and replacement. The plaintiff performed the work of repairing and replacing the damaged property. According to the plaintiff, the cost of the repair and replacement work was about $1.4 million. The plaintiff submitted a claim to Amerisure, seeking coverage as an insured. Amerisure denied the claim.
The plaintiff sued MAP and Amerisure, seeking payment for the cost of the repair
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of . . . “property damage” to which this insurance applies. . . .
b. This insurance applies to . . . “property damage” only if:
(1) The . . . “property damage” is caused by an “occurrence” . . . [.]
The policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” But the policy did not define the word “accident.” The trial court looked to the Court of Appeals’ decision in Hawkeye, 185 Mich App at 374, which defined “accident” as “anything that begins to be, that happens, or that is a result which is not anticipated and . . . takes place without the insured’s foresight or expectation and without design or intentional causation on his part.” (Quotation marks and citation omitted.) But, again citing Hawkeye, the trial court concluded that “[d]efective workmanship, standing alone, is not an occurrence within the meaning of a[] general liability insurance contract[;] an occurrence exists where the insured’s faulty work product damages the property of another.”
The trial court held that the plaintiff and others affected by MAP’s negligence did not anticipate backward expansion joints or property damage. Because no one argued that MAP had purposefully installed the expansion joints backward, the trial court determined that an “occurrence” may have happened, triggering Amerisure’s duty of coverage under the insurance policy. Finally, the trial court cited caselaw, including Hawkeye, for the proposition that damage arising out of an insured’s defective workmanship that is confined to the insured’s own work product cannot be viewed as accidental under the policy.1
Because the damage caused by defective installation of the expansion joints by MAP may have gone beyond the scope of the work required by the contract between the plaintiff and the Medical Center, the court found a question of material fact was in dispute and denied summary disposition to Amerisure. Amerisure moved for reconsideration; the trial court denied the motion.
Amerisure then deposed the plaintiff’s project manager and filed a renewed summary disposition motion. In response to Amerisure’s renewed motion, the plaintiff sought summary disposition on Amerisure’s liability to the plaintiff. The plaintiff argued that Hawkeye did not control because Hawkeye had interpreted a prior version of the standard CGL policy issued by the Insurance Services Office (ISO).2 The new version of
the policy (the one at
The trial court again denied summary disposition to both parties. The court reiterated its determination that “defective workmanship, standing alone, is not an occurrence within the meaning of a[] general liability insurance contract.” The trial court clarified that it did not determine whether an accident occurred, and it therefore did not make a finding about whether there was an “occurrence.” Rather, the court held that an occurrence may have happened because the damage caused by MAP’s defective installation of the expansion joints may have gone beyond the scope of the work required by the contract between the plaintiff and the Medical Center. The trial court acknowledged the plaintiff’s argument that it should not rely on Hawkeye but concluded that it had to follow the decision because it had not been overruled.
Both plaintiff and Amerisure filed an application for leave to appeal in the Court of Appeals, arguing that the trial court should have resolved the issue in their respective favors. The Court of Appeals granted the applications and consolidated the appeals. In an unpublished per curiam opinion, it reversed the trial court and ordered that summary disposition be granted to Amerisure; applying the Hawkeye Court’s definition of “accident,” the Court reasoned that there was no “occurrence” under the CGL policy because the only damage was to the insured’s own work product. Skanska USA Bldg, Inc v MAP Mech Contractors, Inc, unpublished per curiam opinion of the Court of Appeals, issued March 19, 2019 (Docket Nos. 340871 and 341589), pp 9-10.
The plaintiff filed an application for leave to appeal in this Court, arguing that the Court of Appeals erred by concluding that Hawkeye controlled and that installing the expansion joints backward constituted an “accident” as a matter of law. We granted leave to appeal, directed the parties to address two issues,4 and invited several organizations to file amicus curiae briefs. 504 Mich 980 (2019).5
II. CONTRACTUAL ANALYSIS
Insurance policies are contracts and, absent an applicable statute, are subject
A. TEXT
As usual, when interpreting a contract, we begin with the text. Frankenmuth Mut Ins Co v Masters, 460 Mich 105, 111; 595 NW2d 832 (1999). The contract defines “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Accordingly, the parties’ arguments rightfully focus on whether MAP’s erroneous backward installation of the expansion joints is an “accident.”
This Court has said that an “accident” is “an undefined contingency, a casualty, a happening by chance, something out of the usual course of things, unusual, fortuitous, not anticipated and not naturally to be expected.” Allstate Ins Co v McCarn, 466 Mich 277, 281; 645 NW2d 20 (2002) (quotation marks and citation omitted).6 Generally, faulty work by a subcontractor may fall within the plain meaning of most of these terms. It happens
by chance, is outside the usual course of things, and is neither anticipated7 nor naturally to be expected.8
Reading the contract as a whole confirms this conclusion. See Wilkie v Auto Owners Ins Co, 469 Mich 41, 50 n 11; 664 NW2d 776 (2003) (“We read contracts as a whole[.]“). The policy contains an exclusion precluding coverage for
l. Damage To Your Work
“Property damage” to “your work”9 arising out of it or any part of it and included in the “products-completed operations hazard“.10
This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.
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. Just as with statutory interpretation, courts must give effect to every word, phrase, and clause in a contract and avoid an interpretation that would render any part of the contract nugatory. Klapp v United Ins Group Agency, Inc, 468 Mich 459, 468; 663 NW2d 447 (2003).11 Many other courts have recognized this same flaw in the
reasoning put forth by insurers. See, e.g., Greystone Constr, Inc, 661 F3d at 1289 (“[T]he only way [the “your work” exclusion] has effect is if we find that physical injury caused by poor workmanship—whether to some part of the work itself or third-party property—may be an occurrence under standard CGL policies.“); Sheehan Constr Co, Inc v Continental Cas Co, 935 NE2d 160, 171 (Ind, 2010) (“If the insuring provisions do not confer an initial grant of coverage, then there would be no reasons for a ‘your work’ exclusion.“), mod on reh 938 NE2d 685 (Ind, 2010).
Amerisure counters that mere unanticipated damage is insufficient; an “accident,” Amerisure asserts, must involve a “fortuity,” which means something over which the insured has no control. This is an overly stingy reading of the word “accident.” As our definition in McCarn shows, fortuity is one way to show that an incident is an accident, but it is not the only way.12 See also Greystone Constr, Inc, 661 F3d at 1285 (stating that “an unanticipated or unforeseeable injury to person or property—even in the absence of true fortuity—may be an accident and, therefore, a covered occurrence“); Capstone Bldg Corp, 308 Conn at 775 (rejecting the argument that “defective construction lacks the element of ‘fortuity’ necessary for an accident” because “the mere fact that defective work is in some sense volitional does not preclude it from coverage under the terms of the policy“); Lamar Homes, Inc v Mid-
Continent Cas Co, 242 SW3d 1, 8 (Tex, 2007) (stating that “a deliberate act, performed negligently, is an accident if the effect is not the intended or expected result“). Amerisure’s position would also contradict this Court’s statement that “an insured need not act unintentionally” for the act to constitute an “accident.” Frankenmuth, 460 Mich at 115 (quotation marks and citation omitted). And as discussed, the plain meaning of the word “accident” has a broader meaning than “fortuity.” See Greystone Constr, Inc, 661 F3d at 1285 (concluding that “fortuity is not the sole prerequisite to finding an accident under a CGL policy” and citing dictionary definitions of “accident” to conclude that the covered occurrences included unanticipated or unforeseeable injuries “even in the absence of true fortuity“).13
Nor is there any support for the Court of Appeals’ conclusion that “accident”
that an insured’s own defective workmanship is excluded from coverage via the explicit exclusions, not in the initial grant of coverage. See, e.g., American Family Mut Ins Co v American Girl, Inc, 268 Wis 2d 16, 39; 2004 WI 2; 673 NW2d 65 (2004) (“CGL policies generally do not cover contract claims arising out of the insured’s defective work or product, but this is by operation of the CGL’s business risk exclusions, not because a loss
Further, we fail to see how defective work that results in a claim against the contractor because of injury to a third party or damage to a third party’s property is “unforeseeable,” while the same defective work that results in a claim against the contractor because of damage to the completed project is “foreseeable.” This distinction would make the definition of “occurrence” dependent on which property was damaged. For example, applying U.S. Fire’s interpretation in this case would make the subcontractor’s improper soil compaction and testing an “occurrence” when it damages the homeowners’ personal property, such as the wallpaper, but not an “occurrence” when it damages the homeowners’ foundations and drywall. As the Tennessee Supreme Court explained, in rejecting this distinction:
A shingle falling and injuring a person is a natural consequence of an improperly installed shingle just as water damage is a natural consequence of an improperly installed window. If we assume that either the shingle or the window installation will be completed negligently, it is foreseeable that damages will result. If, however, we assume that the installation of both the shingle and the window will be completed properly, then neither the falling shingle nor the water penetration is foreseeable and both events are “accidents.” Assuming that the windows would be installed properly, Moore could not have foreseen the water penetration. Because we conclude the water penetration was an event that was unforeseeable to Moore, the alleged water penetration is both an “accident” and an “occurrence” for which there is coverage under the “insuring agreement.”
[Quoting Travelers Indemnity Co of America v Moore & Assoc, Inc, 216 SW3d 302, 309 (Tenn, 2007).]
actionable only in contract can never be the result of an ‘occurrence’ within the meaning of the CGL’s initial grant of coverage.“).15
surety, unlike a liability insurer, is entitled to indemnification from the contractor.” Id. at 888. And third, a performance bond’s coverage “is broader than a CGL policy in that it guarantees the completion of a construction contract upon the default of the general contractor.” Id.
For these reasons, given the plain meaning of the word “accident,” we conclude that faulty subcontractor work that was unintended by the insured may constitute an “accident” (and thus an “occurrence“) under a CGL policy.
B. CONTEXT AND HISTORY
The context and history of CGL policies support our conclusion that an “accident” may include damage to an insured’s own work product, and they are particularly helpful in understanding the term given the significant changes in the insurance industry since the 1970s. The distinction between damage to property of a third party and the insured’s own work product stands on an outdated rationale grounded in the language of the 1973 policy. That earlier policy featured the “business risk” doctrine—a concept advanced by Roger Henderson in a 1971 law review article16—under which many risks inherent in doing business were excluded.17 O’Connor, What Every Court Should Know About Insurance
case in this area (and cited in Hawkeye) relied on Henderson’s article in distinguishing covered occurrences involving damage to the property of a third party and noncovered business risks involving damage to the contractor’s own work. See id. (quoting the Henderson article and then including a hypothetical about “the boundaries between ‘business risks’ and occurrences giving rise to insurable liability“).
Decisions such as Weedo reflect an outdated view of the insurance industry.19 In 1986, the ISO distributed the policy language at issue, reshaping the scope of coverage under CGL policies. And it adopted those changes to expand coverage to include some of those business risks, specifically damage caused by a subcontractor’s faulty workmanship (with no carveout based on whose property is damaged). See US Fire Ins Co, 979 So 2d at 879 (citing the ISO circular confirming that the 1986 revisions to the standard CGL policy not only incorporated the “Broad Form” property endorsement but also specifically “cover[ed] damage caused by faulty workmanship to other parts of work in progress; and damage to, or caused by, a subcontractor’s work after the insured’s operations are completed“) (quotation marks and citation omitted; alteration in original); French, Revisiting Construction Defects as “Occurrences” Under CGL Insurance Policies, 19 U Pa J Bus L 101, 119 (2016) (stating that “the Weedo decision is obsolete and of little value today in analyzing whether construction defects can constitute occurrences” and noting that “the court did not analyze the definition of ‘occurrence’ in the policy at
narrower reductions in coverage than the earlier versions of such exclusions“).20 Thus, the 1986 reformation of the scope of coverage under the CGL policies underscored a plain reading of “accident“—that faulty subcontractor work may fall within the policy’s coverage.21
III. HAWKEYE
So what of Hawkeye? Hawkeye considered whether a 1973 policy provided coverage to a contractor for damages resulting from its own defective work, not the work of its subcontractor. Those differences are significant, and as a result, whether Hawkeye was correctly decided is not properly before us. We therefore see no reason to answer that question today.22 Further, because Hawkeye interpreted a 1973 policy that did not cover
damage caused by a subcontractor’s faulty workmanship, Hawkeye is not persuasive.23 Therefore, we limit its holding to cases involving the pre-1986 CGL policy language.24
We hold that an “accident” may include unintentionally faulty subcontractor work that damages an insured’s work product. We therefore reverse the Court of Appeals’ judgment and cabin the Court of Appeals’ decision in Hawkeye to cases involving pre-
1986 insurance policies. We remand to the Court of Appeals for consideration of any remaining issues.25
Bridget M. McCormack
Stephen J. Markman
Brian K. Zahra
David F. Viviano
Richard H. Bernstein
Elizabeth T. Clement
Megan K. Cavanagh
Notes
Some courts retain a fortuity requirement not based on the plain meaning of the word “accident” but, instead, based on a common-law prerequisite to insurance coverage. See, e.g., Aluminum Co of America v Aetna Cas & Surety Co, 140 Wash 2d 517, 556; 998 P2d 856 (2000) (noting that “the fortuity principle never appears in insurance contracts” but that “[t]he principle is rooted in common law“); Fed Ins Co v Coast Converters, Inc, 130 Nev 960, 967; 339 P3d 1281 (2014) (stating that “the fortuity principle applies even if not explicitly written into the insurance contract“); see also 7 Couch, Insurance, 3d (rev ed), § 102:10, p 102-35 (stating that “[t]he known risk, known loss, and loss in progress
defenses are generally considered to be part of the ‘fortuity’ requirement that runs throughout insurance law“); Couch, § 101:2, pp 101-7, 101-9 (stating that to be covered, an insured’s loss “must occur as a result of a fortuitous event, not one planned, intended, or anticipated” and that “[e]xcept for the risk requirements previously discussed and barring public policy considerations, the parties are free to contract for which risks the insurer shall or shall not insure“) (emphasis added). We decline to address whether an extra-textual fortuity requirement could provide an independent basis for denying coverage here because Amerisure has not made that argument; it argues only that the meaning of “accident” in the policy is limited to a true fortuity.
(n) to property damage to the named insured’s products arising out of such products or any part of such products;
(o) to property damage to work performed by or on behalf of the named insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith;(p) to damages claimed for the withdrawal, inspection, repair, replacement, or loss of use of the named insured’s products or work completed by or for the named insured or of any property of which such products or work form a part, if such products, work or property are withdrawn from the market or from use because of any known or suspected defect or deficiency therein . . . . [French, Revisiting Construction Defects as “Occurrences” Under CGL Insurance Policies, 19 U Pa J Bus L 101, 106-107 (2016) (referring to the three “business risk exclusions” in the 1973 CGL policy), quoting ISO Form No. GL 00 02 01 73, Comprehensive General Liability Insurance Coverage Form (1973).]
statement doesn’t reflect the revised policy’s broadened scope of coverage given the revised language of the exclusions, under which defective workmanship by the insured’s subcontractor resulting in damage to work performed by or on behalf of the insured is not excluded from coverage. Given the broadened scope of coverage stemming from the changes to the language of the exclusions, we do not find it significant that the definition of “occurrence” in Radenbaugh was “not significantly different in substance” from the definition in Hawkeye. Liparoto Constr, Inc v Gen Shale Brick, Inc, 284 Mich App 25, 38; 772 NW2d 801 (2009).