Generally speaking, a standard commercial general liability (CGL) policy
1. Whether, for an “occurrence” to exist under a standard CGL policy, Georgia law requires there to be damage to “other property,” that is, property other than the insured’s completed work itself.
2. If the answer to Question One (1) is in the negative, whether, for an “occurrence” to exist under a standard CGL policy, Georgia law requires that the claims being defended not be for breach of contract, fraud, or breach of warranty from the failure to disclose material information.
HDI-Gerling America Ins. Co. v. Morrison Homes, Inc.,
We begin with a brief summary of the background of this litigation. The record shows that HDI-Gerling America Insurance Company issued a standard CGL policy to Morrison Homes, Inc., a predecessor of Taylor Morrison Services, Inc.
[t]his insurance applies to “bodily injury” and “property damage” only if:
(1) The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory”; and
(2) The “bodily injury” or “property damage” occurs during the policy period.
The policy expressly defines “property damage” as either “[pjhysical injury to tangible property” or “[l]oss of use of tangible property that is not physically injured.” And it expressly defines “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The policy does not define “accident.” The policy also contains a number of exclusions, including several known as the “business risk” • — • or in the construction context, the “builder’s risk” —• exclusions.
Taylor Morrison is a homebuilder, and it was sued in California by sixteen homeowners, who sought to represent a class of more than 400 homeowners, all of whom owned homes built by Taylor Morrison in three California subdivisions. The homeowner-plaintiffs alleged that the concrete foundations of their homes were improperly constructed, insofar as Taylor Morrison failed to lay four inches of gravel beneath the foundations, it failed to use adequate moisture barriers in the construction of the foundations, and it built the foundations with concrete having too high a water-to-cement ratio.
At first, HDI-Gerling undertook to defend Taylor Morrison against these claims, subject to a reservation of its rights. Then, in 2009, HDI-Gerling filed a lawsuit against Taylor Morrison in the United States District Court for the Northern District of Georgia, seeking a declaratory judgment that the claims for which a class was certified do not involve potential liabilities for which Taylor Morrison has coverage under its standard CGL policy. The district court awarded summary judgment to HDI-Gerling, finding no coverage for several reasons, including that the claims asserted against Taylor Morrison' in California do not involve an “occurrence.” In that respect, the district court reasoned that there is no “occurrence” when the only “property damage” alleged is damage to work of the insured, in this case, the homes that Taylor Morrison constructed. The district court applied Georgia law in its decision to award summary judgment to HDI-Gerling, a choice of law that no one appears to dispute.
1. About the first question, we addressed the meaning of “occurrence” — as used in a CGL policy, and in the context of a
Like the standard CGL policy in this case, the policy in American Empire defined an “occurrence” simply as “an accident, including continuous or repeated exposure to substantially the same, general harmful conditions,” and it did not define “accident.”
To answer that question, we begin as we began in American Empire, with the usual and common meaning of “accident.” As we have explained before, “[a]n insurance policy is simply a contract, the provisions of which should be construed as any other type of contract,” Hunnicutt v. Southern Farm Bureau Life Ins. Co.,
Nothing about our holding is inconsistent with the settled notion that CGL coverage generally is intended to insure against liabilities to third parties for injury to property or person, but not mere liabilities for the repair or correction of the faulty workmanship of the insured. See Elrod’s Custom Drapery Workshop v. Cincinnati Ins. Co.,
HDI-Gerling contends that our understanding of “occurrence” is inconsistent with three cases in which our Court of Appeals held, HDI-Gerling urges, that an “occurrence” requires damage to something other than the work of the insured. We disagree. In support of this contention, HDI-Gerling cites SawHorse, supra, McDonald Constr. Co. v. Bituminous Cas. Corp.,
Custom Planning also is consistent with our understanding of the insuring agreement of the standard CGL policy. In Custom Planning, the insured-developer purchased a lot and built a house and pool upon it. The insured also hired a subcontractor to build a retaining wall upon the lot. The insured later sold the lot • — • with the house, pool, and retaining wall — and a few years later, the homeowners took the insured to arbitration, and the court held that the defective construction of the retaining wall gave rise to no coverage, in part because the arbitrator had found that “no other [nondefective] property, i.e., the swimming pool, was damaged as a consequence of the faulty workmanship.”
Our understanding of the insuring agreement also is consistent with the “strong recent trend in the case law [that] interprets the term ‘occurrence’ to encompass unanticipated damage to nondefective property resulting from poor workmanship.” Greystone Constr., Inc. v. Nat. Fire & Marine Ins. Co.,
[M]ost federal circuit and state supreme court cases [now] line up in favor of finding an occurrence in [the context of a claim by homeowners against an insured-homebuilder for damage to nondefective portions of a home resulting from the defective construction of another portion of the home].
Id. Indeed, we find a number of recent decisions in our sister states that construe “occurrence” without reference to the identity of the person whose property or work is damaged thereby. See, e.g., Capstone Bldg. Corp. v. American Motorists Ins. Co.,
With this understanding of the insuring agreement •— the usual and common meaning of “accident,” the definition of “occurrence” that flows therefrom, and the additional limitations imposed by the requirement of “property damage” — we answer the first certified question in the negative.
2. We next consider whether an “occurrence” requires that the liabilities for which coverage is claimed must be based on some legal theory other than fraud or breach of warranty.
Fraud claims generally are such claims. Under Georgia law, the tort of fraud has five elements, including scienter and intention to induce the plaintiff to act or refrain from acting. Stiefel v. Schick,
Breach of warranty, however, is a different story. Although the making of an express warranty — or the entry of a transaction from which an implied warranty arises by operation of law — undoubtedly is an intentional act, the breach of a warranty may not be. It is true enough that the breach of a warranty could be intentional. But warranty law, generally speaking, imposes strict liability; regardless of intent or culpability, if a product or other work is of a quality that is materially less than that which was warranted, the warranty is breached. See Charles R. Adams III, Georgia Law of Torts § 25.5 (2012-2013 ed.); see also William L. Prosser, Handbook of the Law of Torts 636 (4th ed. 1971). In many cases, faulty workmanship may cause a product or other work to amount to a breach of a warranty for the product or work. And we already have held that faulty workmanship can constitute an “occurrence.” See American Empire,
That said, even a breach of warranty that involves an “occurrence” will not necessarily — or even usually — give rise to coverage under a standard CGL policy. Remember that the standard CGL policy only insures against a liability to pay “damages because of ‘bodily injury’ or ‘property damage,’ ” and as we said in Division 1, when faulty workmanship in residential construction is the “occurrence,” “property damage” may be found only when the faulty workmanship causes physical injury to, or the loss of use of, nondefective property or work. As such, it generally will only be a breach of a warranty of nondefective property from which coverage might arise, as liability for a breach of the warranty of the defective property would not involve “damages because of” “property damage” to the nondefective property. In addition, certain exclusions may apply to limit coverage in breach of warranty cases. Nevertheless, as in Division 1, we conclude that permitting each requirement of the insuring agreement and exclusion to serve its own purpose is a sounder analytical approach than any endeavor to make “occurrence” bear the entire burden for defining the limits of coverage. As such, for an “occurrence” to exist for purposes of a standard CGL policy, it is not always necessary that the claim be for something other than breach of warranty, and as to breach of warranty, we answer the second question in the negative.
Certified questions answered.
Notes
A “standard” CGL policy is one written on a standard policy form developed by the Insurance Services Office (ISO), an association of property and casualty insurers. See generally Hartford Fire Ins. Co. v. California,
In answering the second question, we do not consider breach of contract, except as a breach of a contractual warranty, for the reasons set forth in note 14, infra.
In this opinion, we refer to Morrison Homes and Taylor Morrison Services, as the successor to Morrison Homes, collectively as “Taylor Morrison.”
The standard CGL policy includes five ‘business risk” exclusions: Exclusion j (“Damage to Property”); Exclusion k (“Damage to Your Product”); Exclusion 1 (“Damage to Your Work”); Exclusion m (“Damage to Impaired Property or Property Not Physically Injured”); and Exclusion n (“Recall of Products, Work or Impaired Property”). Evans & Berry, Ga. Gen. Liability Ins., § TV.J, p. 128 (2010).
Everyone seems to agree that the foundation work was done hy subcontractors of Taylor Morrison, and indeed, Taylor Morrison has asserted cross-claims in the California class action against two subcontractors.
It appears that the policy was delivered to Taylor Morrison in Georgia, and that circumstance is the basis for the application of Georgia law. See Boardman Petroleum v. Federated Mut. Ins. Co.,
“Humpty Dumpty used a word to mean ‘just what (he chose) it to mean - neither more nor less,’ and [insurers], too, are free to be unorthodox,” but when they seek to use a term in an unusual way, they need to clearly signify the unusual sense in which the word is used. Cf. Lopez v. Gonzales,
“Accident,” of course, stands alone in the definition of “occurrence” that is found in the standard CGL policy.
HDI-Gerling urges that an “accident” - and, therefore, an “occurrence” - necessarily must involve damage to the property or work of someone other than the insured, but no regular speaker of the English language would use “accident,” without more, to convey information about the identity of the person whose interests are injured by the accidental happening. Imagine, for instance, that someone speaks of a person falling unexpectedly and unintentionally from a ladder. They likely would describe the fall as an “accident,” regardless of whether it was the speaker himself who fell, or someone else. Just because the speaker referred to the fall as an “accident,” no regular speaker of the English language would infer from that reference alone that it must have been someone other than the speaker who fell.
Recall that the standard CGL policy defines “property damage” as “[p]hysieal injury to tangible property’ or “[l]oss of use of tangible property that is not physically injured.” Property or work that is inherently defective because it was produced by faulty workmanship cannot be said to have been “physically injured” by the very faulty workmanship that brought it into being in the first place. Likewise, property or work that is inherently defective cannot he said to have sustained a “[1] oss of use” to the extent that it was unusable at its creation, inasmuch as a “[1] oss of use” necessarily requires that the property or work once have been capable of being put to use. A number of courts adopting, as we do, the usual and common understanding of “accident” have nonetheless concluded that a claim for the repair or replacement of faulty workmanship is not covered by a standard CGL policy — not because there was no “occurrence” - but most typically because such a claim is not a claim for “property damage.” See, e.g., Crossman Communities of N.C. v. Harleysville Mut. Ins. Co., 717 SE2d 589, 593 (III) (B) (S.C. 2011) (emphasizing “the difference between a claim for the costs of repairing or removing defective work, which is not a claim for ‘property damage,’ and a claim for the costs of repairing damage caused by the defective work, which is a claim for ‘property damage’ ” (citation and punctuation omitted)); Lyerla v. AMCO Ins. Co.,
In its brief to this Court, HDI-Gerling says that “ ‘property damage’ contemplates property that previously was in an undamaged state (not property that is inherently damaged because of defective workmanship).”
As several courts have observed, these exclusions would be rendered largely superfluous by an overly narrow definition of “occurrence.” See, e.g., U. S. Fire Ins. Co., 979 S2d at 887 (D) (“[A] construction of the insuring agreement that precludes recovery for damage caused to the completed project by the subcontractor’s defective work renders the ‘products-completed operations hazard’ exception to exclusion (j) (6) and the subcontractor exception to exclusion (1) meaningless.”); Lennar Corp. v. Great American Ins. Co.,
Only two years ago, this Court cited three of these decisions approvingly and in connection with the meaning of “occurrence,” see American Empire,
As framed by the Eleventh Circuit, the second certified question inquires whether the liabilities must be based on some theory other than “breach of contract, fraud, or breach of warranty from the failure to disclose material information.” In its certification order, however, the Eleventh Circuit added that
[t]he particular phrasing used in the certified question is not to restrict the Supreme Court’s consideration of the problems involved and the issues as the Supreme Court perceives them to be in its analysis of the record certified in this case. This latitude extends to the Supreme Court’s restatement of the issue or issues and the manner in which the answers are given, whether asa comprehensive whole or in subordinate or even contingent parts.
HDI-Gerling,
In Custom Planning,