Michigan Supreme Court: CGL Insurance Policy May Provide Contractor With Coverage for Subcontractor’s Faulty Work

Gregory M. Boucher
Published July 21, 2020

On June 29, 2020, the Michigan Supreme Court ruled that a subcontractor’s commercial general liability (CGL) insurance policy may provide a contractor listed as an additional insured on the CGL policy with insurance coverage for correcting the subcontractor’s faulty work. See Skanska USA Bldg. Inc. v. M.A.P. Mech. Contractors, Inc., No. 159510, 2020 WL 3527909 (Mich. June 29, 2020). The court held that unintentionally faulty subcontractor work that damages an insured’s work may constitute an “accident” for an additional insured under the subcontractor’s CGL policy.

Construction Manager Skanska spent approximately $1.4 million repairing faulty work of its Subcontractor M.A.P. Mechanical Contractors, Inc. (“Subcontractor”). Skanska was an additional insured on Subcontractor’s CGL policy with Amerisure Insurance Company (the “Policy”). Skanska submitted a claim to Amerisure for recovery of the $1.4 million repair cost, contending that subcontractor’s faulty construction work was a covered “occurrence” under the Policy.

The Policy defined an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The Policy did not define the term “accident.” Amerisure denied the claim. It citied prior Michigan case law holding that damages arising from an insured’s defective workmanship for its own work was not an “accident” under a CGL policy.

In rejecting Amerisure’s argument and siding with Skanska, the Michigan Supreme Court focused on whether Subcontractor’s backwards installation of expansion joints was an “accident” under the Policy. The court defined an “accident” as “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.” Here, the court ruled that a subcontractor’s faulty work can fall under this definition of an “accident.”

The Policy included an exclusion for coverage to an insured’s own work, however, the Policy noted that 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.” In finding that a subcontractor’s faulty work can be a covered accident, the court reasoned that, “[i]f 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.”

Though CGL insurance policies generally will not cover directly a loss claim from an insured subcontractor as to its own allegedly defective work, this case shows that a general contractor may have success pursuing coverage as an additional insured.