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Michigan Supreme Court Holds a Contractor’s Defective Work Is an ‘Occurrence’

The Michigan Supreme Court found in Skanska USA Building v M.A.P Mechanical Contractors, Inc., Docket No. 159510, ____ Mich ____, 2020 WL 3527909, that an “accident” as defined in the subcontractor’s commercial general liability policy can include damage to the insured’s own work product. This landmark decision on July 29, 2020 reversed several prior lower court rulings in Michigan and restored coverage for damage caused by a subcontractor’s faulty workmanship.  

Skanska served as a construction manager on a hospital renovation project involving the replacement of certain HVAC equipment. Skanska subcontracted the HVAC work to MAP Mechanical Contractors who procured a commercial general liability policy for the project. Sometime after the project was completed, the owner discovered that some of the expansion joints were installed backwards by the subcontractor, thereby causing significant damage to concrete, steel and the heating system. The cost to repair the subcontractor’s defective work exceeded $1.4 million. Skanska sued both the subcontractor and its insurer seeking payment for the cost of the repair and replacement work.  

After the trial court found a genuine issue of material fact concerning whether coverage was triggered under the CGL policy, the court of appeals reasoned that there was no “occurrence” under the policy because the only damage was to the insured’s own work product. The court of appeals relied upon prior appellate court precedent from Michigan in reaching its decision and, according to the Michigan Supreme Court, ignored the express language of the CGL policy. In reversing the decision from the court of appeals, the court reasoned: 

Nor is there any support for the Court of Appeals’ conclusion that “accident” cannot include damage limited to the insured’s own work product. Amerisure does little to defend that holding, and focuses mainly on its fortuity argument. Most significantly, the Court of Appeals accepted that an insured can seek coverage for its damage to a third party’s property. Id. at 9-10. But the policy does not limit the definition of “occurrence” by reference to the owner of the damaged for distinguishing between damage to the insured’s work . . . the Court of Appeals failed to recognize that an insured’s own defective workmanship is excluded from coverage via the explicit exclusions, not in the initial grant of coverage.

The court went on to reject the carrier’s historical argument that including faulty subcontractor work essentially converts the policy into a performance bond. According to the court, “coverage may overlap with a performance bond is not a reason to deviate from the most reasonable reading of the policy language.” Id. at 4. The court summarized its holding as follows: 

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.

Notably, the Michigan Supreme Court’s decision is limited to cases involving policy language revised by the 1986 ISO revisions to commercial general policies. Those revisions incorporated the “broad form” property endorsement as well as damage caused by faulty workmanship to other parts of work in progress including damage to, or caused by a subcontractor’s work after the insured’s operations are completed. 

This landmark decision tracks with the majority of states that recognize the changes to the standard language found in a CGL policy over the years and is a big win for policyholders in Michigan and elsewhere.

© 2020 BARNES & THORNBURG LLPNational Law Review, Volume X, Number 190


About this Author

Scott R. Murphy, Barnes Thornburg Law Firm, Grand Rapids, Construction and Litigation Law Attorney

Scott R. Murphy is a partner in the Grand Rapids, Michigan, office of Barnes & Thornburg LLP, where he serves as vice chair of the firm’s Construction Law Practice Group. He is also a member of the firm’s Commercial Litigation practice group, where he concentrates his practice on business torts, contract disputes and securities fraud as well as shareholder oppression claims. A seasoned litigator, Mr. Murphy has experience in numerous forums, including state and federal courts, arbitration tribunals and appellate courts. His representative clients range from Fortune...

Anthony Sallah Construction Attorney Barnes Thornburg Law Firm

Anthony counsels institutional and individual clients in complex commercial litigation and construction matters in federal and state court, at the trial and appellate level. Anthony also has deep experience before numerous arbitration tribunals, including the American Arbitration Association and the Judicial Arbitration and Mediation Services (JAMS), and with arbitrations governed by international rules.  He focuses on devising creative and unique solutions to help clients succeed, doing so through the most efficient manner possible.

He represents clients in the prosecution and defense of claims involving deficient design, productivity and scheduling, acceleration and compression, and deficient installation of work. He has litigated on behalf of and against owners, contractors, designers, sureties, and engineering professionals in complex construction environments, including oil refineries, large-scale industrial facilities, urban towers, and university projects.

Anthony also has considerable experience defending clients in consumer-related class action litigation, prosecuting and defending false advertising and counterfeit Lanham Act cases, and product liability cases. 

Anthony brings a positive energy to his work. He collaborates with a variety of personalities in difficult commercial settings to help his clients achieve their goals, whether it be in the courtroom or via alternative resolution.