When a painting subcontractor’s work proved to be defective, the prime contractor expended $10,000 for stripping and refinishing cabinets and woodwork, and then submitted a claim to its commercial general liability (CGL) insurance carrier to recover the costs. The carrier declined coverage on the basis that there was no “accident” but only a breach of contract. The prime contractor sued the carrier, and the court dismissed the suit on a summary judgment motion in favor of the insurance company. This was affirmed on appeal.
The court summarized previous court precedent stating that there can be no “accident” within the meaning of a CGL policy when the resulting damage is merely a breach of contract. “Accident has a tortious connotation and exists only when damage results, in some sense, from a tort, i.e., a breach of some duty imposed by law. . . . Although negligent performance of a contract might cause damage by ‘accident,’ there is no tort and no ‘accident’ when the damage results solely from the complete failure of timely performance of a contract, generally actionable only as a breach of contract.” In addition, the court quoted from what it called a “much quoted passage from Roger C. Henderson, Insurance Protection for Products Liability and Completed Operations – What Every Lawyer Should Know, 50 Neb L Rev 415, 441 (1971)” as follows:
“The insured, as a source of goods or services, may be liable as a matter of contract law to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity. This may even extend to an obligation to completely replace or rebuilt the deficient product or work. This liability, however, is not what the coverages in question are designed to protect against. The coverage is for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained.”
Although the same conduct might be actionable under both tort and contract theories, the court found in this case that the plaintiff’s claim arose solely from a breach of contract and is, therefore, not covered by the policy. Oak Crest Construction Company v. Austin Mutual Insurance Company, 329 Ore. 620, 2000 Lexis 92 (February 17, 2000).
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 2, No. 7 (Jul 2000).
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