Does a comprehensive general liability policy provide coverage where defective workmanship causes damage to property owned by a third party?
The respondent, CMD Plus, Inc., is a West Virginia corporation that designs and builds custom homes. C.K. and Kimberly Shaw contracted with CMD for a custom home to be built in the Charleston area. CMD’s construction activities allegedly caused water, mud and debris to flow onto adjoining property owned by Barry and Ann Evans.
Evans sued CMD and Shaw, alleging claims of negligence, trespass and nuisance. CMD was covered by a comprehensive general liability policy issued by the petitioner, State Auto. State Auto intervened, asking the trial court to make a finding that its policy did not provide coverage for Evan’s claims. State Auto cited two different exclusions from its policy as grounds for its denial of coverage. However, the trial court found that neither of the exclusions applied. State Auto appealed.
Petitioner (State Auto):
The first exclusion cited by State Auto is known as the “own, rent or occupy” exclusion. It excludes coverage for damage to any “property you own, rent or occupy,” including any costs incurred for “prevention of injury to a person or damage to another’s property.” According to State Auto, the damage done to Evan’s property originated from Shaw’s property--thereby triggering the exclusion.
State Auto also argues that its policy excludes coverage for restorative work. In a report obtained through discovery, it was determined that the flooding caused by CMD’s negligent work can only be rectified by placing a pile and lagging wall on the uphill portion of Shaw’s property. This, says State Auto, is work to repair or restore Shaw’s property. Therefore, it falls within the policy exclusion.
CMD argues that the policy’s “own, rent or occupy” exclusion is meant “to prevent liability insurance from operating as casualty insurance for damage to an insured’s own property.” Where, as here, it is alleged that damage was done to property owned by a third party, coverage is provided.
In the recent case of Cherrington v. Erie Ins. Property & Casualty Co., 231 W.Va. 470, 745 S.E.2d 508 (2013), the Supreme Court held that defective workmanship causing personal injury or property damage is an “occurrence” for purposes of a comprehensive general liability policy. Furthermore, State Auto is simply wrong in suggesting that Evans is seeking to repair or restore Shaw’s property. Evans explicitly stipulated that he is not seeking a restorative remedy and, in fact, lacks standing to do so.
This case raises interesting coverage issues, but nothing so novel that a new syllabus point is expected. Cherrington established a general rule of coverage in situations where damage is caused to property owned by a third party. In this case, the Supreme Court will decide whether insurers can avoid coverage through standard policy exclusions.