Am. Empire Surplus Lines Ins. Co. v. Hathaway Dev. Co. Inc.

• Decision Date: 07 March 2011
• Docket Number: No. S10G0521.,S10G0521.
• Citation: 707 S.E.2d 369,288 Ga. 749
• Parties: AMERICAN EMPIRE SURPLUS LINES INSURANCE COMPANYv.HATHAWAY DEVELOPMENT COMPANY, INC.
• Court: Georgia Supreme Court

288 Ga. 749

707 S.E.2d 369

11 FCDR 533

AMERICAN EMPIRE SURPLUS LINES INSURANCE COMPANY

v.HATHAWAY DEVELOPMENT COMPANY, INC.

No. S10G0521.

Supreme Court of Georgia.

March 7, 2011.

Garrett Lewes Pendleton, The Pendleton Law Firm, LLC, J. David Hopkins, III, Locke Lord Bissell & Liddell LLP, Atlanta, for appellant.Craig N. Cowart, Craig N. Cowart, LLC, Macon, for appellee.Patrick J. Wielinski, Cokinos, Bosien & Young, P.C., Arlington, TX, for amici appellee.THOMPSON, Justice.

We granted a writ of certiorari to the Court of Appeals in Hathaway Dev. Co. v. American Empire Surplus Lines Ins. Co., 301 Ga.App. 65, (686 S.E.2d 855) (2009) and posed this question: Did the Court of Appeals err in its construction of the term “ occurrence” as defined by the insurance policy in question?

Hathaway Development Co. (“Hathaway”), a general contractor, sued its plumbing subcontractor, Whisnant Contracting Company, Inc. (“Whisnant”), for negligent plumbing work at three job sites. Hathaway sought to recover the cost of repairs caused by Whisnant's faulty workmanship. These costs went beyond those required to fix Whisnant's plumbing mistakes per se; rather they were costs associated with water and weather damage to surrounding properties.

Whisnant failed to answer and, after the entry of a default judgment against Whisnant, Hathaway sought payment from Whisnant's insurer, American Empire Surplus Lines Ins. Company (“AESLIC”). AESLIC denied liability, asserting that Hathaway's claim was not covered under Whisnant's commercial general liability (“CGL”) policy because it did not arise out of an “occurrence,” defined under the policy as “an accident, including continuous or repeated exposure to substantially the same, general harmful conditions.” In this regard, AESLIC argued that Whisnant's negligent workmanship could not be deemed an “accident.” The trial court agreed and granted summary judgment to AESLIC. The Court of Appeals reversed, holding that because Whisnant's faulty workmanship caused damage to the surrounding properties, the acts of Whisnant constituted “occurrences” under the CGL policy.

An 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., 256 Ga. 611, 612(4), 351 S.E.2d 638 (1987). Construction of the contract, at the outset, is a question of law for the court. Deep Six, Inc. v. Abernathy, 246 Ga.App. 71, 73(2), 538 S.E.2d 886 (2000). The court undertakes a three-step process in the construction of the contract, the first of which is to determine if the instrument's language is clear and unambiguous. Woody's Steaks v. Pastoria, 261 Ga.App. 815, 817(1), 584 S.E.2d 41 (2003). If the language is unambiguous, the court simply enforces the contract according to the terms, and looks to the contract alone for the meaning. Id.

(Punctuation omitted.) RLI Ins. Co. v. Highlands on Ponce, 280 Ga.App. 798, 800, 801, 635 S.E.2d 168 (2006).

AESLIC's CGL policy provides insurance coverage for damages resulting from an “occurrence.” As noted above, the policy defines an occurrence as an “accident.” However, the term “accident” is not defined. Accordingly, we look to the commonly accepted meaning of the term. Pomerance v. Berkshire Life Ins. Co. of America, 288 Ga.App. 491, 493(1), 654 S.E.2d 638 (2007).

It is commonly accepted that, when used in an insurance policy, an “accident” is deemed to be

an event happening without any human agency, or, if happening through such agency, an event which, under circumstances, is unusual and not expected by the person to whom it happens.... [I]n its common signification the word means an unexpected happening without intention or design.

Black's Law Dictionary, 15 (6th ed.1990). See also U.S. Fire Ins. Co. v. J.S.U.B., 979 So.2d 871, 883 (Fla.2007) (CGL policy which provides coverage for “accident” includes “ ‘injuries or damage neither expected nor intended from the standpoint of the insured’ ”); American Family Mut. Ins. Co. v. American Girl, 268 Wis.2d 16, 673 N.W.2d 65, 76 (2004) (circumstances of claim fall within CGL policy definition of “occurrence” where “[n]either the cause nor the harm was intended, anticipated, or expected”). This definition is in accord with our case law which defines the term “accident” in an insurance policy as “an unexpected happening rather than one occurring through intention or design.” City of Atlanta v. St. Paul Fire & Marine Ins. Co., 231 Ga.App. 206, 208, 498 S.E.2d 782 (1998). It is also in accord with the trend in a growing number of jurisdictions which have considered construction defect claims under CGL policies and interpreted the word “accident” in this manner. See 2010 Emerging Issues 4860. Compare Western World Ins. Co. v. Penn–Star Ins. Co., 2009 WL 1605909, 2009 U.S. Dist. Lexis 47921 (SD Ill.2009) with Century Surety Co. v. Demolition & Dev., 2006 WL 163174, 2006 U.S. Dist. Lexis 2128 (ND Ill.2006).

Applying this definition in SawHorse v. Southern Guar. Ins. Co., etc., 269 Ga.App. 493, 604 S.E.2d 541 (2004), the Court of Appeals ruled that faulty workmanship can constitute an “occurrence” under a CGL policy:

Although the policy does not define “accident,” under Georgia law, that term means an event which takes place without one's foresight or expectation or design. [The insurer] has cited no Georgia authority supporting its apparent claim that faulty workmanship cannot constitute an “occurrence” under a general commercial liability policy. And this claim runs counter to case law finding that policies with similar “occurrence” language provide coverage for “ the risk that ... defective or faulty workmanship will cause injury to people or damage to other property.” Furthermore, [the insurer] has pointed to no evidence that SawHorse intended for the faulty workmanship to occur.

(Punctuation omitted.) Id. at 498–99, 604 S.E.2d 541. See also QBE Ins. Co. v. Couch Pipeline & Grading, 303 Ga.App. 196, 198(1), 692 S.E.2d 795 (2010), in which the Court of Appeals held that a subcontractor's failure to perform grading work constituted an “occurrence” under a CGL policy. But see Owners Ins. Co. v. James, 295 F.Supp.2d 1354 (N.D.Ga.2003), which was decided before SawHorse, supra.

In this case, Whisnant was a subcontractor for Hathaway on three projects. On one project, Whisnant installed four-inch pipe on an underslab, although the contract specified six-inch pipe. On another project, Whisnant improperly installed a dishwasher supply line. On the third project, Whisnant improperly installed a pipe which separated under hydrostatic pressure. Each of these missteps damaged neighboring property being built by Hathaway. The Court of Appeals correctly determined that these acts constituted an “occurrence” under the CGL policy. SawHorse v. Southern Guar. Ins. Co., etc., supra. Accordingly, we answer the question posed at the outset of this opinion in the negative and hold that an occurrence can arise where faulty workmanship causes unforeseen or unexpected damage to other property. In reaching this holding, we reject out of hand the assertion that the acts of Whisnant could not be deemed an occurrence or accident under the CGL policy because they were performed intentionally. “[A]...