The Michigan Supreme Court overturned precedent and joined the jurisdictions that allow damages arising from construction defects to be the basis of a claim against a subcontractor’s comprehensive general liability (“CGL”) policy written on a 1986 ISO form. This decision opens the door to CGL claims for construction defects that had been shut in Michigan since Hawkeye-Security Ins Co v Vector Constr Co, 185 Mich App 369; 460 NW2d 329 (1990).
Skanska USA Building Inc. (“Skanska”) incurred costs correcting the defective work of its subcontractor, M.A.P. Mechanical Contractors, Inc. (“MAP”), on a medical center renovation project. Skanska was an additional insured on MAP’s CGL policy. MAPs installed expansion joints backwards, which resulted in damage to concrete, steel and the heating system. Skanska repaired the damage and sent the bill to MAP and a claim to the CGL insurer.
The insurer, Amerisure, asserted that MAP’s defective work was not an “occurrence” as defined in the policy: “an accident, including continuous or repeated exposure to substantially the same general harmful conditions”. “Accident” was not defined in the policy. The trial court applied the definition of “accident” in Hawkeye-Security Ins Co v Vector Constr Co, 185 Mich App 369 (1990), and denied Amerisure’s motion, without determining whether an “accident” had occurred. The appellate court reversed, reasoning that Skanska could recover only for damage to a third-party’s property and not its “own work”. However, as the Supreme Court noted, work by a subcontractor was excepted from the “own work” exclusion in the policy.
The Michigan Supreme Court, in a unanimous decision, held that an insured can recover under MAP’s CGL policy, which has standard “post-1986″ language, for damages to the insured’s work that is caused by unintentionally faulty work. The Court interpreted language changed from the 1973 version of standard CGL polices to the 1986 revisions to affect the meaning of accident” and allow it to include business risks related to faulty workmanship. Also, the CGL policy did not tie “occurrence” to the ownership of the damaged property. Regarding the definition of “accident” the Court rejected the argument that an accident must be linked to the common law concept of “fortuity” and accepted that a deliberate act performed negligently can be an “accident”.
This case provides a precedent in Michigan for overcoming restrictions on recovering the costs of correct defective work resulting from a subcontractor’s negligence.