Arkansas Supreme Court Holds Defective Workmanship Not an "Accident" Constitutiing an Occurrence Under a Commercial General Liability Insurance Policy
The Arkansas Supreme Court answered a question certified to it by Judge J. Leon Holmes of the Eastern District of Arkansas, in Essex Insurance Company v. John Holder et al., No 07-803.
Tom and Kara Baumgartner contracted with J&H Enterprises to build their new home. They sued J&H in an Arkansas state court under a variety of contract and tort theories alleging damages due to "[J&H]’s delays, employment of incompetent subcontractors, and defective or incomplete construction." The owner of J&H invoked commercial general liability policies issued to him by Essex Insurance Company and demanded that Essex defend him against the Baumgartners. Essex responded by filing a declaratory judgment action in federal court, seeking a ruling that it had no duty to defend J&H under the GCL policies it issued to J&H.
The policies defined an "occurrence"--an event triggering the policy--as an "accident." The Baumgartners argued that the term "accident" in the policy was ambiguous and cited the well-known rule that an ambiguous insurance policy is construed against the drafting insurance company.
After surveying Arkansas precedent and conducting a survey of other jurisdictions, the Court disagreed and held that "[f]aulty workmanship is not an accident; instead, it is a foreseeable occurrence, and performance bonds exist in the marketplace to insure the contractor against claims for the cost of repair or replacement of faulty work." (emphasis supplied).
