Insurance coverage related to alleged defective construction is a common issue for construction practitioners. The law in many states is evolving regarding such coverage, and Georgia has recently joined the burgeoning majority of jurisdictions that now hold defective construction is an "occurrence" under a contractor's commercial general liability (CGL) insurance policy. The key holdings of the Supreme Court of Georgia decision in Taylor Morrison, discussed in detail below, are:
- Defective construction can be an "occurrence" under a CGL insurance policy.
- Property damage resulting from an occurrence (caused by defective work or otherwise) must be to other non-defective work or property (or loss of use).
- Business risk exclusions (such as the "Your Work" exclusion) may still apply.
- The entire insuring agreement (occurrence, property damage, and no exclusions) must be met for an insurer to have the obligation to indemnify and defend.
In Taylor Morrison Services, Inc. v. HDI-Gerling America Insurance Company, 293 Ga. 456, 746 S.E.2d 587 (2013), the Supreme Court of Georgia ruled that damage to the insured's completed work constitutes an "occurrence" under a standard CGL policy. The case involved a class action by homeowners in California against Taylor Morrison, a residential homebuilder, regarding improper construction of concrete foundations, including lack of a gravel base, failure to use adequate moisture barriers, and building foundations with water-to-cement ratios that were too high. HDI-Gerling, Taylor Morrison's CGL carrier, sought a declaratory judgment in federal court in Atlanta that the defective construction could not constitute an "occurrence" under the policy. The District Court issued such a declaration, Taylor Morrison appealed, and the U.S. Court of Appeals for the Eleventh Circuit certified the question to the highest court in Georgia.