The Michigan Supreme Court issued a unanimous opinion on June 29, 2020 in a case with wide ranging implications for the construction industry. In a break from over thirty years of established law, the Court has ruled that this policy language covers some previously excluded business risks, including damage caused by a subcontractor’s faulty workmanship — without any distinction based on whose property was damaged.
In Skanska USA Building vs. MAP Mechanical Contractors, Inc., Skanska served as the construction manager and contracted with MAP to install a steam boiler for the Mid-Michigan Medical Center. MAP accidentally installed some of the expansion joints backwards which lead to over $1 million in damages to concrete, steel and the heating system itself. Skanska paid for these repairs and sued Amerisure under a CGL policy seeking recovery. Consistent with prior law, Skanska’s claims against the insurance company were rejected, however, the case reached the Michigan Supreme Court.
In interpreting a post-1986 CGL policy The Court found that this version of the CGL policy emphasizes a plain reading of the word “accident,” which may include faulty subcontractor work. Further, this CGL policy did not limit the definition of “occurrence” based on the owner of the damaged property; therefore, the word “accident” can include damage limited to the insured’s own work product.
"While the CGL policy excluded coverage for damage to an insured’s own work product arising out of that work the exclusion expressly did not apply if the damaged work or the work out of which damage arose, was performed on the insured’s behalf by a subcontractor . . . Because an “accident” may include unintentionally faulty subcontractor work that damages an insured’s work product, [the Construction Manager, as an insured,] may be able to recover under the [Subcontractor's CGL] policy for the cost of repairs it incurred to correct [the Subcontractor's] faulty work."
The Skanska case is not technically over, as it was sent back down to the Court of Appeals. However, the impact of this ruling cannot be understated.
If you or your subcontractor have an issue or claim on a project and you had CGL coverage there is a chance that insurance could pay for the loss – even if the loss is only to your own work.