State Statutes Redefine “Occurrence” To Create Defect Coverage


In many states, courts have found that the faulty workmanship of a construction contractor that damages the contractor’s own work is not an accident and, therefore, not an “occurrence.” General Sec. Indem. Co. of Arizona v. Mountain States Mut. Cas. Co., 205 P.3d 529 (Colo.Ct.App. 2009); Auto-Owners Ins. Co. v. Home Pride Companies, Inc., 268 Neb. 528, 684 N.W.2d 571 (Neb. 2004) (faulty workmanship, standing alone, is not covered under a standard CGL policy); Oak Crest Const. Co. v. Austin Mut. Ins. Co., 329 Or. 620, 998 P.2d 1254 (Or. 2000) (no occurrence where insured sought cost of correcting subcontractor's deficient work); Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 589 Pa. 317, 908 A.2d 888 (Pa. 2006).

However, in the last two years, legislatures in a few states have enacted statutes that, one way or another, change the definition of “occurrence” to include faulty workmanship. In some states, these new statutes were aimed at reversing a specific recent court decision in the jurisdiction which found no coverage for construction defect claims based on the occurrence requirement.


Colo. Rev. Stat. § 13-20-808, effective May 21, 2010, requires courts interpreting liability policies issued to contractors to presume that work resulting in property damage, including damage to the work itself or other work, is an accident, unless the damage was intended and expected by the insured. The statute expressly disapproves of General Sec. Indem. Co. of Arizona v. Mountain States Mut. Cas. Co., 205 P.3d 529 (Colo.Ct.App. 2009) on the grounds that the decision “does not properly consider a construction professional's reasonable expectation.” After § 13-20-808 became effective, disputes arose as to whether the law applied retroactively to policies that had expired before the law was enacted. The statute states that it “applies to all insurance policies currently in existence or issued on or after” May 21, 2010. However, the Colorado Court of Appeals recently found that the statute only applies to those policies that have or will expire after May 21, 2010. TCD, Inc. v. Am. Fam. Mut. Ins. Co., No. 11CA1046, 2012 WL 1231964, at *5 (Colo.Ct.App. Apr. 12, 2012).


The Hawaii State Legislature enacted HRS § 431:1-217 effective June 3, 2011. The statute provides that, for liability policies issued to contractors, “the meaning of the term ‘occurrence’ shall be construed in accordance with the law as it existed at the time that the insurance policy was issued.” This statute was aimed at countering, at least temporarily, the impact of Group Builders, Inc. v. Admiral Ins. Co., 231 P.3d 67 (Haw. Ct. App. 2010), which held that construction defect claims do not constitute an “occurrence” under a CGL policy. See 2011 Hawaii Laws Act 83 (H.B. 924). The precise effect of § 431:1-217 is not clear, although it may mean that Group Builders does not apply to policies issued prior to the date of the Group Builders opinion on May 19, 2010, but Group Builders does apply to policies issued after that date. However, in an opinion of the U.S. District Court for the District of Hawaii issued after § 431:1-217 became effective, the court found that a construction defect claim did not constitute an occurrence under a policy issued prior to Group Builders. State Farm Fire and Cas. Co. v. Vogelgesang, No. 10–00172, 2011 WL 2670078 at *9 (D.Hawaii July 6, 2011). The court reasoned that numerous cases before Group Builders held that breach of contract claims based on faulty construction are not covered in a CGL policy and, therefore, § 431:1-217 did not impact the court’s holding. Id. To date, there have been no published Hawaii cases interpreting the statute.


In what may be the widest sweeping of these recent statutes, the Arkansas General Assembly passed A.C.A. § 23-79-155, effective July 27, 2011, which provides that all CGL policies offered for sale in Arkansas must include a definition of “occurrence” which includes “property damage or bodily injury resulting from faulty workmanship.” However, the statute goes on to state that it is not intended “to restrict or limit the nature or types of exclusions from coverage” in a CGL policy. There is currently no published case law construing A.C.A. § 23-79-155.

South Carolina

A somewhat similar law was also passed in South Carolina, effective May 17, 2011. South Carolina code section 38-61-70 states that CGL policies issued to contractors shall contain a definition of “occurrence” that includes “property damage or bodily injury resulting from faulty workmanship, exclusive of the faulty workmanship itself.” In contrast with the Arkansas law, § 38-61-70 excepts claims limited only to the faulty work itself. However, the statute also provides that it “applies to any pending or future dispute … as to all commercial general liability insurance policies issued in the past, currently in existence, or issued in the future.” There have been no published decisions interpreting § 38-61-70. Although these statutes attempt to offer certainty as to whether claims of faulty workmanship constitute an occurrence, they certainly do not spell the end for litigation over coverage construction defect claims. These statutes will likely spawn disputes as to their interpretation and applicability. Nevertheless, these statutes must be considered as part of any coverage analysis of construction defects claims potentially governed by law of these states. If you have questions or would like more information on the issues above, please contact John Husmann at or Adam Fleischer at