Insurance Coverage Under Commercial General Liability (“CGL”) Policy in Mississippi–“Is defective work by a subcontractor an “occurrence” which triggers coverage under the CGL policy?”

 By Christopher Solop

The Mississippi Supreme Court has decided to retain the case styled Architex Association, Inc. v. Scottsdale Insurance Company; Case No. 2008-CA-01353. The construction industry is hopeful that the Mississippi Supreme Court will provide some clarity in the area of insurance coverage for defective construction under CGL policies. Several years ago, the United States Court of Appeals for the Fifth Circuit in ACS Construction Company v. CGU, 332 F.3d 885 (5th Cir. 2003) muddied the waters when it held:

Under Mississippi law, Moulton [Allstate Ins. Co. v. Moulton, 464 So.2d 507 (Miss. 1985)] and Omnibank [United States Fidelity & Guaranty Co. v. Omnibank, 812 So.2d 196 (Miss. 1996)]make clear that in a CGL insurance policy which defines an "occurrence" as an "accident," coverage is triggered if the underlying act was intentional and deliberate. These cases also make clear that an "occurrence" defined as an "accident" in a CGL insurance policy does not refer to the unintended consequences of the act. Thus, the district court did not err when it applied Moulton and Ominbank and concluded that ACS’s intent to subcontract with Chamberlin/Southern and its intent to install the waterproofing membrane to the bunker roofs did not constitute an "occurrence" under its CGL insurance policy with CGU to trigger coverage. For the foregoing reasons we AFFIRM the judgment of the district court.

After ACS, the insurance industry became strident in its position that there was no coverage under the CGL policy for defective work by a subcontractor because such defective work did not constitute an "occurrence" thereby triggering coverage under the CGL policy. There are a number of jurisdictions that have confronted the issue with differing outcomes. However, there is currently no definitive Mississippi decision which specifically addresses this issue.

The issues which the Mississippi Supreme Court have been asked to address by the construction industry in Architex are as follows:

Whether unexpected, unforeseen and unintended defects in a subcontractor’s work, resulting in unexpected, unforeseen and unintended property damage, is an "occurrence" as defined in a CGL policy?

Whether a CGL policy written on the 1986 standard form that includes an exception from exclusion for property damage arising out of the work of a subcontractor provides completed operations coverage if that subcontractor’s work proves to be defective and causes property damage?

Amicus briefs have been filed by the Associated General Contractors of America; the Associated General Contractors of Mississippi, Inc.; Associated Builders and Contractors, Inc. Mississippi Associated Builders and Contractors, Inc.; the Mississippi Asphalt Pavement Association, Inc. and the American Subcontractors Association, Inc. and the American Subcontractors Association of Mississippi, Inc. Pursuant to Miss. Code Ann. §9-4-3, the Mississippi Supreme Court is required to render decisions on appeal within 270 calendar days after final briefs are filed, which was June 17, 2009. Accordingly, a decision from the Court should be issued sometime in April 2010. Stay tuned.