A notorious moving target in the field of coverage litigation is an insurer’s responsibility under a commercial general liability policy for the policyholder’s faulty workmanship. The key question is usually whether the defect in workmanship is an “occurrence” within the meaning of a policy; the answer can depend on which court you ask or how those courts deal with other policy terms. In 2013, West Virginia’s highest court overruled its own precedents to hold that CGL policies cover faulty workmanship that causes personal injury or property damage. Last month, in BPI, Inc. v. Nationwide Mut. Ins. Co., No. 14-0799 (W. Va. May 20, 2015), the court further ruled that its decision applied retroactively—creating coverage in a policy that was sold while the overruled precedents still governed.
The Looming Tower
In 2008, BPI was hired as a general contractor to construct a 300-foot cell phone tower, a cell tower compound and an access road, using plans engineered by another company. Within a year of the project’s completion, the access road collapsed. The cellular company filed a suit in the U.S. District Court for the Eastern District of Kentucky, alleging that BPI’s defective workmanship had caused the collapse. BPI promptly cross-claimed against Nationwide for a declaration that it was covered under its CGL policy.
When BPI and Nationwide filed cross-motions for summary judgment, the district court determined that the coverage issue was governed by West Virginia law, and that the law was unclear. For many years, damages from faulty workmanship were not considered to have been caused by an “occurrence” in West Virginia, because such damages “are a business risk to be borne by the contractor and not by his … insurer.” Erie Ins. Prop. & Cas. Co. v. Pioneer Home Improvement, Inc., 206 W.Va. 506 (1999). See also Corder v. William W. Smith Excavating Co., 210 W.Va. 110 (2001). But in 2013, the Supreme Court of Appeals decided Cherrington v. Erie Ins. Prop. & Cas. Co., 745 S.E.2d 508 (W. Va. 2013), which held:
Defective workmanship causing bodily injury or property damage is an ‘occurrence’ under a policy of commercial general liability insurance. To the extent our prior pronouncements . . . are inconsistent with this opinion, they are expressly overruled.
Since both the policy and the claim that were at issue in BPI pre-dated the Cherrington decision, the federal court certified the question of whether Cherrington applies retroactively.
Two Steps Backward
The Supreme Court began its analysis by noting that “appellate decisions are presumed to apply retroactively.” And while the opinion in Cherrington did not address the issue of retroactivity, the court noted that the 2013 decision concerned a policy issued in 2004. The issue, therefore, was whether “an exception to the general rule of retroactivity … [was] warranted.” To resolve that issue, the court considered six factors it had...
