Insurance Coverage Litigation
Vol. 33 No.2
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Published in Coverage Vol. 33 No. 2. Copyright © 2024, American Bar Association. All rights reserved. This information or any portion thereof
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More States Rule That Construction Defects Are Covered
by Insurance
By Allen R. Wolff and Ethan W. Middlebrooks
The argument that construction defects cannot be covered by a commercial general liability
(CGL) policy is failing. Only a minority of states still adhere to that legal analysis, which has
become as outdated as the muttonchop sideburns popular when such policy language was
written. Indeed, the construction industry has suffered because of a long-running disconnect: In
1986, the terms in a CGL policy were changed to expand coverage for contractors; yet, the courts
have been slow to change their analysis. As a result, the old legal precedent has long outlived its
relevance.
Illinois Joins the Majority: The Acuity Decision
In late 2023, Illinois joined the growing pantheon of states finding that damage arising from a
contractor’s faulty work and defective materials is covered by general liability insurance.1 The
insurance industry advanced its customary objections, but the Supreme Court of Illinois rejected
“gossamer distinctions that the average person, for whom the policy is written, cannot be
expected to understand.”2 Accordingly, another state has joined the majority recognizing that
such claims are potentially covered by a general liability policy and entitled to a defense under
that policy.
The trend of states holding this view has been nearly unanimous since at least 2012.3 (Although
the trend is largely the result of judicial decisions, some states have legislatively made this
determination.4) Almost universally, these court decisions revolve around the interpretation of
language in the insurance policy, which is given its plain and ordinary meaning. Words not
defined in the policy are construed by the courts with reference to an ordinary, reasonable
person.
In Acuity, the insurance company sought to deny coverage by arguing that damages to any
portion of a completed construction project caused by faulty workmanship can never be caused
by an accident, characterizing such damages as the natural and probable risk of doing
construction.5 The court rejected that argument because it is based on language in the exclusions
section of the CGL policy, not in the initial coverage grant.6 The insurance company’s arguments
in Acuity echo the objections commonly presented by insurance companies seeking to deny
coverage for construction defects in other cases in other states.7
Construction Defects Are Not Intended
Under the insuring agreement typically applicable to a construction project, a general liability
policy is triggered by covered harm caused by an “occurrence.” An “occurrence” is an
“accident.” As such, a general liability policy’s grant of coverage hinges on the word
“accident”—a word that is not defined in the policy.
