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INSURANCE LAW: Bad Faith Issues and Meaning Of “Occurrence” Regarding Construction Defect Claims

INSURANCE LAW: Bad Faith Issues And Meaning Of “Occurrence” Regarding Construction Defect Claims

The Supreme Court holds that unintended construction defects may form the basis of an “occurrence” or “accident” under commercial general liability insurance policies.

In response to a certified question from the United States District Court for the District of Alabama, the Supreme Court states that allegations of unintended defective construction work by a subcontractor that damage to non-defective property may constitute an “occurrence” resulting in “property damage” under certain circumstances. However, defective work standing alone or repairs to that defective work do not constitute property damage and were not covered under the policy at issue.  The court also addressed the issue of whether an insurer’s alleged bad faith in investigating a claim could provide a basis for a cause of action for bad faith under Connecticut law.  The court rejected such a cause of action, stating that under Connecticut law “a bad faith action must allege the denial of the receipt of an express benefit under [a] policy.”  The court followed the majority of jurisdictions that had rejected bad faith claims based solely upon alleged bad faith in the investigation of a claim.  Thus, if there is no duty to defend or indemnify, there can be no bad faith under Connecticut law.

Capstone Building Corp. v. American Motorists Ins. Co., SC 18886 (June 11, 2013)