K & L Homes, Inc. v. American Family Mutual Insurance Co.

Summary

The North Dakota Supreme Court reversed and remanded summary judgment in favor of American Family Mutual Insurance Company. The court held that, under the facts presented, faulty workmanship by a subcontractor could constitute an “occurrence” causing covered property damage under a post-1986 commercial general liability policy. The court directed further proceedings concerning coverage for damages awarded against the homebuilder.

Holdings

1. Faulty workmanship may constitute an occurrence under a commercial general liability policy if the faulty work was unexpected and not intended by the insured and the resulting property damage was not anticipated or intentional.
2. Cracks, unevenness, and shifting in the home constitute physical injury to tangible property and therefore may qualify as property damage under the CGL policy.
3. When a general contractor is liable for damage to work performed by a subcontractor, or for damage to the general contractor's own work arising from a subcontractor's work, the subcontractor exception to the your-work exclusion preserves coverage that the exclusion would otherwise negate.
4. Summary judgment for American Family was improper because the record required further factual determinations concerning whether the faulty work and resulting property damage were unexpected and unintended and whether other exclusions applied.

Questions Presented

1. Whether faulty workmanship by a subcontractor that causes damage to a contractor's completed project can constitute an occurrence under a standard post-1986 commercial general liability policy.
2. Whether the resulting cracks, unevenness, and shifting constitute property damage under the policy.
3. Whether the subcontractor exception to the policy's your-work exclusion can preserve coverage for damage to the contractor's work arising from a subcontractor's work.
4. Whether summary judgment for the insurer was proper when factual questions remained concerning whether the faulty work and resulting damage were unexpected and unintended and whether other exclusions applied.

Disposition

reversed_and_remanded