'The Evolving Definition Of Occurrence'

In the immortal words of Bob Dylan, the times they are a-changing. In the often placid world of insurance coverage, this change has been most evident with regard to the definition of the term "occurrence." The meaning of this term is at the heart of coverage in standard commercial general liability (CGL) policies, and how the definition of occurrence is construed by the courts often determines whether coverage exists. This article will briefly review the traditional view of occurrence as it relates to coverage for faulty products or defective work, an emerging national trend, and recent developments in Pennsylvania.

The Traditional View

The traditional view is that defective products or defective work by the insured are not occurrences. In other words, the existence of a defect in a product or an event in which a defective product injures only itself does not constitute an occurrence. Cases exemplifying the traditional view include: Auto-Owners Insurance v. Rhodes, 748 S.E.2d 781, 790 (S.C. 2013); Westfield Insurance v. Custom Agri Systems, 979 N.E.2d 269, 273-74 (Ohio 2012); Cincinnati Insurance v. Motorists Mutual Insurance, 306 S.W.3d 69, 73-74 (Ky. 2010); Essex Insurance v. Holder, 372 Ark. 535, 539-40 (2008); L-J v. Bituminous Fire & Marine Insurance, 621 S.E.2d 33, 35-37 (S.C. 2005); United States Fidelity & Guaranty v. Advanced Roofing & Supply, 788 P.2d 1227, 1233-34 (Ariz. 1989); and National Union Fire Insurance v. Turner Construction, 986 N.Y.S.2d 74, 77 (N.Y. App. Div. 2014). As a result, the traditional view holds that an occurrence requires the defective work or product to cause bodily injury or property damage to property other than the product itself.

Courts in the traditional camp typically justify their conclusion based on historical precedent and the fact that faulty work does not satisfy the requirement that an occurrence be a fortuitous event. In this context, fortuity typically is described as an event that is both unintended and beyond the control of the insured. Moreover, a number of courts assert that allowing faulty work to fall within the definition of occurrence would inappropriately transform CGL policies into surety bonds.

The Emerging Trend

While the traditional view remains the majority view, there is a growing trend in favor of finding that an occurrence can include the circumstance where defective work results in damage only to the work or product itself (so long as the damage was neither intended nor...