Issue: Is a contractor’s deliberate decision to install flooring, despite knowing that the underlying slab was still emitting a high level of moisture, an “occurrence” that is covered under a commercial general liability insurance policy? Navigators Specialty Insurance Company v. Moorefield Construction, Inc. Court of Appeal of California, Fourth Appellate District (2016), by Hugh Anderson

Summary: Construction of a Best Buy store in Visalia, California. Based on test results, the contractor, Moorefield, knew that the concrete floor was emitting high amounts of moisture at the time that vinyl and carpet floor tiles were ready to be installed. The specifications did not allow such installation to occur until the moisture levels dropped to a specified threshold. Nonetheless, after discussion with owner representatives, the contractor proceeded with installation. The contractor gave its flooring installation subcontractor a waiver of liability for the high moisture conditions. Later, much of the flooring failed, as a result of the moisture preventing adequate adherence.

The dispute regarding the failure of the flooring and related costs was ultimately resolved in a mediation. The contractor’s commercial general liability insurer agreed to make a $1 million contribution to the $1.3 million settlement, but had reserved its rights to seek reimbursement of its contribution from the contractor (insured). The insurance company contended in a lawsuit that the contractor’s decision to plunge ahead with the flooring work was not an “occurrence” under the insurance policy. The trial court held that the deliberate decision to install the flooring was not an “occurrence” and required the contractor to reimburse the $1 million to the insurance company. An appeal followed.

Decision: The Court of Appeal agreed that the flooring failure was not an occurrence. The court noted that an occurrence is “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” In California, an accident does not occur when there is a deliberate act, unless some “additional, unexpected, independent, and unforeseen happening”  occurs, producing the damage. No such factors were present in this situation.

The contractor argued that although it knew that moisture levels were high, based on extensive past experience it did not think that the flooring would fail, and thus the subsequent failure was an unforeseen happening. However, the Court of Appeal concluded that a mistake of fact or law does not convert an intentional act into an accident. In addition, the appellate court surmised that the trial judge may have discounted the contractor’s testimony on this score, noting that the contractor’s credibility had been damaged by reports that it had purged its files of unfavorable evidence.

Comment: Obtaining CGL coverage of construction defect claims is challenging. This case focuses on one narrow issue, but many other factors typically come into play. At its core, CGL insurance is not intended to cover  poor workmanship or  poor decision-making, though many exceptions do allow coverage for defects