How do occurrence limits work?
The occurrence limit on the insurance policy is the most the insurance company is going to pay for any one event or accident. Policies may have split occurrence limits between bodily injury to another party and property damage to property of others, or there may be one total limit that applies in the event that an accident or occurrence takes place.
This is important to keep in mind because, regardless of the number of people who are injured or the number who have damaged property, the occurrence limit is the most the policy will pay for that event.
How do recent court decisions affect the interpretation of an occurrence in insurance policies?
Due to a ruling by the Pennsylvania Supreme Court in the 2006 Kvaerner Metals Division v. Commercial Union Insurance Co. case that a subcontractor’s faulty workmanship was not ‘accidental’ and therefore not an occurrence under the policy, claims resulting from faulty workmanship have been limited, if not excluded altogether, under the commercial general liability (CGL) policy.
A ruling in a more recent case in front of the Pennsylvania Superior Court deemed that consequential damage caused by any faulty workmanship was also not covered under the CGL. Your own faulty work was never covered under a policy, but resulting injuries or damages were, prior to this ruling.
Construction defects that develop over time because of poor workmanship are not meant to be covered under a commercial general liability policy. However, it is feared that damage by any faulty workmanship, whether performed by a subcontractor or not, could be construed to be excluded under the CGL policy. This could have the effect of virtually removing all coverage under a general liability policy in Pennsylvania if there is faulty workmanship that results in injury or damage.
What should business owners know about the definition of occurrence in their insurance program?
With the Kvaerner ruling it is important to know the wording in your insurance policies and make sure your insurance policy addresses this potential lack of coverage. Most insurance companies are amending their definitions of an occurrence in their policy language, but some do not address the complete issue.
It is important that you speak with your insurance broker to make sure that your insurance policies are addressing not only giving back the faulty workmanship coverage, but also provide coverage for the consequential damages to the policyholder’s own work.
Kevin Forbes is a sales executive with ECBM. Reach him at (610) 668-7100 or [email protected].
