“And the walls came tumbling down”
Martin/Elias Properties, LLC (MEP), purchased an old townhouse in a historic urban neighborhood to renovate and resell for a profit. After completing renovations on the first, second, and third floors, MEP hired Tony Gosney to renovate and expand the basement.
Gosney agreed that he would dig the existing basement deeper, pour new footers to stabilize the building, and pour a new concrete floor. While performing his work, Gosney failed to support the existing foundation adequately before digging around it. Within days, the old foundation began to crack, and eventually the entire structure began to sag. Interior doors began sticking and brick walls began cracking. At this point Gosney stopped work and notified his commercial general liability insurer, Acuity. Acuity recommended that MEP hire a structural engineer to evaluate the condition of the structure.
MEP’s structural engineer reported that the entire structure was at risk of imminent collapse. To repair the damage caused by Gosney’s error would require substantial work. After learning this, MEP made a demand for payment on both Gosney and Acuity; they rejected the demand. MEP sued Gosney and Acuity. Against Gosney, MEP claimed negligence, breach of contract, and breach of warranties. Against Acuity, MEP asserted bad faith by failing to provide coverage under its CGL policy.
Meanwhile, Gosney sought bankruptcy protection and disappeared. Efforts by private investigators to locate him failed, and he neither testified at trial nor participated in any way.
MEP and Acuity each filed a motion for summary judgment, citing the same language in Acuity’s CGL policy. The policy provided that Acuity would pay for property damage if it resulted from an “occurrence.” The policy defined occurrence as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The policy did not define the term accident.
MEP argued that the damage to the property caused by Gosney’s work should be considered an accident that would trigger coverage under the policy. Acuity argued that the structural damage was caused by Gosney’s faulty workmanship, a circumstance that failed to qualify as an occurrence under the policy, and therefore the loss was not covered.
The court granted partial summary judgment to both parties. The court ruled that MEP could not recover from Acuity for the damage to the basement because the damage directly resulted from the faulty work Gosney performed, so it did not satisfy the requirement of an occurrence under the policy. The court also ruled that MEP could recover from Acuity for the damage to the structure above the basement level. This damage, the court reasoned, was an unexpected and unintended consequence of Gosney’s faulty work on the basement, making this portion of the total loss a covered occurrence.
The case was tried by a jury on the issue of damages. The jury found the cost to repair the entire structure to be $700,000. It found the cost to repair the basement alone to be $227,000. Applying its ruling on liability from its summary judgment, the court deducted $227,000 from the total cost of repair to arrive at a final judgment that required Acuity to pay MEP $473,000. Acuity appealed.
A unanimous panel of the court of appeals reversed the trial court’s summary judgment. The panel emphasized Gosney’s intent and control over the work to reverse the judgment and held that none of the structural damage qualified as an accident that triggered coverage as an occurrence under the policy. The Supreme Court of Kentucky agreed, citing a principle it established in previous cases, in which it held that damage caused by a contractor’s faulty workmanship does not constitute an occurrence under the contractor’s CGL policy.
The court said that the trial court, instead of focusing on the fact that Gosney fully intended to do what he did and had complete control over the work, focused on the fact that Gosney never intended to bring down the entire house. For this reason the damage caused by Gosney did not qualify as an accident.
Martin/Elias Properties, LLC, vs. Acuity-Supreme Court of Kentucky-April 18, 2018-2016-SC-0000195-D26.