Architex Association, Inc. v. Scottsdale Ins. Co., 2010 Miss. LEXIS 71 (Feb. 11, 2010 Supreme Court of Mississippi)

The Mississippi Supreme Court ruled on February 10, 2010 that a CGL policy “unambiguously extends coverage to [contractors] for unexpected or unintended property damage resulting from the negligent acts or conduct of a subcontractor.” This brings Mississippi in line with the majority view of state supreme courts (18 now) that recognize defective construction may constitute an “occurrence” under CGL policies. (See SDV’s 50 State Survey on Defective Construction.)

The case arose out of a claim by Comfort Inn that Architex and its subcontractors caused property damage to the hotel under construction by 1) knocking off a false chimney (which led to water damage in the hotel) and 2) failing to use rebar in the foundation.  Scottsdale, Architex’s CGL carrier, denied Architex’s demand for defense and indemnity on the basis that there had not been “any ‘occurrence’” which would trigger coverage.

In Architex’s suit against Scottsdale, the lower court granted summary judgment to Scottsdale, holding that there was no “occurrence” because Architex “intentionally subcontracted the various portions of the work to others” thereby setting in motion the chain of events leading to the injuries. This ruling is puzzling in light of the fact that the CGL policy’s terms focus on whether the property damage was accidental and the lower court recognized that “Architex undoubtedly did not intend for any of those subcontractors to do defective or improper work.”

The Mississippi Supreme Court began its review by noting that the proper analysis “should not be driven by policy justifications, but rather should be confined to the policy language.” After distinguishing previous Mississippi case law and disagreeing with the Fifth Circuit’s decision in ACS Construction Co. v. CGU, the Court held that to interpret the term “occurrence” to “preclude coverage for the simple negligence of a subcontractor subverts the plain language and purpose of the CGL” policy. The Court held that when property damage is “proximately caused by an accident (an inadvertent act),” there is an “occurrence” within the meaning of the CGL policy so as to trigger coverage. 

The Court then offered the example of a roofing subcontractor negligently causing a roofing tile to fall injuring a passerby, and noting that coverage would not be precluded simply because the general contractor intentionally hired the roofer.  This hypothetical used by the Court underscores the fact that accidental property damage at a construction project is no different than accidental bodily injury.  This concept escapes many insurers and courts.

Accordingly, the Court reversed the lower court’s ruling and remanded the matter for further proceedings consistent with its decision that defective construction may constitute an “occurrence.”