Source: http://www.lexology.com, October 1, 2014
By: Phelps Dunbar LLP
The U.S. Eighth Circuit Court of Appeals has held that an insurer properly denied coverage of claims arising out of a contractor’s alleged faulty work under a policy in force prior to the passage of Ark. Code. §23-79-155, which mandates that policies define “occurrence” to include “property damage or bodily injury resulting from faulty workmanship.”  J-McDaniel Const. Co., Inc. v. Mid-Continent Cas. Co., 761 F.3d 916 (8th Cir. 2014).
The insured contractor was sued for the alleged defective construction of a new home.  The contractor’s CGL insurer refused to defend or indemnify it for the claim.  The contractor settled the suit and filed an action for breach of contract, unconscionability and negligence.  The district court held that binding precedent of the Arkansas Supreme Court compelled a finding the faulty work is not an occurrence and dismissed the suit.  It also denied the contractor’s motion for leave to amend the suit to assert a claim of estoppel which was predicated on the argument that the insurer should not be permitted to deny coverage for the work of a subcontractor after calculating premiums in part based on the work of the subcontractors.  The court ruled that Arkansas law did not permit the expansion of coverage by estoppel.  The contractor appealed.
The Eight Circuit affirmed.  It rejected the contractor’s argument that Ark. Code. §23-79-155, which mandates that policies define “occurrence” to include “property damage or bodily injury resulting from faulty workmanship,” is retroactive and ruled that the law in effect at the time of the issuance of the policy was controlling.  It also agreed with the district court that leave to amend was properly denied.