In a long awaited decision, the Mississippi Supreme Court ruled last week in Architex Association, Inc. v. Scottsdale Insurance Company (PDF) that construction defects caused by subcontractor negligence are occurrences(accidents) triggering coverage under the terms of a general contractors’s commercial general liability policy.
The Court’s decision is a huge victory for all the major players in residential and commercial construction. The biggest winners may be homeowners, developers, schools and state and local agencies. The cost of remedying a construction defect and the diminished value of a building caused by a construction defect often greatly exceeds the original cost of construction. Absent insurance coverage, homebuilders and general contractors often do not have the wherewithal to indemnify the owner for these legitimate damages.
Of moment, the Supreme Court rejected the reasoning of a 2003 decision by the Fifth Circuit Court of Appeals, ACS Construction Company v. CGU, which held that construction defects caused by a subcontractor’s negligence was not an occurrence because the hiring of the subcontractor to do the work was an intentional act not an accident. The Supreme Court concluded that the defective work would be considered accidental if it was the result of subcontractor negligence rather than intentional misconduct. Whether the defect was the result of an accident or intentional misconduct turns on the subcontractor’s conduct not the general contractor’s hiring decision.
Architex is the second Supreme Court decision in the last six months rejecting the Fifth Circuit’s interpretation of Mississippi insurance law. In October , the Supreme Court held in Corban v. USAA Insurance Company (PDF), that the anti-concurrent causation clauses in a homeowners’ insurance policy inapplicable when wind and water did not act in conjunction in causing Katrina-related damages,rejecting a contrary Fifth Circuit decision.
Carson and his team bolstered the persuasiveness of their argument by persuading an incredibly impressive number of organizations to either file friend of the court briefs or to join in Architech’s brief. Most of the major contractor associations supported Architex: Associated General Contractors of America; Associated General Contractors of Mississippi; Mississippi Asphalt Pavement Association, Inc.; Associated Builders and Contractors; Mississippi Associated Builders and Contractors, Inc.; American Subcontractors; American Subcontractors Association of Mississippi. In addition, Architex’s position was supported by The Mississippi Insurance Department, the Mississippi Attorney General and the state agencies responsible for state and university construction projects.
Hat tip to Will Bardwell.