RENDERED : MARCH 18, 2010
TO BE PUBLISHED
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CINCINNATI INSURANCE COMPANY
ON REVIEW FROM COURT OF APPEALS
CASE NO . 2007-CA-000818-MR
JEFFERSON CIRCUIT COURT NO. 01-CI-005857
MOTORISTS MUTUAL INSURANCE COMPANY
OPINION OF THE COURT BY CHIEF JUSTICE MINTON
I. INTRODUCTION .
This case requires us to decide whether a claim of defective construction
against a homebuilder is, standing alone, a claim for property damage caused
by an "occurrence" under a commercial general liability (CGL) insurance policy.
Like the majority of courts that have considered the question, we hold that the
answer is no.
II . FACTUAL AND PROCEDURAL HISTORY.
Lawrence and Jennifer Mintman contracted with Elite Homes, Inc., for
the construction of a residence. Elite substantially completed construction of
the Mintmans' home, and the Mintrn .ans moved into it and paid Elite in full.
About five years later, the Mintmans sued Elite; Joseph Pusateri, Elite's
President; and Motorists Mutual Insurance Company, which insured Elite
under a CGL policy during the period the home was under construction . The
thrust of the Mintmans' complaint was that their home was so poorly built that
it was beyond repair and needed to be razed and that Motorists had not
properly handled the matter once it had been notified of Elite's faulty
Motorists provided a defense for Elite and settled the Mintmans' claims
against itself, Elite, and Pusateri. Under the terms of that settlement, the
Mintmans and Elite assigned to Motorists all rights and claims they may have
had against Cincinnati Insurance Company, which was a successor to
Motorists, as Elite's CGL insurer . So Motorists then filed a third-party
complaint against Cincinnati . I The gist of that third-party complaint was
Motorists' contention that Cincinnati had wrongfully breached its duty to
defend and indemnify Elite from the Mintmans' claims.
Eventually, Motorists and Cincinnati filed cross-motions for summary
judgment with respect to whether Elite's CGL policy with Cincinnati provided
coverage for the Mintmans' claims. The trial court granted summary judgment
to Cincinnati, holding that "the Mintmans' claims of intangible economic loss
are not such as to be an event that qualifies as an `occurrence' causing
It is unclear from the record what entity, if any, was Elite's insurer from July 1995
(when the policy with Motorists lapsed) until July 1996 (when the policy with
Cincinnati began) . In any event, no party has argued that the identity (or
existence) of that insuring entity is germane to the narrow issues presented in this
`property damage' under the clear and unambiguous language of [Cincinnati's]
Although it conceded that "Cincinnati's argument is compelling," the
Court of Appeals vacated the trial court's grant of summary judgment .
Purportedly guided by our recent opinion in Bituminous Casualty Corporation v.
Kenway Contracting, Inc., 2 the Court of Appeals concluded that "since [CGL]
policies are designed to cover broad risks, Motorists has the better argument .
The damage to the Mintmans' house was clearly property damage and was
caused by an `occurrence' since the damage was undoubtedly accidental in the
sense that it was not intentional."
We granted Cincinnati's motion for discretionary review in order to
consider, apparently as a matter of first impression in Kentucky, whether
faulty construction-related workmanship, standing alone, qualifies as an
"occurrence" under a CGL policy . After carefully reviewing the record and
applicable law, we conclude that the trial court's conclusion that these claims
are not an "occurrence" is correct. For that reason, we reverse the Court of
III . ANALYSIS.
A. The Policv Terms.
The overarching question raised on appeal is whether the Mintmans'
claims for faulty construction, which are now being advanced by Motorists, fall
240 S .W. 3d 633 (Ky. 2007) .
within the terms of the policy issued by Cincinnati to Elite. In order to answer
that broad question, we must closely examine the relevant policy terms .
Section I(A) 1 of the policy provides, in relevant part, as follows: 3
a. We will pay those sums that the insured becomes legally
obligated to pay as damages because of "bodily injury" or
"property damage" to which this insurance applies.
b . This insurance applies to "bodily injury" and "property damage"
(1) The "bodily injury" or "property damage" is caused by an
"occurrence" . . . .
Section V of the policy defines an occurrence as "an accident, including
continuous or repeated exposure to substantially the same general harmful
conditions." The term accident is not defined in the policy. After carefully
construing the policy and the relevant law, however, we conclude that this
claim of faulty workmanship is not an "occurrence."4
B . The Standard of Review.
It is well settled that the proper interpretation of insurance contracts
generally is a matter of law to be decided by a court; and, thus, an appellate
The CGL policy attached as an exhibit to Cincinnati's brief, as well as the policy
contained in the record, appears to have been in effect from July 2002 until July
2003 . Nevertheless, no party contends that the 2002 policy differs in a material
way from the 1996 policy.
Because we conclude that the faulty workmanship at issue does not meet the
policy's definition of occurrence, we find it unnecessary to address Cincinnati's
related argument that Elite's faulty workmanship also does not meet the policy's
definition of property damage.
court uses a de novo, not a deferential, standard of review . 5 Similarly, when we
review a trial court's decision to grant summary judgment, as in this case, we
must determine whether the trial court correctly found that there were no
genuine issues of material fact; as findings of fact are not at issue, the trial
court's decision is entitled to no deference.6 Since there do not appear to be
any genuine issues of material fact in this case, summary judgment was
C. The Doctrine_of Fortuity.
Although this precise issue of whether faulty construction workmanship
may be an "occurrence" under a CGL policy appears to be a matter of first
impression in Kentucky, many other courts have already addressed it; and they
have come to differing conclusions .? After careful analysis, we agree with the
Supreme Court of Nebraska's characterization of this as a "difficult
question . . . ."8 The majority viewpoint, however, appears to be that claims of
See, e.g., Hugenberg v. West American Ins. Co./Ohio Cas. Group, 249 S.W.3d 174,
185 (Ky.App . 2006) ("Interpretation of insurance contracts is generally a matter of
law to be decided by the court. As such, it is subject to de novo review on appeal.")
(footnote omitted) .
Schmidt v. Leppert, 214 S .W.3d 309, 311 (Ky. 2007) ("When we review a trial
court's decision to grant summary judgment, we must determine whether the trial
court correctly found that there were no genuine issues of material fact . Since
findings of fact are not at issue in this case, the trial court's decision is entitled to
no deference.") (footnote omitted) .
See, e.g., General Sec. Indem. Co. ofArizona v. Mountain States Mut. Cas. Co.,
205 P.3d 529, 534-35 (Colo .Ct.App . 2009) (collecting cases) .
Auto-Owners Ins. Co. v. Home Pride Companies, Inc., 684 N.W .2d 571, 576 (Neb.
faulty workmanship, standing alone, are not "occurrences" under CGL
policies .9 Because we believe the majority viewpoint is correct, we adopt it.
Since the term accident is not defined in the policy, we must afford it its
ordinary meaning, if that meaning is not ambiguous . 10 We do not find the
terms "accident" or "occurrence" to be ambiguous, I I at least under these
facts . 12 Thus, since the term "accident" has also not acquired a technical
General Sec. Indem. Co. ofArizona, 205 P.3d at 535 ("A majority of those
jurisdictions has held that claims of poor workmanship, standing alone, are not
occurrences that trigger coverage under CGL policies similar to those at issue
here."). Though we do not need unduly to lengthen this opinion by listing their full
citations, the Colorado Court of Appeals cited a federal case from the United States
Court of Appeals for the Second Circuit, and state courts in Illinois, Iowa,
Pennsylvania, and South Carolina, as comprising this majority viewpoint. Id.
Additionally, the Supreme Court of Arkansas recently cited additional cases from
state courts in Indiana, Ohio, North Dakota, West Virginia, Nebraska,
Massachusetts, and New Hampshire as having come to similar conclusions . See
Essex Ins. Co. v. Holder, 261 S.W.3d 456, 460 (Ark. 2008) .
to Bituminous Cas. Corp., 240 S.W.3d at 638 .
11 Amerisure, Inc. v. Wurster Const. Co., Inc., 818 N.E .2d 998, 1002 (Ind .Ct.App. 2002)
("an insurance contract is not regarded as ambiguous simply because controversy
exists, and the parties have asserted contrary interpretations of the language of the
contract .") .
12 We also reject Motorists' seeming contention that an ambiguity was created by
Cincinnati's letter to Elite declining coverage . In that letter, Cincinnati wrote that
the Mintmans' allegations do not "appear to have arisen from an occurrence as
defined in the policy." Motorists' argument is based upon semantic wordplay
involving the word "appear ." Cincinnati has clearly taken the position all along
that it believed the Mintmans' claims fell outside the policy it issued to Elite .
Moreover, although its usage of the less than definitive word appear in the letter
declining coverage is somewhat curious, Cincinnati's usage of that term does not
override the clear, unambiguous terms contained in the policy itself. In other
words, the terms of the policy are controlling.
Similarly, we reject Motorists' argument that the letter declining coverage works as
a waiver of Cincinnati's right to contest coverage . To the contrary, it is clear that
despite the curious word choices used in the letter, the upshot of the very letter
referenced by Motorists is a denial of coverage by Cincinnati . Moreover, Cincinnati
has continued to deny coverage in the circuit court, Court of Appeals, and this
meaning in the realm of insurance law, we must accord the term "accident" its
plain meaning. 13
Inherent in the plain meaning of "accident" is the doctrine of fortuity .
Indeed, "[t]he fortuity principle is central to the notion of what constitutes
insurance . . . ." 14 Although we have used the term "fortuity" in the past, we
have not fully explored its breadth and scope . In short, fortuity consists of two
central aspects : intent, which we have discussed in earlier opinions, and
control, which we have not previously discussed.
We recently recognized that the concept of fortuity is "inherent in all
liability policies[,j" and explained that a loss was fortuitous if it was "not
intended . . . ." 1 5 And we were correct in so doing because the issue of intent
is one important aspect of the fortuity doctrine . As a leading insurance treatise
notes, "[fortuity primarily concerns intent ." 16 So "a loss or harm is not
fortuitous if the loss or harm is caused intentionally by [the insured]- "17
FrymanforFrryman v. Pilot Life Ins. Co., 704 S .W.2d 205, 206 (Ky. 1986) ("The
words `accident', `accidental', and `accidental means', as used in insurance policies,
have never acquired a technical meaning in law, and must be interpreted according
to the usage of the average man and as they would be read and understood by him
in the light of the prevailing rule that uncertainties and ambiguities must be
resolved in favor of the insured.").
46 C .J.S . Insurance § 1235 (2009). See also 16 Eric Mills Holmes, Holmes'
Appleman on Insurance 2d § 116 .1B (2000) ("Fortuity is perhaps the most
fundamental principle of insurance and insurance law. . . . The fortuity principle
is central to understanding what constitutes insurance.") .
Aetna Cas. & Sur. Co. v. Commonwealth, 179 S.W.3d 830, 836 (Ky. 2005) ("we state
first that we agree with ANI and the Court of Appeals that the requirement that
loss be fortuitous, i.e. not intended, is a concept inherent in all liability policies .").
16 Holmes' Appleman on Insurance at § 116 .1B.
As Motorists asserts, it is highly unlikely that Elite subjectively intended
to build a substandard house for the Mintmans . After all, as the Supreme
Court of Pennsylvania observed, "the situation is rare indeed in which a
contractor intends that the work product suffer injury." 18 So adoption of
Motorists' viewpoint would mean that insurance policies would become
performance bonds or guarantees because any claim of poor workmanship
would fall within the policy's definition of an accidental occurrence so long as
there was not proof that the policyholder intentionally engaged
workmanship . This is a point made by other courts . 19 Instead, we agree with
Kvaerner Metals Div. ofKvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d
888, 899 n .9 (Pa. 2006) .
See, e.g., id . at 899 ("We hold that the definition of `accident' required to establish
an `occurrence' under the policies cannot be satisfied by claims based upon faulty
workmanship. Such claims simply do not present the degree of fortuity
contemplated by the ordinary definition of `accident' or its common judicial
construction in this context . To hold otherwise would be to convert a policy for
insurance into a performance bond. We are unwilling to do so, especially since
such protections are already readily available for the protection of contractors .")
(footnote omitted) ; Nabholz Const. Corp. v. St. Paul Fire and Marine Ins. Co .,
354 F.Supp .2d 917, 922 (E.D . Ark. 2005) ("The Court is further persuaded by the
distinctions between CGL policies and performance bonds . The purpose of a CGL
policy is to protect an insured from bearing financial responsibility for unexpected
and accidental damage to people or property . It is not intended to substitute for a
contractor's performance bond, the purpose of which is to insure the contractor
against claims for the cost of repair or replacement of faulty work. [Contractor]
might have elected to purchase a performance bond to protect it from the known
business risk that its subcontractor would not perform its contractual duties . That
[contractor] has no remedy for its subcontractor's default under its CGL Policy is
neither troublesome nor unexpected given the nature of the risks involved .") ;
Cincinnati Insurance Companies v. Collier Landholdings, LLC, 614 F.Supp .2d 960,
966 (W.D. Ark. 2009) ("The performance bond is the proper instrument for
protection against financial loss arising from the repair and remediation of
defective construction . It protects the general contractor to the extent of his or her
work, irrespective of whether subcontractors performed certain aspects of that
work. In other words, a general contractor cannot segment his or her work into
that performed by various subcontractors, some of which is defective and some of
which is not, in order to create an occurrence.") (citations and quotation marks
the Supreme Court of South Carolina that refusing to find that faulty
workmanship, standing alone, constitutes an "occurrence" under a CGL policy
"ensures that ultimate liability falls to the one who performed the negligent
work . . . instead of the insurance carrier . It will also encourage contractors to
choose their subcontractors more carefully instead of having to seek
indemnification from the subcontractors after their work fails to meet the
requirements of the contract. "20
Motorists' viewpoint reflects the minority viewpoint of other courts who
have considered this issue.21 And we agree with the Supreme Court of
Pennsylvania that Motorists' position "is an overly broad interpretation of
accident" that fails to take into account the full nature of the concept of
fortuity .2 2 In other words, although we may have done so in factually
omitted) ; United States Fidelity & Guarantee Corp. v. Advance Roofing & Supply Co.,
Inc., 788 P.2d 1227, 1233 (Ariz.Ct.App. 1989) ("Nevertheless, we recognize that
there are some authorities that appear to conclude that the mere showing of faulty
work is sufficient to bring a claim for resulting damages (of whatever nature) within
policy coverage . In our opinion these authorities disregard the fundamental nature
of a comprehensive general liability policy of the type involved in this litigation, and
ignore the policy requirement that an occurrence be an accident . If the policy is
construed as protecting a contractor against mere faulty or defective workmanship,
the insurer becomes a guarantor of the insured's performance of the contract, and
the policy takes on the attributes of a performance bond. We find these authorities
unpersuasive .") (citations omitted) .
L-I, Inc. v. Bituminous Fire and Marine Ins. Co., 621 S .E.2d 33, 37 (S.C. 2005).
See General Sec. Indem. Co. ofArizona, 205 P.3d at 535 ("a minority of jurisdictions
has held that the damage resulting from faulty workmanship is an accident, and
thus, a covered occurrence, so long as the insured did not intend the resulting
damage."). The Colorado Court of Appeals cited a case from the United States
District Court for the District of Utah, as well as state courts in Florida, Kansas,
Tennessee, Texas, and Wisconsin, as being members of this minority . Id.
Kvaerner Metals Div. ofKvaemer U.S., Inc ., 908 A.2d at 899 n.9 ("While the majority
of Courts have held that coverage under a CGL policy is not triggered by poor
workmanship which causes injury to the work product itself, a minority of
distinguishable cases in the past, we rightly should not end our analysis in this
case by merely concluding that coverage exists simply because it is virtually
certain that Elite would not have intentionally built a shoddy home for the
For an event to be truly fortuitous, it must, of course, be accidental
because the policy only covers occurrences that are accidents. Of course, one
cannot intend to commit an accident because an accident is "an event that
takes place without one's foresight or expectation . . . . "23 Or, as our late
colleague William E. McAnulty, Jr., wrote as a judge of the Kentucky Court of
Appeals, an accident in the insurance law context is "something that does not
result from a plan, design, or . . . intent on the part of the insured." 24 So
focusing solely upon whether Motorists intended to build a faulty house is
insufficient . Rather, a court must also focus upon whether the building of the
Mintmans' house was a "`chance event' beyond the control of the insured
[Elite] ."25 Or, in other words, a court must bear in mind that a fortuitous event
is one that is "beyond the power of any human being to bring . . . to pass, [or
jurisdictions have held that faulty or negligent workmanship constitutes an
accident so long as the insured did not intend for the damage to occur. We believe
that this is an overly broad interpretation of accident, as the situation is rare
indeed in which a contractor intends that the work product suffer injury. Because
we believe that CGL policies are not the proper means to protect against such
risks, we concur with the majority of Courts and decline to apply coverage in such
cases.") (citations omitted) .
Essex Ins. Co., 261 S.W.3d at 460.
Stone u. Kentucky Farm Bureau Mut Ins. Co., 34 S.W.3d 809, 812 (Ky.App. 2000) .
16 Holmes' Appleman on Insurance 2d at § 116 .1B .
is] . . . within the control of third persons . . .
It is abundantly clear,
therefore, that the issue of control is encompassed in the fortuity doctrine.
Clearly, Elite had control over the construction of the Mintmans' home,
either directly or through the subcontractors it chose . One cannot logically
say, therefore, that the allegedly substandard construction of the Mintmans'
home by Elite was a fortuitous, truly accidental, event. This leads to the
inevitable conclusion that the faulty workmanship claim at issue is not covered
by the CGL policy Elite purchased from Motorists because the faulty
workmanship was not an accidental occurrence . As stated before, this
conclusion is in accordance with decisions of numerous other courts
comprising the majority viewpoint . Simply put, "[faulty workmanship is not an
accident . . .
D. Precedent Does Not Compel a Different Conclusion .
1 . Bituminous Cas. Corp. v. Kenway Contracting, Inc.
We reject any contention that Bituminous Cas. Corp. compels a different
result. Bituminous Cas. Corp., greatly relied upon by both the Court of Appeals
and Motorists, did involve, like the case at hand, a CGL policy dispute over
whether a contractor's actions constituted an "occurrence." But the
contractor's action in Bituminous Cas . Corp. is readily factually distinguishable
from the case at hand because that case was not a faulty construction case.
46 C .J.S. Insurance at § 1235.
Essex Ins. Co., 261 S.W.3d at 460.
The contractor in Bituminous Cas. Corp. improperly demolished over half
of a residential structure. 28 We held that the contractor's improper destructive
act was an "occurrence" under the CGL policy because the damage to the
property was "not the plan, design, or intent of the insured." 29 Given that
conclusion, we did not address the control aspect of the fortuity doctrine.
Bituminous Cas. Corp. does not compel a conclusion that Elite's allegedly
substandard construction of the Mintmans' home in the case at hand is an
"occurrence" because the quick destruction of a residence is manifestly a
completely different undertaking than the protracted improper construction of
a residence . The home construction in the case at hand occurred over a period
of weeks; the mistaken destruction of a carport in Bituminous Cas. Corp.
occurred in a short flurry of activity on only one day. Because of this
inescapable, material factual difference, Bituminous Cas. Corp. is not
controlling on the narrow issue presented in this case : whether a claim of
faulty construction may qualify as an "occurrence" under a standard
James Graham Brown Foundation, Inc.
v. St. Paul Fire & Marine Ins. Co.
Likewise, we do not believe our nearly two-decade old decision in James
Graham Brown Foundation, Inc. v. St. Paul Fire & Marine Ins. Co.3o compels us
28 240 S .W.3d at 636 .
29 Id. at 639.
814 S.W.2d 273 (Ky. 1991) .
to affirm the Court of Appeals . Again, that case is markedly factually
distinguishable from the case at hand .
James Graham Brown Foundation, Inc. involved a question of whether a
CGL policy purchased for a wood treatment facility provided coverage for a
federally mandated environmental cleanup. We held that the trial court erred
by finding on summary judgment that there was no "occurrence" under the
CGL policy. 31 In the course of explaining our decision, we made some
expansive statements about CGL policies . Specifically, we opined that the term
"occurrence" is to be "broadly and liberally construed" and that a CGL policy's
very nature "suggests" an "expectation of maximum coverage."32 Furthermore,
we held that "if injury was not actually and subjectively intended or expected
by the insured, coverage is provided even though the action giving rise to the
injury itself was intentional and the injury foreseeable." 33
Perhaps some of our language in James Graham Brown Foundation, Inc.
could lead to the conclusion reached by the Court of Appeals . But a close
examination of the different definition of occurrence in that case and this one
reveals that our decision in James Graham Brown Foundation, Inc. does not
compel affirming the Court of Appeals in this case.
The CGL policies in James Graham Brown Foundation, Inc. defined
occurrence as "[a]n accident, including continuous or repeated exposure to
Id. at 281 .
Id. at 278 .
conditions, which result in bodily injury or property damage, neither expected
nor intendedfrom the standpoint of the insured. 1134 The language referencing
the expectations and intentions of the insured led us to adopt a broad,
subjective standard of policy construction . The policy at hand, however, in
accordance with modern CGL policies, completely omits from the definition of
occurrence any language referencing the expectations or intent of the insured . 3s
Id. at 275 (emphasis added) .
9A Couch on Insurance § 129:3 (2009) ("As initially drafted in 1966, the occurrence
definition essentially contained the language of what is now commonly known as
the intentional acts exclusion . The original definition stated that an occurrence
was `an accident, including injurious conditions which results during the policy
period, in bodily injury or property damage neither expected nor intended from the
standpoint of the insured .' While this exclusionary language was eventually
separated from the occurrence definition and was included as a separate exclusion
within the policy, the inclusion of this language in the definition of an occurrence
initially has created an ongoing split among courts across the country as to
whether an intentional act with unintentional. consequences is an occurrence.")
(footnote omitted) .
We are aware that the language regarding an insured's intent and expectations is
now contained in the exclusions portion, specifically Section I(A)(2)(a), of the
CGL policy. In pertinent part, that subsection provides that the policy does not
apply to bodily injury or property damage that "may reasonably be expected to
result from the intentional or criminal acts of an insured or which is in fact
expected or intended by the insured, even if the injury or damage is of a different
degree or type than actually expected or intended ." However, a court need not
consider the applicability of an exclusion if there is no initial grant of coverage
under the policy. See, e.g., Amerisure, Inc., 818 N .E.2d at 1005 ("In simplistic
terms, the process is such: if the insuring clause does not extend coverage, one
need look no further . If coverage exists, exclusions must then be considered . If an
exclusion excludes coverage, an exception to the exclusion may re-grant coverage .
However, the entire process must begin with an initial grant of coverage via the
insuring clause; otherwise, no further consideration is necessary. Therefore, in the
present case, we do not address any arguments regarding exclusions or exceptions
to exclusions because here there is no initial coverage due to the lack of . . . an
`occurrence .'). Since we conclude that there is no coverage in this case because
there was no occurrence, we need not examine any exclusions .
The policy at issue in Bituminous Cas. Corp. contained the same
definition of occurrence as does the policy in the case at hand .36 In Bituminous
Cas. Corp., therefore, we likely should not have quoted and relied upon much
of the sweeping language of James Graham Brown Foundation, Inc. without
acknowledging that the policy to be interpreted in Bituminous Cas. Corp.
contained a definition of occurrence materially different from that found in
James Graham Brown Foundation, Inc. 37 Upon reflection, we now recognize the
crucial, materially different definition of occurrence in this case renders James
Graham Brown Foundation, Inc. of, at most, limited value in determining
whether there is an "occurrence" in the case at hand.38
Even if we broadly construed the term, however, faulty construction
would not constitute an "occurrence" because, as previously explained, the
poor workmanship was not an accident. 39 Because the allegedly poor
workmanship at issue cannot reasonably be construed to fall within the
policy's definition of occurrence, then Elite (and, by extension, Motorists)
240 S.W.3d at 639.
See id. at 638 (devoting section IV(A) to the purposes underlying CGL policies by
liberally quoting from James Graham Brown Foundation, Inc.) .
As discussed before, we do not question the result in Bituminous Cas. Corp.
because of the factual distinctions between it and the case at hand
See, e.g., Gen. Sec. Indem. Co. ofArizona, 205 P.3d at 537 (distinguishing prior
precedent because that precedent construed a policy defining an occurrence based,
in part, on the expectations or intentions of the insured; but the policy in the
instant case "does not focus on the expectations or intentions from the insured's
standpoint. Thus, our interpretation of the term here need not be limited to the
expectations or intentions of the insured.") .
Essex Ins. Co., 261 S.W.3d at 460 ("Faulty workmanship is not an accident;
instead it is a foreseeable occurrence, and performance bonds exist in the
marketplace to insure the contractor against claims for the cost of repair or
replacement of faulty work.") .
cannot reasonably expect coverage for the acts at issue.4Q To the contrary; we
believe the policy's requirement that its coverage extends only to an
"occurrence," combined with the policy's definition of occurrence, is an
"unequivocal, conspicuous and plain and clear manifestation of the company's
intent to exclude coverage . . . ."41 As Justice David Souter noted in an opinion
he wrote while serving on the Supreme Court of New Hampshire, defective
workmanship does not meet the definition of fortuity; and, thus, "[d)espite
proper deference, then, to the reasonable expectations of the policyholder, we
are unable to find in the quoted policy language a reasonable basis to expect
coverage for defective workmanship . 1142
E. Cincinnati Owed No Duty to Defend in this Case .
We likewise reject Motorists' contention that Cincinnati had a duty to
defend Elite because there was a possibility at the outset that the Mintmans'
allegations came within the scope of the CGL policy Elite purchased from
Cincinnati . As Motorists correctly points out, our precedent holds that "an
insurer has a duty to defend if there is any allegation which potentially,
possibly or might come within the coverage terms of the insurance policy." 43
However, as we explained in the very next sentence of Aetna Cas. & Surety Co.,
James Graham Brown Foundation, 814 S .W.2d at 277 ("The insurer's responsibility
under a comprehensive policy is not measured by its intent. The insured is
entitled to all the coverage he may reasonably expect under the policy.") .
Id. ("Only an unequivocal, conspicuous and plain and clear manifestation of the
company's intent to exclude coverage will defeat this expectation [of coverage by an
insured under a CGL policy].").
McAllister v. Peerless Ins. Co., 474 A.2d 1033, 1036 (N.H . 1984) .
Aetna Cas. & Surety Co., Inc., 179 S.W.3d at 841 .
an insurer need not always defend against a claim it believes falls outside the
policy it issued . Rather, if an insurer makes a determination that the claim is
not covered, it may, among other equally valid choices, "elect not to defend." 44
Thus, Cincinnati's refusal to defend Elite against a claim clearly falling outside
the policy at issue was not inherently improper.
In summary, we join the majority of other courts who have considered
this question by holding that "a claim for faulty workmanship, in and of itself,
is not an "occurrence" under a commercial general liability policy because a
failure of workmanship does not involve the fortuity required to constitute an
Id. ("If the insurer believes there is no coverage, it has several options. One is to
defend the claim anyway, while preserving by a reservation of rights letter its right
to challenge the coverage at a later date. Another is to elect not to defend.
However, should coverage be found, the insurer will be liable for all damages
naturally flowing from the failure to provide a defense .") (internal quotation marks
9A Couch on Insurance Third Edition § 129 :4 (2009) .
It appears as if a general rule exists whereby a CGL policy would apply if the faulty
workmanship caused bodily injury or property damage to something other than the
insured's allegedly faulty work product. Id. ("In other words, although a
commercial general liability policy does not provide coverage for faulty
workmanship that damages only the resulting work product, the policy does
provide coverage if the faulty workmanship causes bodily injury or property
damage to something other than the insured's work product."). Thus, as we
construe it, application of the general rule could lead to coverage if, for example,
the Mintmans' allegedly improperly constructed home damaged another's property.
However, we need not definitively decide in this case whether we should adopt this
general rule, as the facts do not present a claim that would fall within it .
For the foregoing reasons, the decision of the Court of Appeals is
reversed ; and the judgment of the trial court granting summary judgment to
Cincinnati Insurance Company is reinstated .
All sitting. All concur.
COUNSEL FOR APPELLANT:
Brandon Wade Smith
Michael D. Risley
Stites & Harbison, PLLC
400 West Market Street
Louisville, Kentucky 40202-3352
COUNSEL FOR APPELLEE:
David Sean Ragland
Paul Joseph Bishop
William P. Swain
Phillips, Parker, Oberson 8s Arnett, PLC
716 West Main Street
Louisville, Kentucky 40202