Defective Workmanship Not an “Occurrence” or “Property Damage” Under CGL: Dostart v. Columbia Insurance Group

Introduction

In John Dostart and Deena Dostart v. Columbia Insurance Group, the Supreme Court of Iowa resolved whether a commercial general liability (CGL) insurance policy covers a judgment for statutory consumer fraud arising from incomplete or defective residential construction. The appellees, John and Deena Dostart, obtained a jury verdict against their contractor, Tyler Custom Homes, Ltd., and its owner, James Harmeyer, for consumer-fraud damages. The contractor’s CGL insurer, Columbia Insurance Group, refused to indemnify the judgment on the grounds that consumer fraud is excluded from coverage as neither an “occurrence” nor “property damage,” and punitive damages are expressly excluded. Having been unable to collect from the judgment debtors, the Dostarts sued Columbia under Iowa Code § 516.1, which permits an unsatisfied judgment creditor to “step into the shoes” of the insured to enforce policy obligations. The trial court and Iowa Court of Appeals denied Columbia summary judgment on coverage; the Iowa Supreme Court granted further review.

Summary of the Judgment

On April 18, 2025, the Iowa Supreme Court unanimously vacated the Court of Appeals decision, reversed the district court’s ruling, and directed entry of summary judgment for Columbia. The Court held as a matter of law that:

• Statutory consumer fraud is not an “occurrence” under the CGL policy because it is neither accidental nor akin to an unforeseen event;
• The jury award for the cost to complete the home and related living‐expense damages does not constitute “property damage” as defined in the policy (i.e., physical injury to third‐party property);
• Because there is no covered “occurrence” or “property damage,” coverage never attaches and the Court need not address the intentional‐acts or punitive‐damages exclusions.

Analysis

Precedents Cited

• Yegge v. Integrity Mutual Insurance (1995): Held common‐law fraud is not an “occurrence” under identical CGL definitions because it involves intentional, non‐accidental conduct.
• Pursell Construction, Inc. v. Hawkeye‐Security Insurance (1999): Adopted the majority rule that defective workmanship, standing alone, is not an “occurrence,” nor does it cause third‐party “property damage” when the only harm is to the insured’s own work product.
• Essex Insurance Co. v. Holder (Ark. 2008): Confirmed that costly repair of faulty work is akin to a performance bond claim, not a CGL occurrence.
• Federal decisions applying Iowa law, such as Norwalk Ready Mixed Concrete, Inc. v. Travelers Insurance (8th Cir. 2001) and National Surety Corp. v. Dustex Corp. (N.D. Iowa 2014), reinforcing that pure defective workmanship is not covered.

Legal Reasoning

The Court began by noting that insurance coverage analysis is a matter of contract interpretation. The CGL policy promises to pay sums the insured becomes legally obligated to pay because of “property damage” caused by an “occurrence.” The policy defines “occurrence” as “an accident, including continuous or repeated exposure” to harmful conditions, and “property damage” as physical injury to tangible property or loss of use of undamaged tangible property. Statutory consumer fraud, like common‐law fraud, requires knowing or reckless misrepresentation but is not accidental. Under Yegge, intentional or fraudulent acts are not “occurrences.” Under Pursell, the cost to finish or repair the contractor’s own work does not constitute physical injury to a third party’s property—it is simply the cost of performance. The Dostarts’ award—covering completion costs and temporary living expenses—falls squarely into that performance bond paradigm, not a liability policy risk. Consequently, coverage never arose.

Impact

This decision cements Iowa’s alignment with the majority approach that CGL policies do not insure routine construction defects or statutory consumer‐fraud claims tied to incomplete or shoddy workmanship. Insurers issuing CGL policies can rely on the “occurrence” and “property damage” definitions to decline defense or indemnity where the claimant seeks the cost of completing or repairing the insured’s work. Judgment creditors “stepping into the shoes” of insolvent insureds under Iowa Code § 516.1 will find no relief unless there is real third‐party damage or an accidental occurrence. Builders and homeowners will need separate performance or surety bonds to insure against unfinished work or statutory consumer‐fraud liability.

Complex Concepts Simplified

• Occurrence: An unplanned, accidental event that causes harm. Intentional fraud or know-absolutely-false promises are not accidents.
• Property Damage: Either physical harm to someone else’s tangible property or loss of its use without physical injury. The homeowner’s cost to finish their own home is not this type of damage.
• Consumer Fraud (Iowa Code § 714H.3): A statutory claim requiring a knowing or reckless misrepresentation with the intent to cause reliance. It differs in mens rea from common‐law fraud but remains intentional or reckless.
• Performance Bond vs. CGL Policy: A performance bond guarantees completion of contractual work. A CGL policy covers accidental injury to others or their property, not failure to perform a contract.

Conclusion

The Iowa Supreme Court’s decision in Dostart v. Columbia Insurance Group clarifies that consumer‐fraud judgments for incomplete or defective construction are not covered under a standard CGL policy. By reaffirming that defective workmanship is not an “occurrence” and that completing one’s own work does not constitute “property damage,” the Court preserves the boundary between liability insurance and performance guarantees. This ruling will guide insurers, contractors, homeowners, and courts in future coverage disputes over alleged construction‐related fraud or defects.