Introduction

The case of Concord General Mutual Insurance Company v. Green Company Building and Development Corporation, decided by the Supreme Court of New Hampshire in 2010, addresses a pivotal issue in insurance law: the definition and scope of an "occurrence" under commercial general liability policies. This case involves Green Company Building and Development Corporation (Green), a construction firm, and its insurance counterparties, Concord General Mutual Insurance Company (Concord General) and Middlesex Mutual Assurance Company (Middlesex Mutual). The core dispute centers on whether faulty workmanship, specifically leaking carbon monoxide from chimneys, qualifies as an "occurrence" that triggers insurance coverage for property damage.

Summary of the Judgment

Green Company initiated a project to construct thirty-four homes, subcontracting chimney construction to Birch Masonry, insured by Middlesex Mutual. Post-construction, homeowners reported issues with chimneys, notably regarding flue size and subsequent leaking of carbon monoxide. Green addressed these concerns by repairing the chimneys to meet code requirements. Concurrently, legal actions were filed by homeowners against Green, prompting Green to seek defense and indemnification from Concord General, which agreed under a reservation of rights.

Concord General, contesting the claims, filed for a declaratory judgment to determine coverage obligations. The trial court granted summary judgment in favor of Concord General and Middlesex Mutual, ruling that the carbon monoxide leaks did not constitute an "occurrence" under the insurance policies. Green appealed this decision.

The Supreme Court of New Hampshire affirmed the trial court's decision, holding that the leaking carbon monoxide did not meet the policy's definition of an "occurrence" as it did not result in tangible property damage beyond the loss of use of the chimneys—the work product itself.

Analysis

Precedents Cited

The Court referenced several key precedents to support its decision:

• Hull v. Berkshire Mid. Ins. Co. (1981) – Established that defective work alone does not constitute an "occurrence" under an insurance policy.
• McALLISTER v. PEERLESS INS. CO. (1964) – Clarified that an "occurrence" implies an accident or exposure leading to property damage beyond mere faulty workmanship.
• Essex Insurance Co. v. Bloomsouth Flooring Corp. (2009) – Addressed whether odors from defective work can be considered physical injury resulting in property damage.
• Carter v. Concord Gen. Mut. Ins. Co. (2007) – Established that in declaratory judgment actions, the burden of proof lies with the insurer.
• WEBSTER v. ACADIA INS. Co. (2007) – Emphasized that policy language is interpreted objectively and given its natural and ordinary meaning.
• COAKLEY v. MAINE BONDING CAS. CO. (1992) – Distinguished between remedial and preventative damages, noting that insurance covers only remedial costs.
• Turner v. St Paul Prop. Liab. Ins. Co. (1996) – Highlighted the insurers' right to limit liability through clear policy language.

Legal Reasoning

The Court undertook a meticulous analysis of the policy language, emphasizing that the interpretation of such language is a question of law reviewed de novo. The policies in question defined an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions," and "property damage" as including physical injury to tangible property and loss of use.

Central to the Court's reasoning was the distinction between faulty workmanship and an "occurrence." The Court reiterated that defective work, standing alone, does not equate to an "occurrence" because it lacks the element of fortuity inherent in accidents or exposures. For an event to qualify as an "occurrence," it must cause or result in tangible physical damage to property beyond the work product itself.

Applying this principle, the Court found that leaking carbon monoxide did not cause any physical alteration to property beyond the loss of use of the chimneys. The homeowners continued to occupy and use their homes without suffering any tangible property damage or bodily injury. Consequently, the loss of use of the chimneys did not meet the policy's criteria for an "occurrence," and thus, insurance coverage was not triggered.

Additionally, the Court addressed Green's argument that preventative repairs should be covered, distinguishing between remedial and preventative measures. Since the repairs were undertaken to prevent potential future damages rather than to remedy existing damage, they fell outside the scope of covered "damages" under the policy.

Impact

This judgment has significant implications for both insurers and insured parties in the construction and insurance industries. It underscores the importance of clear and precise policy language, particularly regarding what constitutes an "occurrence" and "property damage." Contractors and builders must recognize that not all defects will automatically trigger insurance coverage, especially when such defects do not result in tangible property damage or bodily injury.

For insurers, the case reaffirms their ability to limit liability through explicit policy terms, provided such limitations are unambiguous. This decision may influence future insurance policy drafting, encouraging more detailed definitions of coverage triggers.

Moreover, the ruling serves as a precedent for courts to adopt a stringent interpretation of policy terms, emphasizing objective construction and the necessity for actual physical damage, rather than mere functional deficits or preventative repairs, to qualify for coverage.

Complex Concepts Simplified

"Occurrence" in Insurance Policies

An "occurrence" refers to a specific event or accident that results in bodily injury or tangible property damage. In insurance terms, it often includes unforeseen incidents that cause harm or loss. However, not every problem or defect qualifies as an "occurrence." For instance, faulty workmanship alone, without resulting damage, does not meet this threshold.

Property Damage

"Property damage" involves physical injury to tangible property. This can include alterations to the property's appearance, shape, color, or other material dimensions. Importantly, it requires actual damage rather than mere issues that do not affect the property's physical state.

Burden of Proof

In declaratory judgment actions concerning insurance coverage, the insurer carries the burden of proof. This means the insurance company must demonstrate that a claim does or does not fall within the policy's coverage terms, regardless of which party initiates the action.

Remedial vs. Preventative Damages

"Remedial damages" are costs incurred to fix or remedy existing damage or deficiencies. In contrast, "preventative damages" are expenses aimed at preventing potential future issues. Insurance policies typically cover remedial damages but exclude preventative measures unless specified otherwise.

Conclusion

The Supreme Court of New Hampshire's decision in Concord General Mutual Insurance Company v. Green Company Building and Development Corporation reinforces the critical need for precise policy language in insurance contracts. By delineating the boundaries of what constitutes an "occurrence" and "property damage," the Court provides clarity for both insurers and the insured. This ruling highlights that mere defects or faulty workmanship do not automatically trigger insurance coverage unless they result in tangible physical damage or bodily injury, as defined by clear policy terms. Consequently, parties entering into insurance agreements must meticulously review and understand their policy language to ensure appropriate coverage and mitigate potential disputes.