An insured’s defective workmanship is an ‘occurrence’ and covered by a CGL policy in Iowa

Whether defective workmanship is an occurrence in a CGL policy was recently addressed by the Eighth Circuit Court of Appeals in Decker Plastics, Inc. v. West Bend Mutual Insurance Company.¹

A1’s Inc., packaged and sold landscape materials. Decker sold plastic bags to A1 to fill with landscape materials. There was no ultraviolet inhibitor in the bags so they deteriorated in sunlight, causing shreds of plastic to combine with the material. As such, A1 had to clean up spills from customer sites, buy replacement bags from another source, and pay to clean up its own facility. A1 sued Decker. Decker settled, then filed a claim with its insurer which denied coverage. Decker filed suit. Summary judgment was awarded to the insurance company because the court found there was no ‘occurrence’ to trigger coverage. The case was appealed and the appellate court found there was an occurrence and the matter was reversed and remanded.

The policy covered an occurrence that resulted in property damage. “Occurrence” was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The insurance company heavily relied on the Pursell case.² The Pursell court found that defective workmanship resulting in damages only to the work product itself was not an occurrence under a CGL policy. Relying on this holding, the insurance company argued that A1’s loss was a foreseeable and expected consequence of Decker’s defective workmanship and that the loss was not from an accident. The appellate court disagreed. Decker sold the bags to its customer who then stored its own property in the bags. The bags unexpectedly deteriorated, causing damage to A1’s property and to the property of others. Thus, the deterioration of the bags was a covered occurrence. Courts have consistently held that an ‘occurrence’ covers damages to property that was not the insured’s work product.³

Once the case goes back to the district court there may be other exclusions that apply and coverage may not be afforded, but the bag deterioration is an ‘occurrence’ and covered by the policy.

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¹ Decker Plastics, Inc. v. West Bend Mut. Ins. Co., No. 15-2861 (8th Cir. Aug. 19, 2016).
² Pursell Constr., Inc. v. Hawkeye-Security Ins. Co., 596 N.W.2d 67, 70 (Iowa 1999).
³ National Union Fire Ins. Co. v. Terra Industries, Inc., 346 F.3d 1160, 1164-65 (8th Cir. 2003); Ferrell v. West Bend Mut. Ins. Co., 393 F.3d 786, 795 (8th Cir. 2005); Lexicon, Inc. v. ACE American Ins. Co., 634 F.3d 423, 425-27 (8th Cir. 2011).