Nationwide Mutual Insurance Company recently filed a declaratory judgment action in the United States District Court for the Western District of North Carolina to obtain a ruling that its commercial general liability policy does not cover the insured builder for faulty workmanship.
In Nationwide Mutual Insurance Company v. Hyde, Nationwide requests a declaratory judgment that coverage is not owed to a builder who was sued by homeowners for property damage that occurred as a result of the insured constructing the home on top of improperly compacted fill soil. The homeowners were awarded $350,000.00 in damages in an underlying suit against the builder.
While Nationwide provided the insured a defense in the underlying suit pursuant to a reservation of rights, once a judgment was entered against the insured, Nationwide filed the declaratory judgment action so that the court could determine Nationwide’s obligations regarding payment for the damages awarded. Nationwide relies on three main arguments to support its position that no coverage is owed to the insured. First, Nationwide contends that the policies at issue only provide coverage for property damage caused by an “occurrence,” which is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Since faulty workmanship is not an “accident,” Nationwide argues that the policy does not provide coverage and Nationwide is not obligated to pay any damages on behalf of the insured.
Second, Nationwide argues that even if the policies did offer coverage, the exclusions for “Damage to Your Product” and “Damage to Your Work” preclude coverage for the damages to the house. Under these exclusions, property damage to the insured’s product or work arising out of the product or work itself is not covered. Third, Nationwide relies on the “Subsidence of Land” exclusion in the policies, which excludes coverage for earth movement, including earth sinking and earth rising or shifting. The homeowners in the underlying action alleged that that house was constructed over improperly compacted fill soil, so Nationwide argues that the shifting of the land underneath the house that caused the damages is not covered by the policies.
As this case was only recently filed, it will be some time until the court makes a determination and issues a ruling. Clark & Fox will continue to monitor the progress of this case and provide an updated post when an opinion is issued.