K & L Homes, Inc. v. American Family Mutual Insurance Co.

2013 ND 57, 829 N.W.2d 724, 2013 N.D. LEXIS 61, 2013 WL 1364704

• Court: North Dakota Supreme Court
• Decided: April 5, 2013
• Docket: 20120060
• Status: Published

Opinions

MARING, Justice.

[¶1] K & L Homes, Inc. (“K & L”) appeals the trial court’s summary judgment declaring no coverage existed under K & L’s commercial general liability (“CGL”) policy with American Family Mutual Insurance Company (“American Family”) for damages awarded against K & L in an underlying action. We conclude there can be an “occurrence” under the CGL policy under the facts of this case. Therefore, we reverse the summary judgment and remand for further proceedings consistent with this opinion.

I

[¶ 2] K & L commenced this action for declaratory judgment, breach of contract, and bad faith against American Family, seeking a judicial determination that coverage exists under K & L’s CGL policy with American Family for the adverse judgment rendered against K & L in an underlying action. See Leno v. K & L Homes, Inc., 2011 ND 171, 803 N.W.2d 543.

[¶ 3] In the underlying action, the Le-ños sought to recover damages for a newly-constructed house they purchased from K & L, the homebuilder. The Leños had alleged that not long after purchasing the house from K & L, they noticed cracks, unevenness, and shifting. In their action against K <& L, the Leños initially claimed K & L was negligent, had breached the parties’ contract, and had breached implied warranties. However, they subsequently abandoned their negligence claim against K & L and proceeded at trial only on the breach of contract and breach of implied warranties claims. The jury found K & L breached their contract or implied warranty with the Leños and awarded the Leños damages. A final judgment was entered against K & L for $254,629.25, and, on appeal, we affirmed. See Leno, 2011 ND 171, ¶¶ 1, 27, 803 N.W.2d 543.

[¶ 4] In the underlying action, the Le-ños alleged the house suffered damage because of substantial shifting caused by improper footings and inadequately compacted soil under the footings and foundation. In constructing the house, K & L hired Dakota Ready Mix to perform work on the house’s footings and foundation. At the relevant time, K & L was insured under the CGL policy issued by American Family. American Family provided K & L with a defense in the underlying action through trial under a reservation of rights. After the adverse judgment, American Family denied coverage under the CGL policy for the damages recovered by the Leños. K & L commenced this action seeking a determination of the policy’s coverage.

[¶ 5] K & L moved for partial summary judgment on its claims for declaratory judgment and breach of contract, and American Family filed a cross-motion for summary judgment. The trial court denied K & L’s motion and granted American Family’s motion, concluding the deficient work of the excavation subcontractor was not an accident and did not constitute an “occurrence” under the CGL policy. The court concluded the entire house was K & L’s work product and the damage to the house caused by the excavation subcontractor’s faulty workmanship was not within the initial grant of coverage under the CGL policy. K & L appeals.

II

[¶ 6] K & L contends the trial court erred in granting American Family summary judgment and concluding the CGL policy did not provide K & L coverage for the adverse judgment in the underlying action.

[¶ 7] Our standard for reviewing summary judgment is well-established:

“Summary judgment is a procedural device for the prompt resolution of a controversy on the merits -without a trial if there are no genuine issues of material fact or inferences that can reasonably be drawn from undisputed facts, or if the only issues to be resolved are questions of law. A party moving for summary judgment has the burden of showing there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. In determining whether summary judgment was appropriately granted, we must view the evidence in the light most favorable to the party opposing the motion, and that party will be given the benefit of all favorable inferences which can reasonably be drawn from the record. On appeal, this Court decides whether the information available to the district court precluded the existence of a genuine issue of material fact and entitled the moving party to judgment as a matter of law. Whether the district court properly granted summary judgment is a question of law which we review de novo on the entire record.”

Tibert v. Nodak Mut. Ins., 2012 ND 81, ¶ 8, 816 N.W.2d 31 (quoting Myaer v. Nodak Mut. Ins., 2012 ND 21, ¶ 9, 812 N.W.2d 345).

[¶ 8] Interpretation of an insurance contract presents a question of law, fully reviewable on appeal. Tibert, 2012 ND 81, ¶ 9, 816 N.W.2d 31; Wisness v. Nodak Mut. Ins., 2011 ND 197, ¶ 5, 806 N.W.2d 146. This Court independently examines and construes the insurance contract to decide whether there is coverage. Grinnell Mut. Reinsurance v. Thies, 2008 ND 164, ¶ 7, 755 N.W.2d 852.

“Our goal when interpreting insurance policies, as when construing other contracts, is to give effect to the mutual intention of the parties as it existed at the time of contracting. We look first to the language of the insurance contract, and if the policy language is clear on its face, there is no room for construction. If coverage hinges on an undefined term, we apply the plain, ordinary meaning of the term in interpreting the contract. While we regard insurance policies as adhesion contracts and resolve ambiguities in favor of the insured, we will not rewrite a contract to impose liability on an insurer if the policy unambiguously precludes coverage. We will not strain the definition of an undefined term to provide coverage for the insured. We construe insurance contracts as a whole to give meaning and effect to each clause, if possible. The whole of a contract is to be taken together to give effect to every part, and each clause is to help interpret the others.”

State v. N.D. State Univ., 2005 ND 75, ¶ 12, 694 N.W.2d 225 (emphasis added) (quoting Ziegelmann v. TMG Life Ins., 2000 ND 55, ¶ 6, 607 N.W.2d 898 (citations omitted)). “Exclusions from coverage in an insurance contract must be clear and explicit and are strictly construed against the insurer.” Tibert, at ¶ 9; see also Schleuter v. Northern Plains Ins., 2009 ND 171, ¶ 8, 772 N.W.2d 879. Although a policy’s exclusionary clauses are strictly construed, this Court will not rewrite a contract to impose liability on the insurer when the policy unambiguously precludes coverage. Tibert, at ¶ 9; Schleuter, at ¶ 8.

[¶ 9] We have explained that in interpreting an insurance policy, we will first examine the coverages provided by the policy before examining a policy’s exclusions. Wisness, 2011 ND 197, ¶ 16, 806 N.W.2d 146 (quoting Robert D. Goodman, John C. Dockery & Matthew S. Hackell, 1 New Appleman Law of Liability Insurance § 1.04[1] (2d ed.2011)). “If and only if a coverage provision applies to the harm at issue will the court then examine the policy’s exclusions and limitations of coverage.” An exclusionary provision, or the absence of one, cannot be read to provide coverage that does not otherwise exist.” Wisness, at ¶ 16. Likewise, although an exception to an exclusion from coverage results in coverage, Fisher v. American Family Mut. Ins., 1998 ND 109, ¶ 6, 579 N.W.2d 599, an exception to an exclusion is incapable of initially providing coverage; rather, an exception may become applicable if, and only if, there is an initial grant of coverage under the policy and the relevant exclusion containing the exception operates to preclude coverage. American Family Mut. Ins. v. Am. Girl, Inc., 268 Wis.2d 16, 673 N.W.2d 65, 73 (2004) (holding “[t]he applicability of an exception will not create coverage if the insuring agreement precludes it or if a separate exclusion applies”); Sheehan Const. v. Continental Cas. Co., 935 N.E.2d 160, 162 (Ind.2010) (holding “it is the initial broad grant of coverage, not the exception to the exclusion, that ultimately creates (or does not create) the coverage sought”).

Ill

[¶ 10] Under the CGL policy’s insuring agreement, American Family is required to “pay those sums that the insured [K & L] becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” The policy provides that the insurance “applies to ‘bodily injury’ and ‘property damage’ only if: (1) The ‘bodily injury’ or ‘property damage’ is caused by an ‘occurrence’ that takes place in the ‘coverage territory.’ ” Thus, for coverage to apply under the CGL policy there must be “property damage” caused by an “occurrence.”

[¶ 11] Under the policy, “property damage” includes “[pjhysical injury to tangible property, including all resulting loss of use of that property” and “[l]oss of use of tangible property that is not physically injured.” The policy defines “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. We have, however, defined “accident” for purposes of a CGL policy as “happening by chance, unexpectedly taking place, not according to the usual course of things.” Wall v. Pennsylvania Life Ins., 274 N.W.2d 208, 216 (N.D.1979).

[¶ 12] The CGL policy at issue contains several exclusions to coverage, including a “your work” exclusion with a “subcontractor exception”:

This insurance does not apply to:

[[Image here]]

1. Damage to Your Work

“Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard”.

This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.

The policy defines “your work” as:

a. Work or operations performed by you or on your behalf; and

b. Materials, parts or equipment furnished in connection with such work or operations.

“Your work” includes:

a. Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of “your work”; and

b. The providing of or failure to provide warnings or instructions.

[¶ 13] K & L argues that the property damage to the house from the excavation subcontractor’s faulty workmanship constitutes an “occurrence” under the CGL policy and is within the initial scope of coverage provided by the insuring agreement of the CGL policy, even if the house is considered K & L’s work. K & L also argues the policy should be interpreted to give effect to the policy as a whole and the “subcontractor exception” to the “your work” exclusion should apply.

[¶ 14] Whether faulty workmanship of a subcontractor fits within the definition of “occurrence” under a CGL policy has been litigated in a number of jurisdictions. Sheehan Constr., 935 N.E.2d at 167. Currently, the majority of state supreme courts who have decided the issue of whether inadvertent faulty workmanship is an accidental “occurrence” potentially covered under the CGL policy have decided that it can be an “occurrence.” Compare Fejes v. Alaska Ins., 984 P.2d 519 (Alaska 1999) (holding there was an “occurrence” and coverage for damages caused by a subcontractor’s defective work on a septic system); United States Fire Ins. v. J.S.U.B., Inc., 979 So.2d 871 (Fla.2007) (holding that a subcontractor’s defective soil preparation, which was neither expected nor intended from the standpoint of the general contractor, was an “occurrence” under the CGL policy and the structural damage to the completed homes was property damage under the CGL policy); Sheehan Constr. v. Continental Cas. Co., 935 N.E.2d 160, modified 938 N.E.2d 685 (Ind. 2010) (on other grounds) (holding that faulty workmanship may constitute an “occurrence” if the resulting damage is an event that occurs without expectation or foresight); Lee Builders, Inc. v. Farm Bureau Mut. Ins., 281 Kan. 844, 137 P.3d 486 (2006) (holding unforeseen and unintended damage from leaking windows installed by an insured’s subcontractor was caused by an “occurrence”); Wanzek Constr., Inc. v. Employers Ins., 679 N.W.2d 322 (Minn.2004) (holding damage to a swimming pool caused by a subcontractor was covered under a CGL policy); Architex Ass’n, Inc. v. Scottsdale Ins., 27 So.3d 1148 (Miss.2010) (holding the term “occurrence” cannot be construed in such a manner as to preclude coverage for unexpected or unintended “property damage” resulting from negligent acts or conduct of a subcontractor unless otherwise excluded); Revelation Indus. v. St. Paul Fire & Marine Ins., 350 Mont. 184, 206 P.3d 919 (2009) (holding property damage to an insured’s products or completed work done for the insured by a subcontractor is an “accident” and the CGL policy provides coverage to the insured); McKellar Dev. v. Northern Ins., 108 Nev. 729, 837 P.2d 858 (1992) (holding soil compaction performed by subcontractors, which caused damage to buildings built by an insured, was an “occurrence” and covered under the Broad Form Property Damage endorsement); High Country Assocs. v. N.H. Ins., 139 N.H. 39, 648 A.2d 474 (1994) (holding that actual damage to the structure of the condominium units by continuous exposure to moisture from defective construction resulted in an “occurrence” covered by the CGL policy); Auto Owners Ins. v. Newman, 385 S.C. 187, 684 S.E.2d 541 (2009) (holding that a subcontractor’s negligent application of stucco to a home resulted in an “occurrence” under the CGL policy’s grant of coverage for the resulting progressive property damage to the home), overruled by Crossmann Communities of N.C., Inc. v. Harleysville Mut. Ins., No. 26909, 2011 WL 93716, at *1, 2011 S.C. LEXIS 2, at *1 (S.C. Jan. 7, 2011), withdrawn and substituted by 395 S.C. 40, 717 S.E.2d 589 (2011) (adhering to the result in Newman); Corner Constr. v. United States Fid. and Guar., 638 N.W.2d 887 (S.D.2002) (holding that the CGL policy provided coverage for a general contractor’s liability for property damage to the building as a result of the subcontractor’s faulty workmanship, which was an “accident” resulting in property damage); Travelers Indem. Co. of America v. Moore & Assocs., Inc., 216 S.W.3d 302 (Tenn.2007) (holding that defective workmanship may constitute an “occurrence” under a CGL policy; damages caused by faulty workmanship are “property damage” and “damages resulting from the faulty workmanship of a subcontractor are not excluded from coverage”); Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex.2007) (holding that a general contractor’s defective construction or faulty workmanship in building a house foundation is an “occurrence” within the meaning of the CGL policy); American Family Mut. Ins. v. American Girl, Inc., 268 Wis.2d 16, 673 N.W.2d 65 (2004) (holding that damage to a warehouse caused by soil settlement, which occurred because of a subcontractor’s faulty site-preparation advice was accidental, not intentional or anticipated, and was an “occurrence” within the meaning of the CGL policies); with Town & Country Prop. v. Amerisure Ins., No. 1100009 and 1100072, 2011 WL 5009777, *1 (Ala. Oct. 21, 2011) (holding a subcontractor’s faulty workmanship, standing alone, is not an “occurrence” under the CGL policy, but may be an “occurrence” if the faulty workmanship exposes personal property or other parts of the structure to continuous and repeated exposure to some other general harmful condition); Essex Ins. v. Holder, 370 Ark. 465, 261 S.W.3d 456 (2008) (holding defective or incomplete construction, standing alone, that results in damage only to the work product itself is not an “occurrence” under the CGL policy); Cincinnati Ins. v. Motorists Mut. Ins., 306 S.W.3d 69 (Ky. 2010) (holding a claim for poor workmanship in building a home does not involve the fortuity required to constitute an accident and is therefore not an “occurrence”); Oak Crest Constr. v. Austin Mut. Ins., 329 Or. 620, 998 P.2d 1254 (2000) (holding costs for the repair of a subcontractor’s deficient work did not arise from an accident under the CGL policy, but leaving open the question when there is damage to other property); Kvaerner Metals v. Commercial Union Ins., 589 Pa. 317, 908 A.2d 888 (2006) (holding poor workmanship in the construction of a coke battery, resulting in the product not meeting contract specifications and warranties, was not an “occurrence” under the CGL policy language). See also J. Randolph Evans & J. Stephen Berry, New Appleman on Insurance: Current Critical Issues in Insurance Law, on Construction Defect Coverage Law: Past, Present, and Future, § I-Appendix, at 1-31 (December 2008) [hereafter “New Appleman on Insurance ”].

[¶ 15] The history of the CGL policy demonstrates that the meaning of “occurrence” in the post-1986 CGL policy at issue here includes construction defect claims. The Florida Supreme Court recently addressed “whether a post-1986 standard form commercial general liability policy with products-completed operations hazard coverage, issued to a general contractor, provides coverage when a claim is made against the contractor for damage to the completed project caused by a subcontractor’s defective work.” United States Fire Ins., 979 So.2d at 877. The question in Florida was the same as the issue here.

[¶ 16] The Florida Supreme Court commenced its analysis by reviewing “The Origin and Evolution of CGL Policies.” United States Fire Ins., 979 So.2d at 877-80. The Florida court wrote:

Commercial General Liability policies are designed to protect an insured against certain losses arising out of business operations. The first standard form comprehensive general liability insurance policy was drafted by the insurance industry in 1940. The standard policy was the result of a voluntary effort in the insurance industry to address the misunderstanding, coverage disputes, and litigation that resulted from the unique language used by each liability insurer.

Since 1940, the standard policy has been revised several times. We review these changes because the insuring agreement has been expanded over the years and the exclusions narrowed. With regard to the insuring agreement, the language was expanded from providing coverage only for damages “caused by an accident” to include coverage for damages caused by an “occurrence,” which is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” In [State Farm Fire & Casualty Co. v.] CTC Development Corp., [720 So.2d 1072, 1076 (Fla.1998)], we explained that an “occurrence,” which is defined as an “accident,” encompasses damage that is “neither expected nor intended from the standpoint of the insured.”

Like the insuring language, the exclusions in standard CGL policies have been modified over the years. The exclusions that are of significance to our analysis in this case are the “business risk” exclusions, including the “your work” and “your product” exclusions. The 1973 standard CGL policy interpreted in LaMarche [v. Shelby Mutual Ins., 390 So.2d 325, 326 (Fla.1980),] contained broad exclusions for damage to “your work” and “your product” stating that the insurance did not apply

(n) to property damage to the named insured’s products arising out of such products or any part of such products; (o) to property damage to work performed by or on behalf of the named insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith.

Beginning in 1976, the insured could purchase a Broad Form Property Endorsement. This endorsement replaced exclusion (o), set forth above, and exclusion (k), which excluded damage to property owned by or within the control of the insured. As to exclusion (o), the endorsement replaced it with more specific exclusions and also differentiated between property damage that occurred before and after operations were completed.

[[Image here]]

Thus, with regard to completed operations, the endorsement eliminated the exclusion for “work perfonned on behalf of the named insured.”

When the CGL policy was revised again in 1986, it contained new provisions that incorporated and clarified the Broad Form Property Endorsement. New exclusion (j)(6) and the exception to this exclusion clearly stated that the exclusion for faulty workmanship did not apply to work within the products-completed operation hazard:

This insurance does not apply to:

j. Damage to Property

“Property damage” to:

[[Image here]]

(6) That particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it.

[[Image here]]

Paragraph (6) of this exclusion does not apply to “property damage” included in the “products-completed operations hazard. ”

The 1986 policy also added new exclusion (l), the “your work exclusion,” with an express exception for subcontractor work as follows:

This insurance does not apply to:

[[Image here]]

1. Damage To Your Work

“Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard”.

This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.

The reason for this 1986 revision that added the subcontractor exception has been explained as follows:

The insurance and policyholder communities agreed that the CGL policy should provide coverage for defective construction claims so long as the allegedly defective work had been performed by a subcontractor rather than the policyholder itself. This resulted both because of the demands of the policyholder community (which wanted this sort of coverage) and the view of insurers that the CGL was a more attractive product that could be better sold if it contained this coverage.

Moreover, the Insurance Services Office promulgated a circular on July 15, 1986, confirming that the 1986 revisions to the standard CGL policy not only incorporated the “Broad Form” property endorsement but also specifically “covered damage caused by faulty workmanship to other parts of work in progress; and damage to, or caused by, a subcontractor’s work after the insured’s operations are completed.” Insurance Services Office Circular, Commercial General Liability Program Instructions Pamphlet, No. GL-86-204 (July 15, 1986). Of course, the subcontractor’s exception to the general exclusion for a contractor’s defective work becomes important only if there is coverage under the initial insuring provision.

United States Fire Ins., 979 So.2d at 877-80 (citations, quotations, and footnotes omitted); see also Lamar Homes, Inc., 242 S.W.3d at 12 (recognizing the significance of the changes to the CGL policy in 1986); Am. Girl, Inc., 673 N.W.2d at 74 (holding “[t]he 1986 version of the CGL contains a modified ‘business risk’ exclusion that provides an exception for the work of subcontractors”).

[¶ 17] Considering this history of the CGL policy, the Supreme Court of Florida held:

We conclude that defective work performed by a subcontractor that causes damage to the contractor’s completed project and is neither expected nor intended from the standpoint of the contractor can constitute “property damage” caused by an “occurrence” as those terms are defined in a standard form commercial general liability policy. Accordingly, a claim made against the contractor for damage to the completed project caused by a subcontractor’s defective work is covered under a post-1986 CGL policy unless a specific exclusion applies to bar coverage.

United States Fire Ins., 979 So.2d at 875.

[¶ 18] One scholarly article summarized the Florida Supreme Court’s decision as follows:

The court first disagreed with the insurer’s numerous arguments against finding an “occurrence,” expressly rejecting “the use of the concept of ‘natural and probable consequences’ or ‘foreseeability¹ in insurance contract interpretation.” Second, the court rejected the insurer’s distinction between tort and contractual claims, because the policy does not distinguish between either form of liability. Third, the court noted that language in exclusions cannot create coverage, but insisted that “even if there were any ambiguity” in the insuring agreement, the existence of the “subcontractor exception” indicates coverage for damage caused by subcontractors. Fourth, the court rejected the insurer’s argument that “construing the term ‘occurrence’ to include a subcontractor’s defective work converts the policies into performance bonds” because “unlike an insurance policy, a performance bond benefits the owner of a project rather than the contractor.” Fifth, the court rejected the insurer’s argument “that faulty workmanship that injures only the work product itself does not result in ‘property damage’ ” because, like the “occurrence” definition, the “property damage” definition does not distinguish between damage to the contractor’s work and damage to other property. Finally, the court rejected the “public policy” argument against coverage, which had previously prevailed in the appellate courts of Florida as well as other states. The court agreed that there may be a “moral hazard” in insuring contractors who cut corners in their own work, but that hazard does not exist with regard to their subcon-, tractors, whom they do not control. Further, the court found no “windfall” for contractors because “the contractor gains nothing if insurance reimburses the costs of repairing the damage caused by the defective work.”

New Appleman on Insurance, supra § II[C], at 6.

[¶ 19] The Florida Supreme Court is one of several state supreme courts since 2006 that have held standard CGL policies cover general contractors for resulting damage to completed operations caused by faulty workmanship of their subcontractors. See United States Fire Ins., 979 So.2d 871; Sheehan Const., 935 N.E.2d 160; Lee Builders, Inc., 137 P.3d 486; Architex Ass’n, Inc., 27 So.3d 1148; Revelation Indus., 206 P.3d 919; Auto Owners Ins.,684 S.E.2d 541; Travelers Indem. Co. of America, 216 S.W.3d 302; Lamar Homes, Inc., 242 S.W.3d 1. This is the modern trend without even citing the numerous intermediate appellate courts and federal courts who have followed suit. New Appleman on Insurance, supra § II [C], at 7; see Greystone Constr. v. Nat’l Fire & Marine Ins., 661 F.3d 1272, 1282 (10th Cir.2011) (holding “[i]n fact, a strong recent trend in the case law interprets the term ‘occurrence’ to encompass unanticipated damage to nondefective property resulting from poor workmanship”).

[¶ 20] Holding that faulty subcontractor work is an “occurrence,” the Indiana Supreme Court reasoned:

CGL policies insure against liability for “property damage” caused by an “occurrence.” In turn the policies define “occurrence” as “an accident, including continuous exposure to substantially the same general harmful conditions.” The term “accident” is not defined in the policies. However, this Court has defined accident to mean “an unexpected happening without an intention or design.” Implicit in the meaning of “accident” is the lack of intentionality. The question presented is whether faulty workmanship is an accident within the meaning of a standard CGL policy. In our view the answer depends on the facts of the case. For example, faulty workmanship that is intentional from the viewpoint of the insured cannot be an “accident” or an “occurrence.” On the other hand if the faulty workmanship is “unexpected” and “without intention or design” and thus not foreseeable from the viewpoint of the insured, then it is an accident within the meaning of a CGL policy.

[[Image here]]

For an additional reason we find support for our conclusion that “accident” within the meaning of the CGL policies at issue in this case includes faulty workmanship. Although exclusionary clauses “do not grant or enlarge coverage,” contract construction principles instruct us to read the pertinent provisions of insurance policies together.... The CGL policies include an exclusion for damage to “your work” and then narrow the exclusion by expressly declaring that it does not apply “if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.” If the insuring provisions do not confer an initial grant of coverage, then there would be no reasons for a “your work” exclusion.

Sheehan Constr., 935 N.E.2d at 169-71 (citations omitted); see also Lamar Homes, Inc., 242 S.W.3d at 11-12; Clifford J. Shapiro, The Good, the Bad, and the Ugly: New State Supreme Court Decisions Address Whether an Inadvertent Construction Defect is an “Occurrence” Under CGL Policies, 25 Constr. Law., 9, 12-13 (Summer 2005).

[¶ 21] American Family argues this Court’s decision in ACUITY v. Burd & Smith Constr., 2006 ND 187, 721 N.W.2d 33, is dispositive. We disagree. In Burd & Smith, the insured was a general con-

tractor that contracted with apartment building owners to replace the building’s roof. Id. at ¶ 2. The building owners, in addition to tenants who had sustained property loss due to water damage, claimed the insured general contractor failed to protect the apartment building from rainstorms while replacing the roof, causing extensive damage to the building’s interior. Id. The insurer commenced a separate action, seeking a declaration that the insured’s CGL policy did not provide coverage for the damages in the underlying action. Id. at ¶ 4.

[¶ 22] In addressing the insurer’s argument that claims for damages based on allegations of defective workmanship could not constitute an “occurrence” under a CGL policy, our Court held that “property damage caused by faulty workmanship is a covered occurrence to the extent the faulty workmanship causes bodily injury or property damage to property other than the insured’s work product.” Id. at ¶ 16 (emphasis added). Our Court expressly agreed with the rationale of courts “holding that faulty workmanship causing damage to property other than the work product is an accidental occurrence for purposes of a CGL policy” because “[t]hat rationale is consistent with the coverage risks for a CGL policy and the plain and ordinary language of the policy.” Id. Our Court held the apartment owner’s claim against the insured was within the CGL policy’s coverage provisions because the owners had alleged damage to the apartment building’s interior, rather than only to the insured’s work product, the roof, and that claim was the type of risk covered by a CGL policy. Id. at ¶ 17.

[¶ 28] The holding in Burd & Smith thus adopted the rationale of other courts that under a CGL policy faulty or defective workmanship, standing alone, is not an accidental occurrence but “ ‘if faulty workmanship causes bodily injury or property damage to something other than the insured’s work product, an unintended and unexpected event has occurred and coverage exists.’ ” Id. at ¶ 15 (quoting Auto-Owners Ins. v. Home Pride Cos., 268 Neb. 528, 684 N.W.2d 571, 576-79 (2004)); see also Lexicon, Inc. v. ACE Am. Ins., 634 F.3d 423, 427 (8th Cir.2010); Essex Ins., 261 S.W.3d at 459-60; Kvaerner Metals., 908 A.2d at 899-900; Stoneridge Dev. v. Essex Ins., 382 Ill.App.3d 731, 321 Ill.Dec. 114, 888 N.E.2d 633, 654 (2008).

[¶ 24] The first question we address in the present case must be whether the faulty workmanship may constitute an occurrence. Our Court in Burd & Smith incorrectly decided the question of whether faulty workmanship may constitute an “occurrence” by drawing a distinction between faulty workmanship that damages the insured’s work or product and faulty workmanship that damages a third party’s work or property. This focus on the nature of the property damaged to define whether there has been an “occurrence” has been criticized by courts and commentators. See, e.g., Stephen N. Goldberg & James S. Carter Jr., 3 New Appleman Law of Liability Insurance § 28.03[l][b] (2d ed.2012) (“[t]he effect of this categorical rule is to eliminate any possibility of coverage for claims alleging construction defects that caused damage to the insured’s work only, even if the faulty work was performed by a subcontractor.”). Another court addressed the concern that, by looking at the scope of coverage through the lens of the “your work” exclusion, policy coverage was being created by something other than the insuring agreement’s grant of coverage. Stanley Martin Cos. v. Ohio Cas. Group, 313 Fed.Appx. 609, 613 n. 2 (4th Cir.2009). The court in Stanley Martin continued:

Although this is a valid point, it misses the mark slightly. The import of the “your work” exclusion and its subcontractor exception is not that the exclusion “creates” coverage. Rather, the import is that the exception lends insight into the baseline definition of “occurrence” from which parties and courts interpreting CGL policies should operate. If the definition of “occurrence” cannot be understood to include an insured’s faulty workmanship, an exclusion that exempts from coverage any damage the insured’s faulty workmanship causes to its own work is nugatory. If, on the other hand, the definition of “occurrence” does include an insured’s faulty workmanship, such an exclusion functions as a meaningful “limitation or restriction on the insuring clause.” Nationwide Mut. Ins. Co. v. Wenger, 222 Va. 263, 278 S.E.2d 874, 876 (1981) (quoting Haugan v. Home Indem. Co., 86 S.D. 406, 197 N.W.2d 18, 22 (1972)).

313 Fed.Appx. at 613 n. 2.

[f 25] There is nothing in the definition of “occurrence” that supports that faulty workmanship that damages the property of a third party is a covered “occurrence,” but faulty workmanship that damages the work or property of the insured contractor is not an “occurrence.” As the Supreme Court of Texas in Lamar Homes, Inc., 242 S.W.3d at 9, explained:

The CGL policy ... does not define an “occurrence” in terms of the ownership or character of the property damaged by the act or event. Rather, the policy asks whether the injury was intended or fortuitous, that is, whether the injury was an accident. As one court has observed, no logical basis within the “occurrence” definition allows for distinguishing between damage to the insured’s work and damage to some third party’s property:

The logical basis for the distinction between damage to the work itself (not caused by an occurrence) and damages to collateral property (caused by an occurrence) is less than clear. Both types of property damage are caused by the same thing — negligent or defective work. One type of damage is no more accidental than the other. Rather, ... the basis for the distinction is not found in the definition of an occurrence but by application of the standard “work performed” and “work product” exclusions found in a CGL policy.

Erie Ins. Exch. v. Colony Dev. Corp., 136 Ohio App.3d 419, 736 N.E.2d 950, 952 n. 1 (2000). We likewise see no basis in the definition of “occurrence” for the district court’s distinction.

[¶ 26] We conclude faulty workmanship may constitute an “occurrence” if the faulty work was “unexpected” and not intended by the insured, and the property damage was not anticipated or intentional, so that neither the cause nor the harm was anticipated, intended, or expected. This is consistent with our definition of “accident” for purposes of a CGL policy. See Wall, 274 N.W.2d at 216. To this extent we overrule Burd & Smith.

[¶ 27] Under the CGL policy, however, not every “occurrence” is covered. Only those occurrences that cause “bodily injury” or “property damage” are covered. We, therefore, next address whether the faulty workmanship resulted in “property damage.” The CGL policy defines “property damage” as “[pjhysical injury to tangible property, including all resulting loss of use of that property” and “[l]oss of use of tangible property that is not physically injured.” On this record, the damage to the home is stated as including cracks, unevenness, and shifting, all of which would fall within “physical injury” to “tangible property” for purposes of the CGL policy. Although the CGL policy grants coverage for “property damage,” the grant is limited by the exclusion for damage to “your work.” This exclusion would eliminate coverage but for the subcontractor exception to the exclusion under the CGL policy. We conclude that when “a general contractor becomes liable for damage to work performed by a subcontractor — or for damage to the general contractor’s own work arising out of a subcontractor’s work — the subcontractor exception preserves coverage that the ‘your-work’ exclusion would otherwise negate.” Lamar Homes, Inc., 242 S.W.3d at 12.

IV

[¶ 28] We reverse the trial court’s summary judgment. We conclude an “occurrence” may exist within the CGL policy coverage. We remand for the trial court to determine the facts, including whether the faulty work and the resulting property damage was unexpected and unintended. We also remand for the trial court’s consideration of the assertions by the insurer, American Family, that other exclusions are applicable to the facts of this case.

[¶ 29] CAROL RONNING EAPSNER

1 . Even if we revisit the precise holding in ACUITY that damage to the contractor’s work product caused by the contractor's defective work, the result likely does not change due to policy exclusions. Again, however, that analysis is best left to a case properly developed through the adversarial process. Sandberg v. American Family Ins. Co., 2006 ND 198, ¶¶ 19-21, 722 N.W.2d 359 (Crothers, J., concurring specially).