Nebraska appellate court finds property damage caused by ground settling is not an “occurrence.”

A Nebraska appellate court, applying Nebraska law, held that a contractor’s settlement of an underlying property damage suit was not covered under a comprehensive general liability policy issued by Columbia National Insurance Co. (“Columbia”), because the underlying property damage claims arose out of faulty workmanship, which did not constitute an “occurrence” as defined in the policy.

The insured, a builder, sold a lot with a house constructed by the builder to a third-party purchaser.  Three years later, the purchasers notified the builder that the soil beneath the residence was settling and causing property damage to the residence. The builder notified Columbia of the claim and Columbia denied coverage. The builder and the purchasers reached a settlement without litigation.  In the settlement agreement, the parties described the claim as one “for damages to the Residence due to soil conditions and/or improper construction of the Residence by [builder], which claims [builder] denies.” The builder again submitted the claim to Columbia, who again denied coverage for the cost of the repairs, claiming that the damages did not arise from an “occurrence” as defined in the policy. The policy defined “occurrence” to be “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

After the denial of coverage, the builder filed suit in Nebraska seeking a declaration that Columbia must cover the settlement for the underlying property damage claim. The district court granted summary judgment in favor of the builder, finding that there was no faulty workmanship by the builder and, therefore, there was an “occurrence” under the policy. The district court also found that no policy exclusions applied.  Columbia appealed the district court’s decision.

On appeal, the appellate court looked to the allegations in the underlying complaint and the facts revealed in an investigation of the claim, to determine if there was coverage. The appellate court determined that, although the builder denied any negligence or that it engaged in faulty workmanship, the facts did not reveal any other cause for the house settling other than it having been built on soil that was not properly compacted. Under Nebraska law, faulty workmanship, standing alone, is not an occurrence. Therefore, the court found that the facts did not support an inference that the damage was caused by an occurrence. Because there was no occurrence, there was no initial grant of coverage under the policy, and therefore Columbia was not required to indemnify the builder. Cizek Homes, Inc., v. Columbia Nat’l Ins. Co., No. A-13-585 (Neb. Ct. App. Sept. 9, 2014).