United States District Court for the Northern District of Alabama


Insurance; Whether Damage to a Building Project Caused by Defective Construction or Faulty Workmanship can Constitute "Property Damage" Resulting from an "Occurrence" Triggering Coverage under a Commercial General Liability Insurance Policy; Whether Insurer's Bad Faith in Investigating Claim can Provide Basis for Bad Faith Cause of Action under Connecticut Law. This matter stems from problems associated with the construction of a student housing complex at the University of Connecticut (UConn). The plaintiffs, Capstone Building Corporation and Capstone Development Corporation, served as the general contractor and the project developer, respectively. UConn had a commercial general liability insurance policy in connection with the project, which extended to the plaintiffs and their work. The insurance policy was issued by the defendant insurer's successor in interest, and the policy's general insuring provision provides: "We will pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies." The policy further provides that it covers bodily injury and property damage only if such injury or damage is caused by an "occurrence" that takes place in the coverage territory. After the housing complex was completed, UConn discovered problems with the project. It entered into mediation with the plaintiffs to resolve those problems, which resulted in a settlement agreement. The plaintiffs then demanded that the defendant reimburse them for the legal fees that they incurred in the mediation process and for the settlement payments that they made to UConn. The defendant refused, and the plaintiffs filed lawsuits against the defendant in the United States District Court for the Northern District of Alabama, asserting breach of contract and bad faith causes of action. As to their bad faith claims, they alleged that the defendant did not adequately investigate the matter before denying coverage and failed to provide a legitimate reason for denying coverage. The defendant's position in the suits is that faulty workmanship does not constitute "property damage" as contemplated by the insurance policy. The Supreme Court accepted the following questions of law certified by the District Court pursuant to General Statutes 51-199b: (1) Can damage to a project contracted to be built, which was caused by defective construction or faulty workmanship associated with the construction project, constitute "property damage" resulting from an "occurrence," triggering coverage under a commercial general liability insurance policy? (2) Can an insurer's bad faith conduct in investigating an insurance claim provide a basis for a bad faith cause of action under Connecticut law? (3) Does Alderman v. Hanover Insurance Group, 169 Conn. 603 (1975), apply to pre-suit settlement cases wherein the insurer, under a commercial general liability insurance policy, wrongfully denies coverage, but where only some of the underlying claims should have been covered under the policy?