Arkansas Court Ruling Clarifies Insurance Coverage in Construction Disputes
In a significant ruling that sheds light on how statutory definitions influence insurance coverage in construction disputes, the Arkansas Court of Appeals affirmed a lower court decision on April 9, 2025. The court held that Nationwide Mutual Insurance Co. must defend and indemnify NWA Restore-It, Inc. in a case involving property damage allegedly caused by faulty workmanship during flooring installation.
The case originated when homeowner Steven Hattabaugh hired NWA Restore-It in January 2019 to install new flooring following water damage to his home in November 2018. NWA subcontracted the installation to L&A Flooring, and the work was completed that same month. However, about six months later, the floor began showing signs of damage, including rippling and cracking. Despite L&A’s attempted repairs in September 2020, the issues persisted.
In March 2021, Hattabaugh and Amy Woods filed a lawsuit against NWA, alleging that the damage was caused by improper installation. NWA subsequently filed a third-party complaint against Nationwide, seeking a declaratory judgment that it was entitled to defense and indemnity under a commercial general liability policy issued to L&A, with NWA named as an additional insured.
Nationwide denied coverage based on exclusions in the policy’s additional insured endorsement. The Benton County Circuit Court granted NWA’s motion for judgment on the pleadings, holding that Nationwide owed a duty to defend and indemnify. Nationwide appealed, arguing that the exclusions applied since the flooring had been completed and was in use when the damage was discovered.
The Arkansas Court of Appeals disagreed with Nationwide’s arguments, citing Arkansas Code Annotated § 23-79-155. The court emphasized that under state law, the definition of ‘occurrence’ in commercial general liability policies includes ‘property damage or bodily injury resulting from faulty workmanship.’ The court found that the underlying complaint alleged damage occurring during installation, not afterward, and therefore did not fall within the cited exclusions.
The appellate court distinguished this case from S.E. Arnold & Co. v. Cincinnati Insurance Co. (2016 Ark. App. 587), where damages were limited to the contractor’s own product. In contrast, the damage in Nationwide v. NWA stemmed from alleged improper installation by a subcontractor, not from the product itself.
Because the pleadings alleged damage caused by faulty workmanship during ongoing operations, the court concluded that coverage was not clearly excluded, and the duty to defend and indemnify applied. The judgment of the Benton County Circuit Court was affirmed, with Judge Mike Murphy delivering the opinion and Judges Tucker and Wood concurring.
The ruling clarifies the interpretation of ‘occurrence’ in commercial general liability policies within Arkansas, particularly in cases involving faulty workmanship during construction projects. This decision has significant implications for insurance coverage in construction disputes, emphasizing the importance of statutory definitions in determining coverage obligations.
