Breach of Warranty Not an Occurrence Under Commercial Liability Policy

A recent Missouri Southern District Court of Appeals ruling held that a claim for breach of the implied warranty of habitability was not an occurrence as defined in a builder’s commercial liability policy.

Facts of Case

Homeowners purchased and moved into a house built by Builder. Shortly after moving in, Homeowners noticed water in the lower level.  Water leaked into the lower level repeatedly for months. This caused a number of problems, including a foul odor, wet carpeting, wall damage, and mold and mushroom growth. It got the point that Builder sent crews to clean the house after every hard rain. Homeowners notified Builder of the problems with water leakage, but the problems were not repaired. They asserted a breach of the warranty of habitability because the house was not fit for the use for which it was purchased. Homeowners then sued for the breach of the implied warranty of habitability. At trial, the jury assessed the the Homeowners’ damages at $255,594.

Homeowners then sued Builder’s insurer, Barton Mutual Insurance Company (“Barton”), for equitable garnishment to collect the judgment. Barton denied coverage and contended that Homeowners’ claim was not covered under the commercial liability policy issued by Barton to Builder. At the trail against Barton, Homeowners asserted that the cause of the water leakage was unknown.

The Trial Court Ruling

The trial court ruled in Homeowners’ favor and found the the policy provided coverage. This meant Barton would have to pay the judgment. Barton appealed.

The Ruling on Appeal

The Southern District Court of Appeals found that there was no coverage and reversed the trial court’s judgment.

The policy defined “occurrence” as: an accident and includes repeated exposure to similar conditions. The court noted that an accident is an event that takes place without expectation or foresight. It is an undesigned, sudden and unexpected event. Further, the failure to perform work according to specifications (i.e., a breach of contract) is not an occurrence.

The appellate court noted that a judgment for Homeowners on the theory of breach of the implied warranty of habitability does not require a finding of negligence or foreseeability on the part of Builder. Therefore, because Homeowner admitted the cause of the water leakage was unknown, there was no evidence that the cause of the damage was an “occurrence.” As a result, the appellate court reversed the trial court’s judgment.


Ordinarily, the trial court’s judgment against the insured (Builder) would be binding upon the insurer (Barton). This means that, had Homeowners proceeded against Builder on a theory of negligence or one that required the jury to find that the damage resulted from an occurrence, the insurer could not have contested that fact in the equitable garnishment action. Unfortunately for Homeowners, they needed to establish the damage resulted from an occurrence in their action against Barton and did not do so. Therefore, if possible, plaintiffs should always plead and attempt to proceed to judgment on a theory that would result in insurance coverage. In this way, the insurer will not be able to relitigate certain facts that may relieve it of the obligation to pay the judgment.

The opinion can be found here.