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Although insureds and their lawyers may tend to disagree, it is axiomatic that not every type of loss is covered by insurance. Indeed, in order to obtain coverage for a particular loss under a standard liability insurance policy it must first be considered an "occurrence." In an insurance context, an occurrence is usually synonymous with "accident." A Missouri appellate court recently affirmed a trial court's ruling on summary judgment in favor of an insurer because "the conduct which caused the damage was not an 'occurrence' as defined in the policy." American States Insurance Company v. W. Jon Mathis, EMCO Contracting Company, Inc. and The Guarantee Electrical Company, 974 S.W.2d 647 (Mo. App. E.D. August 18, 1998).

Plaintiff, American States Insurance Company, had issued a commercial general liability policy to EMCO Contracting Company, Inc. that covered property damage caused by an "occurrence" during the policy period. The policy defined "occurrence" as:

An accident, including continuous or repeated exposure to substantially the same general harmful conditions.

Defendant, The Guarantee Electrical Company, was an electrical subcontractor responsible for installing certain security and communication systems. Guarantee subcontracted with EMCO to construct and install duct banks to house the conduit for these systems. During the course of the project, Guarantee discovered that EMCO had improperly constructed the duct banks and failed to install rebar in accordance with the contract. EMCO was terminated, and a new contractor was retained to rip out the work and complete the job according to the specifications.

Guarantee instituted suit against EMCO and W. Jon Mathis for negligence and negligent misrepresentation and against EMCO for breach of contract. All of the counts were based on the fact that EMCO "dug the wrong trenches at the wrong grade in violation of contract documents and failed to reinforce the ducts with rebar as required by the contract." Id. at 648.

American States defended EMCO and Mathis, but also filed a declaratory judgment action to determine whether its insureds' failure to perform in accordance with the contract was an "accident" covered by the policy. The trial court eventually granted summary judgment to American States on the ground that Guarantee's damages were not caused by an "occurrence," because the improper construction of the duct banks was within EMCO's and Mathis's control and thus was not an accident.

On appeal, Guarantee argued that the damages arising from EMCO and Mathis's "failure to trench at the proper slope and grade were the result of an accident and that EMCO and Mathis neither intended nor expected these damages to result from their work." Id. at 649. American States claimed, of course, that the opportunity to perform the work correctly was within the control of EMCO and Mathis.

The appellate court agreed with American States, contrasting ordinary business risks with accidents covered under a CGL policy. "A commercial general liability policy is not intended to protect business owners against every risk of operating a business." Here, Guarantee's loss was caused by a breach of a defined contractual duty that could not fall within the term "accident." "Performance of the contract was within EMCO's control and its failure to perform cannot be described as an undesigned or unexpected event." Any damage to materials caused by the need to fix the damage was the normal, expected consequence of the breach, but not an "occurrence."

Following the American States decision, insurers should look closely not only at the allegations contained in a complaint but also at the cause of the loss. Should the damage complained of be attributable to the insured's failure to perform a specified task properly, at least in Missouri, insurers can successfully argue that the loss was merely the result of a breach of contract or poor business management that can and should be controlled as the predictable consequences of doing business -- not an "occurrence" subject to indemnity under a CGL policy.