Gerry’s Desk: Faulty Work of Subcontractor Does Not Constitute Occurrence In General Liability Insurance Policy
From Gerry’s Desk: Faulty Work of Subcontractor Does Not Constitute Occurrence In General Liability Insurance Policy
Background
In the Kvaerner Metals vs National Union Fire Insurance Company ruling, the PA Supreme Court held faulty work of a subcontractor does not constitute an “occurrence” in a general liability insurance policy. If there is no “occurrence”, coverage is not triggered.
Prior to Kvaerner Metals vs National Union Fire Insurance Company, the general liability insurance policy provided coverage for faulty work if it was done by a subcontractor of the insured.
The Millers Insurance Company vs. Gambone Brothers (Gambone) case challenged the previous Supreme Court ruling set forth by Kvaerner.
In the Gambone case, water infiltration due to faulty work by a subcontractor caused property damage. Gambone asserted the water leak was the proximate cause of property damage and therefore qualified as an “occurrence”. The court disagreed and ruled the water damage was caused by faulty work, hence no “occurrence” and the general liability insurance policy should not respond.
New Precedence
In a ruling handed down on Dec 3, 2013, Indalex vs. National Union Fire Insurance Company, the Superior Court of PA took a different stance which may change the face of faulty workmanship claims in Pennsylvania.
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The underlying lawsuit claimed windows and doors were defective. The product defect resulted in water infiltration, mold, cracked walls, and personal injury. The lawsuit also included allegations of negligence, breach of warranty, and breach of contract. National Union claimed they were not required to provide coverage because there was no “occurrence” (relying on Kvaerner common law).
Indalex expressed disagreement in plain terms:
“the gist of the action has not been adopted by our Supreme Court in an insurance coverage context” and therefore, applying it “at this juncture in a duty to defend claim is inappropriate.”
Conclusion
The court held coverage under the general liability insurance policy was triggered:
“Because the underlying complaints alleged defective products resulting in property loss, to property other than Appellants’ products, and personal injury, we conclude there was an ‘occurrence.”
The Superior Court got to the right result. The court now recognizes the overly broad application of the “no occurrence” rulings in Kvaerner and Gambone.
If the Pennsylvania courts follow this ruling they will be joining the majority of other states. General liability policies exclude damage to the insured’s own work or products, but nowhere do they say liability for unintentional damage resulting from defective work or products is not covered.
This new ruling opens the door for the General liability policy to once again be relevant among contractors.
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