Pennsylvania Court Finds No Coverage for Construction Defect Claims Under General Liability Policies
By Stevi Raab
In the case of American Home Assurance Co. v. Trumbull Corp., No. GD-11-006886 (Ct. Com. Pl. Allegheny County, Oct. 10, 2012), the court granted summary judgment in favor of two excess general liability insurers on a matter of first impression relating to coverage for damages caused by alleged faulty workmanship. The court held that, under Pennsylvania law, general liability policies do not cover such claims.
In 2007, Trumbull Corporation completed construction of a reinforced soil slope and foundation pad for a new J.C. Penney store in southwestern Pennsylvania. Shortly after the store opened, cracks began appearing in the J.C. Penney store and two additional buildings due to soil settlement. Three commercial tenants moved out of the shopping center because of the cracks and sued Trumbull for faulty workmanship. Trumbull submitted the claim to its primary and excess general liability insurers.
Trumbull’s primary insurer agreed to defend it under a reservation of rights, but Trumbull’s excess insurers filed an action against Trumbull seeking a declaration that they were not obligated to provide coverage. The excess insurers moved for summary judgment, arguing that, under Pennsylvania law, damage to buildings resulting from faulty workmanship does not constitute an “occurrence” under general liability policies.
In considering the excess insurers’ summary judgment motion, the court noted that Pennsylvania courts had previously considered coverage for construction defect claims under three fact scenarios: (1) where the work itself was damaged; (2) where there was damage to portions of the project and the work was performed under a contract between the insured and property owner; and (3) where there was damage to other portions of the project and there was no contract between the insured and property owner.
Although Pennsylvania courts had consistently agreed that an insurer may properly deny coverage for damage to the faulty work itself, the court noted that the last two situations could be analyzed under two inconsistent lines of reasoning: the first finding coverage for ancillary damage, and the second concluding that damage resulting from faulty workmanship is never covered because “faulty workmanship can never constitute an accident.” According to the court, Trumbull presented a fourth situation – i.e., where the faulty workmanship damages the property of a third party who was not involved in the project and had no relationship with the insured. However, because it concluded that Pennsylvania’s appellate courts have adopted the second of the lines of reasoning described above, the court held that the excess insurers were not obligated to provide coverage to Trumbull.
Trumbull indicates that Pennsylvania courts have adopted a blanket rule that general liability policies do not cover damages resulting from faulty workmanship. If appealed, the Trumbull decision will provide Pennsylvania’s appellate court with the opportunity to clarify Pennsylvania law regarding coverage for construction defect claims under general liability policies.