Posted on 09.29.14
Indalex v. National Union: another win for policyholders in construction cases
Source: http://www.lexology.com, September 25, 2014
By: Peter D. Laun, Jones Day
On September 18, 2014, the Pennsylvania Supreme Court rejected the petition for allowance of appeal filed by National Union of the Superior Court’s decision in Indalex Inc. v. National Union Fire Insurance Co. of Pittsburgh PA, 83 A.3d 418, 421 (Pa. Super. Ct. 2013). As set out in an earlier posting, the Superior Court in Indalex distinguished, and therefore limited, earlier holdings to the effect that faulty workmanship claims do not constitute an occurrence under standard-form commercial general liability (“CGL”) policies and therefore are not covered.
Had the Pennsylvania Supreme Court been of the view that the Superior Court’s opinion in Indalex was wrong or inconsistent with Pennsylvania law, it is safe to assume that it would have agreed to hear the case, particularly given the somewhat inconsistent earlier opinions on this issue by various Pennsylvania courts (including the Supreme Court itself). The Supreme Court’s declination to hear the appeal thus appears to reflect a recognition that the line of “no occurrence” cases specifically distinguished in Indalex—Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006), Millers Capital Ins. Co. v. Gambone Bros. Dev. Co., 941 A.2d 706 (Pa. Super. 2007), and Erie Ins. Exchange v. Abbott Furnace Co., 972 A.2d 1232 (Pa. Super. 2009)—went too far in restricting coverage for the types of liabilities arising in the construction and manufacturing businesses that plainly fall within the scope of CGL coverage: accidental property damage and bodily injury resulting from defective work or a defective product. Pennsylvania thus joins West Virginia as the two most recent states to adopt the view that faulty workmanship can constitute an occurrence or accident, which is consistent with the language in standard-form CGL policies. See http://www.law360.com/articles/455624/w-va-s-take-on-scope-of-cgl-in-defective-construction (discussing the West Virginia Supreme Court’s decision in Cherrington v. Erie Ins. Prop. & Cas. Co., No. 12-0036 (W. Va. June 18, 2013) (http://www.courtswv.gov/supreme-court/docs/spring2013/12-0036.pdf).
Given the strong industry effort by insurers in numerous jurisdictions to establish a rule that faulty workmanship or construction defects are not an “occurrence,” there is likely more to come on this subject in Pennsylvania and elsewhere, but for now Pennsylvania law has taken a firm turn in favor of policyholders and away from a narrow interpretation of coverage.
Had the Pennsylvania Supreme Court been of the view that the Superior Court’s opinion in Indalex was wrong or inconsistent with Pennsylvania law, it is safe to assume that it would have agreed to hear the case, particularly given the somewhat inconsistent earlier opinions on this issue by various Pennsylvania courts (including the Supreme Court itself). The Supreme Court’s declination to hear the appeal thus appears to reflect a recognition that the line of “no occurrence” cases specifically distinguished in Indalex—Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006), Millers Capital Ins. Co. v. Gambone Bros. Dev. Co., 941 A.2d 706 (Pa. Super. 2007), and Erie Ins. Exchange v. Abbott Furnace Co., 972 A.2d 1232 (Pa. Super. 2009)—went too far in restricting coverage for the types of liabilities arising in the construction and manufacturing businesses that plainly fall within the scope of CGL coverage: accidental property damage and bodily injury resulting from defective work or a defective product. Pennsylvania thus joins West Virginia as the two most recent states to adopt the view that faulty workmanship can constitute an occurrence or accident, which is consistent with the language in standard-form CGL policies. See http://www.law360.com/articles/455624/w-va-s-take-on-scope-of-cgl-in-defective-construction (discussing the West Virginia Supreme Court’s decision in Cherrington v. Erie Ins. Prop. & Cas. Co., No. 12-0036 (W. Va. June 18, 2013) (http://www.courtswv.gov/supreme-court/docs/spring2013/12-0036.pdf).
Given the strong industry effort by insurers in numerous jurisdictions to establish a rule that faulty workmanship or construction defects are not an “occurrence,” there is likely more to come on this subject in Pennsylvania and elsewhere, but for now Pennsylvania law has taken a firm turn in favor of policyholders and away from a narrow interpretation of coverage.
