|February 5, 2014|
Previously published on January 30, 2014
Most contractors know that the availability of commercial liability coverage for construction defects is a shifting and complicated issue that the courts have wrestled with over the years, with varying and inconsistent outcomes. Many in the industry report that the majority rule is that there is no coverage for anything related to faulty work by a contractor, but the debate rages on. On December 3, 2013, a Pennsylvania appellate court went in the other direction and found an “occurrence” in the construction setting. In the case of Indalex v. National Union Fire Insurance Company of Pittsburgh, a Pennsylvania intermediate appellate court added a win in the column of those that argue that faulty workmanship, at least in some instances, can result in an “occurrence,” and thus provide insurance coverage under a commercial insurance liability policy.
In Indalex, homeowners in several lawsuits in multiple states claimed that windows and doors that had been defectively designed or manufactured resulted in water leakage that produced cracked walls and mold, among other damages. In overruling the trial court’s decision, and in distinguishing several prior Pennsylvania cases, the court held that property damage that resulted from the defective products constituted an occurrence under Indalex’s insurance policy. The court said that there existed “an off-the-shelf product that failed and allegedly caused property damage.” While the decision did not go so far as to conclude that any faulty workmanship would result in insurance coverage, it provided a cogent reminder that when a construction product or scope of work damages other work or items on a project, like a home, often the contractor can rightfully argue that insurance should cover at least some of the claimed damages.
This pro-insured holding provides another important reminder to everyone in the construction industry. When faced with a claim, you should err on the side of caution and report the claim to your insurance agent. Don’t assume there is no coverage. Failing to put an insurance carrier on notice based on the assumption that a claim for faulty workmanship or an underperforming product automatically will result in not having insurance coverage could result in having a judgment that could have been covered by insurance, but wasn’t due to lack of notice. Past experience of case law may not be the last word on the subject, and the pendulum may be shifting more towards contractors, away from insurance companies, and away from older cases that more consistently held that faulty workmanship in any form was not entitled to any insurance coverage. Insurance issues are complicated, and Bernstein Shur’s construction lawyers are well versed in the area and are available to assist you when needed, either in procuring your insurance, or in responding to a claim.