Recent ruling by PA federal court confirms construction defect claims are not covered by Commercial General Liability policies.

While most states treat claims seeking damages for defective or faulty workmanship as covered under Commercial General Liability (CGL) policies, a recent United States District Court ruling confirms that Pennsylvania belongs to the small group of states with the much more unforgiving view that regards construction claims as not worthy of liability insurance coverage. In Main St., W.B. Homes developed a residential community, contracting with various trades to build the homes. W.B. Homes required these subcontractors to obtain liability insurance covering their work and, should homeowners sue W.B. Homes for damages due to allegedly faulty work, W.B. would tender the claim to these insurers. One of them, Main Street Assurance Co., then sued W.B. Homes for declaratory relief, arguing that under Pennsylvania law, it had no duty to defend W.B. Homes. Following Pennsylvania precedent, Main St. held that faulty workmanship is not an “occurrence” and, thus, claims grounded in faulty workmanship are not covered under CGL policies. See Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Com. Union Ins. Co., 908 A.2d 888 (Pa. 2006). Kvaerner, and now Main St., reason that CGL policies—which cover only liability caused by an “occurrence”—define “occurrence” as an “accident,” and “faulty workmanship does not constitute an ‘accident.’” Main St. confirms that risk transfer strategies for Pennsylvania construction projects based on traditional general liability insurance coverage will continue to be problematic. From a defense perspective, it is paramount that before obtaining a CGL policy, the parties negotiate amended language broadening coverage and/or seek favorable choice-of-law provisions. Alternatively, Owner Controlled Insurance Programs designed to provide coverage for construction defect claims may be prudent. Of course, the successful negotiation of favorable indemnity agreements with trades and suppliers also serves to curtail the risks inherent in CGL policies concerning construction defects. 

^{Case Law Alerts, 3rd Quarter, July 2022 is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Copyright © 2022 Marshall Dennehey Warner Coleman & Goggin, all rights reserved. This article may not be reprinted without the express written permission of our firm.}