It is well-settled in Pennsylvania that an insurer may properly disclaim coverage where a third-party complaint alleges faulty workmanship in the insured’s own work. Still, it appears that some policyholder law firms have recently latched on to the Pennsylvania Superior Court’s decision in Indalex, Inc. v. National Union Fire Insurance Co. to claim that Pennsylvania’s courts are “opening the door” to coverage of faulty workmanship claims. Convinced as they may be, however, we find that a careful reading of Indalex suggests the Court’s affirmation of the general rule that claims of faulty workmanship do not constitute “occurrences” under Pennsylvania law.
In Indalex, the insured manufacturer of certain watertight doors and windows brought suit against National Union Fire Insurance Co. for, amongst other things, failure to provide insurance coverage under a commercial umbrella policy. Specifically, the insured took exception to National Union’s disclaimer of coverage in several out-of-state suits wherein homeowners alleged strict products liability, negligence, breach of warranties, and breach of contract. Although National Union prevailed on summary judgment by arguing that the claims for breach of warranty and breach of contract barred coverage entirely under Pennsylvania law, the insured appealed to the Superior Court that the trial judge had improperly applied Pennsylvania’s “gist of the action” doctrine to decide an insurance coverage dispute.
On appeal, the three-judge panel of the Superior Court expressly found that the subject umbrella policy unambiguously disclaimed coverage for “property damage in [the insured’s] product” or work. Nevertheless, the Panel noted that the underlying complaints sounded in distinct product-based torts in addition to claims of faulty workmanship in the watertight doors and windows. The trial court it held, therefore, erred as a matter of law when it applied Pennsylvania’s “gist of the action” doctrine to conclude that each of the underlying lawsuits were, taken as a whole, a recasting of uncovered claims of faulty workmanship. Bearing in mind the axiom that the duty to defend is triggered if but a single claim in a multi-claim lawsuit is potentially covered under the policy, the Superior Court ultimately declined to find that the underlying suits were beyond the scope of coverage where they included allegations of damage to persons or property other than the insured’s own work.
Rather than upending Pennsylvania jurisprudence with respect to the insurance coverage of faulty workmanship claims, we believe that the Superior Court’s decision in Indalex merely reaffirms the scope of the duty to defend in multi-claim cases alleging defective workmanship. Consequently, it is our opinion that Indalex far from serves as a polestar for insureds seeking coverage of faulty workmanship claims, and instead reaffirms the fact that damage to the insured’s work does not constitute an “occurrence” under Pennsylvania law.
Special thanks to Adam Gomez for his contributions to this post. If you have any questions about it, please contact Bob Cosgrove at firstname.lastname@example.org.