PA Court Suggests Bright-Line Rule in Coverage of Construction Defect Claims

An Allegheny County trial judge recently granted summary judgment in favor of two excess insurers on a matter of first impression relating to the coverage of claims for faulty workmanship.

In the case of American Home Assurance Co. v. Trumbull Corp., Trumbull was employed to prepare the foundational pad on which a new J.C. Penney store would be built in southwestern Pennsylvania. Trumbull completed its portion of the project in late 2006, but J.C. Penney and other shopping center tenants began to experience foundational cracks due to settling and sued for faulty workmanship shortly thereafter. Although Trumbull’s primary insurer agreed to defend the case under a reservation of rights, American Home Assurance and National Union Fire Insurance quickly instituted a declaratory judgment action against the contractor to disclaim excess coverage. The insurers argued that damage to the tenants’ buildings did not constitute an “occurrence,” that is, an accident, in light of Pennsylvania’s recent decisions on the coverage implications of faulty workmanship.

In considering the insurers’ summary judgment motions, Judge R. Stanton Wettick, Jr. quickly pointed out that Pennsylvania courts have yet to address this specific issue. He explained that coverage of faulty workmanship claims has been considered in three factual scenarios, namely: (1) damage to the work itself; (2) damage to the larger project where the work was performed pursuant to a contract between the insured and property owner; and (3) damage to the larger project where there is no contract between the insured and property owner. Although Pennsylvania courts unanimously agree that an insurer may properly disclaim coverage where the damage is to the work itself, judges have applied two conflicting lines of reasoning in respect of the remaining two situations. On the one hand, some previous cases have required coverage for ancillary damage while others have hold that faulty workmanship can never constitute an “occurrence.”

According to Judge Wettick, American Home Assurance presented a fourth factual scenario and thus an opportunity to reconcile the inconsistent treatment of faulty workmanship claims in coverage disputes. He ultimately concluded that the weight of authority supported a growing trend of per se disclaimers and ruled that the excess insurers could decline coverage solely on the nature of the faulty workmanship claim.

While the decision is not precedential, Judge Wettick’s well-reasoned opinion in American Home Assurance indicates that Pennsylvania courts are rapidly approaching a bright-line rule with respect to coverage of faulty workmanship and construction defect claims. Just as important, the ruling in American Home Assurance is likely to provide Pennsylvania’s appellate courts with the opportunity to address definitively coverage issues in construction defect and provide a modicum of predictability to these disputes.

Thanks to Adam Gomez, law clerk, for this post. If you have any questions or comments, please email Paul at .

“Regular Use” Exclusion Upheld in Auto Policy (PA)

In the recent case of Adamitis v. Erie Insurance Exchange, the Pennsylvania Superior Court enforced an insurer’s “Regular Use” exclusion despite the plaintiff’s argument that the provision violates public policy.

In early October 2005, plaintiff Adamitis was involved in a serious motor vehicle accident with an underinsured motorist while in the course and scope of his employment as a bus driver for the Berks Area Reading Transit Authority. As a result, Adamitis sought UIM coverage from Erie, but his claim was ultimately denied on the basis of a “Regular Use” exclusion which bars coverage for “bodily injury arising from the use of a non-owned motor vehicle or a non-owned miscellaneous vehicle regularly used by the insured” though not specifically identified in the policy. Unsurprisingly, Adamitis disagreed with his insurer’s coverage decision and brought suit against Erie in the Philadelphia Court of Common Pleas. The lower court, however, affirmed Erie’s decision in a bench trial citing the exclusion’s clear and unambiguous language.

On appeal, Adamitis argued to the Superior Court that, among other things, the “Regular Use” exclusion violates public policy and conflicts with the Motor Vehicle Financial Responsibility Law of Pennsylvania.   However, the Superior Court was likewise unconvinced by Adamitis’ contention and instead explained that the public policy behind UIM benefits is driven by the correlation between premiums paid and the coverage the claimant should reasonably expect to receive— nothing more. Accordingly, the appellate court reasoned that failure to enforce the “Regular Use” exclusion would run afoul of Pennsylvania’s public policy by requiring insurers to underwrite unknown risks for which theyhave not been paid.

Thus, at least with respect to UIM insurance coverage, the Adamitis court reiterated that you get what you pay for in Pennsylvania.

Thanks to Adam Gomez for his contribution to this post.  If you have any questions, please email Paul at




Hotel Finds No Room In[n] Its Claims Made Policies (NY)

This case involves disputed claims for coverage under two successive professional liability policies issued by Executive Risk to Starwood Hotels.  Here, in Executive Risk v. Starwood Hotels & Resorts, the Appellate Division, First Department found Executive Risk had no duty to defend or indemnify Starwood in the underlying action based on a “prior pending” exclusion in the second policy.

In 2001, Starwood entered into a contract for the construction and management of a luxury hotel with Castillo.  The contract required Starwood to provide Castillo with a design guide for the hotel, as well as review and approve plans for the hotel and for the selection of its interior designer.  However, on October 25, 2005, Castillo wrote to Starwood, complaining that Starwood had caused delays and cost overruns by failing to meet its responsibilities in implementing the hotel’s design.  As such, Castillo demanded $18,294,500 in damages, stating that it was prepared to resort to arbitration, mediation or litigation if its differences with Starwood could not be resolved.  On July 21, 2006, Castillo brought the underlying action against Starwood in federal court.

Here, the relevant insurance policies were “claims made” or “claims made and reported” policies under which coverage was available only with respect to claims first made and reported in writing during the applicable policy period or extended reporting period.  The first policy covered April 10, 2005 to June 10, 2006, and the second policy covered June 10, 2006 to June 10, 2007.

As an aside, Executive’s 2005-2006 policy did not provide coverage to Starwood because Castillo’s letter did not allege a “Wrongful Act,” that is, an act, error or omission committed solely in the performance of or failure to perform Professional Services.  In this case, the acts alleged did not fall within the  limited definition of Professional Services of 2005-2006 policy.  Thus, Starwood had to look to the 2006-2007 policy for coverage.

The Appellate Division found that the second policy’s “prior pending” exclusion applied, by which no coverage under the policy was available “based upon, arising from, or in consequence of any written demand, suit, or other proceeding pending, or order, decree or judgment entered for or against any insured on or prior to the inception date of the policy or the same or substantially similar fact, circumstance or situation underlying or alleged therein.”  While the lower court concluded that the “prior pending” exclusion did not apply, the Appellate Division used common sense (and a thesaurus) to find that Castillo’s October 2005 demand letter was in fact “pending” when the second policy commenced on June 10, 2006 and, therefore, coverage was precluded under that exclusion for the Castillo litigation.

Thanks to Joe Fusco for his contribution to this post.  If you have any questions, please email Paul at