An Allegheny County judge has granted two insurers’ bids to free themselves from defending and indemnifying a builder who’s been sued over faulty workmanship by a property owner and retail chain.
Court of Common Pleas Judge R. Stanton Wettick Jr. ruled that American Home Assurance Co. and National Union Fire Insurance Co. were cleared of defense and indemnity coverage because the insured builder, Trumbull Corp., could not prove the property damages were “occurrences,” defined by its policy as an accident.
Wettick pointed to the state’s apparent seminal case as informative, but far from the “last word.” In that case, the court held there is no legal avenue for coverage for property damage that was caused by faulty workmanship in terms of the insured’s work product itself.
Other cases have since closed the gap in the jurisprudence, Wettick said, establishing that a commercial general liability policy does not cover property damage to an owner’s property caused by an insured builder’s faulty workmanship where the work was performed under a contract between the builder insured and the owner of the property.
But what happens when the alleged shoddy workmanship damages the property of a “stranger” — a party having no involvement with the project and no relationship with the insured?
That was the apparent issue of first impression lodged into American Home Assurance v. Trumbull. In the underlying lawsuit, a J.C. Penney store had rented a property on the lot that Trumbull built, but soon had to move out because of foundational problems. The store sued Trumbull and the owner of the property, which has also sued Trumbull.
The Foundry at South Strabane had owned the lot, but it is currently owned by HCB Foundry.
According to Wettick, a string of cases pointed toward finding the two commercial general liability insurers had no duty to provide coverage.
“In every case which I have discussed, the court has said that the definition of accident, required to establish an occurrence, cannot be satisfied by claims based on faulty workmanship,” Wettick said. “Furthermore, there is no language in any of the cases decided after Kvaerner which suggests that the courts’ interpretation of CGL policy — that injuries caused by faulty workmanship are not an accident — is flexible.”
He granted both insurers, American and National, motions for summary judgment. The insurance companies had issued excess CGL policies to Trumbull, providing $25 million in coverage. That included a duty to defend for “occurrences” resulting in property damages. Zurich American issued the underlying primary policies, which Wettick noted have not been exhausted. According to the opinion, Zurich is providing Trumbull a defense under a reservation of rights.
The two issues on which Wettick focused his 23-page opinion were whether Trumbull could prove “occurrence” and, if it could, whether coverage for the claims would otherwise be barred by a professional liability exclusion.
Trumbull did not clear the first hurdle.
Wettick outlined the cases in detail, with the apparent leading precedent being Kvaerner Metals v. Commercial Union Insurance.
In Kvaerner, the state Supreme Court established a bright-line rule holding that an insurer’s duty to defend a policyholder insured against accidents cannot be triggered by allegations of shoddy workmanship. In other words, the coke ovens that were damaged by torrential rain during their construction in that case were not the result of an accident for the purpose claiming court coverage under the insurance policies.
National Union claimed Kvaerner’s policies only permitted coverage for allegations of property damage caused by an “occurrence,” defined for purposes of the policies as an accident, and Bethlehem Steel’s complaint had not alleged the damages were caused by such an occurrence.
“The key term in the ordinary definition of ‘accident’ is unexpected,” Chief Justice Ralph J. Cappy wrote for the court in Kvaerner. “This implies a degree of fortuity that is not present in a claim for faulty workmanship.”
Kvaerner fell into what Wettick called a “Scenario One” fact situation, where the faulty workmanship causes property damage to the work product itself.
“If Kvaerner was the last word on insurance coverage for claims based on faulty workmanship, a substantial argument could be made that Kvaerner does not bar coverage where faulty workmanship caused property damage to the property of third parties.”
That’s because the J.C. Penney lawsuit was a “Scenario Four” situation, a novel issue Wettick described as a case where faulty workmanship “causes property damage to the property of a stranger, namely a person who had no involvement with the project and no relationship with the insured.”
“Scenario Two,” Wettick said, happens when faulty workmanship causes property damage to the larger project and the work was performed under a contract between the insured and the owner of the damaged property.
The third scenario, apparently aligning with the foundry’s claim against Trumbull, was similar to the second but differed only in that there was no contract between the insured and the owner.
In response to the motions for summary judgment, Trumbull had argued it may be entitled to “leeway,” according to Wettick, based on whether its negligence was excusable or inexcusable. The former, according to Wettick, was characterized as being fortuitous or not anticipated.
Wettick dismissed the theory.
“There is no reason why coverage or a lack thereof should be based on an artificial distinction between excusable and inexcusable negligence,” Wettick said. “If an exception is to be carved out of a policy interpretation that faulty workmanship is not an accident, it should be based on the relationship, or lack thereof, between the insured and the person who sustained property damage.”
According to the opinion, the foundry hired Pepper Construction Co. to serve as the general manager. Pepper then contracted with Trumbull to perform heavy construction at the site, including preparing a “pad” on which the J.C. Penney store would be built and a “geo-grid reinforced slope” at the site.
It was the pad and slope that J.C. Penney alleged Trumbull was negligent in constructing.
The insurers’ attorney, Joel M. Eads of Trenk, DiPasquale, Della Fera & Sodono, did not return calls requesting comment.
Michael H. Ginsberg of Jones Day in Pittsburgh, who represents Trumbull, did not return a call.
HCB’s attorney, James W. Creenan of Creenan & Baczkowski, declined comment.
(Copies of the 23-page opinion in American Home Assurance v. Trumbull, PICS No. 12-1992, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •