Pennsylvania Court Holds Faulty Workmanship Not an Occurrence

In its recent decision in Nat’l Fire Ins. Co. v. Gabe’s Constr. Co., 2015 U.S. Dist. LEXIS 37533 (M.D. Pa. Mar. 25, 2015), the United States District Court for the Middle District of Pennsylvania, applying Wisconsin law, had occasion to consider whether an underlying construction defect claim triggered coverage under a series of general liability policies.

At issue was coverage for Gabe’s work as a drilling subcontractor with respect to the installation of sewer pipes for Pocono Township. The Township asserted various claims against Gabe’s, including breach of warranty and indemnification, regarding the work. In particular, the complaint alleged that the sewer pipes could not be used absent repair.

Gabe’s general liability insurer, National Fire, and its umbrella insurer, Continental, denied coverage for these claims, taking the position that they alleged nothing more than faulty workmanship, and thus not an occurrence under the various policies. The insurers also contended that Pocono’s suit did not allege “property damage,” and that the policies’ business risk exclusions applied to bar coverage. Gabe’s, on the other hand, argued that the Township’s claim alleged property damage in the form of “loss of use of tangible property,” in that the sewer lines could not be used without repair.

Citing to Wisconsin law, which governed the policies, the court agreed that the underlying claim alleged faulty workmanship only, which under Wisconsin case law is necessarily intentional work and thus cannot be considered an occurrence. As the court explained, “the damage that resulted—the pipes not being installed in accordance with the contract—was purely the result of Gabe’s intentional actions.” These intentional actions, reasoned the court, resulted in the harms alleged. As such, Gabe’s faulty workmanship could not be considered an “occurrence” that triggered the policies’ duty to defend or indemnify.

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In its recent decision in Nat’l Fire Ins. Co. v. Gabe’s Constr. Co., 2015 U.S. Dist. LEXIS 37533 (M.D. Pa. Mar. 25, 2015), the United States District Court for the Middle District of Pennsylvania, applying Wisconsin law, had occasion to consider whether an underlying construction defect claim triggered coverage under a series of general liability policies.

At issue was coverage for Gabe’s work as a drilling subcontractor with respect to the installation of sewer pipes for Pocono Township. The Township asserted various claims against Gabe’s, including breach of warranty and indemnification, regarding the work. In particular, the complaint alleged that the sewer pipes could not be used absent repair.

Gabe’s general liability insurer, National Fire, and its umbrella insurer, Continental, denied coverage for these claims, taking the position that they alleged nothing more than faulty workmanship, and thus not an occurrence under the various policies. The insurers also contended that Pocono’s suit did not allege “property damage,” and that the policies’ business risk exclusions applied to bar coverage. Gabe’s, on the other hand, argued that the Township’s claim alleged property damage in the form of “loss of use of tangible property,” in that the sewer lines could not be used without repair.

Citing to Wisconsin law, which governed the policies, the court agreed that the underlying claim alleged faulty workmanship only, which under Wisconsin case law is necessarily intentional work and thus cannot be considered an occurrence. As the court explained, “the damage that resulted—the pipes not being installed in accordance with the contract—was purely the result of Gabe’s intentional actions.” These intentional actions, reasoned the court, resulted in the harms alleged. As such, Gabe’s faulty workmanship could not be considered an “occurrence” that triggered the policies’ duty to defend or indemnify.