Pennsylvania law suggests construction defects generally are not considered an "occurrence" under most CGL insurance policies because defects are not true accidents, e.g., a fortuitous event. However, an exception generally exists for products-related claims as opposed to pure defect claims.
A recent case in the United States District Court for the Western District of Pennsylvania may narrow the distinction between product and non-product insurance coverage claims related to construction projects.
In Brayman Construction Corp. v. Westfield Ins. Co., Inc., (2:18-cv-457), the plaintiff brought a claim against Westfield for breach of contract and bad faith due to a failure to defend or indemnify it in an underlying arbitration.
In the underlying arbitration, Brayman had brought a claim against a subcontractor related to allegedly defective concrete work on a bridge, particularly drilled shafts for several of the piers. Brayman took an assignment of the subcontractor's insurance claims against Westfield.
Judge Horan found the complaint sufficiently alleged property damage to "something other than the concrete itself," which brings the claim within the holding of Indalex Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 2013 Pa. Super 311, 83 A.3d 418, 419 (2013). Indalex generally holds that products-related claims fall within the traditional CGL definition of occurrence.
Judge Horan distinguished the claims from those that would not be covered under the holding in Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 589 Pa. 317, 321, 908 A.2d 888, 890 (2006), which held that defective construction generally is not an "occurrence" because it is not "fortuitous." The Kvaerner court famously stated, in paraphrase, that insurance is not the equivalent of a performance bond, and tdefects in construction is akin to a contract claim as opposed to negligence.
The parties are continuing to litigate this case, and we will monitor the docket for any updates.
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