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‘Faulty Workmanship’ Insurance Coverage Analysis Inapplicable to Storage Facility’s Leaky Roof (PA)

August 29, 2019

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<p style="text-align: justify;">The Pennsylvania Superior Court recently declined to extend the faulty workmanship analysis of insurance coverage to a case involving claims against a commercial landlord by its tenant for personal property damage caused by a purported defective condition of the landlord’s property.  In <em><a href="https://www.wcmlaw.com/wp-content/uploads/2019/08/PMIC-v.-Pottstown-1.pdf">PMIC v. Pottstown</a>, </em>2019 PA Super. 223, No. 3489 EDA 2018, the court heard an appeal following the trial court’s granting of a motion on the pleadings and declaration that PMIC had no obligation to defend or indemnify its insured in the underlying action. The complaint in the underlying action alleged that the premises that Pride Group leased from PMIC’s insured, Pottstown Industrial Complex, was flooded during rainstorms between July 2013 and June 2016.  Pride Group alleged that these floods damaged hundreds of thousands of dollars worth of Pride Group’s inventory that it had stored at the facility.  In the complaint, Pride Group asserted breach of contract claims against Pottstown Industrial as well as negligent maintenance and roof repairs claims due to Pottstown’s poor caulking of the roof, gaps in the roofing membrane, and undersized drain openings.</p>
<p style="text-align: justify;">PMIC issued a commercial general liability (CGL) policy to Pottstown providing defense and indemnity coverage for bodily injury and property damage liability.  The language of the policy stipulated that such coverage was provided only for property damage that was caused by an “occurrence,” which was defined as an accident, including continuous or repeated exposure to substantially the same general harmful conditions.  Following the close of pleadings, PMIC moved for a judgment on the pleadings and a declaratory judgment that PMIC had no obligation to defend or indemnify Pottstown on the grounds that the underlying action did not allege an “occurrence” under the terms of the policy.  The trial court ruled in favor of PMIC and declared that it did not owe defense or indemnity because the underlying allegations of inadequate roof repairs were claims for faulty workmanship and that faulty workmanship does not constitute an “occurrence” under controlling Pennsylvania law.</p>
<p style="text-align: justify;">On appeal, the Superior Court articulated the prevailing Pennsylvania case law that faulty workmanship itself does not constitute an “occurrence” and that a claim for damages from an insured’s improper performance of contractual obligations where the only property damaged is the product or property that the insured supplied or on which it worked, or where the damages sought are for the insured’s failure to deliver the product or perform the service it contracted to provide.  However, the Court explained that, under PA law, the fact that liability is based on an insured’s failure to properly perform contractual duties does not preclude the existence of an “occurrence” where the claim is for damage to property that was not supplied by the insured and/or that is unrelated to what the insured contracted to provide.</p>
<p style="text-align: justify;">The Superior Court went on to clarify that the instant underlying action did not allege damages based on replacement of the defective item that the Insured supplied (the inadequate roof itself), but rather to other property, namely Pride Group’s inventory that was stored on the premises.  Therefore, PMIC’s CGL policy provided insurance for a risk that CGL policies are intended to cover; that is, damage that the insured causes to another person’s property.  Thus, the Superior Court concluded that the trial court’s declaration that PMIC had no duty to defend or indemnify was incorrect because the underlying action alleged damage to other property as opposed to property that the Insured contracted to provide.  The Court then remanded the matter for further proceedings following its reversal of the trial court’s declaratory judgment.</p>
<p style="text-align: justify;">Thanks to Greg Herrold for his contribution to this post. Please email <a href="mailto:VPinto@wcmlaw.com">Vito A. Pinto</a> with any questions.</p>

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