Wade Clark Mulcahy LLP

<p style="text-align: justify;">The Eastern District of Pennsylvania in a declaratory judgment action, <em>In re Shelter Structures, Inc</em>., recently reaffirmed that Pennsylvania law typically does not provide coverage under a CGL policy for faulty workmanship.</p>
<p style="text-align: justify;">The underlying facts alleged that Shelter violated various building codes in the design and construction of an aircraft hangar. The aircraft hangar collapsed, destroying an aircraft and allegedly causing in excess of $10,000,000 of damages.</p>
<p style="text-align: justify;">After the collapse, the owner of the structure filed a lawsuit in the Philadelphia Court of Common Pleas alleging breach of contract, design defects, and construction defects. The insurer subsequently filed this instant DJ action, arguing that the CGL policy did not provide coverage for construction defects as a construction defect does not qualify as an “occurrence”.</p>
<p style="text-align: justify;">Citing <em>Kvaerner</em>, the District Court held that, “[u]nder Pennsylvania law, claims for faulty workmanship are not covered by occurrence-based provisions like this one because the term 'accident' implies a degree of fortuity that is not present in a claim for faulty workmanship.” Interestingly, Shelter argued that the Superior Court of Pennsylvania recently created an exception to the <em>Kvaerner</em> rule wherein an “occurrence” could plausibly be alleged with respect to damage to third-party property. We blogged about that decision <a href="https://www.wcmlaw.com/2019/08/water-continues-to-ebb-occurrences-in-construction-defect-cases-pa/">here</a>. The District Court disagreed, and held that</p>
<p style="text-align: justify;">"The Superior Court of Pennsylvania merely held that faulty workmanship does not preclude the finding of an occurrence when third-party property is damaged. An underlying complaint must still allege that the damage was caused by 'an unexpected and undesirable event' that 'falls within the definition of the term ‘occurrence’ under the [policy]' for there to be a duty to defend."</p>
<p style="text-align: justify;">For now, <em>Kvaerner</em> continues to remains “good” law, but this is just another example in which courts are being asked to limit its applicability.</p>
<p style="text-align: justify;">Thanks to Matt Care for his contribution to this post. If you have any questions or comments, please contact <a href="mailto:chayes@wcmlaw.com">Colleen Hayes</a>.</p>