Construction defect claims raise insurance coverage questions when the damages sought are essentially for the work of the insured. A federal court judge in the Eastern District of Pennsylvania recently ruled that an insurer had no duty to provide coverage or defend its insured, a contractor, for its negligent roof installation.
The case <em><a href="http://blog.wcmlaw.com/wp-content/uploads/2016/10/Kims-Asia.pdf">State Farm Fire and Casualty Co. v. Kim’s Asia Construction</a></em>, stemmed from an underlying lawsuit filed by Powerline Imports, Inc. alleged that the State Farm's insured, Kim’s Asia Construction negligently installed a new roof that leaked during minor rain storms. Kim’s Asia sought defense and indemnification from State Farm for the claim.
State Farm began defending Kim Asia’s under a reservation of rights but subsequently filed a declaratory judgment action. State Farm argued that the underlying complaint essentially amounted to a claim of property damage based on faulty workmanship against its insured and that allegations of negligence against the insured did not bring the action within the scope of coverage. The court agreed with State Farm, ruling that State Farm had no duty to defend or indemnify Kim’s Asia under the policy.
The court cited the well-established four corners rule namely that “an insurer’s duties under an insurance policy are triggered by the language of the complaint against the insured.” See <em>Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co.</em>, 908 A.2d 888, 896 (Pa. 2006). In comparing the four corners of the underlying complaint to the insurance policy, the court held that leaks that arose from the contactor’s negligent installation of the roof were not entitled to defense or indemnity under the policy. Although Kim’s Asia argued that the leaks arose from alternative sources and were based upon claims of negligence, the analysis of the underlying complaint did not contain a causal nexus between the property damage and a fortuitous event, as required by the policy. The court, parsing the language of the complaint, arrived at the conclusion that the only claim alleged within the underlying complaint was faulty workmanship which does not qualify as an occurrence under the policy.
Thanks to Sathima Jones for her contribution.
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