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If an Insured Landlord’s Alleged Faulty Workmanship Causes Damage to a Tenant’s Property, Is It Covered? (PA)

August 2, 2019

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<p style="text-align: justify;">Recently, in <a href=""><em>Pennsylvania-Manufacturers-Indemnity-Company-v.-Pottstown-Industrial-Complex-LP</em></a>, the Superior Court of Pennsylvania analyzed whether insurer, Pennsylvania Manufacturers Indemnity Company (“PMA”), was permitted as a matter of law to disclaim coverage to its insured, Pottstown Industrial Complex LP (“PIC”), for claims filed against PIC by PIC’s tenant, The Pride Group (“Pride”) (“Underlying Lawsuit”).</p>
<p style="text-align: justify;">According to the complaint in the Underlying Lawsuit, on four separate occasions, property, Pride leased from PIC, flooded causing over $700,000 in damages to Pride’s inventory. Pride claimed the water damage occurred because PIC failed to uphold its obligations under the lease to keep the roof in good repair. In the complaint, Pride only alleged a claim for breach of contract – yet, Pride did plead PIC was negligent for failing to properly maintain and repair the Property’s roof.</p>
<p style="text-align: justify;">After PMA received notice of the Underlying Lawsuit, PMA agreed to defend PIC subject to a reservation of rights. However, PMA then commenced the instant declaratory judgement action. After the close of pleadings, PMA filed a motion for judgment on the pleadings. Upon review, the trial court agreed with PMA holding PMA was not obligated to defend or indemnify PIC for the Underlying Lawsuit because Pride’s allegations of inadequate roof repairs equated to claims of faulty workmanship; therefore, the trial court held the alleged water damage did not constitute an “occurrence” as defined by the commercial general liability policy.</p>
<p style="text-align: justify;">Subsequently, PIC appealed, forcing the Superior Court to analyze whether the policy provided coverage for property damage to Pride’s property caused by faulty workmanship. The Superior Court held a claim of faulty workmanship, on its own, does not constitute an “occurrence”, especially where the only property damaged is, inter alia, “property that the insured supplied or on which it worked”. With this legal foundation in mind, and based on the case’s unique factual pattern, the Superior Court determined that since Pride sought to recover damage to its own property, which was stored at PIC’s property, Pride’s claim constituted an “occurrence.” In doing so, the Superior Court reasoned the property damage sustained by Pride was an accident – i.e., an “unexpected and undesirable event”. Although the Superior Curt noted the Underlying Lawsuit only asserted a breach of contract claim, the Superior Court stressed the factual allegations in the Underlying Lawsuit “determine whether the claims are within the coverage of an insurance policy, not the label of the cause of action selected by the underlying plaintiff.”</p>
<p style="text-align: justify;">In sum, the Superior Court’s holding is a reminder that, in the context of determining coverage, it is important to look beyond the labels of the claims and truly evaluate all factual allegations.</p>
<p style="text-align: justify;">Thanks to Lauren Berenbaum for her contribution to this post. Please email <a href="">Vito A. Pinto</a> with any questions.</p>


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