Wade Clark Mulcahy LLP

<p style="text-align: justify;">In<em> <a href="https://www.wcmlaw.com/wp-content/uploads/2021/03/Estate-Chimney-Fireplace-LLC-v.-Burlington-Insurance-Company.pdf">Estate Chimney &amp; Fireplace, LLC v. Burlington Insurance Company</a>,</em> Philadelphia Partners, Robert J. Cosgrove and Colleen E. Hayes were awarded summary judgement. By way of background, the Insured had commenced a declaratory judgment action, in the EDPA, seeking defense and indemnification from The Burlington Ins. Co. for underlying lawsuits stemming from its allegedly defective work in performing inspections and replacing chase covers for numerous chimneys in multiple condo developments. Burlington had disclaimed coverage to its Insured based, <em>inter alia</em>, on the fact that the policy did not provide coverage for defective workmanship.</p>
<p style="text-align: justify;">Following cross-motions for summary judgment, regarding whether Burlington owed defense and indemnity to its Insured for the underlying lawsuits, in a 15 page opinion, the EDPA agreed with Burlington and held that Burlington did not owe defense or indemnity to its Insured.</p>
<p style="text-align: justify;">In its opinion, the court stated the determinative question presented was clear. If the claims of the underlying lawsuits arose from faulty workmanship that caused no personal injury or property damage to the property of a third-party, Burlington was entitled to a declaration of no coverage under its policies.</p>
<p style="text-align: justify;">In its analysis, the EDPA stated under Pennsylvania law, for an occurrence to trigger coverage under the policy, the underlying lawsuit must allege something besides faulty workmanship. This was true even if the allegations were couched in terms of negligence, breach of contract, or breach of warranty. The court continued that if an occurrence triggered coverage, then a question arose as to the scope of coverage. When faced with deciding the scope of coverage, the court stated, an important factor was whether the faulty workmanship damaged the Insured’s product or the project on which the Insured worked; damages to “other property completely distinct from and unconnected to the insured contract” may still be covered. However, third-party damage was insufficient – by itself – to trigger coverage in the absence of an occurrence, as defined by the policy.</p>
<p style="text-align: justify;">Applying this case law, the EDPA stated that ultimately, for coverage to exist, the Insured needed to be able to point to some unforeseeable, fortuitous event. It was not enough for the Insured to merely show that the condo owners alleged damage to property beyond the chimney caps upon which the Insured worked.</p>
<p style="text-align: justify;">If the Insured caused foreseeable damage through its alleged faulty workmanship, those damages would still fail to come within the scope of the policy because they were not alleged to have been caused by an occurrence, as defined by the policy.</p>
<p style="text-align: justify;">Thus, looking to the allegations in the underlying lawsuits, the court concluded that there was no coverage under the policy because the allegations in the underlying lawsuits were built upon nothing but faulty workmanship. Thus, the Insured was not entitled to defense or indemnity, and Burlington’s disclaimer was upheld.</p>
<p style="text-align: justify;">This opinion not only reinforces prior Pennsylvania cannon that insurance policies do not provide coverage for defective workmanship, but also holds that third-party damage, in the construction defect context, may not always be sufficient to trigger coverage under an insurance policy.</p>
Please contact <a href="mailto:rcosgrove@wcmlaw.com">Bob Cosgrove</a> or <a href="mailto:chayes@wcmlaw.com">Colleen Hayes</a> with any questions