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Third Circuit Court of Appeals Holds: Clear Language Defining “Occurrence” Matters (PA)

October 25, 2019

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<p style="text-align: justify;">Recently, in <em><a href="">Sapa Extrusions Inc v Liberty Mutual Insurance Company</a>,</em> the United States Court of Appeals for the Third Circuit was tasked with analyzing whether, under Pennsylvania law, Sapa Extrusions, Inc. (“Sapa”), a manufacturer of “originally coated extruded aluminum profiles”, was entitled to recover from its liability insurers the cost of settling a lawsuit alleging its product was defective. Based on long-standing Pennsylvania precedent, the Court determined coverage under the policies depended on the specific language in the respective policies. The Court’s decision is of particular interest as, Bob Cosgrove, counsel for Amicus Curiae Philadelphia Association of Defense Counsel, submitted an amicus brief providing guidance on the pertinent issue on appeal.</p>
<p style="text-align: justify;">By way of background, in 1996, Sapa and Marvin Lumber and Cedar Company and Marvin Windows of Tennessee, Inc. (collectively “Marvin”) entered an agreement requiring Sapa to abide by Marvin’s “Aluminum Extrusion Coating Specification” in its manufacturing process. Between 2000 and 2010, Sapa, in accordance with Marvin’s guidelines, sold approximately 28 million extrusions to Marvin – Marvin incorporated roughly 8.5 million of those extrusions in its windows and doors. Unfortunately, Marvin’s customers began complaining about issues they experienced with Sapa’s extrusions. Marvin, therefore, commenced a lawsuit against Sapa, alleging Sapa failed to adhere to Marvin’s specifications. After years of litigation, Sapa and Marvin finally settled the lawsuit.</p>
<p style="text-align: justify;">During the time Sapa supplied extrusions to Marvin, Sapa was insured by eight insurance carriers under twenty-eight commercial general liability policies (“CGL”). Like all CGL policies, these policies required an “occurrence” to trigger coverage – based on the allegations in the underlying lawsuit, the carriers disclaimed coverage to Sapa. In response, Sapa commenced the instant lawsuit against all eight carriers to assert breach of contract claims and seek a declaratory judgment to recover the cost of the underlying settlement.</p>
<p style="text-align: justify;">To ascertain whether Sapa was covered under the CGL policies, the Court relied on Pennsylvania’s “Four Corners Rule”, which provides an insurer’s duty to defend and indemnify stems from the factual averments contained in the complaint. Focusing solely on the complaint, the Court analyzed whether, inter alia, Marvin’s allegations of faulty workmanship constituted an “occurrence”, noting he CGL policies generally provided reimbursement to Sapa for “sums that [Sapa] becomes legally obligated to pay as damages because of . . . ‘property damage’ . . . caused by an ‘occurrence[]’”.</p>
<p style="text-align: justify;">After reviewing the CGL policies in detail, the Court discovered the CGL policies used one of three definitions. The first group of CGL policies defined “occurrence”, inter alia, as an accident – these CGL policies contained the “Accident Definition”. Since Marvin’s claims in the underlying complaint stemmed from faulty workmanship, the Court held the CGL policies containing this definition did not cover such claims. Essentially, the Court determined Marvin’s allegations did not amount to an unforeseeable, “fortuitous event”.</p>
<p style="text-align: justify;">The second group of CGL policies defined “occurrence”, inter alia, as an accident which results in property damage neither expected nor intended form the standpoint of the insured – these CGL policies contained the “Expected/Intended Definition”. The third group of CGL policies defined “occurrence”, inter alia, as injurious exposure, which results in property damage, neither expected or intended from the standpoint of the insured – these CGL policies contained the “Injurious Exposure Definition”. Unlike the Accident Definition, the Court reasoned the Expected/Intended Definition and the Injurious Exposure Definition latter required a subjective-intent standard that was not applied by the District Court. Through this standard, the Court reasoned the Expected/Intended and Injurious Exposure Definitions of “occurrence” were ambiguous. Therefore, to give proper effect to the clear language and terms of the CGL policies containing the Expected/Intended Definition and Injurious Exposure Definition, the Court remanded the matter to the District Court for further consideration.</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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