The trial court's holding that there was no occurrence based on claims from faulty workmanship was reversed by the appellate division of the Pennsylvania Superior Court. The underlying claims were based on product liability tort claims, not faulty workmanship. Indalex Inc. v. National Union Fire Insurance Co. of Pittsburgh, PA., 2013 Pa. Super. LEXIS 3186 (Pa. Superior Court Dec. 3, 2013).
The underlying lawsuits claimed that the insureds' windows and doors were defectively designed or manufactured, which resulted in water leakage causing physical damage, such as mold and cracked walls. There were also personal injury claims.
The insureds had a primary policy with OneBeacon Insurance Group, but the policy limits were exhausted. The insureds turned to their commercial umbrella policy issued by National Union. The policy defined occurrence as "an accident, including continuous or repeated exposure to conditions, which results in Bodily Injury or Property Damage neither expected nor intended from the standpoint of the Insured."
National Union denied coverage because there was no occurrence. National Union relied upon the Pennsylvania Supreme Court's case, Kvaerner Metal Division of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A. 2d 888 (Pa. 2006). Kvaerner held that an occurrence could not arise from faulty workmanship. The trial court agreed and granted National Union's motion for summary judgment.
The appellate division reversed. Kvaerner was limited to situations where the underling claims were for breach of contract and breach of warranty, and the only damages were to the insured's work product. Here, an alleged bad product was involved, which could be construed as an "active malfunction," and not merely bad workmanship. Further, the definition of "occurrence" in Kvaerner did not contain the subjective definition, "neither expected nor intended from the standpoint of the Insured."
Because the underlying claims were based on liability-based tort claims and alleged damage to persons or property, other than the insured's product, the claims fell within National Union's policy.
