In one of the most impactful decisions of the last decade for both the insurance and construction industries, the Pennsylvania Supreme Court ruled in Kvaerner U.S., Inc. v. Commercial Union Insurance Co., that defective work was not an occurrence under a commercial general liability insurance policy when the underlying claims “triggering” coverage sound in contract. Courts in other jurisdictions, however, have been methodically swinging in the other direction. It may ultimately spell the end of the narrow reading the Kvaerner decision imposes on CGL policies in Pennsylvania.
The most recent example of the erosion of Kvaerner’snarrow definition of the term “occurrence” came in a case captioned Pennsylvania Mutual Casualty Insurance Company v. St. Catherine of Siena Parish. The federal Eleventh Circuit Court of Appeals held that “unexpected and unintended property damage” is an occurrence. Significantly, the Court agreed that the standard contractual liability exclusion in CGL policies does not provide an avenue to disclaim coverage.
The case arose when St. Catherine of Siena Parish hired a contractor to replace the roof on two of its buildings. One began leaking almost immediately after installation and the other showed signs of leaking within 18 months. The leaks infiltrated the building and began causing damage to walls and ceilings which were, importantly, not part of the contractor’s scope of work. Because the work was technically performed by a subcontractor, the “your work” exclusion could not be relied upon to deny coverage. Instead, the insurance company maintained that the failure to install the roof properly was a breach of contract claim and therefore excluded from coverage under the contractual liability exclusion clause of the policy.
After defending the contractor at trial and losing, the insurance company filed a declaratory judgment action seeking to have the claim declared outside the bounds of coverage. The U.S. District Court for the Southern District of Alabama ruled that an “occurrence” is defined as an accident. Accordingly, “unintended and unforeseen injury” that leads to damage to other areas of the structure beyond the cost of solely repairing the defective work is covered under the policy. The Eleventh Circuit then agreed and affirmed the District Court’s decision.
While this case is not legally binding precedent in Pennsylvania, it is another instance where other jurisdictions are seemingly moving away from the logic employed in Kvaerner. This growing line of cases may serve as influential, albeit non-binding, logic that pushes the Pennsylvania Supreme Court in another direction should the issue reach the Justices again.