Third Circuit Limits Scope Of "Occurrence" Under Commercial General Liability Policies
The U.S. Court of Appeals for the Third Circuit has now followed recent decisions in the Pennsylvania Supreme and Superior Courts holding that under Pennsylvania law, as it is to be applied in federal courts, claims of faulty workmanship are not insurable under a standard commercial general liability policy. The key in these cases is that a person or business entering an agreement to do work, who then do that work in a faulty manner, have not caused harm by some sort of accidental conduct that is subject to insurance coverage; but rather, they have breached a contract and cannot expect the insurance company to act as a surety or bonding company for work poorly done.
The key case here is the Supreme Court of Pennsylvania's decision in Kvaerner Metals Division of Kvaerner U.S. v. Commercial Union Ins. Co., which held that faulty workmanship is not an occurrence (accident) insured under a CGL policy. That decision was amplified by the Superior Court in Millers Capital Ins. Co v. Gambone Brothers Development Co., where not only the damaged work itself was uninsurable under those circumstances, but reasonably foreseeable consequences of the faulty work done in breach of a contract were likewise uninsurable. So if faulty work is done on a roof, the damage to the roof is not an insurable occurrence, and neither is damage done to the building's interior by rain leaking through that faulty roof. The Third Circuit followed both of these principles, citing Kvaerner and Millers Capital, in Nationwide Mutual Ins. Co. v. CPB International, Inc..