Pennsylvania District Court Finds No Coverage for Faulty Workmanship
In State Farm Fire & Casualty Co. v. McDermott (E.D. Pa. Oct. 14, 2014), a Pennsylvania federal district court recognized the well-established rule in Pennsylvania that faulty workmanship resulting in construction defects is not caused by an “occurrence.” This coverage dispute arose out of work performed by McDermott at a residential housing development. After McDermott completed its work on windows and doors, the homeowners discovered water intrusion. They sued the developer, which, in turn, sued McDermott for negligence and breach of contract. McDermott sought coverage from State Farm.
In granting summary judgment for State Farm, the district court began its analysis with the fundamental Pennsylvania maxims that faulty workmanship is not an accident or occurrence, even if framed as a negligence claim, and general liability insurance policies do not cover breaches of contract. The district court found persuasive that the claims against McDermott were actually based on the failure to satisfy the contract, as McDermott contracted to perform work in a satisfactory manner and a “workmanship like manner.” The district court concluded that because McDermott’s potential liability stemmed from the alleged failure to meet contractual expectations, there could be no accident.
This decision is a clear victory for insurers. Although some jurisdictions recently have backed away from longstanding precedent that faulty workmanship does not constitute an “occurrence,” there are still a significant number of jurisdictions that foreclose coverage, based on the insuring agreement, for construction defect claims limited to repairing the insured’s own work.