Insurance coverage disputes regarding faulty workmanship construction defects are common throughout the United States. In Pennsylvania, under the Supreme Court’s 2006 decision in Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., property damage claims arising out of poor workmanship are not covered under typical CGL policies.
Recently, the court of Appeals for the 3rd Circuit followed Kvaerner, and ruled that a subcontractor’s defective workmanship claim was not covered. In Lenick Constr., Inc. v. Selective Way Ins. Co., No. 16-1891, 2018 WL 2727394 (3d Cir. June 6, 2018), the court addressed a coverage dispute concerning underlying claims for water infiltration, leaks and cracked drywall at a condominium project. Lenick Construction, Inc. (Lenick) was a subcontractor that performed carpentry work, and installed windows and doors provided by the developer.
The Court of Appeals rejected Lenick’s claim that the water infiltration and cracking issues amounted to covered consequential damages beyond Lenick’s own work itself. Relying upon its prior decision in Specialty Surfaces Int’l v. Continental Cas. 609 F.3d 223 (3d Cir. 2010), the court reiterated that “damages that are a reasonably foreseeable result of the faulty workmanship are . . . not covered,” even when damage occurs to areas outside the work provided by the insured.
The court also rejected Lenick’s argument that damage was caused by other subcontractors, and/or by defective materials supplied by the developer. In evaluating coverage, the court focused upon the allegations of the underlying complaints. According to those allegations, Lenick’s own faulty workmanship was the alleged cause of alleged damage, not the work of others. Similarly, the underlying pleadings did not contain any allegation sufficient to support Lenick’s claim that materials supplied by the developer, and used by used by Lenick, caused the alleged damage.
Claims of faulty workmanship do not constitute an occurrence under typical liability policies under Pennsylvania law. Despite insureds’ efforts to avoid the holding in Kvaerner, Pennsylvania courts continue to adhere to Kvaerner and find that there is no coverage for defective workmanship claims.