Pa. Supreme Court Issues Important Coverage Decision in Construction Defect Case
November 14, 2006

On October 25, 2006, the Pennsylvania Supreme Court issued an important opinion in Kvaerner Metals Division of Kvaerner U.S., Inc. v. Commercial Union Insurance Company, a construction defect case, holding that there is no coverage under a commercial general liability (CGL) insurance policy for a claim based upon faulty workmanship.

The Court stated that faulty workmanship is not an "occurrence" under the policy triggering coverage, since it was not the result of an "accident" as required for coverage to apply under the policy. The Court stated that to hold otherwise would be to convert a policy of insurance into a performance bond. The Court also found that the Superior Court erred in looking beyond the allegations of the complaint to determine if Commercial Union had a duty to defend Kvaerner, and in finding that the construction defect may have been the result of an "occurrence", stating that in doing so, the Superior Court departed from established precedent requiring that an insurer’s duty to defend and indemnify be determined solely from the language of the complaint against the insured.