Third Circuit Confirms that Pennsylvania CGL Insurers Have No Duty to Defend Claims Arising from Contractor's Faulty Workmanship and Resulting Foreseeable Damages

Author:Mr Jacob Cohn, Joseph A. Arnold and Greg A. Delfiner
Profession:Cozen O'Connor

On June 8, 2010, the U.S. Court of Appeals for the Third Circuit issued a precedential opinion in Specialty Surfaces International, Inc. v. Continental Cas. Co., No. 09- 2773 (3d Cir. 2010), confirming that an insurer has no duty under Pennsylvania law to defend or indemnify a contractor under a CGL policy for claims based on faulty workmanship and resulting foreseeable damages – even where the damage extended beyond the insured's own work product. In so ruling, the court relied heavily on two leading Pennsylvania appellate precedents in the construction defect arena established by members of Cozen O'Connor's Global Insurance Group, Kvaerner Metals Div. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006), and Millers Capital Ins. Co. v. Gambone Bros. Dev. Co., 941 A.2d 706 (Pa. Super. 2007), as well as its own recent precedent in Nationwide Mutual Insurance Co. v. CPB International, Inc., 562 F.3d 591 (3d Cir. 2009).

Specialty Surfaces International ("Specialty Surfaces") and its wholly owned subsidiary, Empire and Associates, Inc. ("Empire"), do business as Sprinturf, a Pennsylvania-based company that manufactures and sells synthetic turf. Specialty Surfaces is a Pennsylvania corporation, while Empire is incorporated in California. Both companies share a principal place of business in Pennsylvania. The underlying action involved allegations of breach of contract and negligence against Specialty Surfaces and Empire arising out of the installation of Sprinturf and drainage systems on four high school football fields in Shasta, Calif. The school district alleged that defects in materials and workmanship in connection with the synthetic turf systems, as well as failure of the subdrain system under the synthetic turf, resulted in improper drainage and fields with depressions and unstable playing surfaces. The school district further alleged that Spinturf breached the terms of its warranties by failing "to make good the aforementioned defects in materials and workmanship in a timely fashion."

Specialty Surfaces and Empire sought coverage under a CGL policy with Continental Cas. Co. ("Continental"). The policy required Continental to "pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies." It further provided that the insurance applies to "'bodily injury' or 'property damage' only if ... [t]he 'bodily injury' or 'property damage' is caused by an 'occurrence'...."...

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