Real Estate Journal — Professional Services — November 27 - December 10, 2015 — 9A
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C onstruction L itigation By Mohammad A. Ghiasuddin, Esq., Kaplin|Stewart Managing risk of faulty workmanship remains challenging under PA law
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isk mitigation is a key focus in construction management , and
The Court relied on several recent decisions, including the Third Circuit Court of Appeal’s decision in Zurich v. R.M. Shoemaker et al. (3d Cir., 2013), which found that “faulty workmanship under a contract is not sufficiently fortuitous” to meet the defini- tion of “occurrence” under a general liability policy. The Third Circuit explained that “the crucial inquiry dictating whether a general liability insurer must defend its in- sured under an occurrence- based policy is whether an event was sufficiently for- tuitous from the perspec-
tive of the insured to qualify as an ‘occurrence’.” That is, occurrence-based gen- eral liability policies are not generally intended to cover claims arising from failure to perform contractual obliga- tions. Both the Third Circuit and the State Farm Court relied heavily on an earlier Pennsylvania Supreme Court opinion, Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Com- mercial Union Ins. Co. (Pa. 2006) and a 2007 Pennsylva- nia Superior Court opinion, Millers Capital Insurance Co. v. Gambone Brothers Development Co. in reaching
their conclusions. The State Farm Court clarified that “[r]egardless of whether the claims are phrased as negli- gence, breach of warranty or breach of contract claims, the underlying litigation concerns faulty workmanship” and that therefore coverage was not triggered. Given the state of the law in Pennsylvania, mitigation against the risk of faulty workmanship remains a se- rious challenge for contrac- tors and construction man- agers. Care must be given in attempting to meet that challenge, and construction
professionals should seek the advice of their lawyers and brokers in considering other tools to help manage that risk. Mohammad A. Ghiasuddin is a principal of Kaplin Stew- art and a member of the Con- struction Law and Business & Commercial Litigation de- partments. Mr. Ghiasuddin’ s litigation practice involves representation of a variety of businesses in the con- struction industry, including developers, general contrac- tors, constructionmanagers, trade contractors, design professionals, insurers and bonding companies. n
many con- tractors and c o n s t r u c - tion manag- ers attempt t o re l y on occurrence- based gen- eral liabil- ity insurance po l i c i e s t o help manage
Mohammad Ghiasuddin
that risk. However, when it comes to the risk of claims arising from faulty work- manship, reliance on such policies is often misplaced. Although the question of whether occurrence-based policies provide coverage for damages arising from faulty workmanship has been treat- ed unevenly throughout the country, recent court cases interpreting Pennsylvania law have sided in favor of insurance companies. For example, in State Farm Fire & Casualty co. v. Brigh- ton Exteriors, Inc. (E.D. Pa., 2015), a federal district court inPennsylvania found that an insurer had no duty to defend or indemnify a subcontractor against claims of damages allegedly arising from faulty workmanship. Brighton, a stucco subcontractor, was insured by State Farm un- der a contractor’s policy and an umbrella policy, both of which were occurrence-based. Brighton had performed cer- tain stucco remediation work for a homebuilder. The owner of the home later sued the homebuilder for a variety of alleged defects with the property, including stucco issues, and the homebuilder in turn joined Brighton into the lawsuit as an addition- al defendant, alleging that Brighton was responsible for performing the stucco remediation work in a skill- ful and workmanlike man- ner. Although State Farm initially provided a defense to Brighton, it did so under a reservation of rights and brought the federal court law- suit for a determination that it had no obligation to defend or indemnify Brighton. The Court found in favor of State Farm, finding that the occurrence-based policies did not cover claims of faulty workmanship and that State Farmwas not obligated to de- fend nor indemnify Brighton.
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Contact: Mohammad A. Ghiasuddin • mghiasuddin@kaplaw.com 910 Harvest Drive, Blue Bell, PA 19422-0765 • 610-941-2546 • www.kaplaw. com Visit our Construction Blog: www.pennsylvaniaconstructionlawyer.com
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