In 2012, Judge Wettick of the Allegheny County Court of Common Pleas issued two decisions that have the potential to significantly limit the insurance coverage available to Pennsylvania contractors and construction companies – Indalex, Inc. v. National Union Fire Ins. Co. and American Home Assurance Co. v. Trumbull Corporation. These decisions severely restrict the coverage historically provided by comprehensive general liability policies by holding that those policies do not cover any claims that arise from faulty workmanship. These holdings may preclude coverage for any tort claims asserted against your company if the allegations involve construction defects, even if you are sued for property damage or personal injury by a third party to your construction contract. Both decisions are currently on appeal to the Pennsylvania Superior Court. Indalex was argued January 9, with certain members of the Panel expressing concern with aspects of the holding.
This is a significant and problematic issue for construction companies. We have litigated this issue successfully for our clients despite the difficult and evolving law in this area. We have also helped our clients negotiate endorsements to best protect construction companies from the effects of these rulings. If you are facing a challenge by your insurance carriers to coverage for a construction defect claim or have any questions on how these decisions may affect your insurance coverage, please contact the authors of this Alert, or the Reed Smith attorney with whom you routinely work.