On September 18, 2014, the Pennsylvania Supreme Court rejected the insurer’s attempt to reverse last year’s favorable ruling in Indalex Inc. v. National Union Fire Insurance Co. of Pittsburgh PA, 83 A.3d 418, 421 (Pa. Super. Ct. 2013). In Indalex, the Pennsylvania Superior Court held that insurance coverage is available to product manufacturers for negligence claims asserting damages to third parties. The court clarified that the Pennsylvania Supreme Court’s prior, coverage-limiting holding in Kvaerner is confined to cases where the underlying claims are for breach of contract and breach of warranty, and the only damages are to the insured’s work product. The Indalex court further rejected application of the gist of the action doctrine to the duty-to-defend analysis, affirming long-standing Pennsylvania law that, if even one tort claim is potentially covered, the insurance carrier’s duty to defend is triggered.
The Pennsylvania Supreme Court issued a one-page order denying the insurer’s petition for allowance of appeal. In light of the Pennsylvania Supreme Court’s summary refusal to hear the case, the Indalex opinion stands as the controlling law in Pennsylvania on this issue. The Indalex opinion was a much-needed clarification of the proper insurance analysis for faulty workmanship cases, and corrected a disturbing trend that improperly limited insurance coverage if there was any allegation of faulty workmanship within the underlying complaint. That rule, as established by Indalex, is inconsistent with Pennsylvania insurance principles, the purpose of comprehensive general liability policies, and the reasonable expectations of the policyholders purchasing that coverage.
We have litigated this issue successfully for our clients and have helped negotiate endorsements to best protect them in this coverage area. If you are facing a challenge by your insurance carriers to coverage for a defective product or faulty construction claim, please contact the authors of this Alert, or the Reed Smith attorney with whom you routinely work.
Client Alert 2014-246