ACUITY v. KNISELY & SONS, INC., No. 3:15-76. (W.D. Pa. Aug. 9, 2016)(Gibson, J.)
In this declaratory judgment action, Acuity a determination as to its rights and obligations pursuant to its Commercial General Liability Insurance Policy issued to Knisely. The key question was Acuity’s obligations to defend and/or indemnify Knisely in a state court action filed by the Borough of Bedford (“Bedford”).
Bedford entered into a construction contract with Howard Robson, Inc. (“Robson”). Robson installed a boiler in Bedford’s wastewater treatment plant. Bedford immediately alleged that the boiler did not function properly. Bedford engaged Knisely to service the boiler. When this failed, Bedford sued Robson in the Bedford County Court of Common Pleas. Robson responded by filing a Joinder Complaint against Knisely. The joinder complaint alleged that (1) Knisely owed a contractual duty to complete repairs in a workmanlike manner, and its failure to do so caused the harms claimed by Bedford; and (2) Knisely owed a duty to not damage the boiler it was repairing, and it did so due to negligent workmanship.
Judge Gibson found that there was no “occurrence” alleged and held that Acuity had no duty to defend or indemnify Knisely, and granted summary judgment to the insurer. In so doing, Judge Gibson applied Kvaerner v. Commercial Union Ins. Co., 589 Pa. 317, 908 A.2d 888, 896 (Pa. 2006).
In Acuity, the Judge noted that coverage under the policy is only triggered if bodily injury or property damage “is caused by an occurrence that takes place in the coverage territory.” The policy defined an occurrence as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” A similar definition existed of Kvaerner: that Coverage under the policy is only triggered if bodily injury or property damage “is caused by an occurrence that takes place in the coverage territory.” The policy defines an occurrence as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
In applying Kvaerner, Judge Gibson analyzed the underlying complaints to determine whether they alleged the critical component of an “accident” that it is “unexpected,” such as when a product actively malfunctions and causes damage. Id. (citing Snyder Heating v. Penn. Manufacturers’ Ass’n Ins. Co., 715 A.2d 483, 485-86 (Pa. Super. 1998) (noting that the term “accident” implies an active malfunction, rather than poor workmanship)). Judge Gibson construed the underlying claims for breach of contract and breach of warranty as claims based on faulty workmanship, rather than an active malfunction, and concluded that coverage was not triggered under the policy because faulty workmanship claims “[do] not constitute an ‘accident’ as required to set forth an occurrence.” The court reasoned that claims based on faulty workmanship “do not present the degree of fortuity contemplated by the ordinary definition of `accident’ or its common judicial construction in this context.” … “To hold otherwise,” noted the court, would be “to convert a policy for insurance into a performance bond,” which the court was “unwilling to do . . . since such protections are already readily available for the protection of contractors.”
Judge Gibson found that the claims against Knisely arose entirely from allegations of faulty or deficient workmanship in the course of attempting to service or repair the Bedford boiler. Nothing in the underlying pleading suggests that the boiler’s failure to perform was the result of an accident, active malfunction, or other fortuitous event. As such, the allegations did not, as a matter of law, establish an occurrence under Kvaerner and its progeny. Kvaerner, 908 A.2d at 898, 900 (“[F]aulty workmanship does not constitute an `accident’ as required to set forth an occurrence” because “the ordinary definition of `accident’ . . . implies a degree of fortuity that is not present in a claim for faulty workmanship.”); Nationwide, 562 F.3d at 596 (claims based on faulty workmanship do not fall within the ordinary definition of accident).
Knisely attempted to distinguish its situation from Kvaernerby relying on Indalex Inc. v. National Union Fire Ins. Co. of Pittsburgh, Pennsylvania, 83 A.3d 418 (Pa. Super. 2013). In Indalex, several homeowners filed suit against a window manufacturer alleging that certain windows and doors installed in their homes were negligently designed and manufactured, resulting in water leakage, physical damage, and personal injury. The court noted that the damage in Indalex was the result of an “off-the-shelf product that failed and allegedly caused property damage and personal injury.” Id. at 424. The court also emphasized that, unlike in Kvaerner, the damage in Indalex extended beyond the work product itself.
Judge Gibson found that underlying action does not involve a bad product designed by Knisely, but rather, poor workmanship in the course of attempting to remedy the deficiencies in an existing product. Nor is there any suggestion that Knisely’s faulty workmanship caused damage to any person or property aside from the boiler itself.
Therefore, Pennsylvania law and federal precedents applying that law continue to distinguish between damage caused by workmanship and that caused by a completed product – the former not being covered by a comprehensive general liability policy, and that latter being covered provided it causes bodily harm or property damage to something other than the property itself.