property other than the insured’s product.
In Indalex, Inc. v. National Union Fire
Ins. Co. of Pittsburgh, PA, 83 A.3d 418,
425 (Pa. Super. 2013), appeal denied, 627
Pa. 759 (2014), several lawsuits were filed
against Indalex alleging that windows
and doors it supplied to a residential
construction project were defectively designed or manufactured, resulting in water leakage that caused physical damage
to the underlying plaintiffs’ residences.
Relying on Kvaerner, the insurer asserted
that faulty workmanship and product
defects do not qualify as an “occurrence”
under the policy. The court disagreed
and found that the insurer owed Indalex
a duty to defend because the underlying
claims alleged property damage to property other than Indalex’s product.
An increasing number of jurisdictions
are joining the majority view that faulty
products and defective construction can
constitute “occurrences” under most CGL
policies, particularly where such products
or work cause damage to other property.
Therefore, policyholders should not as-
“Your work” and “your
sume that there is no coverage if their
products or work cause bodily injury or
Most CGL policies exclude coverage for
property damage to the insured’s product.
(See CG 00 01 12 07, Sec. I, Coverage A,
¶ 2.k.) “Your product” is typically defined
as any goods or products, other than real
property, manufactured, sold, handled,
distributed or disposed of by the insured.
Similarly, the “your work” exclusion
states that the CGL policy will not provide coverage for property damage to
“your work arising out of it or any part of
it and included in the products-complet-ed operations hazard.” (See CG 00 01 12
07, Sec. I, Coverage A, ¶ 2.l.) The purpose
of the “your work” exclusion is to prevent
a liability policy from acting as a performance bond covering a contractor’s work,
or serving as a warranty on the quality of
the work itself. Instead, the liability policy is intended to protect the contractor
when its work damages someone else’s
property. On the other hand, coverage
for faulty workmanship does not necessarily transform a liability policy into a
performance bond, because performance
bonds are broader than liability policies
in that they guarantee completion of a
construction contract upon the contractor’s default, and benefit the owner of a
project rather than the contractor. (See
U.S. Fire Ins. Co. v. J.S.U.B., Inc., 979 So.
2d 871, 888 (Fla. 2007)).
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Arbitration.indd 1 18/05/16 7:41PM
An increasing number of jurisdictions are joining the majority
view that faulty products and defective construction can
constitute “occurrences” under most CGL policies…