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Vol. 6, Iss. 3
March 22, 2017

For Those Of You Who Follow Kvaerner In Pennsylvania
Pennsylvania’s available coverage for construction defects is, to say the last, narrow. Pennsylvania courts hold that faulty workmanship is not an “occurrence.” That, in itself, is not uncommon. Many states say the same thing. But then Pennsylvania courts go a step further, holding in the well-known Gambone case that the natural and foreseeable acts of faulty workmanship “also cannot be considered sufficiently fortuitous to constitute an ‘occurrence’ or ‘accident’ for the purposes of an occurrence based CGL policy.” That is unique. These decisions have resulted in an absence of coverage for many construction defect suits – often times involving water damage and intrusion that is a consequence of faulty construction.

In State Farm Fire & Cas. Co. v. Jumper, No. 15-02389 (M.D. Pa. Mar. 3, 2017) a Pennsylvania federal court applied Pennsylvania’s construction defect rules to a less common situation: “In essence, the Underlying Action alleges that Weidner hired Defendant to repair the circuit breakers at Weidner's home, Defendant ‘improperly’ repaired the electrical system, and Defendant caused damage to Weidner’s home. The Underlying Action alleges nothing fortuitous about the fire originating in the electrical wiring or the resulting damage to the home.”

Oregon: Pollution Exclusion Applies To Carbon Monoxide
An Oregon federal court held that a pollution exclusion precluded coverage for bodily injury caused by exposure to carbon monoxide from a natural gas swimming pool heater. Colony Ins. Co. v. Victory Constr. LLC, 16-00457 (D. Ore. Mar. 9, 2017): “This Court does not even get to the point of considering the exclusion’s drafting history, multiple reasonable interpretations of the policy, or the policyholder’s reasonable expectations, because the plain meaning of the words ‘irritant’ and ‘contaminant’ resolve the case. This Court must follow the interpretative framework set out by the Oregon Supreme Court.”

New York Court Allows Reimbursement of Defense Costs (Slight Twist)
There are a bunch of New York federal decisions that have permitted an insurer to recover attorney’s fees for an insured’s defense, following a determination that no defense was owed, provided that the insurer reserved such right. So the fact that the court in United Specialty Ins. Co. v. CDC Housing, No. 16-406 (S.D.N.Y. Feb. 9, 2017) said just that is not a stop the presses moment. However, as a small aside, the insured argued that the insurer was not entitled to reimbursement because it reserved its rights to get back “costs,” and did not specifically say “attorney’s fees.” The court rejected the argument. But it’s a good thing to keep in mind. If an insurer is reserving the right to seek reimbursement of attorney’s fees, it should say just that. After all, “costs” does have a specific legal meaning. So why open up the door to an argument that the reservation of rights was meant to apply to something other than the fees incurred by defense counsel.

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