MAY 2012 BAD FAITH CASES: COURT RULES THAT BECAUSE FAULTY CONSTRUCTION WAS NOT AN “OCCURRENCE” TRIGGERING INSURED’S POLICY, BAD FAITH CLAIM WAS NOT POSSIBLE (Philadelphia Federal)

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In Roman Mosaic and Tile Company v. Liberty Mutual Insurance Company, the court granted a carrier’s motion for summary judgment. The case arose from alleged faulty construction performed by the insured, a subcontractor. After his apartment sustained water damage in June 2011, the property owner received benefits from its insurer, which subsequently brought a subrogation claim against the subcontractor, among others.

The subcontractor thereafter brought suit against its carrier in this action seeking defense and indemnification under its CGL policy. That carrier removed this case to federal court and filed a later motion for summary judgment.

They key issue here was whether the damages alleged in the underlying lawsuit constitute an “occurrence,” as defined by the CGL policy issued to the insured subcontractor. If the damage was covered under the policy, the insured might be able to allege that the carrier’s rejection of its insurance claim for a defense was unreasonable, as a predicate to a bad faith claim.

The court reasoned that, despite the insured’s re-styling of the claims against it as mere “negligence” and “the foreseeable consequences of that workmanship,” the claim against the subcontractor/insured was really a claim for poor construction work. There is substantial Pennsylvania law that supports the carrier’s claim that faulty workmanship claims do not involve an “occurrence” under GCL policies. As such, the insured subcontractor was unable to raise a genuine issue of material fact sufficient to defeat the carrier’s summary judgment motion and prove that the carrier acted in bad faith by denying coverage.

Date of Decision: April 5, 2012

Roman Mosaic & Tile Co. v. Liberty Mut. Ins. Co., NO. 11-6004, 2012 U.S. Dist. LEXIS 48354, U.S. District Court for the Eastern District of Pennsylvania (E.D. Pa. Apr. 5, 2012) (Baylson, J.)

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