APRIL 2018 BAD FAITH CASES: BAD FAITH CLAIMS CANNOT SURVIVE A DETERMINATION THAT THERE WAS NO DUTY TO DEFEND FAULTY WORKMANSHIP CASE (Philadelphia Federal)
This faulty workmanship case involves an insured-subcontractor which allegedly installed a faulty HVAC system in the underlying plaintiffs’ home. The insurer refused to defend the insured in the underlying action. The insured settled and assigned its claims against the insurer to the underlying plaintiffs. They brought breach of contract and bad faith claims. The insurer brought a declaratory judgment action, and the assignee counterclaimed for breach of contract and bad faith, among other things.
The court looked at existing Pennsylvania and Third Circuit precedent that “claims based on faulty workmanship do not constitute an ‘occurrence’” that could trigger coverage. The assignees cited several cases involving faulty workmanship that did trigger coverage. The court distinguished those cases as involving bodily injury claims and/or actively malfunctioning equipment likely to give rise to an accident, none of which was present here. The court concluded that because “bad faith claims cannot survive a determination that there was no duty to defend,” summary judgment must be entered for the insurer.