The United States District Court for the Middle District of Pennsylvania decided on a case regarding whether a construction defect claim involving consequential damages caused by a defective product involves a covered “occurrence.” The case is Sapa Extrusions, Inc. v. Liberty Mut. Ins., No. 3:13-2827, 2018 U.S. Dist. LEXIS 73162 (M.D. Pa. May 1, 2018).

Sapa Extrusions Inc. (Sapa) is a company that manufactures and sells aluminum window extrusions, which are custom cut window frames made from aluminum alloys and painted. Marvin Lumber & Cedar Company, and Marvin Windows of Tennessee, Inc. (collectively known as Marvin) were longtime purchasers of the window frames, purchasing approx. 28 million frames between 2000 and 2010. Marvin used the frames to produce 8.5 million aluminum-clad windows and doors. Over time the paint on the aluminum portions of the windows and doors began to oxidize causing Marvin to undertake extensive repairs. To appease Marvin's customers, Marvin hired a third party to refinish the areas affected by the oxidation. Eventually Marvin ended up transitioning toward replacing the affected portions altogether due to concerns about the oxidation issues recurring. Marvin ultimately sued Sapa for repair costs to 25,000 aluminum-clad frames.

Sapa sought a declaratory judgment that it was owed coverage by Liberty Mutual Insurance Co. (Liberty Mutual) during the underlying action brought by Marvin, who alleged that the window frames were defective and required repair, and sought damages to recoup its repair costs. Marvin's complaint included breach of contract, breach of express warranty, breach of implied warranty, fraud, fraudulent concealment, negligent misrepresentation, and unlawful trade practices, but did not include any negligence based tort claims. Despite the fact that Sapa contended in the coverage action that Marvin sought compensation for the cost of repairing damage to property other than Sapa's window frames, the underlying complaint did not contain specific allegations of damages to such property.

The court found that the allegations contained in the underlying complaint were not to be considered “occurrences” for two reasons. First, the claims were based in contract and intentional acts, not in torts, and second, alleged faulty workmanship is not an “accident” and therefore not an “occurrence”, as established in Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co. The court also noted an exception to this rule which was established in a case called Indalex Inc. V. Nat'l Union Fire Ins. Co. The court in Indalex decided that a product-liability tort claim alleging damage to property other than the insured's product is an “occurrence.”

Because the case at hand involved defective window frames and evidence that property other than the windows were damaged as a result, the court held that there was no “occurrence” because the underlying complaint alleged neither a cause of action in tort nor damage to property other than the insureds product. The court noted the exception from Indalex and mentioned that there would have been a better chance at coverage had Marvin specifically pleaded damages to additional property in the underlying action.

The court determined that Liberty Mutual should not be held responsible for the damages to additional property, and granted summary judgment in favor of Liberty Mutual.

Editor's Note:

The decision in this case brings the focus to confliction in Pennsylvania case law regarding whether consequential damages resulting from a defective product is an “occurrence” under Pennsylvania law. The court stated that “the mere fact that additional damages subsequently flowed from the costly and disruptive repair process does not suddenly transform this non-occurrence into an occurrence,” a statement that directly opposes the holdings of the Indalex court, in a similar case involving defective windows. The factor distinguishing the two cases seems to be that the underlying claims in Indalex included the specific allegations of damages to other property as well as claims alleging products-liability based tort, while Sapa alleged no similar claims despite the apparent existence of evidence to support claims of damage to other property and torts based on products-liability.

The important cases noted in Sapa v. Liberty Mutual are Indalex Inv. v. Nat'l Union Fire Ins. Co., 2013 PA Super 311, 83 A.3d 418 and Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 589 Pa. 317, 908 A.2d 888 (2006).