Why it matters: In a victory for policyholders—and a continuation of the trend of courts adopting a broad reading of the term “occurrence” in comprehensive general liability (CGL) policies—a state court in California ordered three insurers to provide a defense in underlying product liability and faulty workmanship cases. The policyholder faced multiple suits alleging that pipes it had installed improperly became disconnected, resulting in water damage to surrounding property. The insurers argued that, under Pennsylvania law, third-party property damage based on faulty workmanship by the insured did not constitute a covered “occurrence” under the policies. But the California court disagreed, granting summary judgment for the insured. As an initial matter, the court held, the insurers failed to present “undisputed facts that eliminate any possibility of coverage,” and therefore had a duty to defend. And more generally, whether Pennsylvania or California law applies, “[t]he concept of ‘occurrence’ must be construed broadly to reflect the wide variety of circumstances which can result in property damage or bodily injury that an ordinary person would consider ‘accidental,’ even if the conduct giving rise to the insured’s liability was deliberate or intentional.”

Detailed discussion: Victaulic Company, a manufacturer of valves and piping products used in various industrial applications, purchased primary and umbrella CGL policies from various AIG-affiliated insurers. Under these policies, the insurers agreed “to pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies,” if the bodily injury or property damage is caused by an “occurrence.” The policies defined an occurrence as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

Victaulic was named in lawsuits filed in California, Colorado, Massachusetts, Oregon, Washington, and West Virginia alleging products liability and negligent installation of pipes that became disconnected, causing damage to construction projects. The insurers refused to defend Victaulic or indemnify it for settlements reached in certain of the cases.

Victaulic brought a declaratory judgment action in the Superior Court of California, Alameda County, and thereafter sought summary judgment that the allegedly improper installation work at issue was a covered “occurrence” in the policies. Victaulic asserted that California law addressing the meaning of “occurrence” controlled. The insurers responded that Pennsylvania law applied, and that Victaulic’s allegedly faulty workmanship did not constitute a covered “occurrence” under Pennsylvania law.

Focusing on the three cases filed in Massachusetts, Oregon, and West Virginia, the court first addressed the duty to defend. The plaintiffs in each case alleged property damage resulting from Victaulic’s allegedly faulty products and workmanship, the court explained. The West Virginia plaintiff asserted that a “catastrophic disconnection” of two water pipes released “thousands of gallons of water” at separate locations in a hospital project, resulting in damage to surrounding property. Likewise, the Oregon suit alleged property damage when several Victaulic couplings leaked.

Based on these facts, the court concluded that there was no conflict between California and Pennsylvania law on this issue, and that “the claims in the underlying cases give rise to the potential for coverage under the relevant insuring agreements because the claimants in each of the cases seek to hold Victaulic liable for ‘property damage’ caused by an ‘occurrence.’ ” Further, “[b]ecause the AIG defendants have not presented ‘undisputed facts that eliminate any possibility of coverage,’ they have the duty to defend Victaulic against those claims.”

The court then considered the meaning of “occurrence” in the policies more generally. Granting summary judgment to Victaulic, the court wrote that the “concept of ‘occurrence’ must be construed broadly to reflect the wide variety of circumstances which can result in property damage or bodily injury that an ordinary person would consider ‘accidental,’ even if the conduct giving rise to the insured’s liability was deliberate or intentional.”

Adopting the insurers’ position—that third-party property damage claims arising from faulty workmanship are not “occurrences” under the policies—would unduly limit the scope of the policies “and would effectively eliminate coverage for what may have been a central focus of the parties during the underwriting of the policies—product liability lawsuits brought against Victaulic,” the court concluded.

To read the order in Victaulic Co. v. American Home Assurance Co., click here.