Many Pennsylvania builders know that, since late 2006, insurance carriers have denied Pennsylvania builders insurance coverage under general liability insurance policies for claims alleging "faulty workmanship."  Generally, courts have confirmed that the carriers may deny coverage in these circumstances, typically reasoning that an insurance policy is not a surety bond and the parties to a construction contract should obtain a bond if they intend to preserve the right to recover from a third party for any defective work. 

One court recently took an expansive approach to an insurance carrier's ability to deny coverage for claims based on "faulty workmanship" in Pennsylvania.  In American Home Assurance v. Trumbull, Judge Wettick of the Allegheny County Court of Common Pleas found that insurers in Pennsylvania may deny coverage for any claims based on "faulty workmanship" - even for claims made by a stranger to the underlying construction contract.  In this case, a commercial tenant rented a property to operate a store and later moved out because of alleged problems with the builder's construction of the property.  The tenant and the builder never had a contract with one another and never had any relationship.  The tenant sued the builder for the damage it allegedly sustained.  The builder submitted the claim to its insurance carrier and the carrier denied coverage - properly, according to Judge Wettick.

What does this case mean for Pennsylvania builders?  Anytime a plaintiff sues a builder, alleging that it sustained damage because of a builder's faulty workmanship, the builder may not receive insurance coverage under a general liability policy for the claim.  This could include claims by commercial tenants for lost monies allegedly associated with faulty workmanship (e.g., severe water infiltration allegedly due to faulty workmanship causing a tenant to vacate and a loss of business).  It could even possibly include claims for personal injury that a plaintiff alleges resulted from a builder's improper construction practices.

The primary takeaway here is that builders should review their coverages with their professional advisors and confirm that they are taking the appropriate steps to mitigate risk and protect themselves.  Builders cannot simply assume that insurance coverage will exist under a standard general liability policy if they find themselves sued because it may not.