The Third Circuit ruled on Friday that differing “occurrence” definitions can have materially different meanings in the context of whether product defect claims constitute an “occurrence” triggering coverage under general liability insurance policies. The Court held in Sapa Extrusions, Inc. v. Liberty Mutual Insurance Company, that product claims against Sapa may be covered under policies that define an “occurrence” as an accident resulting in bodily injury or property damage “neither expected nor intended from the standpoint of the insured.” However, the Court affirmed that coverage was not triggered under policies lacking the “expected” or “intended” limitation, reasoning that, under those policies, there was no question that the intentional manufacturing of Sapa’s product was too foreseeable to amount to an “accident.”

The coverage dispute arose from an underlying action in which Marvin, a window manufacturer, alleged that, between 2000 and 2010, Sapa sold it roughly 28 million defective aluminum window extrusions. Marvin alleged that the extrusions, which are metal frames that hold glass window panes in place, began to oxidize and break down shortly after they were installed, causing Marvin to incur substantial costs to fix and replace them.

Marvin sued Sapa in 2010 in Minnesota federal court, and the parties settled in 2013. Sapa sought coverage for the settlement from its eight general liability insurers for the period implicated by Marvin’s allegations. The insurers denied coverage and Sapa brought suit in the Middle District of Pennsylvania.

In May 2018, the Pennsylvania federal court held that there was no coverage available under any of Sapa’s 28 liability policies because Marvin’s claims did not arise from an “occurrence” that triggered coverage. Sapa appealed the ruling to the Third Circuit.

The Third Circuit affirmed the ruling with regard to 19 of Sapa’s 28 policies, but held that, because the “occurrence” definitions in the other 9 policies were more limited, requiring that the injury or damage be “neither expected nor intended” by Sapa, those policies should have been analyzed separately for any potential for coverage. The Court noted that Pennsylvania law requires that the court “‘give effect’ to the clear terms of the policies” which, in this instance, may lead to a different outcome under each “occurrence” definition.

The Third Circuit’s ruling in Sapa reaffirms a fundamental rule of contract construction – that contracts, including insurance policies, must be interpreted based on their specific language. As the court indicated in its decision, ignoring select policy provisions in favor of applying one general rule or analysis to differing policies can have the unacceptable effect of erasing language from the policy. The decision also serves as a reminder to policyholders to consider calling upon experienced coverage counsel to ascertain whether subtle differences in their policies can support a claim for coverage for what at first glance might not appear to be a covered claim.