Courts upset CGL coverage for faulty workmanship
String of legal decisions leaves agents scrambling
Contact:
Karen Robison
(717) 795-9100, Ext. 606
MECHANICSBURG, Pa. (July 29, 2010) – A string of Pennsylvania court cases has upset the long-standing interpretation of CGL coverage for faulty workmanship. The resulting coverage gap has left agents with contractor clients scrambling to find coverage for subcontractors’ faulty work and any consequential damage.
“Agents’ E&O exposure is at risk,” said Norm Basso, chairman of Insurance Agents & Brokers (IA&B) of Pennsylvania, “and it’s difficult to know which end is up with varying legal interpretations and carrier responses.”
While faulty work is excluded from CGL policies, a long-held exception allowed coverage for subcontractors’ faulty work. The Pennsylvania Supreme Court’s 2006 Kvaerner Metals v. Commercial Union Insurance Co. decision was the first to alter this interpretation. The court ruled that a subcontractor’s faulty work could not trigger coverage.
A 2007 Superior Court ruling (Millers Capital Insurance Company v. Gambone Bros.) expanded the Kvaerner interpretation and also excluded consequential damage caused by any faulty workmanship. As recently as June 2010, the argument and conclusion were upheld in Specialty Surfaces v. Continental Casualty.
“Some carriers have filed endorsements, presumably to restore coverage,” said Basso, “but none of these has been tested by the courts, nor do they address consequential damage.”
IA&B recently launched an initiative to educate carriers and agents about the coverage gap. Companies received an issue summary last week. IA&B will host an August webinar for member agencies to learn how the interpretation affects them and how to respond.
“Agents need to know how their carriers intend to interpret the cases and what to tell clients,” said Basso. “Our goal is to educate agents and carriers and facilitate their communication.”
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NOTE TO EDITOR: A copy of IA&B’s recent explanatory letter to carriers – including an issue summary – is available upon request.
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Insurance Agents & Brokers of Pennsylvania delivers preeminent programs, products and services to approximately 1,250 member agencies. Led by dedicated agent volunteers and staffed by 40 professionals, IA&B is recognized and respected nationally for its industry-leading efforts in agent professional development, advocacy, industry information and knowledge base, communications and more. IA&B is affiliated with the National Association of Professional Insurance Agents and the Independent Insurance Agents & Brokers of America.
For more information, visit www.iabgroup.com.
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