Cincinnati Insurance Owes Indemnity For Contractor’s Negligence


PITTSBURGH, June 13  — An insurer must indemnify  its contractor and pay for a  homeowner’s recovery of $174,553.04 for defectively installed structural panels, a federal judge in the Western District of Pa. has ruled.

Gary Gadley hired Jerry Ellis Construction  to build a timber home made from Thermocore Structural Insulated Panel Systems SIPs. In 2011, Gadley bought the panels directly from Thermocore for use in his roof.

Gadley  claimed that Ellis was negligent in installing the SIP’s out of sequence and in violation of manufacture guidelines and specifications, sued Ellis for the error, and sought damages relating to repair and reconstruction.  In the underlying case, Ellis’ insurer, Cincinnati Insurance Co.,  defended Ellis subject under a reservation of rights.

Gadley won a verdict in the underlying case.  Specifically, the jury found that Ellis did not breach its contract with Gadley to install the SIPs. The jury found that while  Ellis did not breach his construction contract, he instead  breached expressed and implied warranties made to Gadley about the proper installation of the SIP’s.   Gadley was awarded $108,000 in damages for Ellis’ breach of the express and implied warranties reduced by nearly a third based on the jury’s finding that Gadley did not fully mitigate his damages.

Cincinnati sued Ellis and Gadley seeding a declaration of no coverage, and in that case moved for summary judgment.  They argued that the policy provided indemnity only for property damage caused by an occurrence, and that coverage was also excluded by a “damage to your own work exclusion.”  Gadley argued that this exclusion only applied to $25,000.00 of the verdict specifically allocated to damage to the SIP’s themselves.

U.S. District Judge Kim R. Gibson denied the motion for summary judgment,  pplying Indiana law to find that Ellis’ errors were not intentional and therefore, they were a covered “occurrence” under the policy:

“Because the jury determined that Jerry Ellis Construction did not engage in intentional or reckless conduct, the Court declined to grant Gadley’s request for treble damages. Instead, the Court doubled the damages that the jury awarded to Gadley. In applying the jury’s verdict in the underlying action to the instant matter, the Court cannot conclude that the Ellis Defendants’ faulty workmanship was intentional. Rather, the faulty workmanship was ‘unexpected’ and ‘without intention or design.’ The Ellis Defendants’ faulty workmanship therefore constitutes an ‘accident’ that is covered by the Policy.”

Judge Gibson also ruled that damages under Pennsylvania’s Unfair Trade Practices and Consumer Protection law were also covered:

“Plaintiff does not cite any provisions of the Policy to support its argument that Gadley’s UTPCPL damages are excluded. Rather, Plaintiff only argues that the Policy does not provide coverage for Gadley’s UTPCPL damages because the ‘property damage’ that Gadley sustained is not covered by the Policy. As discussed above, the Ellis Defendants’ faulty workmanship constitutes an ‘accident’ that is covered by the Policy. Accordingly, because the damages awarded to Gadley are not excluded by the Policy and are below the Policy’s limits, Plaintiff must indemnify the Ellis Defendants.”

Cincinnati Ins. Co. v. Jerry Ellis Construction  (W.D. Pa.., June 9 2016)



Author: CJ Haddick

C.J. Haddick is a Director with the law firm of Dickie, McCamey, & Chilcote, PC, based in Pittsburgh, Pa. He has advised and represented insurers in insurance coverage and bad faith litigation for more than three decades, and written and spoken throughout the United States on insurance coverage and bad faith prevention and litigation. He is Managing Director of the firm's Harrisburg, Pa. office. Reach him at or 717-731-4800.

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