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)


Life Insurer Did Not Act In Bad Faith In Interpleader

life insurance

HARRISBURG, Pa., June 24 —  A federal judge in Pennsylvania has ruled that the  executrix of an estate failed to establish a right to relief for a life insurer’s alleged bad faith in denying her claim for benefits under a policy of life insurance.

MONY issued Steve Eckert a life insurance policy with a death benefit of $127,000.  His wife at the time, Carol, was named the beneficiary.  In 1989, however, The Eckerts divorced, but Steve Eckert failed to remove his ex wife as the beneficiary.   Eckert remarried to Pamela Eckert in 2006.

Eckert died, and the beneficiary was never changed.  MONY filed an interpleader complaint in the U.S. District Court for the Middle District of Pennsylvania, seeking to pay the proceeds into court.  Eckert’s current wife, Pamela, and former wife, Carol,  both filed answers and crossclaims.  Pamela also filed a bad faith claim against MONY, and a claim alleging violation of the Pennsylvania Unfair Insurance Practices Act.

MONY moved to dismiss the three counterclaims filed by Pamela Eckert.  District Judge William W. Caldwell denied the motion in part, but ordered breach of fiduciary duty and bad faith claims dismissed.  Pamela Eckert filed an amended answer, again alleging bad faith, and MONY again filed a motion to dismiss.

Judge Caldwell dismissed the bad faith claims again, finding that aside from her allegation that MONY denied her the policy proceeds, Pamela’s pleading did not support a bad faith claims since it was “wholly unconnected to a denial of benefits.”  He wrote:

“Subparagraphs (a), (d), (e) and (f) [of Eckert’s opposition brief], relate to a transfer of ownership, not to a denial of benefits. Even if they alleged actionable conduct (and we express no opinion on that matter), this conduct could not be understood to bear on a claim for policy proceeds. In other words, Eckert may be correct (at least in this case) that a transfer of ownership led to a denial of (or at least a dispute about) her claim for the proceeds of the policy, but the fact that an insurer’s conduct leads to a transfer of ownership does not mean it gives rise to a claim for denial of benefits after that transfer has been made. As judicially construed, section 8371 covers bad faith in denial of benefits, not bad faith in the transfer of ownership in a policy. Section 8371 does not reach the latter conduct.”

MONY Life Insurance Co. v. Carol Snyder, f/k/a Carol Eckert, and Pamela Eckert, No. 15-2109, M.D. Pa.; 2016 U.S. Dist. LEXIS 34371)(Caldwell, J.).