Third Circuit Continues To Rule Faulty Workmanship Not Covered By CGL Policy

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PHILADELPHIA, JUNE  6 – The Third Circuit U.S. Court of Appeals  has recently affirmed a ruling in favor of Selective Way Insurance Company, holding that Selective does not have a duty to defend or indemnify an insured contractor for claims of faulty workmanship arising out of a ondominium construction project. 

In Lenick Construction, Inc. v Selective Way Insurance Company, Lenick was impleaded as a third-party defendant in litigation as the general contractor, Westrum, for defects at the Villas at Packer Park Condominium project.   Lenick notified Selective after it was joined,  seeking defense and indemnity and, while denying the request for indemnity, Selective agreed to defend Lenick in the case under a reservation of rights. 

Lenick sued Selective in the Philadelphia Court of Common Pleas, seeking a declaratory judgment obligating Selective to provide defense and indemnity from Selective , after which Selective removed the action to federal court.  Thereafter, the parties filed cross motions for summary judgment. 

In affirming the US District Court’s conclusion that the allegations against Lenick were not covered by the CGL policy issued to Lenick by Selective, the Third Circuit relied upon Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 589 Pa. 317, 908 A.2d 888, 896-97 (Pa. 2006) and held that the claims in the Joinder Complaint against Lenick did not allege a fortuitous “occurrence” such that the claim would be covered.  In the Opinion written by Chief Judge Hardiman, the Court held that a fair reading of the Complaint against Lenick was that Lenick was guilty of faulty workmanship. 

While Lenick contended that some of the damage to its work occurred as a result of the faulty workmanship of other contractors such that an occurrence could be found, the Court disagreed, referring again to the underlying complaint against Lenick which alleged Lenick’s faulty workmanship, not that Lenick’s work was damaged by the faulty workmanship of others.  Summary judgment in favor of Selective was therefore affirmed.

Lenick Constr., Inc. v. Selective Way Ins. Co., 2018 U.S. App. LEXIS 15197, 2018 WL 2727394

 

 

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New Jersey Senate Passes Bad Faith Bill

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TRENTON,  June 8 –  The State Senate of New Jersey has passed a Bill which will, if passed by the General Assembly and signed by the Governor, impact bad faith litigation in the Garden State.  On June 7, 2018, the New Jersey State Senate passed New Jersey Senate Bill 2144, the New Jersey Insurance Fair Conduct Act (IFCA).  The statue provides for remedies and damages against insurers who commit “an unreasonable delay or unreasonable denial of a claim for payment of benefits under an insurance policy” or a violation of New Jersey’s Unfair Claims Settlement Practices Act  (UCSPA).  The UCSPA catalogs more than ten different forms of insurer misconduct.

 In its current form, the statute is unclear as to whether or not it adheres to the New Jersey Supreme Court’s common law standard of bad faith conduct which holds that mere negligence is not bad faith and the refusal to settle a debatable claim does not constitute bad faith.  Under Supreme Court precedent, a bad faith Plaintiff must successfully show that there are no debatable reasons for the denial of insurance benefits. 

 The bill passed by the State Senate proposes treble damages and attorney fees as well as cost recovery as part of the remedies.  The Bill also provides for actual damages and the above-mentioned remedies “upon establishing” prohibited conduct, although it is silent as to the requisite burden of proof, e.g. preponderance of the evidence, clear and convincing proof.  The Bill has been referred to the State General Assemblies Banking & Commerce Committee. 

NJ Senate Bill 2144, New Jersey Insurance Fair Conduct  Act