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The Gist of the Action Doctrine Does Not Preclude Coverage for Defective Windows and Doors in Pennsylvania

1/8/2014 | Construction Blog

In a published opinion on December 3, 2013, the Pennsylvania Superior Court held that the gist of the action doctrine does not necessarily preclude coverage under a commercial general liability policy in Pennsylvania.

In Indalex, Inc. v. National Union Fire Insurance, Indalex sued National Fire to compel insurance coverage for claims being made against it in multiple out-of-state lawsuits. The underlying claims against Indalex were for the defective design and manufacture of certain windows and doors used in construction. It was claimed in the underlying lawsuits that these defective products caused water leakage that resulted in, among other things, cracked walls and mold damage. Those claims were framed as strict products liability, negligence, breach of warranty, and breach of contract claims.

After the trial court granted National Fire summary judgment, the Superior Court reversed on the grounds that a defense was owed as the complaints were plead. The analysis centered in part on the Supreme Court’s holding in Kvaerner Metals Division of Kvaerner U.S., Inc. v. Commercial Union Insurance Co. In that case, the Supreme Court held that there was not coverage for defective work under a commercial general liability policy because the defective work did not constitute an “occurrence” under the policy. That conclusion was based in part on the fact that the underlying claims in Kvaerner were contractually based.

In Indalex, the theories of liability were instead based largely in tort. Rather than arguing that they did not get the benefit of the bargain in the underlying actions, the Plaintiffs framed their complaints as a products liability and negligence claims. While Indalex argued that these claims were covered under its policy, National Union maintained that the gist of the action doctrine prevented Indalex from recasting the Plaintiffs’ claims as covered tort claims when they were really contract claims.

While the trial court sided with National Union, the Superior Court agreed with Indalex. In looking at the underlying complaints, the Superior Court concluded that the “gravamen” of the allegations sounded in tort. Central to this conclusion was the fact that the windows and doors were “off-the-shelf” products that failed and allegedly caused property damage and personal injury. The issue was a defective product, not bad workmanship in the Superior Court’s eyes. Since the claims were framed as tort claims, there was a sufficient foundation for coverage under the policy unless or until the tort claims were deemed invalid.

This decision represents one of the first cracks in the armor that is Kvaerner. If it stands – which seems likely at this point – it represents a possible work around to obtain coverage in certain types of construction cases where it was previously presumed to be impossible.