Key Victory for Builders in Insurance Coverage Case

Filed in Construction Industry, Legal by on June 11, 2015 0 Comments

Gavel_istock_6879813In a resounding victory for builders who obtain construction general liability insurance to protect themselves from property damage arising out of inadvertent and alleged construction defects, the U.S. Court of Appeals for the 11th Circuit on June 10 reversed a lower court ruling in the case of Pennsylvania National Mutual Casualty Insurance Co. v St. Catherine of Siena Parish. The 11th Circuit covers Alabama, Florida and Georgia.

St. Catherine had contracted with Kiker Corp. to re-roof two of its buildings. Later the roofs began leaking and St. Catherine hired an inspector who found construction defects and installation errors concerning the shingles.

St. Catherine subsequently filed suit against Kiker, alleging that Kiker breached the implied warranty in the parties’ contract to repair the parish’s roof using reasonable skill. Following a jury verdict, St. Catherine’s was awarded $350,000 from Kiker.

At issue was whether Pennsylvania National, Kiker’s commercial general liability insurer, was required to indemnify the parish. Penn National argued there was no coverage under the policy because the contractual liability exclusion in the insurance policy barred coverage for the parish’s breach of contract claim alleging a breach of the implied warranty in the contract.

A federal court in Alabama on April 25 upheld Penn National’s claim that it did not have to pay damages in the case.

When the case went to the 11th Circuit on appeal, NAHB filed an amicus brief in support of St. Catherine, urging the appellate court to disapprove the district court’s ruling. NAHB argued that it was contrary to the Alabama Supreme Court’s most recent interpretation of the exclusion in Townsend Ford v. Auto-Owners Ins. Co., a 1995 case wherein the state Supreme Court held that the exclusion only applies to indemnity liability, where the liability is contractually assumed, and not liability arising from a breach of warranty.

Citing the Townsend Ford case, the 11th Circuit agreed with NAHB and held that the parish’s breach of contract claim based on the contractor’s breach of warranty did not fall within the contractual liability exclusion and reaffirmed that such an exclusion bars coverage only where the insured agreed to indemnify another party.

Importantly, the 11th Circuit held the Supreme Court of Alabama’s logic in Townsend Ford applied regardless of whether the injured party brings a breach of contract claim based on the breach of an express or implied warranty.  In Townsend Ford, the injured party sued the insured for breach of an express warranty, while the parish sued the contractor for breach of an implied warranty. Penn. National claimed that this was an important distinction but the 11th Circuit concluded that this was not so.

The 11th Circuit case follows the favorable decision for builders handed down by the Fifth Circuit Court of Appeals in October 2014, in Crownover v. Mid-Continent Casualty Co.

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