In Pennsylvania, as in many jurisdictions, a liability insurer’s initial duty to defend is determined solely on the basis of the allegations of the complaint in the underlying action. A recent decision of the United States District Court for the Western District of Pennsylvania (National Fire Ins. Co. of Hartford v. Robinson Fans Holdings, Inc., 2:10-cv-01054-DWA (W.D. Pa., April 7, 2011)) demonstrates that under that principle, an insurer must defend its insured against an ambiguously-written claim that may or may not set forth a covered cause of action.
In the action underlying the Court’s decision, an agribusiness corporation sued a fan manufacturer over the alleged “catastrophic failure” of three industrial fans that the manufacturer sold to the plaintiff corporation. The underlying complaint alleged that the fans “contained design defects causing the failures,” and it asserted claims for breach of contract, express warranty, implied warranties of merchantability and fitness for a particular purpose, and negligence in design. The fan manufacturer tendered the defense of the lawsuit to its liability insurer, which undertook to defend its insured subject to a reservation of rights. The insurer asserted that coverage was not likely available because (among other reasons) the failure of a defective product is not an “occurrence” under the insurance policy. The fan manufacturer then brought a declaratory judgment action against its insurer and moved for summary judgment on the issue of the insurer’s duty to defend.
In its decision, the Court found for the manufacturer, holding that the insurer had a duty to defend. The Court stated that it could not rule out the possibility that the negligence in design claim alleged an occurrence sufficient to trigger the duty. The Court explained that in Pennsylvania, a general liability policy protects against essentially accidental injury, and not contract disputes such as claims for faulty workmanship. According to the Court, under that guideline, a negligent design claim would be a non-covered contract claim if the product was designed pursuant to and in accordance with a contract. If, on the other hand, the product was negligently designed and then sold pursuant to a subsequent contract, the design work might be measured against tort standards of care and the negligent design claim might therefore be covered.
The Court then examined the language of the “negligence in design” claim and found no facts that would permit it to determine, one way or another, whether the fans were designed pursuant to the contract between the manufacturer and the agribusiness corporation. The Court concluded that “there is no basis for decisively concluding either that the complaint alleges failure to exercise care in duties imposed by contract, or those imposed extra-contractually by law.”
Please click here to read a copy of the Court’s decision.
