Eleventh Circuit Finds No Coverage for Faulty Workmanship Claims

Tred R. Eyerly | Insurance Law Hawaii

    The Eleventh Circuit affirmed the district court’s grant of summary judgment to the insurer on the general contractor’s claims for damages due to faulty workmanship. Tricon Dev. of Brevard v. Nautilus Ins. Co., 2021 U.S. App. LEXIS 27317 (11th Cir. Sept .10, 2021). 

    Tricon was the general contractor for a condominium project in Florida. Tricon hired a subcontractor to fabricate and install metal railings for the project. The subcontractor was insured by Nautilus under two CGL policies. The policies had endorsements to add Tricon as an additional insured. 

    The subcontractor fabricated some of the railings, but they had defects and damage. Further they were not installed properly and did not meet the project’s specifications. Tricon found another manufacturer to fabricate new railings to satisfy the projects’ requirements. Tricon agreed to pay the cost of removing the subcontractor’s railings and fabricating and installing new ones. If submitted a claim to Nautilus to cover these costs.

    Nautilus denied the claim. Tricon sued and the district court granted summary judgment to Nautilus.

    On appeal, the Eleventh Circuit noted that the policies at issue were post-1986 standard form CGL policies with products-completed operations hazard coverage governed by Florida law. Such policies did not cover the costs of replacing defective products. 

    Applying Florida law, there was no coverage if there was no damage beyond the faulty workmanship, i.e., unless the faulty workmanship damaged some otherwise non-defective component of the project. Further, under Florida precedent, if a subcontractor was hired to install a project component and, by virtue of his faulty workmanship, installed a defective component, then the cost to repair and replace the defective component was not “property damage.”

    Here, Tricon alleged that the subcontractor’s railings were deficient due to having defects and damage, not being installed properly, and not satisfying the project’s specification. Tricon did not allege that the subcontractor’s faulty workmanship damaged otherwise non-defective components of the project. Thus, the costs that Tricon incurred in removing the subcontractor’s railings and the fabrication and installation of new railings did not constitute “property damage” under the policies. 

Contractor Entitled to Continued Defense Against Allegations of Faulty Construction

Tred R. Eyerly | Insurance Law Hawaii

    The U.S. District Court found that the contractor was entitled to a defense in the underlying state court action. Pa. Nat’l Mut. Cas. Ins. Co. v. Zonko Builders, 2021 U.S. Dist. LEXIS 168855 (D. Del. Sept. 7, 2021).

    Zonko was the general contractor for building the Salt Meadows Townhomes Condominium. This included supervising subcontractors in the installation of siding, house wrap, and flashing in five buildings between 2005 and 2007. In 2016, Salt Meadows and its individual members (“Association”) found property damage in the condominiums.

    The Association sued Zonko in state court, alleged that resulting damages included drywall damage in ceilings or walls, flooring and carpet, water damage around window trim, rot on window frames, incorrect flashing around roofs and windows, possible ridge vent leaks, and possible foundation issues. 

    Zonko tendered to Penn National, who agreed to defend. Penn National then filed this suit and a motion for judgment on the pleadings, hoping to no longer have to pay defense costs. 

    The court first determined an occurrence was alleged in the underlying case. The policy’s Subcontractor Exception confirmed that Penn National would provide coverage for the faulty workmanship of subcontractors.  The endorsement provided coverage for “property damage” to “your work” if such “‘property damage’ is the result of work performed on your behalf by a subcontractor that is not a Named Insured.” The underlying lawsuit alleged that subcontractors performed defective work causing property damage, which constituted an occurrence.

    Further, none of the exclusions raised by Penn National applied. The “your product” exclusion was not applicable because it “your product” was defined as “goods or products, other than real property.” The underlying complaint concerned property damage to real property, not damage to Zonko’s products or equipment.

    The “contractual liability” exclusion did not bar coverage because the underlying action also plead negligent construction and respondeat superior theories. The court similarly found that the exclusions for “damage to impaired property,” “recall of products,” and “fungi or bacteria” were not applicable. 

    Therefore, Penn National’s motion for judgment on the pleadings was denied.

Eleventh Circuit Finds No “Property Damage” Where Defective Component Failed to Cause Damage to Other Non-Defective Components

Anthony L. Miscioscia and margo Meta | White & Williams

In Florida, damage caused by faulty workmanship constitutes “property damage;” however, the cost of repairing or removing defective work does not. Amerisure Mutual Insurance Company v. Auchter Company, 673 F.3d 1294 (11th Cir. 2012) (Auchter). But what happens when the cost of repairing or removing defective work results in loss of use of the tangible property which is not physically injured?

The United States Court of Appeals for the Eleventh Circuit was recently faced with this question in Tricon Development of Brevard, Inc. v. Nautilus Insurance Company, No. 21-11199, 2021 U.S. App. LEXIS 27317 (11th Cir. Sep. 10, 2021). Tricon arose out of the construction of a condominium. Tricon was hired to serve as general contractor for the project and hired a subcontractor to fabricate and install metal railings. The railings installed by the subcontractor were defective and damaged, improperly installed, and failed to meet the project’s specifications. Tricon filed an insurance claim with Nautilus Insurance Company, the subcontractor’s commercial general liability insurer, for the cost to remove and replace the railings.[1]

Relying on Auchter, the court concluded that the repair and removal of defective work does not constitute “property damage”. The court rejected Tricon’s contention that Auchter failed to consider that the repair and removal of defective components may result in a “loss of use of tangible property that is not physically injured”, and thus, qualify as “property damage”. It noted that the Auchter court held that “after interpreting the policy as a whole [and] ‘endeavoring to give every provision its full meaning and operative effect’” there was no coverage for the defective installation. The Eleventh Circuit therefore concluded that “the entire definition of ‘property damage’ in the post-1986 standard form commercial general liability policy must fail to cover the kinds of costs that Tricon incurred from its subcontractor’s deficient work.”


[1] Tricon was an additional insured under the subcontractor’s policy for liability for “property damage” caused, in whole or in part by the subcontractor’s direct or vicarious acts or omissions.

Eleventh Circuit Finds No “Property Damage” Where Defective Component Failed to Cause Damage to Other Non-Defective Components

Margo Meta and Anthony Miscioscia | White and Williams

In Florida, damage caused by faulty workmanship constitutes “property damage;” however, the cost of repairing or removing defective work does not. Amerisure Mutual Insurance Company v. Auchter Company, 673 F.3d 1294 (11th Cir. 2012) (Auchter). But what happens when the cost of repairing or removing defective work results in loss of use of the tangible property which is not physically injured?

The United States Court of Appeals for the Eleventh Circuit was recently faced with this question in Tricon Development of Brevard, Inc. v. Nautilus Insurance Company, No. 21-11199, 2021 U.S. App. LEXIS 27317 (11th Cir. Sep. 10, 2021). Tricon arose out of the construction of a condominium. Tricon was hired to serve as general contractor for the project and hired a subcontractor to fabricate and install metal railings. The railings installed by the subcontractor were defective and damaged, improperly installed, and failed to meet the project’s specifications. Tricon filed an insurance claim with Nautilus Insurance Company, the subcontractor’s commercial general liability insurer, for the cost to remove and replace the railings.[1]

Relying on Auchter, the court concluded that the repair and removal of defective work does not constitute “property damage”. The court rejected Tricon’s contention that Auchter failed to consider that the repair and removal of defective components may result in a “loss of use of tangible property that is not physically injured”, and thus, qualify as “property damage”. It noted that the Auchter court held that “after interpreting the policy as a whole [and] ‘endeavoring to give every provision its full meaning and operative effect’” there was no coverage for the defective installation. The Eleventh Circuit therefore concluded that “the entire definition of ‘property damage’ in the post-1986 standard form commercial general liability policy must fail to cover the kinds of costs that Tricon incurred from its subcontractor’s deficient work.”


[1] Tricon was an additional insured under the subcontractor’s policy for liability for “property damage” caused, in whole or in part by the subcontractor’s direct or vicarious acts or omissions.

Eastern District of Pennsylvania Confirms Carrier Owes No Duty to Defend Against Claims for Faulty Workmanship

Anthony L. Miscioscia and Marianne Bradley | White and Williams

On March 17, 2021, the Eastern District of Pennsylvania issued its decision in Estate Chimney & Fireplace v. IFG Companies & Burlington Insurance Company, 2021 U.S. Dist. LEXIS 50360 (E.D. Pa. March 17, 2021), finding that an insurance carrier had no duty to defend its insured where the allegations in the underlying litigation involved claims of faulty workmanship.

Estates Chimney & Fireplace, LLC (Estates Chimney) had performed inspections and replaced chase covers for a number of chimneys in a condominium complex. Chase covers are pieces of metal, which are placed over chimneys in order to keep out environmental elements. Several condominium owners sued Estates Chimney, alleging that Estates Chimney had improperly installed, then improperly replaced, their chimney caps, which caused their chimneys to cease working properly. As a result, the underlying plaintiffs allegedly incurred costs to repair or replace the chimney caps and chimneys.

Estates Chimney sought coverage from its carrier, who denied coverage based upon its determination that the claims in the underlying lawsuits arose out of faulty workmanship, which did not result in damage to the property of a third party. Estates Chimney filed a declaratory judgment action, seeking a declaration that it was entitled to coverage under the policy. Both parties moved for summary judgment, and the Eastern District ruled in favor of the carrier.

In reaching its decision, the court declined to consider the insured’s expert’s opinion, explaining that – under Pennsylvania law – courts “must decide coverage issues based on the four corners of the complaint against the insured, not the opinion of an expert, even if that expert opined that Estates Chimney did quality work that complied with all laws and regulations. This is a coverage dispute, the outcome of which cannot be decided by extrinsic evidence that addresses the merits of the underlying claims.” Id. at *17.

Having determined that its consideration was limited solely to the four corners of the underlying complaints, the court concluded that all of the underlying plaintiffs’ claims were for faulty workmanship, which do not present the degree of fortuity required for there to be a covered “occurrence,” defined in part as an “accident.” Id. at *17 (citing Kvaerner Metals Division of Kvaerner U.S., Inc. v. Commercial Union Insurance Co., 908 A.2d 888 (Pa. 2006).

The court further rejected the insured’s argument that – because some of the underlying plaintiffs may have sought consequential damages – the allegations in the underlying complaint constituted an “occurrence.” Id. Rather, the court explained that “the holding in Kvaerner has been extended to the foreseeable results of the insured’s faulty workmanship.” Id. Thus, because it was foreseeable that faulty workmanship when capping chimneys could lead to damage to the chimney itself, rendering the fireplace unusable, “there is no insurance coverage.” Id. at *16.

Finally, the court declined to find a covered “occurrence” based upon the insured’s argument that the underlying lawsuits involve “specific allegations of negligence.” Relying upon well-established Pennsylvania law, the Eastern District explained that it is the factual allegations, not the legal terminology used in the complaint, which determines whether a duty to defend arises. Id. at *18 (citing Nationwide Mutual Insurance Company v. CPB International, Inc., 562 F.3d 591, 598-99 (3d Cir. 2009)). Thus, faulty workmanship – even when cast as a negligence claim – does not constitute a fortuitous event. Id. (citing Westfield Insurance Company v. Bellevue Holding Company, 856 F. Supp. 2d 683, 694 (E.D. Pa. 2012).