Faulty Workmanship Claims are not Insurable

Third Circuit rules the insured’s expectations were unreasonable.

Contractors often complain, with considerable justification, that insurers go to great lengths to avoid honoring coverage claims by contesting the meaning of contract provisions.

Contractors counter by arguing they acquired their insurance policies with a “reasonable expectation” of what their coverage entails even if a particular type of incident is not explicitly listed in the policy. Courts are inclined to agree with this argument.

But not always.  Brian Margolies’ article in Traub Lieberman Insurance Blog reviews a Third Circuit case where the court ruled that the contractor’s reasonable expectation argument was not reasonable. Frederick Mut. Ins. Co. v. Hall, 2018 U.S. App. LEXUS 31666 (3d Cir. Nov. 8, 2018)

Hallstone, a masonry company doing business in Pennsylvania, “procured a general liability policy from Frederick Mutual to insure its masonry operations. Notably, when purchasing the policy through an insurance broker, Hallstone’s principal stated he wanted the maximum ‘soup to nuts’ coverage for his company.”

Hallstone referred a claim by a customer alleging faulty workmanship to Frederick. “While Frederick agreed to provide a defense, it also commenced a lawsuit seeking a judicial declaration that its policy excluded coverage for faulty workmanship.”

The case made its way to the Third Circuit Court of Appeals. The court agreed with Hallstone “that the reasonable expectations doctrine can overrule policy language when the insured is issued a policy different than what it specifically requested to purchase.”

The court found, however, that in this case Hallstone did not request coverage for faulty workmanship— “a coverage the court acknowledged does not exist.”

A request for “soup and nuts” coverage was far too vague a stipulation “to overcome the policy’s otherwise plain and unambiguous language.”


Third Circuit Holds No Coverage for Faulty Workmanship Despite Insured’s Expectations. Brian Margolies, Traub Lieberman Insurance Blog, November 20, 2018.
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