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.