PA Federal Court Clarifies: Damage to Product due to Defective Design and Workmanship is Not an “Occurrence”

The Eastern District of Pennsylvania recently held that three insurance companies are not obligated to defend or indemnify Tristar Products Inc. in a proposed class action lawsuit, finding that the underlying litigation does not allege an “occurrence” as defined by the policies. Evanston Ins. Co., et al. v. Tristar Prods., Inc., No. 5:20-CV-01934, 2021 WL 1731791 (E.D. Pa. May 3, 2021).

In March 2020, three individual plaintiffs filed a putative class action lawsuit in the Central District of California against Tristar, alleging that Tristar manufactured, marketed, and distributed a line of purportedly non-stick cookware which scratched, chipped, and peeled shortly after purchase. The plaintiffs allege that Tristar intentionally and knowingly misrepresented material facts in its marketing materials, and that the products were unfit for their intended use.

Three insurers which had issued commercial liability policies to Tristar agreed to participate in its defense pursuant to reservations of rights. The insurers subsequently filed suit in the Eastern District of Pennsylvania, seeking a declaration that they had no duty to defend or indemnify Tristar in the underlying putative class action. The insurers moved for judgment on the pleadings, arguing that the underlying complaint did not allege an “occurrence.”

The policies defined an “occurrence” as, generally, an “accident.” Courts applying Pennsylvania law have often resolved disputes over whether a certain act is an “occurrence” by distinguishing between two types of cases: one in which an underlying suit alleges an insured’s “faulty workmanship,” and one in which an underlying suit alleges an insured’s product “actively malfunctioned.” The insurers argued that the underlying complaint involved claims of a design or manufacturing defect and faulty workmanship, which does not constitute an “occurrence” pursuant to the policies.

Tristar countered that the underlying litigation is not about “faulty workmanship,” but instead is a case about “an off-the-shelf product that purportedly caused damage to other property.”

The Eastern District agreed with the insurers, finding that the underlying complaint was limited to damage to Tristar’s own product, allegedly caused by faulty design and workmanship. The allegations did not involve, as Tristar attempted to argue, a “fortuitous, unforeseeable consequence of some circumstance outside of Tristar’s control.” Instead, Tristar had full control over whether it supplied the cookware, so liability was “too foreseeable to be considered an accident.”

Finding that the insurers had no duty to defend Tristar in the underlying action, the Court similarly held that they do not have a duty to indemnify Tristar under their respective policies.