Pennsylvania Federal Court Reinforces The Principle That Liability Policies Insure Against Legal Obligations Owed To Others

Defense and indemnity obligations owed under liability policies depend on the allegations made in the underlying lawsuit. In NVR, Inc. v. Motorists Mut. Ins. Co., 2019 WL 989393 (W.D. Pa. Mar. 1, 2019), NVR, an additional insured under a CGL policy sought coverage for two lawsuits that arose out of a heater explosion at a construction site. NVR was the defendant in personal injury litigation. In a separate lawsuit, NVR sought recovery for property damage that it incurred due to the explosion. The personal injury lawsuit fell within the scope of the liability policy’s coverage. However, NVR claimed that the liability policy also provided indemnity coverage for its property damage lawsuit.

The court disagreed with NVR’s coverage argument. The liability policy afforded coverage under a common insuring agreement for sums that the insured became legally obligated to pay as damages because of bodily injury or property damage to which the insurance applies. The court pointed out that the intent of such a general liability policy was to provide coverage when the insured’s work or product causes personal injury or property damage to another.  NVR initiated the property damage lawsuit and only stood in a position to collect, rather than to pay damages.

In addition, there was no record evidence that NVR was at risk of any liability for damages in the property damage lawsuit, by way of counterclaim, cross claim or otherwise. More so, because the duty to defend is determined with reference to the allegations of the complaint filed in the action, NVR could not use the personal injury complaint to support NVR’s coverage demand with respect to the property damage matter. 

Ultimately, the NVR court gave effect to the plain language of the general liability policy. In doing so, the court recognized that the purpose of liability insurance policies is to protect the insured against alleged liability to third parties.

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