California Ruling to Have Impact on Product Liability Coverage

At issue was the interpretation of the term “occurrence” in the policies. Victaulic maintained that the term should cover faulty workmanship or defective products resulting in third-party property damage, and Alameda County Superior Court Judge Frank Roesch agreed, concluding that the term must be “construed broadly.” Because the three underlying suits attempt to hold Victaulic liable for property damage caused by an “occurrence,” three AIG insurance companies must defend Pennsylvania-based Victaulic against the claims.

“It’s a great victory and result for Victaulic, in keeping with the Pennsylvania Supreme Court’s rulings and, more importantly, it’s directly in line with California’s interpretation of occurrence,” said Insurance Recovery & Advisory partner Joseph Jean, who represented Victaulic in the litigation.

Jean also says the decision will have implications for policyholders in future product-liability matters, particularly in Pennsylvania, since AIG’s argument relied primarily on the 2006 Pennsylvania Supreme Court ruling in Kvaerner U.S. Inc. v. Commercial Union Insurance Co.

“[Some insurers] over the years have tried to expand the Kvaerner doctrine from its narrow scope to such a degree that product liability policies effectively provide no coverage for defective products,” he said. “This decision will have a particularly important impact on Pennsylvania policyholders’ efforts to secure coverage for their product liability risks.”