Sapa Extrusions Inc v. Liberty Mutual Insurance Co, 939 F.3d 243

Background

Sapa Extrusions manufactured and pretreated organically coated aluminum extrusions supplied to Marvin Lumber & Cedar, which incorporated them into windows/doors; alleged premature coating failures in coastal installations.
Marvin sued Sapa (Underlying Action) asserting breach of contract and multiple warranty and tort claims based on Sapa’s alleged change in pretreatment/process and defective product; the case settled pretrial for a substantial sum.
Sapa had 28 occurrence-based CGL policies across eight insurers; insurers disclaimed coverage, so Sapa sued them for breach of contract and declaratory relief to recover settlement/defense costs.
The District Court applied Pennsylvania’s four-corners rule but analyzed all 28 policies together and held Marvin’s complaint did not allege an “occurrence,” so insurers owed no indemnity.
On appeal, the Third Circuit confined review to the allegations in the Marvin complaint, affirmed as to 19 policies that defined “occurrence” as an “accident,” but vacated and remanded as to 7 policies with an "expected/intended" clause and 2 Liberty policies with similar language because those definitions raise a subjective intent issue requiring further district-court analysis.

Issues

Issue	Sapa's Argument	Insurers' Argument	Held
Scope of review — may courts consider extrinsic facts when determining duty to indemnify for a settled underlying claim?	Courts should consider facts known at settlement (including discovery) to assess indemnity.	Under Pennsylvania law, apply the four-corners rule; coverage is determined from the underlying complaint.	Four-corners rule applies; review confined to Marvin's complaint.
Whether Marvin’s allegations constitute an "occurrence" under policies defining it as an "accident" (Accident Definition).	The alleged property damage (including damage beyond the extrusions) triggers coverage.	Claims are faulty workmanship/foreseeable; not a fortuitous "accident," so no occurrence.	Affirmed: under Kvaerner/CPB/Specialty Surfaces, allegations are faulty workmanship and not an "occurrence."
Whether policies that define "occurrence" as an accident "neither expected nor intended from the standpoint of the Insured" differ materially.	Language does not change outcome; similar to Accident Definition.	The subjective clause still requires no coverage for foreseeable faulty workmanship.	Vacated/remanded: the insured-intent language is material and ambiguous; requires application of subjective-intent analysis.
Whether Liberty Mutual policies using "injurious exposure… neither expected or intended" should be grouped with Accident Definition policies.	Treat them like Accident Definition cohort.	Same as insurers.	Vacated/remanded: wording parallels the expected/intended cohort and demands separate analysis under subjective-intent principles.

Key Cases Cited

Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006) (CGL “occurrence” = “accident”; faulty workmanship is not a fortuitous occurrence).
Nationwide Mut. Ins. Co. v. CPB Int’l, Inc., 562 F.3d 591 (3d Cir. 2009) (product defects/foreseeable damages from defective goods do not constitute an occurrence).
Specialty Surfaces Int’l, Inc. v. Continental Cas. Co., 609 F.3d 223 (3d Cir. 2010) (faulty workmanship and foreseeable consequences do not trigger occurrence-based coverage).
Indalex Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 83 A.3d 418 (Pa. Super. Ct. 2013) (interpreting Expected/Intended definition as incorporating subjective-language considerations).
United Servs. Auto. Ass’n v. Elitzky, 517 A.2d 982 (Pa. Super. Ct. 1986) (subjective intent governs exclusions for injury ‘‘intended or expected’’ by the insured).
Babcock & Wilcox Co. v. Am. Nuclear Insurers, 131 A.3d 445 (Pa. 2015) (insurer defending under reservation that refuses consent to settle may be liable for a reasonable settlement amount in certain circumstances).