Prudential Property & Casualty Insurance v. Boyle ( 2008 )

Opinions of the United
2008 Decisions States Court of Appeals
for the Third Circuit
12-31-2008
Prudential Prop v. Boyle
Precedential or Non-Precedential: Non-Precedential
Docket No. 07-3930
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
No. 07-3930
PRUDENTIAL PROPERTY AND CASUALTY INSURANCE COMPANY
v.
JOSEPH J. BOYLE; JEANNE BOYLE; JOHAN E. SIGGE; PERNILLA M.C. SIGG;
MICHAEL BOWN; VALUE GUARD USA, INC; FOX & ROACH LP;
FOX & ROACH/TRIDENT CORPORATION; HOMESSENTIALS LP
JOSEPH J. BOYLE AND JEANNE BOYLE,
Appellants
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 06-cv-00506)
District Judge: Honorable Robert F. Kelly
Submitted Under Third Circuit LAR 34.1(a)
October 31, 2008
Before: SLOVITER, STAPLETON, and TASHIMA,* Circuit Judges
(Filed: December 31, 2008)
OPINION
*
Honorable A. Wallace Tashima, Senior Judge of the United States
Court of Appeals for the Ninth Circuit, sitting by designation.
TASHIMA, Circuit Judge.
Prudential Property and Casualty Insurance Company (“Prudential”) brought this
action against its insureds, Joseph and Jeanne Boyle (the “Boyles”) for a declaratory
judgment that it had no duty to defend or indemnify the Boyles in an underlying lawsuit
related to the sale of their home. The District Court granted summary judgment to
Prudential and the Boyles appeal.
I.
The Boyles built a house in 1995 on property they owned in Kenneth Square,
Pennsylvania. In 2003, they sold the property to Mr. and Mrs. Sigge. After moving in,
the Sigges discovered substantial rot inside the exterior cedar siding of the house and
defects in the roof and windows. In 2004, they commenced an action against several
defendants, including the Boyles.
The Sigges alleged several claims against the Boyles, including in Count IV,
breach of an implied warranty of habitability and fitness. The Boyles tendered defense of
the action to Prudential under their homeowner’s policy, which provided that Prudential
would defend the Boyles, and pay any resulting damages, if a “a claim is made or suit is
brought against an insured for damages because of bodily injury, including personal
injury, or property damage caused by an occurrence to which this coverage applies.” The
policy defines “occurrence” as:
a loss or accident including continuous or repeated exposures to substantially the
same harmful conditions, even though separated in time or spatial distance, which
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results during the policy period in:
a. bodily injury; or
b. property damage.
Occurrence does not include negligent misrepresentations or omissions of any
nature or kind in the sale of real or personal property.
The policy does not define “loss.” It defines “accident” as “an unintended,
undesigned, sudden, and unexpected covered event.” It defines property damage as
“physical damage to or destruction of tangible property, including loss of use of tangible
property resulting from its physical damage or destruction.”
Prudential denied the requested defense. Instead, it commenced this action for a
declaratory judgment that it was not obligated to defend or indemnify the Boyles. The
Sigge action was then settled for $140,000, with the Boyles contributing $20,000 to the
settlement. The Boyles then filed a counterclaim against Prudential for breach of contract
and bad faith in Prudential’s refusal to defend them, seeking $20,000 in indemnification
and $48,622 in defense costs in defending the Sigge action.
The District Court granted summary judgment to Prudential. It concluded that the
Count IV claim for breach of an implied warranty of habitability was not a claim for “a
loss, accident, or occurrence that was intended to trigger coverage.” 1 The Boyles appeal.
II.
The District Court had jurisdiction pursuant to 28 U.S.C. § 1332. We have
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1 The District Court also denied reconsideration.
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jurisdiction pursuant to 28 U.S.C. § 1291. Our review of a grant of summary judgment is
plenary. Curley v. Klem, 298 F.3d 271, 276 (3d Cir. 2002). The interpretation of an
insurance contract issued in Pennsylvania is governed by Pennsylvania law. Frog, Switch
& Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 745-46 (3d Cir. 1999).
III.
An insurer’s duty to defend a third-party complaint turns on whether the
allegations of the complaint trigger coverage. Gen. Accident Ins. Co. v. Allen, 692 A.2d
1089, 1095 (Pa. 1997). To make this determination, a court should “ascertain the scope
of the insurance coverage and then analyze the allegations in the complaint.”
Redevelopment Auth. v. Int’l Ins. Co., 685 A.2d 581, 589 (Pa. Super. Ct. 1996) (citation
and internal quotation marks omitted). An insurer’s duty to defend arises whenever the
allegations of the complaint potentially fall within the policy’s coverage. Lucker Mfg. v.
Home Ins. Co., 23 F.3d 808, 813 (3d Cir. 1994).
The Boyles contend that Count IV of the Sigge complaint triggers coverage
because, applying the language and definitions of the Prudential homeowner’s policy, it
is a claim for “property damage caused by . . . a loss or accident . . . not includ[ing]
negligent misrepresentations or omissions of any kind in the sale of real or personal
property.” We disagree.
It is not disputed that the breach of an implied warranty of habitability does not
constitute an “accident” as defined in the Prudential policy. See Redevelopment Auth.,
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685 A.2d at 589 (noting that a claim that “arises out of a breach of contract” is “not an
accident”). The Boyles seem to concede as much.
Rather, the Boyles contend that Count IV represents a claim for a “loss,” and
losses are “obviously far broader than mere accidents.” The Prudential policy does not,
however, cover losses per se, but rather “property damage caused by . . . a loss”
(emphasis added). Count IV of the Sigge complaint does not allege property damage
caused by a loss. It alleges the “loss of the benefit of the bargain” when the Sigges
purchased an uninhabitable home from the Boyles. The gravamen of the complaint is the
contractual breach that occurred at the moment of sale – not the property damage that
occurred years earlier.
This conclusion is consistent with Pennsylvania law on the implied warranty of
habitability, which holds that the measure of damages for its breach is the “difference
between the market value of the house as constructed and the market value that the house
would have had if constructed as promised.” Gadbois v. Leb-Co Builders, Inc., 458 A.2d
555, 559 (Pa. Super. Ct. 1983). In other words, the injury is one of economic loss on the
contract, not damage to tangible property.
Finally, other courts have squarely held that a claim for misrepresentation in the
sale of property – an action similar to that for a breach of implied warranty – does not
constitute a claim for “property damage” as defined in the typical homeowner’s policy.
See, e.g., Safeco Ins. Co. v. Andrews, 915 F.2d 500, 502 (9th Cir. 1990) (noting that
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claims for negligent misrepresentation “do not expose [the defendant] to liability for any
damage to tangible property, but rather for economic loss resulting from [the defendant’s]
alleged failure to discover and disclose facts relevant to the property’s value and
desirability”); State Farm Fire & Cas. Co. v. Brewer, 914 F. Supp. 140, 142 (S.D. Miss.
1996) (noting that the case law is “virtually unanimous” that damages flowing from
misrepresentation “have no basis in property damage” but are “economic and contractual
in nature”) (collecting examples).
Because the claim for breach of an implied warranty of habitability is not a claim
for “property damage caused by . . . a loss,” Count IV of the Sigge complaint did not
trigger coverage; consequently, Prudential had no duty to defend the Boyles. It follows
that Prudential had no duty to indemnify the Boyles. See Pac. Indem. Co. v. Linn, 590 F.
Supp. 643, 651 (E.D. Pa. 1984). It also follows that the Boyles’ counterclaims for breach
of contract and bad faith fail as a matter of law because they cannot survive a
determination that the insurer had no duty to defend. See Frog, Switch & Mfg. Co., 193
F.3d at 751 n.9.2
2 The Boyles also contend that this case should be remanded to the District
Court because Prudential failed to comply with a discovery request for copies of
insurance agreement for prior years. The Boyles did not raise this issue in response to
Prudential’s motion for summary judgment or in any subsequent filings in the District
Court. Consequently, they have waived this argument. See New Castle County v.
Halliburton NUS Corp., 111 F.3d 1116, 1125 n.10 (3rd Cir. 1997) (“New Castle waived
its discovery rule argument by failing to raise it before the magistrate judge or the district
court in the first instance.”). Regardless, the issue does not affect how to construe the
language of the operative policy.
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IV.
For the reasons set forth above, we will affirm the judgment of the District Court.
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