Hagel v. v. Falcone, J.

J-A28020-14
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
VICKY HAGEL AND HAROLD RIETHMAN IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellants
v.
JOSEPH A. FALCONE, JR., AND PENN
FRAMING COMPANY INC. A/K/A PENN
FRAMING AND CONSTRUCTION
COMPANY, AND ERIE INSURANCE CO.
Appellees No. 614 EDA 2014
Appeal from the Judgment Entered on February 7, 2014
In the Court of Common Pleas of Delaware County
Civil Division at No.: 07-3039
BEFORE: GANTMAN, P.J., WECHT, J., and JENKINS, J.
MEMORANDUM BY WECHT, J.: FILED DECEMBER 23, 2014
Vicky Hagel and Harold Riethman (“Appellants”) appeal the trial court’s
February 7, 2014 order, which dissolved with prejudice Appellants’
garnishment against Erie Insurance Co. (“Garnishee”) and entered judgment
in Garnishee’s favor. At issue in this case is Appellants’ effort to recover for
damages caused to their personalty by the substandard workmanship
provided by Appellee Penn Framing Co. Inc. (“Penn Framing”) in
constructing Appellants’ house. When Appellants obtained a default
judgment against Penn Framing, they sought to recover from Garnishee,1
____________________________________________
1
Appellants reached a settlement and release of claims with Joseph A.
Falcone, Jr. Consequently, Falcone is not a party to the instant appeal.
J-A28020-14
which eventually resulted in the garnishment at issue. The issues presented
test the breadth of a series of recent holdings by our Supreme Court and
this Court, which collectively stand (at least) for the proposition that an
insurer has no duty to defend or indemnify its insured under an occurrence-
based commercial general liability (“CGL”) policy for claims based upon
workmanship when the damages in question arise from harm caused by
faulty workmanship to the work or product in question. We affirm.
Because the order appealed from is in the nature of a summary
judgment proceeding, we begin with our standard of review:
An appellate court may reverse the grant of a motion for
summary judgment if there has been an error of law or an abuse
of discretion. Since the issue as to whether there are no genuine
issues as to any material fact presents a question of law, our
standard of review is de novo; thus, we need not defer to the
determinations made by the lower tribunals. Our scope of
review, to the extent necessary to resolve the legal question
before us, is plenary. We must view the record in the light most
favorable to the non-moving party, and all doubts as to the
existence of a genuine issue of material fact must be resolved
against the moving party.
Millers Capital Ins. Co. v. Gambone Bros. Dev. Co., 941 A.2d 706, 712
(Pa. Super. 2007) (quoting Chanceford Aviation Props., LLP. v.
Chanceford Twp. Bd. of Supervisors, 923 A.2d 1099, 1103 (Pa. 2007)).
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Appellants’ averments, viewed in the light most favorable to them,
support the following account.2 On March 22, 2002, Appellants entered into
a contract with Falcone for the construction of a home in Havertown,
Delaware County, Pennsylvania. Construction was completed in July 2002.
In August 2002, a storm struck the area, bringing rainfall that revealed a
damaging leak around the frame of a window in Appellants’ new house. The
same window continued to leak on various occasions between August 22,
2002, and March 27, 2005, causing water damage to the structure and
Appellants’ personalty. On each occasion, Appellants reported the damage
to Falcone, who attempted, on a number of occasions but in vain, to fix the
problem.
On March 27, 2005, rain caused leaks around other windows, further
damaging the structure and Appellants’ personalty. Appellants reported the
new leak, but Falcone stopped responding to Appellants. In May 2005,
Appellants informed Falcone that drywall had begun to separate from various
windows around the house. Approximately six weeks later, Appellants
advised Falcone that the water continued to penetrate the house, and that
the damage was getting worse. They also advised Falcone of their fears
regarding the growth of mold and fungus. Appellants further explained that
____________________________________________
2
Appellants and the trial court disagree as to which of Appellants’
numerous complaints and amended complaints is operative in the instant
matter. See infra n.3. However, the factual accounts contained in the two
complaints are materially identical.
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leaks had developed around all of the windows on the east side of the house,
and that water had wicked into the attic, causing mold to grow.
Appellants retained a professional engineer to inspect the home. The
inspection revealed that the windows had been improperly installed in
various particulars. The inspector also noted that the stucco siding was
improperly installed and thinner than indicated, resulting in cracking that
increased the home’s vulnerability to water. The inspector detected
excessive moisture readings in several areas around the house.
Based upon the foregoing allegations, Appellants brought suit against
Falcone and Penn Framing in the Delaware County Court of Common Pleas,
whereafter Appellants and Falcone engaged in various pleadings and
numerous amendments to Appellants’ complaint. Penn Framing did not
appear to defend itself. For present purposes, it suffices to identify the
August 10, 2009 complaint as the operative complaint. 3,4 Therein,
____________________________________________
3
Appellants provide in their reproduced record a copy of a complaint
filed on August 3, 2009, and the docket reflects its entry. However, the
certified record does not contain that complaint. Instead, it contains an
August 10, 2009 complaint, at the top of which someone noted by hand
“entered twice.” The August 3, 2009 complaint contained in Appellants’
reproduced record is materially identical to the August 10, 2009 complaint.
According to the docket, on October 13, 2009, yet another complaint was
filed, although it, too, is missing from the certified record. On April 1, 2010,
the trial court entered an order reinstating what Appellants denominated
their third amended complaint, which we believe to refer to the earlier April
23, 2008 complaint that the trial court and Garnishee identify as the
operative complaint. See Trial Court Opinion, 5/14/2014, at 2; Brief for
Garnishee at 10 (citing the April 23, 2008 complaint).
(Footnote Continued Next Page)
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Appellants asserted negligence claims against both Falcone and Penn
Framing. Falcone filed an answer and new matter to Appellants’ complaint,
to which Appellants responded on December 11, 2009.
On May 6, 2010, Penn Framing was served with Appellants’ third
complaint. However, Penn Framing did not respond.5 On August 18, 2010,
Appellants filed a praecipe for default judgment against Penn Framing,
pursuant to which judgment was entered against Penn Framing.
On December 13, 2010, Falcone filed a motion for summary judgment.
On January 14, 2011, Appellants filed a response to Falcone’s motion as well
as their own motion for summary judgment against Falcone. On January 31,
2011, the trial court denied these motions as moot because Appellants and
Falcone had negotiated a settlement of Appellants’ claims against Falcone.
_______________________
(Footnote Continued)
The August 10, 2009 complaint alleges only negligence against Falcone
and Penn Framing, omitting various contract, warranty, and Uniform Trade
Practices and Consumer Protection Law claims that were asserted in the
April 23, 2008 complaint. Before this Court, Appellants, who must establish
a basis upon which Garnishee had a duty to provide insurance coverage to
Penn Framing, rely upon only their negligence claims. Thus, we treat
Appellants’ more limited, August 10, 2009 complaint as the relevant
pleading.
4
By 2009, Harleysville Insurance Company had assumed Appellants’
representation to recover moneys that Harleysville had remitted to
Appellants under the Appellants’ homeowners insurance policy.
5
The docket indicates that Penn Framing also had been served with
several earlier complaints.
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On March 21, 2011, the trial court held a non-jury trial to assess
Appellants damages vis-à-vis Penn Framing, which again did not appear. On
the same day, the trial court entered judgment for Appellants and against
Penn Framing in the amount of $177,135.33.
On August 9, 2012, Appellants filed a praecipe for a writ of execution
against Penn Framing and Garnishee in the Erie County Court of Common
Pleas. After further proceedings that need not be recited at length, on
March 26, 2013, Appellants filed a petition to amend their prior pleadings to
request entry of judgment against Garnishee. On April 16, 2013, Garnishee
filed a response. Therein, Garnishee contended that Appellants were not
entitled to judgment against it because the policy underlying the
garnishment did not offer coverage to Penn Framing for Appellants’ claims.
By stipulation entered on January 9, 2014, the parties agreed that the
pending motions should be decided in the Delaware County court as though
they had been filed there ab initio. Finally, on February 7, 2014, following
supplemental briefing, the Delaware County Court of Common Pleas granted
Garnishee’s motion for judgment and to release property from attachment.
This timely appeal followed. The trial court directed Appellants to file a
concise statement of errors complained of on appeal pursuant to
Pa.R.A.P. 1925(b), and Appellants timely complied. On May 14, 2014, the
trial court issued its Rule 1925(a) opinion.
Before this Court, Appellants set forth the following issues:
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1. Did the Honorable Trial Court commit an error of law in
granting [Garnishee’s] Motion for Summary Judgment
because the [CGL] Policy issued to [Penn Framing]
provided coverage for the judgment assessed against Penn
Framing for negligent work which damaged [Appellants’]
property other than the work itself?
2. Did the Honorable Trial Court commit an error of law in
granting [Garnishee’s] Motion for Summary Judgment as a
matter of law because the . . . policy issued to [Penn
Framing] provided “Completed Operations” coverage, and
as such specifically provided coverage for damages and
losses cause[d] by Penn Framing’s defective product or
work?
Brief for Appellants at 4-5 (Appellants’ proposed answers omitted).
In its Rule 1925(a) opinion, the trial court explained that the events
underlying Appellants’ complaint did not constitute “occurrences” as defined
in the CGL policy Penn Framing maintained with Garnishee. The trial court
found that this case was controlled by our Supreme Court’s decision in
Kvaerner Metals Division of Kvaerner U.S., Inc., v. Commercial Union
Insurance Co., 908 A.2d 888 (Pa. 2006), and progeny, which sought to
establish the scope of an “occurrence” as defined in CGL policies in language
materially identical to the definition in the policy sub judice.
The trial court’s ruling, the parties’ arguments, and our disposition all
hinge upon our interpretation and application of our Supreme Court’s ruling
in Kvaerner, supra, as well as this Court’s subsequent decisions in
Gambone Brothers, supra, Erie Insurance Exchange v. Abbott
Furnace Co., 972 A.2d 1232 (Pa. Super. 2009), and Indalex Inc. v.
National Union Fire Insurance Co. of Pittsburgh, Pennsylvania,
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83 A.3d 418 (Pa. Super. 2013). In the former three cases, our Supreme
Court and this court traced and then refined the boundary around what
constitutes an “occurrence” for purposes of determining coverage and
indemnity obligations under a CGL policy. However, in Indalex, this Court
identified a circumstance under which a somewhat different definition of
“occurrence” imposed a coverage obligation upon an insurer under factual
circumstances bearing some similarity to the circumstances we face in the
instant case. Accordingly, we review those cases before taking up the trial
court’s ruling and the parties’ arguments.
At issue in Kvaerner was a damaged coke battery built by Kvaerner to
specifications provided by Bethlehem Steel Corporation (“Bethlehem”).
See 908 A.2d at 891. According to Bethlehem, the completed battery was
defective. Kvaerner, in turn, alleged that various defects had led to
improper movement of the roof of the battery, which, alone or in tandem
with a heavy rainfall, resulted in displacement and damage to the furnace.
Id. at 892-93. Kvaerner sought coverage from National Union based upon
its contention that it had not intended its methods or the rainstorms to have
caused the movement in the battery’s roof. Kvaerner argued that the
damage to the battery was the result of an “accident” that was covered by
its CGL policies with National Union. Id. at 892. The trial court granted
National Union summary judgment on the basis that the events described
did not constitute an insurable occurrence under the policy. This Court
disagreed, and reversed. See id. at 893-95.
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Our Supreme Court restored the trial court’s entry of summary
judgment in National Union’s favor, providing the following analysis in
support of its ruling:
It is well established that an insurer’s duties under an insurance
policy are triggered by the language of the complaint against the
insured. In Mutual Benefit Insurance Co. v. Haver, 725 A.2d
743, 745 (Pa. 1999), we stated:
A carrier’s duty to defend and indemnify an insured in a
suit brought by a third party depends upon a
determination of whether the third party’s complaint
triggers coverage.
Id. (citing Gen. Accident Ins. Co. v. Allen, 692 A.2d 1089,
1095 (Pa. 1997)). This principle has been long held in this
Commonwealth as well as in other jurisdictions. In Wilson v.
Maryland Casualty Co., 105 A.2d 304, 307 (Pa. 1954), we
explained:
[T]he rule everywhere is that the obligation of a casualty
insurance company to defend an action brought against
the insured is to be determined solely by the allegations of
the complaint in the action . . . .
Id. (emphasis added).
****
The interpretation of an insurance policy is a question of law that
we will review de novo. See 401 Fourth St. V. Investors Ins.
Co., 879 A.2d 166, 170 (Pa. 2005). Our primary goal in
interpreting a policy, as with interpreting any contract, is to
ascertain the parties’ intentions as manifested by the policy’s
terms. Id. “When the language of the policy is clear and
unambiguous, [we must] give effect to that language.” Id.Alternatively, when a provision in the policy is ambiguous, “the
policy is to be construed in favor of the insured to further the
contract’s prime purpose of indemnification and against the
insurer, as the insurer drafts the policy, and controls coverage.”
Id. With these principles in mind, we shall review the terms of
the Policies to determine when they required National Union to
defend Kvaerner.
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The pertinent portions of the National Union CGL policies under
which Kvaerner claims coverage state:
COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE
LIABILITY
1. Insuring Agreement
a. We will pay those sums that the insured becomes
legally obligated to pay as damages because of “bodily
injury” or “property damage” to which this insurance
applies. We will have the right and duty to defend any
“suit” seeking those damages . . . .
b. This insurance applies to “bodily injury” or “property
damage” only if:
(1) The “bodily injury” or “property damage” is
caused by an “occurrence” that takes place in the
“coverage territory;” . . .
The Policies defined “property damage” as “[p]hysical injury to
tangible property, including all resulting loss of use of that
property.” An “occurrence” was defined as “an accident,
including continuous or repeated exposure to substantially the
same or general harmful conditions.”
****
Thus, National Union contracted to defend Kvaerner only when a
“suit” or “proceeding” was brought against Kvaerner seeking or
alleging damages for[,] inter alia, property damage [that] is a
result of an “occurrence.” An “occurrence,” in turn, is an
accident. It is necessary, then, to examine whether the damage
that is the impetus of this suit was caused by an accident, so as
to constitute an occurrence under the policy.
Kvaerner, 908 A.2d at 897 (citations modified or omitted; footnote
omitted).
Noting that the policies did not define “accident,” the Court used a
dictionary to construe “accident” in its “natural, plain, and ordinary sense”:
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Webster’s II New College Dictionary 6 (2001) defines “accident”
as “[a]n unexpected and undesirable event,” or “something that
occurs unexpectedly or unintentionally.” The key term in the
ordinary definition of “accident” is “unexpected.” This implies a
degree of fortuity that is not present in a claim for faulty
workmanship.
Other courts have reached similar conclusions in the construction
of the word ‘accident’ for the purposes of insurance coverage. In
Snyder Heating v. Pennsylvania Manufacturers’
Association Insurance Co., 715 A.2d 483 (Pa. Super. 1998),
the insured sought a declaratory judgment that insurer’s CGL
policy covered alleged liability for a breach of its agreement to
maintain burners and boilers at a school’s physical plant. The
relevant language of the policy was the same as that in this
case. Id. at 485-86. The school allegedly suffered damage to
its boilers due to insured’s failure to maintain them properly.
The court held that there was no coverage under the language of
the CGL policy because the complaint set forth solely claims for
breach of contract. Id. at 487. The court explained,
“[p]rovisions of a general liability policy provide coverage . . . if
the insured work or product actively malfunctions, causing injury
to an individual or damage to another’s property.” Id.(emphasis in original). Contractual claims of poor workmanship
did not constitute the active malfunction needed to establish
coverage under the policy.
Id. at 897-98 (citations modified; footnote omitted); see id. at 898 (quoting
McAllister v. Peerless Ins. Co., 474 A.2d 1033, 1036 (N.H. 1984)) (“[T]he
fortuity implied by reference to accident or exposure is not what is
commonly meant by a failure of workmanship.” (emphasis and brackets
omitted)).
The Court also cited the South Carolina Supreme Court’s decision in L-
J, Inc., v. Bituminous Fire & Marine Insurance Co., 621 S.E.2d 33(S.C. 2005), for its rejection of coverage for the premature deterioration of a
roadway constructed by the insured: “[A]ll of the allegations raised in the
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complaint against L-J, Inc., including the negligence claims, were based
on faulty workmanship.” Kvaerner, 908 A.2d at 898 (citing L-J, 621 S.E.2d
at 36) (emphasis added). The Kvaerner Court endorsed the distinction
identified in L-J:
[A] CGL policy may provide coverage where faulty workmanship
cause[s] bodily injury or damage to another property, but not
in cases where faulty workmanship damages the work
product alone. To permit coverage in such instances would
convert CGL policies into performance bonds, which guarantee
the work, rather than like an insurance policy, which is intended
to insure against accidents.
908 A.2d at 898-99 (emphasis added) (citing L-J, 621 S.E.2d at 36-
37 & n.4); see also id. at 899 (citing additional cases).
Turning to the facts in Kvaerner, the Court found that National Union
was not obligated to provide coverage. Because Bethlehem’s suit against
Kvaerner “aver[red] only property damage from poor workmanship to the
work product itself,” and because faulty workmanship standing alone did not
constitute an accident, there had been no covered occurrence. Id. at 899.
This Court’s first occasion to apply Kvaerner under facts similar to
those at bar came in Gambone Brothers, supra. In that case, a number of
plaintiffs brought suit against Gambone Brothers, a developer and builder of
housing developments. See 941 A.2d at 707-08. Each of the plaintiffs had
purchased a home in a Gambone Brothers development. Their allegations
centered on the use of defective stucco, which caused water damage and
related problems. As such, both groups’ claims for breach of contract and
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warranty, negligence, strict liability, fraud, and UTPCPL violations were
founded upon allegations of faulty workmanship. Id. at 708-10.
Gambone Brothers sought coverage from Millers Capital Insurance
(“Millers”) and were denied. Millers then sought a declaratory judgment that
it did not owe coverage to Gambone Brothers. The trial court, applying
Kvaerner, determined that Millers had no coverage obligation to Gambone
Brothers. Id. at 709-10.
Before this Court, Gambone Brothers sought to distinguish Kvaerner
on the basis that the underlying actions did “not merely involve claims for
faulty workmanship that led to the failure of the stucco exteriors but also
involve[d] claims for ancillary and accidental damage caused by the resulting
water leaks to non-defective work inside the home interiors.” Id. at 713.
This Court rejected the proposed distinction. Rather than treat interior
damage arising from defective workmanship on the exterior of a house as an
“occurrence,” we recognized the resultant damage as affecting “the interior
of the larger product—in this case, the home interiors,” id., rendering the
facts on all fours with those at issue in Kvaerner.
We further elaborated as follows:
[T]he weight of common sense collapses the distinction
Gambone [Brothers] attempts to create. The Kvaerner Court
held the terms “occurrence” and “accident” in the CGL policy at
issue contemplated a degree of fortuity that does not accompany
faulty workmanship. In reaching this holding, the Court
suggested that natural and foreseeable acts, such as rainfall,
which tend to exacerbate the damage, effect, or consequences
caused ab initio by faulty workmanship also cannot be
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considered sufficiently fortuitous to constitute an “occurrence” or
“accident” for the purposes of an occurrence[-]based CGL policy.
Id. (citations omitted or modified). Consequently, we concluded that Millers
had no obligation to defend or indemnify Gambone Brothers.
The next time we applied Kvaerner in a manner that bears upon the
instant case came in Abbott Furnace, supra. In that case, Erie’s insured,
Abbott Furnace, manufactured an annealing furnace for another company,
IMI, to produce magnetic laminations. When the furnace proved defective,
IMI allegedly sustained damages not only to the furnace but also to
laminations, including some that had been shipped to IMI customers,
resulting in various economic injuries. See 972 A.2d at 1234-35. IMI filed
suit in federal court. Abbott Furnace sought coverage under its CGL policy,
which Erie denied. The federal litigation resulted in a settlement pursuant to
which Abbott Furnace agreed to pay IMI $450,000. Abbott Furnace alleged
that it had incurred legal fees of nearly $800,000.
Erie then filed a declaratory judgment action against Abbott Furnace.
Id. at 1235. Therein, Erie alleged that IMI’s pleadings did not establish an
occurrence that would trigger coverage, and that coverage also was barred
by certain policy exclusions. Abbott Furnace answered and counterclaimed
for declaratory judgment, contending that IMI had, in fact, pleaded an
occurrence. Relying upon Kvaerner, the trial court granted Erie’s motion
for summary judgment, and Abbott Furnace appealed. Id. at 1236. Among
the issues Abbott Furnace raised before this Court was the following:
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Whether the trial court erred in entering summary judgment in
favor of [Erie] and holding that [Erie] had no duty to defend or
indemnify [Abbott Furnace] in the lawsuit filed by [IMI] . . .
where IMI’s complaint included allegations that an annealing
furnace manufactured by [Abbott Furnace] actively
malfunctioned and caused physical damage to, inter alia, IMI’s
tangible personal property other than the annealing furnace
itself.
Id.We began by considering Abbott Furnace’s claim that, because IMI’s
complaint asserted negligence as well as faulty workmanship and damages
to property other than the annealing furnace itself, the case was
distinguishable from Kvaerner and coverage was due. Reviewing IMI’s
complaint, we found it consistent on its face with Abbott Furnace’s
averments. However, we noted that, “[w]hen a plaintiff alleges that a
defendant committed a tort in the course of carrying out a contractual
agreement, Pennsylvania courts examine the claim and determine whether
the ‘gist’ or gravamen of it sounds in contract or tort.” Id. at 1238 (citing
Penna. Mfrs.’ Ass’n Ins. Co. v. L.B. Smith, Inc., 831 A.2d 1178, 1182
(Pa. Super. 2003)). “As a practical matter,” we explained, “the doctrine
precludes plaintiffs from recasting ordinary breach of contract claims into
tort claims.” Id.We then found that the gist of IMI’s action against Abbott Furnace lay
in contract:
Although IMI did reference [Abbott Furnace’s] negligence in
Count VI of its second amended complaint, we find, as did the
trial court, that a negligence claim was not adequately pleaded
in this instance. IMI’s claim that [Abbott Furnace] had a duty to
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apprise IMI of the design defects experienced by IMI’s
competitor or, at least, had a duty to not design the furnace in
the identical or similarly defective manner arose from the mutual
agreement between the parties regarding the specific requested
purpose and design of the furnace. Specifically, before ordering
a furnace from [Abbott Furnace], IMI advised [Abbott Furnace]
of its specific needs and intended use. The damage to IMI’s
laminations resulted from [Abbott Furnace’s] contractual
breach in failing to design the furnace in accordance with
IMI’s requested needs and intended use. This is not a
situation in which the tortious conduct was the “gist” of the
action and the contract was merely collateral to the conduct.
Accordingly, the claim should be limited to a contract claim . . .
Id. at 1239 (emphasis added; citations omitted). On that basis, we affirmed
the trial court’s grant of summary judgment to Erie.
We further developed our post-Kvaerner “occurrence” jurisprudence
in Indalex. In that case, the underlying claims involved allegations that the
appellant manufactured defective windows that resulted in water leakage
and attendant damage, including mold, as well as personal injury. The
insurer, National Union, denied coverage on the basis that there was no
occurrence as that term was used in the policy. Relying upon Kvaerner, the
trial court granted summary judgment to National Union. See 83 A.3d
at 419-20. Indalex appealed.
After providing the now-familiar account of Kvaerner, we called
attention to another aspect of the Supreme Court’s decision in that case:
The Court further supported its holding . . . by quoting from a
law review article by Roger C. Henderson, as follows:
The risk intended to be insured [by CGL policies] is the
possibility that the goods, products or work of the insured,
once relinquished and completed, will cause bodily injury
or damage to property other than to the completed work
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itself and for which the insured by [may] be found liable.
The insured, as a source of goods or services, may be
liable as a matter of contract law to make good on
products or work which is defective or otherwise unsuitable
because it is lacking in some capacity. This may even
extend to an obligation to completely replace or rebuild the
deficient work or product. This liability, however, is not
what the coverages in question are designed to protect
against. The coverage is for tort liability for physical
damages to others and not for contractual liability of
the insured for economic loss because the product or
completed work is not that for which the damaged person
bargained.
Insurance Protection for Products Liability and Completed
Operations; What Every Lawyer Should Know, 50 Neb.
L. Rev. 415, 441 (1971).
Kvaerner, 908 A.2d at 899 n.10 (emphasis added). Thus, the
Kvaerner Court’s decision was also based on the fact that the
underlying complaint contained only claims for breach of
contract and breach of warranty.
Indalex, 83 A.3d at 422-23 (citations modified). This Court then went on to
observe that the same was true of the claims asserted in Gambone
Brothers. Id. at 423.
Turning then to this Court’s decision in Abbott, we acknowledged that,
in that case, unlike in Kvaerner and Gambone Brothers, the underlying
complaint sought compensation for damages to property other than that
which was faulty. However, we noted that our decision in Abbott focused
upon the inadequacy of the pleadings to establish a claim for negligence,
which compelled this Court in Abbott to find that the claims more properly
lay in breach of contract. That is to say, in Indalex, we interpreted Abbott
not as categorically precluding coverage for negligence claims arising from
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damages caused by a faulty product or faulty workmanship to property other
than the work or product alleged to have caused the damages, even with
respect to a contractual counterparty, but rather as having found the
underlying complaint insufficient to warrant recognizing the claim as
something more than a contract claim in tort’s clothing—i.e., that the gist of
the action, under those particular facts, was contract-based. We concluded
that Indalex was distinguishable from Kvaerner, Gambone Brothers, and
Abbott: “As acknowledged by the trial court in this case, the Kvaerner
holding was limited to situations ‘where the underlying claims were for
breach of contract and breach of warranty, and the only damages were to
the [insured’s] work product.’” Indalex, 83 A.3d at 424 (citation omitted).
We also added the following reasoning:
[T]he policy at issue here includes in the definition of occurrence
the subjective language “[a]s respects Bodily Injury or Property
Damage, an accident, including continuous or repeated exposure
to conditions, which results in Bodily Injury or Property Damage
neither expected nor intended from the standpoint of the
Insured.” Commercial Umbrella Policy, at ¶ H(1) (emphasis
added). However, the policy at issue in Kvaerner contained no
such subjective definition. See Kvaerner, 908 A.2d at 897
(stating that the policy defined occurrence as “an accident,
including continuous or repeated exposure to substantially the
same or general harmful conditions”). Moreover, Appellee points
out in its brief that the trial court stated “the key term in the
ordinary definition of ‘accident’ is ‘unexpected.’” The policy at
issue provides that it is the insured’s subjective viewpoint, and
damages such as mold[-]related health issues were arguably not
expected.
****
Construing the policy in a manner that gives effect to all of its
language, we conclude that Appellee is obligated to defend
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Appellants. Simply stated, because Appellants set forth tort
claims based on damages to persons or property[] other than
the insured’s product, we cannot conclude that the claims are
outside the scope of the coverage.
Id. at 424-25 (citations modified or omitted).
Having established this doctrinal background, we may turn to
Appellants’ arguments in the instant matter. In support of their first issue,
concerning the existence of an insurable occurrence under Garnishee’s
policy, Appellants set forth a number of bases upon which to distinguish
Kvaerner and Gambone Brothers and analogize this case to Indalex. In
particular, Appellants focus upon the distinction between damages to the
product alleged to be faulty and damages to other property or personal
injury that appeared to be material to the Kvaerner and Gambone
Brothers rulings. Brief for Appellants at 13-15.
Appellants assert an additional contractual basis upon which to
distinguish this case from Kvaerner and Gambone Brothers: The
absence of any contract between Appellants and Penn Framing precluded
Appellants from seeking to recover from Penn Framing via contract claims.
Thus, Appellants’ only recourse against Penn Framing lay in negligence,
precluding a finding that the gist of their action lies in contract. Id. at 16-
17.
Finally, Appellants contend that, were we to find that Kvaerner is
controlling in this case, we would set bad policy:
There is an occurrence in this matter because the loss to the
Appellants is damage caused to property owned by Appellants
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other than the work Penn Framing performed framing Appellants’
home and installing the windows . . . . That damage is
fortuitous even if the loss to Penn Framing’s work is not—the
damage to the furniture, window coverings, stucco, insulation
and drywall and other personal property of Appellants
represented by the judgment is accidental. From the
perspective of . . . Appellants, had the framing been performed
improperly and an actual window fell on someone, that would
have been a covered loss to a person[;] leaking [that] causes
property damage to something other than the work performed
by Penn Framing would likewise be within the reasonable
expectations of coverage.
[Garnishee’s] extension of this interpretation of “occurrence”
would have dangerous and unsettling consequences. For
example, if a subcontractor improperly installed a gas heater
which subsequently exploded—would there be no coverage for
either loss of life or personal property from the resulting
explosion under a CGL policy because there was no
“occurrence”? Would a subcontractor hired to build a private
damn [sic] on a property not be held liable for personal property
damage resulting from a dam[] breach? . . . Such results would
be absurd and clearly not contemplated by Kvaerner.
Id. at 18-19.
Garnishee argues that Kvaerner’s rationale sweeps more broadly than
just those circumstances where the plaintiff has a contractual relationship
with the defendant-insured: Whether there is an underlying contract or not,
no coverage will lie for a claim arising out of a claim of faulty workmanship.
See Brief for Garnishee at 13-14. Based upon that premise, Garnishee then
endeavors to analogize this case to Gambone Brothers, an analogy that
undisputedly gains strength if the lack of a contract between Appellants and
Penn Framing is immaterial, as Garnishee suggests that it is. Garnishee also
reviews a number of cases that do not bind this Court, including non-
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precedential memoranda decisions by this Court and federal cases, that
rejected the distinction that Appellants would have us draw between
Gambone Brothers and the instant matter. Id. at 18 (discussing
Specialty Surfaces Int’l v. Continental Cas. Co., 609 F.3d 223 (3d Cir.
2010); Westfield Ins. Co. v. Belleveue Holding Co., 856 F. Supp.2d 683(E.D.Pa. 2012); Mid-Continent Ins. Co. v. Neves Constr., Inc., 3313 EDA
2010 (Pa. Super. July 8, 2011) (unpublished); Certain Underwriters at
Lloyd’s London v. Berzin, 1728 EDA 2010 (Pa. Super. April 5, 2011)
(unpublished)). Specifically, Garnishee maintains that each of those cases
interpreted Kvaerner’s and Gambone Brothers’ holdings as hinging not
upon privity of contract or the distinction between damages to the allegedly
unworkmanlike work itself, but rather upon the definition of “accident,” as
utilized in the definitions of occurrence in the policies at issue, which
definitions were materially identical to each other and to the definition at
issue in this case:
[T]he issue is not whether the claim is described as contractual
or tortious, as selected by a plaintiff. Rather, the key point
concerns whether the claim is based on defective workmanship.
As the Supreme Court stated in Kvaerner, 908 A.2d at 899,
“the definition of ‘accident’ required to salvage an ‘occurrence’
under the policy cannot be satisfied by claims based upon faulty
workmanship.” Likewise, the Pennsylvania Superior Court in
Gambone Brothers, 941 A.2d at 718, stated that “‘occurrence’
refers to [an] ‘accidental’ phenomenon—not claims predicated on
allegations of faulty workmanship.” [Appellants’] attempt to
create an illusory distinction in this regard has no basis and
should be disregarded.
Brief for Garnishee at 21.
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Garnishee also rejects Appellants’ reliance on Indalex. Brief for
Garnishee at 22-28. First, Garnishee notes the distinct definition of
“occurrence” in Indalex, which differed relative to the foregoing cases.
While occurrence is defined by the policy at issue in this case as “[a]n
accident, including continuous or repeated exposure to substantially the
same general harmful conditions,” the policy in Indalex defined occurrence
as follows: “As respects bodily injury or property damage, an accident,
including continuous or repeated exposure to conditions, which results in
bodily injury or property damage neither expected nor intended from the
standpoint of the insured.” Brief for Garnishee at 25 (quoting Indalex,
83 A.3d at 424-25). Garnishee notes that this Court observed that this
introduced a subjective element to the definition that is absent from the
instant, more conventional definition of occurrence, which contains no such
language, and contends that we found that distinction dispositive in
distinguishing Indalex from Kvaerner. Id. at 25-26. Finally, Garnishee
notes that Indalex took the form of a defective product claim, which this
Court characterized as a claim involving “an ‘active malfunction,’ and not
merely bad workmanship.” Id. at 26 (quoting Indalex, 83 A.3d at 424);
see Kvaerner, 908 A.2d at 898 (citing Snyder Heating for the proposition
that “[c]ontractual claims of poor workmanship did not constitute the active
malfunction needed to establish coverage under the policy”).
Kvaerner, Gambone Brothers, and Abbott appear to have left open
the door to a finding of an occurrence where unworkmanlike construction
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causes damage to property other than the work itself, and we discern no
binding precedent that conclusively rejects this possibility.6 However, the
United States Court of Appeals for the Third Circuit at least twice has cited
Kvaerner and Gambone Brothers as foreclosing that possibility when the
underlying allegations arise from faulty workmanship. In Nationwide
Mutual Insurance Co. v. CPB International, Inc., 562 F.3d 591 (3d Cir.
2009), a case with a fact pattern materially identical to Gambone
Brothers, the court of appeals held as follows:
In Gambone Brothers, the insured was a housing developer,
and the plaintiffs in the underlying action alleged that faulty
construction resulted in severe leaking [that] damaged the
interior of their homes. 941 A.2d at 713. The insured conceded
that “Kvaerner stands for the broad principle that an insurance
claim under an occurrence[-]based CGL policy that defines the
‘occurrence’ as an accident cannot be premised on a claim of
faulty workmanship,” id. at 713, but contended that the
underlying action “involve[d] claims for ancillary and accidental
damages caused by the resulting water leaks to . . . the home
interiors,” and that those claims alleged an ‘occurrence’ even
though the damage to the” home exterior did not. Id. The
Superior Court did “not see any merit in the distinction [the
insured] attempt[ed] to create.” Id. Instead, the Superior
Court interpreted the Kvaerner decision as stating that “natural
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6
In this regard, Garnishee’s attempt to analogize this case to our
determination in Gambone Brothers that the claims involved damage to
the product at issue, i.e., the house taken as a whole, and hence were fully
remediable in a contract action, is infirm. Here, the house is Falcone’s
product; Penn Framing’s product is the framing, windows, and perhaps other
portions of the house, but undisputedly less than the house as a whole.
Hence, any damage to parts of the house unrelated to framing, windows,
and any other work performed by Penn Framing, is damage to Appellants’
personalty.
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and foreseeable acts . . . which tend to exacerbate the damage,
effect, or consequences caused ab initio by faulty workmanship
also cannot be considered sufficiently fortuitous to constitute an
‘occurrence’ or ‘accident’ for the purposes of an occurrence
based CGL policy.” Id.Nationwide Mut., 562 F.3d at 597 (citations modified). However, in
Nationwide Mutual, it is not clear that any of the plaintiffs sought to
recover for more than the damage to the homes that were caused by the
builder’s allegedly unworkmanlike construction.
In Specialty Surfaces, supra, the court of appeals read Gambone
Brothers equally expansively. In that case, the insured was sued for
damages associated with its work installing portions of a playing surface at
an athletic facility. In no uncertain terms, the claimants sought damages for
consequential damages to property other than the property that the insured
had installed. Once again, though, the court of appeals read Gambone
Brothers to preclude coverage, in effect predicting that our Supreme Court
would do the same when presented with that precise question:
The insured insists that Gambone Brothers is distinguishable
from [the instant] case because the plaintiffs there did not allege
damage beyond the structure of the house, which was the work
product of the insured. This argument, however, ignores that
the Gambone Brothers court, following Kvaerner, clearly
focused on whether the alleged damage was caused by an
accident or unexpected event, or was a foreseeable result of
the faulty workmanship[,] when deciding whether the policy
covered the damage. Here, water damage to the subgrade[,
which was not installed by the insured,] was a foreseeable result
of the failure [of the insured] to supply a suitable liner or to
ensure the proper manufacture and installation of the synthetic
turf and subdrain system.
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609 F.3d at 239 (nomenclature modified; emphasis added). If we adopt
Specialty Surfaces’ analysis, we must affirm the trial court’s ruling. In
that case, as in the matter sub judice, the issue was water damage to
personalty caused by a failure of workmanship in a separate product.
The only case that arguably provides Appellants safe harbor from
Kvaerner and Gambone Brothers, and might lead us to depart from the
sound reasoning of the court of appeals in Nationwide Mutual and
Specialty Surfaces, is Indalex. However, we do not agree with Garnishee
that Indalex hinged upon the element of subjectivity in the underlying
policy’s definition of occurrence. Although we nominally rejected the
proposition that the language of the definition in Indalex was materially
identical to the definition at issue in Kvaerner, 83 A.3d at 424, we also cited
approvingly the appellee’s observation that “the key term in the ordinary
definition of ‘accident’ is ‘unexpected.’” Id. at 425. These propositions are
difficult to reconcile, inasmuch as the phrasing that introduced what we
identified as a subjective element to the policy language, “neither expected
nor intended from the standpoint of the [i]nsured,” coincided with what we
acknowledged in the same breath is inherent in the definition of accident,
i.e., “unexpected.” In any event, the most critical element in Indalex was
that the appellant’s claims were product-liability/tort claims that were
“based on damages to persons or property, other than the insured’s
product.” Id. Such claims are absent here, where workmanship is at issue,
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rather than an active malfunction or product liability, as such. Hence,
Indalex cannot carry the day for Appellants.
We conclude that the Third Circuit decision in Specialty Surfaces
aptly analyzed Kvaerner and progeny. Simply put, it is foreseeable that a
failure of workmanship that leaves a house’s envelope compromised and,
therefore, vulnerable to water penetration, may be damaged thereby. It
further is foreseeable that water penetration may damage the home as well
as property, and even people, contained within it.7 Thus, Appellants’
judgment against Penn Framing was not covered by Garnishee’s policy, and
Appellants may not recover from Garnishee.
This leaves us to address Appellants’ second issue, which concerns
Appellants’ contention that Garnishee owed Penn Framing coverage, if not
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7
Although Appellants pleaded personal injury as well as property
damages, before this Court, Appellants do not argue that the judgment
entered against Penn Framing, or the damages associated therewith, arose
due to personal injury. See Brief for Appellants at 21 (distinguishing
Indalex: “The only difference in the case sub judice is that there is no
allegation of personal injury.”). In another case, a distinction between
property damage and personal injury might warrant separate analyses of
foreseeability as to each. While leakage arising from a poorly installed
window plainly is foreseeable, at least one Pennsylvania court has found that
personal injury arising from the growth of mold arising from such a leak is
not. See, e.g., Crumm v. K. Murphy & Co. Inc., 10 Pa. D. & C.5th 268,
280 (Lancaster Cty. C.C.P. 2009) (“Damages for personal injuries arising
from an alleged exposure to toxic mold are not such that would naturally
and ordinarily arise from a breach of contract to construct a home nor is
there any evidence that these damages were reasonably foreseeable and
within the contemplation of the parties at the time the contract was
formed.”). We need not address that question in the instant case.
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directly under its bodily injury and property damage provision, then under
its Products/Completed Operations coverage. The trial court rejected this
argument on the basis that Appellants had failed to establish the existence
of such coverage under the policy “in law and in fact,” but further noted
that, even had they done so, Garnishee still would not owe coverage
because such coverage depends upon the existence of an occurrence as
defined in the policy.
Appellants assert that such coverage exists because it is referred to in
the declarations page of the policy and defined elsewhere in the policy. Brief
for Appellants at 21-22. Notably, Garnishee does not dispute the existence
of such coverage. Brief for Garnishee at 29 (“[Garnishee] has never
contested that such coverage exists . . . .”).
Both parties cite Friestad v. Travelers Indemnity Co., 393 A.2d
1212 (Pa. Super. 1978), to explain the purpose of such coverage:
“Completed Operations” supplements “premises-operations” and
refers to injuries or losses which arise after a jobsite has been
returned to the control of the premises’ owner. The “Products
Hazard” also requires the insured’s relinquishment of control of a
product, coupled with an injury or loss away from the normal
business premises. The principal thrust of completed operations
is the insured’s provision of a service, while the principal thrust
of the products hazard is the insured’s manufacture or sale of a
product.
Friestad v. Travelers Indem. Co., 393 A.2d 1212, 1213 n.2
(Pa. Super. 1978).
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Under the CGL policy sub judice, “products-completed operations
hazard” is defined in relevant part as follows:
a. Includes all “bodily injury” and “property damage”
occurring away from premises you own or rent and arising out of
“your product” or “your work” except:
1) Products that are still in your physical possession; or
2) Work that has not yet been completed or abandoned.
Commercial General Liability Form at 11-12 ¶ V.16.
Aside from a rehash of their claims regarding their lack of contractual
relationship with Penn Framing, the relevance of which to this issue is
unclear, Appellants’ argument consists entirely of the following bald
assertions:
By paying a premium for Products/Completed Operations
coverage, Penn Framing expressly desired coverage for at least
one claim that was raised by [Appellants] in the underlying
matter, to wit, the leaking around the windows caused damage
to Appellants’ furniture and structures and materials in the home
[that] were not installed by Penn Framing. By accepting the
premium payments, [Garnishee] agreed to provide a defense of
such claims and indemnity for such claims proven [sic]. Instead
[Garnishee] knowingly abandoned its insured, Penn Framing, in
the underlying matter when it had actual notice of the claims
and cannot argue that there is no coverage now.
****
The type of loss contemplated by Products/Completed
Operations coverage occurred here—after Penn Framing finished
its job on [Appellants’] home, its work/product caused damage
to [Appellants’] personal property . . ., where it performed its
work/installed its product. To hold otherwise would make this
entire coverage illusory.
Brief for Appellants at 23-24.
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The problems with this claim arise from the paucity of legal argument
and the lack of citations of relevant case law and documents. See
Pa.R.A.P. 2119(a)-(c). Appellants advert to the definition of “completed
operations” in the policy, as set forth above, but make no effort to explain
why this definition—which is in definitional section V, and set off from the
separate section I concerning coverages—warrants coverage where the
policy’s general coverage for bodily injury and property damage, which is
found in the coverages section, does not.
In any event, Appellants have no material argument that such
alternative coverage (if it even is, in fact, alternative coverage under the
circumstances presented) is excluded from the necessity that the events
triggering coverage constitute an occurrence as defined in the policy.
Absent a winning argument on that point, we must conclude that any such
coverage in this occurrence-based policy is precluded for the same reasons
set forth, supra, in our rejection of Appellants’ first issue. Accordingly,
Appellants’ second issue, too, must fail.
Judgment affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 12/23/2014
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