DocketNumber： 03440 Philadelphia 1995
Judges： McEwen, Cavanaugh, Cirillo, Tamilia, Popovich, Johnson, Hudock, Elliott, Eakin
Filed Date： 8/5/1998
Status： Precedential
Modified Date： 10/26/2024
Pennsylvania Manufacturers’ Association Insurance Company (“PMA”) appeals from
Appellee, Snyder Heating Company, Inc. (“Snyder”), instituted the underlying declaratory judgment action after PMA disavowed coverage for claims asserted against Snyder in a suit brought by the Wallingford-Swarth-more School District (“School District”). In January of 1991, the School District filed a complaint against Snyder alleging that it suffered property damage as a result of Snyder’s breach of two contracts to provide maintenance for the School District’s burners and boilers.
After a non-jury trial, the trial court concluded that under the products and completed operations coverage contained within the CGL policy, PMA was obligated to pay for the School District’s property damage resulting from Snyder’s work or product. In its proposed findings of fact and conclusions of law, the court found that PMA had the duty to defend Snyder in the amount of $40,-290.51 — representing the costs Snyder incurred in defending the School District’s lawsuit and in prosecuting the declaratory judgment action.
After filing post-trial motions that were denied by the trial court, PMA filed a notice of appeal to this court. On appeal, PMA presents the following issues for our review:
(1) Did the trial court err as a matter of law in holding Snyder’s claim was an “occurrence” under PMA’s insurance policy?
(2) Did the trial court err as a matter of law in finding that a letter from Snyder’s counsel to PMA constituted competent evidence of the scope of Snyder’s work and was a sufficient basis for the Court’s findings of fact nos. 4 and 20?
(3)Did the trial court err as a matter of law in holding that Snyder’s claim was not excluded under PMA’s insurance policy?
“A court’s first step in a declaratory judgment action concerning insurance coverage is to determine the scope of the policy’s coverage.” General Accident Ins. Co. of America v. Allen, 547 Pa. 693, 706, 692 A.2d 1089, 1095 (1997) (citations omitted). The terms of an insurance policy must be compared to the nature of the allegations in the complaint in order to determine whether, if the allegations are sustained, the insurer would be obligated to incur the expense of the judgment. Harford Mutual Insurance Company v. Moorhead, 396 Pa.Super. 234, 238, 578 A.2d 492, 494 (1990). See also General Accident Ins. Co. of America v. Allen, 708 A.2d 828 (Pa.Super. 1998); Creed v. Allstate Ins. Co., 365 Pa.Super. 136, 529 A.2d 10 (1987) (the duty to defend is limited to those situations where the complaint against the insured alleges facts which, if they were true, would bring the claim within the insurance policy’s coverage). The nature of the claim, rather than the actual details of any injuries suffered by the insured, determines whether the insurer is required to defend. D'Auria v. Zurich Ins. Co., 352 Pa.Super. 231, 507 A.2d 857 (1986).
In the present ease, the CGL policy issued by PMA to Snyder provided, in pertinent part, as follows:
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*485 applies. We will have the right and duty to defend any “suit” seeking those damages. We may at our discretion investigate any “occurrence4 ” and settle any claim or “suit” that may result,
b. This insurance applies to “bodily injury” and “property damage” only if:
1. The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory;” and
2. The “bodily injury” or “property damage” occurs during the policy period.
2. Exclusions
This insurance does not apply to:
b. “Bodily injury” or “property damage” for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.
j. “Property damage” to:
* * *
(6) That particular part of any property that must be restored, repaired, or replaced because “your work” was incorrectly performed on it. Paragraph (6) of this exclusion does not apply to “property damage” included in the “produets-completed operations hazard.”
k. “Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard.”
m. “Property damage” to “impaired property” or property that has not been physically injured, arising out of:
(1) A defect, deficiency, inadequacy or dangerous condition in “your product” or “your work;” or
(2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms.
In a letter written by a PMA account claims supervisor to Snyder, the insurance company acknowledged its receipt of the heating company’s summons and complaint and disclaimed coverage for the underlying School District suit. The insurance representative based the disclaimer upon the fact that the allegations in Snyder’s complaint involved property damage that resulted from its lack of contractual performance or its failure to meet the required level of performance represented by Snyder in its contract with the School District. Finally, PMA claimed that because the underlying allegations against Snyder did not fall within the required policy definition of an “occurrence,” PMA had no duty under its insurance contract to defend Snyder in the underlying action.
After a review of applicable case law, we find that the legal principles espoused in our court’s en banc opinion, Redevelopment Auth. of Cambria County v. International Ins. Co., 454 Pa.Super. 374, 685 A.2d 581 (1996) (en banc), allocatur denied, 548 Pa. 649, 695 A.2d 787 (1997), control our resolution of the duty to defend issue presented in this appeal. In Redevelopment, a public redevelopment authority (“the Authority”) entered into a maintenance service agreement with Barr Township (“the Township”) and the Township’s water system operator, Mar-steller Community Water Authority (“MCWA”), whereby the Authority was to allocate certain grant expenditures and other funds and sources to projects within the Township. Id. at 878, 685 A.2d at 583. Pursuant to the agreement, the parties intended that the Authority manage and administer grants in order to form a renovated water system capable of efficiently providing water of a quality required by statute, and create a volume of water adequate to supply the domestic, commercial and fire protection needs of the MCWA. Id. When the community’s water system was not upgraded in compliance with certain environmental standards, the Township and MCWA instituted suit against the Authority for breach of the maintenance agreement. Id.
The Township’s/MCWA’s complaint alleged that the Authority failed to perform under the service agreement, that the Authority was negligent in performing under
The Redevelopment court determined that although the underlying allegations in the Township’s complaint employed negligence concepts, the claims were indisputably “based upon duties imposed upon the [insured] solely as a result of the contract between the [insured and the plaintiff].” Id. at 390-91, 685 A.2d at 589. Accordingly, the court could not find that the insurer, Erie Insurance Group, was obligated to defend the Authority in the underlying suit. Id. at 390, 396, 685 A.2d at 589, 592. The Erie insurance policy provided that the insurer would pay for property damage that is caused by an “occurrence” that took place in the covered facility. The contract defined an occurrence as an accident, including continuous or repeated exposure to the same general, harmful conditions. Finding that the improper performance under the parties’ service agreement amounted to a breach of contract, and not an accident or occurrence, the court did not hold Erie to a duty to defend. Id. at 390, 685 A.2d at 589.
In the present case, Snyder entered into two maintenance agreements with the School District in the years 1988 and 1989. The agreements stated, inter alia, that Snyder, acting as contractor, would deliver supplies, materials, and equipment in order to perform services upon the School District’s burners and boilers. The contract also provided that payment for Snyder’s services would be based upon “satisfactory completion of the work contracted for, in accordance with the General Conditions, Specifications, and Bid of the Contractor and the acceptance of the same by the Board of School Directors of the ... School District.” In its complaint, the School District specifically claimed that Snyder’s nonfeasance in the following areas constituted a breach of the parties’ maintenance agreement:
(1) failure to seal and close the boilers
(2) failure to properly test and inspect the boilers
(3) failure to timely inspect the boilers and report noted deficiencies
(4) failure to install new hardware as needed in the boilers
(5) failure to start the boilers in accordance with specifications
(6) failure to properly clean the boilers
(7) failure to properly secure the boiler doors
(8) failure to otherwise perform its obligations
under the contracts
In the underlying declaratory judgment action, the trial court found that the School District’s claims against Snyder fell within PMA’s duty to defend based upon an insurance policy provision known as the “Products-completed operations hazard.” According to the PMA policy, “all ‘bodily injury’ and ‘property damage’ occurring away from premises you [Snyder] own or rent and arising out of ‘your [Snyder’s] product’ or ‘your [Snyder’s] work’” constitutes a “products-completed operations hazard.” Such hazard is not excluded, and, therefore, is covered under the policy. On the other hand, any property damage to Snyder’s work arising out of it or any part of it and included in the “products-completed operations hazard” is excluded from PMA’s coverage obligation.
In finding that the PMA policy covered the claims brought by the School District against Snyder, the trial court based its determination on the fact that evidence existed to prove that the alleged damage to the School District’s bumers/boilers had actually occurred to the refractory matérials contained in the boilers. Because Snyder was not hired to perform work on these materials, the court found that any damage suffered was not to Snyder’s “work” and, therefore, should be covered under the “products-completed operations hazard.” The court stated,
Although counsel for PMA did state that “how you file the action is entirely irrelevant to a proper resolution in this case,” PMA representatives from the inception of receiving Snyder’s complaint denied coverage based upon the fact that the policy excluded coverage for breach of contract allegations.
While Snyder attempts to cloak the School District’s allegations in tortious principles, the claims asserted against the heating company are clearly those sounding in breach of contract. “General liability insurance policies are intended to provide coverage where the insured’s product or work causes personal injury or damage to the person or property of another.” Ryan Homes, Inc. v. Home Indem. Co., 436 Pa.Super. 342, 348-49, 647 A.2d 939, 942 (1994) (citation omitted); see also 43 Am.Jur.2d, Insurance § 14:13. “Provisions 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.” Ryan Homes, 436 Pa.Super. at 349, 647 A.2d at 942 (citation omitted) (emphasis added); Redevelopment, 454 Pa.Super. at 391, 685 A.2d at 589. These types of insurance policies involve risks that are limited in nature; they are not the equivalent of a performance bond on the part of the insurer. Ryan Homes, 436 Pa.Super. at 349, 647 A.2d at 942.
The nature of Snyder’s alleged claims does not equate to a finding that Snyder’s failure to provide adequate burner/boiler services was tortious, accidental, or non-contractual in nature (i.e., “an occurrence”). Redevelopment, supra. In essence, the nature of the claims contained within the School District’s complaint amount to nothing more than one party claiming that another party has breached a contract. D’Auria, supra. To this end, the CGL policy clearly excludes from coverage breaches of contract; the policy language provides that the insurance contract will not apply to Snyder’s (the insured’s) failure to perform a contract or agreement in accordance with its terms. See Phico, 444 Pa.Super. at 228, 663 A.2d at 757 (the important difference between contract and tort actions is that the latter lie from a breach of duties imposed by law as a matter of social policy while the former lie from the breach of the duties imposed by mutual consensus agreements between particular individuals) (citing Bash v. Bell Telephone Co., 411 Pa.Super. 347, 355, 601 A.2d 825, 829 (1992)).
Additionally, the School District’s complaint fails to allege any active malfunctioning on Snyder’s part, Ryan Homes, supra; the claims made against Snyder solely arose out of and are based on its failure to perform under the terms of the boiler/burner maintenance agreements. See Toombs NJ Inc. v. Aetna Casualty & Surety Co., 404 Pa.Super. 471, 475-76, 591 A.2d 304, 306 (1991) (insurance company had no duty to defend in an action brought against its insured, a corporation that had entered into a joint venture with plaintiff; allegations in complaint “both in essence and upon its face, [were] one for
PMA, therefore, has no duty to defend Snyder. Redevelopment, supra. We vacate the order of the trial court and direct that judgment be entered in favor of PMA. See Phico, supra (allegations that the insured-corporation had acted with negligence and misconduct, resulting in the breach of a management agreement with the plaintiff, were not covered under insured’s comprehensive insurance policy; obligating the insurance company to defend or indemnify the insured would effectively change the insurer’s status from a mere insurer to a party to the transaction); see also Ryan Homes, supra (insurer had no duty to defend its insured where parties’ general liability policy, under work product exclusion, prevented insurer from covering replacement and repair costs for defective roofs constructed by subcontractor of insured).
Order vacated and case remanded for proceedings consistent with the directives in this opinion. Jurisdiction relinquished.
.We note that PMA filed its notice of appeal from the trial court’s September 18, 1995 order denying its post-trial motions. Final judgment in this matter, however, was not entered until September 25, 1995. "A notice of appeal filed after the announcement of a determination but before the entry of an appealable order shall be treated as filed after such entry and on the day thereof.” Pa.R.A.P. 905(a). Hence, we will treat this appeal as lying from the judgment, as opposed to the order denying post-trial motions.
. The complaint also sought damages in the amount of $46,936.00 — representing the costs of repairing and replacing the damaged boilers.
. The underlying action brought by the School District proceeded to arbitration and was ultimately resolved in favor of Snyder. The issue of PMA’s duty to indemnify, therefore, was not an issue in the declaratory judgment action.
. The policy defines occurrence as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
. We reiterate that where claims may potentially fall within the scope of coverage of an insurance contract, a court must continue its analysis in a duty to defend case to consider the applicability of the policy’s exclusions relating to the nature of the claims asserted by the insured. Phico Ins. Co. v. Presbyterian Med. Serv., 444 Pa.Super. 221, 226-27, 663 A.2d 753, 756 (1995).
. Having determined that the trial court's order must be reversed, we need not review PMA's final issue on appeal that concerns alleged evi-dentiary errors made by the trial court.