215 A.3d 1010
Pa. Super. Ct.2019Background
- Pride Group (tenant) sued its landlord, Pottstown Industrial Complex LP (Insured), alleging roof leaks caused four floods between 2013–2016 that destroyed over $700,000 of tenant inventory, including a July 22, 2013 flood during the PMA policy period.
- PMA had a CGL policy covering 11/1/2012–11/1/2013; Liberty Mutual covered later periods.
- Insured tendered defense to PMA in 2016; PMA defended under a reservation of rights and then filed a declaratory-judgment action seeking a ruling that it had no duty to defend or indemnify because the underlying complaint did not allege an "occurrence."
- The trial court granted PMA’s judgment on the pleadings, holding the claims alleged faulty workmanship and thus were not an "occurrence" under Pennsylvania precedent.
- Insured appealed; the Superior Court reviewed policy interpretation de novo and considered whether the tenant’s allegations of flooding to tenant property constituted an "occurrence" under the PMA policy.
Issues
| Issue | Plaintiff's Argument (PMA) | Defendant's Argument (Insured) | Held |
|---|---|---|---|
| Whether the Underlying Action alleges an "occurrence" under the PMA CGL policy | The tenant’s claims are essentially faulty-workmanship/contract claims and thus not an "occurrence" under Kvaerner and Gambone | The complaint alleges negligent maintenance causing an unexpected flood that damaged third‑party property (tenant inventory), which is an "occurrence" | Reversed trial court: the complaint alleges an "occurrence" because flooding is an accidental event that damaged property other than the insured’s work |
| Whether CGL coverage would be converted into a performance bond if coverage is found | Coverage for breach-of-contract-based damage would impermissibly insure poor workmanship/economic loss | Damage here is to property other than the insured’s work product, fitting CGL risk of accidental damage to others’ property | Court: Distinguishes Kvaerner/Gambone—those involved damage only to the insured’s work; allowing coverage here does not convert CGL into a performance bond |
| Whether allegations labeled as breach of contract (versus tort) foreclose coverage | Labeling as contract claim means exclusion/precludes "occurrence" | The substance of factual allegations controls; negligence allegations and accidental flooding may trigger coverage | Court: The factual allegations (flooding, negligence) control; the contractual label does not defeat coverage |
| Applicability of the policy’s contractual-liability exclusions | PMA argues the contract-related exclusions bar coverage | Insured notes the PMA policy’s contractual exclusion is narrow and contains exceptions (insured contract includes lease) | Court: The contractual-liability exclusion does not bar coverage here because the lease fits the "insured contract" exception and exclusion’s scope is limited |
Key Cases Cited
- Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006) (faulty workmanship that damages only the insured’s work is not an "occurrence")
- Millers Capital Ins. Co. v. Gambone Bros. Dev. Co., 941 A.2d 706 (Pa. Super. 2007) (construction defects damaging the houses built by the insured do not allege an "occurrence")
- Indalex Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 83 A.3d 418 (Pa. Super. 2013) (defective products causing water leakage and damage to other property constitute an "occurrence")
- Donegal Mut. Ins. Co. v. Baumhammers, 938 A.2d 286 (Pa. 2007) (insurance-policy interpretation is a question of law)
- Am. & Foreign Ins. Co. v. Jerry’s Sport Ctr., Inc., 2 A.3d 526 (Pa. 2010) (insurer’s duty to defend is broader than duty to indemnify; compare complaint to policy terms)
- Erie Ins. Exch. v. Abbott Furnace Co., 972 A.2d 1232 (Pa. Super. 2009) (no coverage where defects damaged only the supplied furnace and its products)
- Snyder Heating Co. v. Pa. Mfrs.’ Ass’n Ins. Co., 715 A.2d 483 (Pa. Super. 1998) (claims alleging only contractual breach/failure to perform do not allege an "occurrence")