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Quality Stone Veneer, Inc. v. Selective Insurance Co. of America

United States District Court, E.D. Pennsylvania

January 23, 2017



          STENGEL, J.


         This is an insurance coverage dispute between the plaintiff, Quality Stone Veneer, Inc. (“QSV”) and its insurance company, Selective Insurance Company of America (“defendant”). Both parties filed motions for summary judgment disputing whether the defendant has a duty to defend QSV in an underlying state-court action in which QSV has been sued. For the following reasons, I find that the defendant has no duty to defend QSV.


         QSV is a company that installs and manufactures stone veneer. (Dec. Judg. Compl., Doc. No. 1 at 19 ¶ 16) [hereinafter “DJ Compl.”]. In 2003, QSV entered into a subcontract with Mignatti Construction for the development of an apartment complex called Heritage Creek Condominium in Warwick Township, Pennsylvania. (Id. ¶ 17). Under this subcontract, QSV agreed to provide all the materials and labor related to the installation of stone veneer at the condominium construction project. (Def.'s Concise Statement Undisputed Material Facts, Doc. No. 11-4 ¶ 19) [hereinafter “DSUMF”].

         In 2006, after construction had begun, the Heritage Creek Condominium Association filed a complaint against Mignatti Construction in Pennsylvania state court. (Id. ¶ 21). It alleged claims against Mignatti for “serious fire, life and safety deficiencies in the construction of the furnace, ventilation, roofing, alarms, sprinklers, electrical and water systems” at Heritage Creek Condominium. (Underlying Compl., Doc. No. 1-4 at ¶ 29). Mignatti thereafter filed a joinder complaint against QSV for “contribution and/or indemnity breach of warranty/negligence.” (Am. Joinder Compl., Doc. No. 12-7 at 11).

         The defendant has refused to defend QSV in the underlying action. Defendant's refusal to defend QSV prompted QSV to file the instant declaratory judgment action in the Court of Common Pleas of Lancaster County. (Doc. No. 1 at 16).[1] I must now decide whether defendant has a duty to defend QSV. This requires consideration of the underlying action, the terms of QSV's commercial general liability policy with defendant, and the present action.

         A. The Underlying Action

         After the work was completed at Heritage Creek Condominium, the Heritage Creek Condominium Association hired an engineering company to perform an inspection of the condominium. (Doc. No. 1-4 at 23 ¶ 28). The purpose of this inspection was to determine whether the condominium “was constructed in accordance with the architectural drawings and all applicable zoning and building regulations and other requirements.” (Id.) The engineering company performed the inspection and then made a report documenting its findings on February 16, 2005. (Id. ¶ 29). The report listed deficiencies in how the ventilation, roofing, alarms, furnace, sprinklers, electrical, and water systems were constructed. (Id.)

         The engineering company performed a second inspection on January 26, 2006. (Id. ¶ 37). The report for this inspection stated that many of the above deficiencies had not been corrected by Mignatti. (Id.) Thereafter, the Heritage Creek Condominium Association filed a complaint against Mignatti in the Court of Common Pleas of Bucks County. Heritage Creek Condominium Association amended its complaint on June 5, 2006. (Id. ¶ 1). This amended complaint alleged “deficiencies . . . in the construction” of certain parts of the condominium. (Id. ¶ 29). Specifically, it claimed Mignatti had failed to construct the condominium as required by contract specifications, bylaws, building codes, and zoning ordinances. (Id. ¶ 46).

         As the case against Mignatti proceeded through discovery, Heritage Creek Condominium Association had several more inspections done on the property. One of these inspections resulted in a report, which opined that Mignatti had failed to properly install: (i) flashing in and around the condominium's balconies; (ii) weather resistant barriers; (iii) windows; and (iv) balcony base plates. (Doc. No. 12-7 at 7 ¶ 16). According to the report, this caused water infiltration in the condominiums. (Id. ¶¶ 14, 17). A different report claimed that Mignatti “failed to properly install the adhered masonry concrete veneer and windows on the Project, which has caused water to infiltrate and damage the Condominium.” (Id. ¶ 22). These inspections and reports were completed in 2012 and 2013.

         About one year after these reports, Mignatti filed a joinder complaint against QSV and others, which Mignatti amended on September 29, 2014. (Id. at 18). In the amended joinder complaint, Mignatti alleged that “[a]ny breach of a legal duty or negligence or breach of warranty with respect to [QSV]'s work was that of [QSV] and not [Mignatti].” (Id. at 11 ¶ 46). Mignatti relied on its subcontract agreement with QSV, which required QSV to “make good . . . any defect in material or workmanship which may occur or develop.” (Id. ¶ 48). Mignatti also denied liability for any “alleged construction defects and design defects and for alleged failures in construction monitoring.” (Id. ¶¶ 23-24). The amended joinder complaint sought contribution and indemnity from QSV for any damages resulting from “the work performed, materials furnished or services provided” by QSV. (Id. ¶ 50).

         B. The Insurance Policy

         Defendant provided an insurance policy to QSV from 2003 to 2008. The policy contained both commercial general liability (“CGL”) coverage as well as umbrella liability coverage.[2]

         The CGL policy provides coverage for bodily injury and property damage as follows: “We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury' or ‘property damage' to which the insurance applies.” (Doc. No. 11-3 at 21). The CGL policy only provides coverage if the bodily injury or property damage results from an “occurrence.” (Id.) The CGL policy, in turn, defines an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (Id. at 35).

         The umbrella policy provides QSV with excess coverage over and above the CGL policy limits under certain circumstances. Just like the CGL policy, the umbrella coverage is only activated when there is bodily injury or property damage as the result of an “occurrence.” (Id. at 56). The umbrella policy defines an “occurrence” the same way that the CGL policy does: “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (Id.)

         The CGL policy contains numerous exclusions.[3] (Doc. No. 12-1 at 71-74). One of these exclusions relates specifically to damage to QSV's own work. It states that coverage does not apply to:

1. Damage To Your Work
“Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard”.
This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.

(Id. at 74).[4] The CGL policy contains an aggregate limit of $2, 000, 000 for products-completed operations. (Id. at 58). The CGL policy also contains an exclusion for “impaired property.” (Id. at 74). The impaired property exclusion precludes coverage for certain property damage. (Id. at 74, 83).

         C. The Present Action

         After QSV was sued by Mignatti in state court, it sought coverage from defendant. Defendant denied coverage, claiming it had no duty to defend QSV in the underlying action. (Doc. No. 1 at 22 ¶¶ 33-34). QSV then filed the instant declaratory judgment action seeking coverage under the CGL policy. QSV contends that defendant has a duty to defend, while defendant argues the opposite.[5]


         Summary judgment is proper “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A factual dispute is “material” only if it might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). For an issue to be “genuine, ” a reasonable fact-finder must be able to return a verdict in favor of the non-moving party. Id.

         A party seeking summary judgment initially bears responsibility for informing the court of the basis for its motion and identifying those portions of the record that it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A party asserting that a fact cannot be or is genuinely disputed must support the assertion by citing relevant portions of the record, including depositions, documents, affidavits, or declarations, or showing that the materials cited do not establish the absence or presence of a genuine dispute, or showing that an adverse party cannot produce admissible evidence to support the fact. Fed.R.Civ.P. 56(c). Summary judgment is therefore appropriate when the non-moving party fails to rebut the moving party's argument that there is no genuine issue of fact by pointing to evidence that is “sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.” Celotex, 477 U.S. at 322.

         Under Rule 56 of the Federal Rules of Civil Procedure, the court must draw “all justifiable inferences” in favor of the non-moving party. Anderson, 477 U.S. at 255. The Court must decide “not whether . . . the evidence unmistakably favors one side or the other but whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented.” Id. at 252. It is well established that in Pennsylvania the interpretation of an insurance contract is a question of law. Kvaerner Metals Div. v. Commercial Union Ins. Co., 908 A.2d 888, 897 (Pa. 2006). In determining whether an insurer has a duty to defend, the court shall consider only the language of the policy and the complaint against the insured. Id. at 896-97.


         The outcome of the instant motions turns on the resolution of one question: Was the property damage alleged in the underlying action the result of an “occurrence” as defined by the CGL policy? If it was, then coverage applies and defendant must defend ...

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