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Northridge Village, LP v. Travelers Indemnity Co. of Connecticut

United States District Court, E.D. Pennsylvania

August 31, 2017

NORTHRIDGE VILLAGE, LP and HASTINGS INVESTMENT CO., INC., Plaintiffs,
v.
TRAVELERS INDEMNITY CO. OF CONNECTICUT and TRAVELERS CORP., Defendants.

          MEMORANDUM OPINION

          Goldberg, J.

         This case involves an insurance coverage dispute stemming from alleged construction defects associated with the development of a planned community in Chester County, Pennsylvania. Presently before me are the cross-motions for summary judgment filed by Plaintiffs, Northridge Village, LP and Hastings Investment Company, Inc. (“Plaintiffs”), and Defendants, Travelers Indemnity Company of Connecticut and Travelers Corporation (“Defendants”). For the reasons set forth below, Plaintiffs' motion will be denied and Defendants' motion will be granted.

         I. Factual and Procedural Background

         Unless otherwise indicated, the following facts are undisputed.

         On or about October 3, 2003, Plaintiffs purchased vacant lots in Chester County, Pennsylvania for the purpose of developing a “Planned Community.” On May 9, 2005, Plaintiffs recorded a declaration for 170 lots, reserving the right to create an additional 80. Plaintiffs then sold the lots to construction contractors, NVR, Inc. t/a NV Homes and NVR, Inc. t/a Ryan Homes (collectively, “NVR/Ryan”), who constructed houses and sold them to individual owners between September 1, 2005 and January 4, 2010. (Defs.' Statement of Facts (“SOF”) ¶¶ 22, 26-28, 55-56; Underlying Compl., Doc. No. 39, Ex. 19 ¶¶ 32, 35, 38-39; Fourth Am. Underlying Compl., Doc. No. 39, Ex. 20 ¶¶ 27-29.)

         Plaintiffs also constructed “Common Facilities” (e.g., roads, curbs, fences) for the benefit of the “Community Association, ” which is a nonprofit corporation that operates as a homeowners association and is comprised of members who own residential units. In doing so, Plaintiffs warranted against structural defects in those facilities. Plaintiffs maintained control of the Community Association until it was transferred to individual owners. (Defs.' SOF ¶ 64; Underlying Compl., Doc. No. 39, Ex. 19 ¶ 1; Fourth Am. Underlying Compl., Doc. No. 39, Ex. 20 ¶¶ 122-23.)

         In preparation for the transition of control of the Community Association to the owners, the Community Association commissioned reports and studies evaluating the construction of the Planned Community, as well as Plaintiffs' operation and management thereof. These reports and studies revealed “delinquencies, defects, deficiencies, nonconformities, property damage and lapses.” The defects and deficiencies included

improper/incomplete stormwater management facilities; erosion around detention basin embankments; curbs and storm sewer inlets that are not in alignment with the edge paving; missing curbs; sunken and damaged utility boxes throughout the community; poor drainage and erosion throughout the community; inoperable or improperly installed street lights; PVC fences around the detention basin that are not set at a uniform height and are damaged; unfinished road paving; and improper curb terminations in several areas.

(Defs.' SOF ¶¶ 43-45; Underlying Compl., Doc. No. 39, Ex. 19 ¶ 61.)

         On September 13, 2013, the Community Association sued Plaintiffs, along with NVR/Ryan, in the Court of Common Pleas of Chester County over the development and construction of the Planned Community alleging that Plaintiffs performed deficient construction. The Association filed a fourth amended complaint in Chester County on September 30, 2014, which is presently the operative complaint in the underlying action.[1] (Defs.' SOF ¶¶ 18, 36-37, 46, 54; Underlying Compl., Doc. No. 39, Ex. 19 ¶¶ 54, 58, 64; Fourth Am. Underlying Compl., Doc. No. 39, Ex. 20.)

         Defendants have refused to defend Plaintiffs in the underlying action, prompting Plaintiffs to file the instant breach of contract action in this Court.[2] I must now determine whether Defendants had a duty to defend Plaintiffs in the underlying action, which requires consideration of the original and Fourth Amended Underlying Complaints, and the terms of Plaintiffs' general liability policy with Defendants.[3]

         A. The Underlying Complaints

         As previously noted, the reports commissioned by the Community Association identified numerous problems with the Common Facilities. The Community Association filed the original Underlying Complaint against Plaintiffs and NVR/Ryan on September 13, 2013. The allegations in that complaint that are relevant to my analysis are set forth below.

         The original Underlying Complaint first alleges that Plaintiffs were responsible for the planning, design, development, creation, and construction of the Planned Community. It also alleges that “Northridge” sold the lots to third party owners. As such, the complaint asserts that Plaintiffs are liable for defective work that resulted in “numerous failures of the structural, drainage, grading, streets, curbs, alleys, drives, lanes, detention basin deficiencies, landscaping and stormwater management facilities as well as other components of the Community and caused extensive property damage throughout the Community.” The defects are alleged to be “continuing and cumulative in nature, ” and “pervasive throughout the Community and affect[ing] more than two units.” The Underlying Complaint also contends that Plaintiffs were “careless and negligent in the performance of their duties in connection with the building and construction of the Community by failing to exercise such reasonable care, technical skill and ability and diligence as are ordinarily required of builders and contractors.” Additionally, it is asserted that Plaintiffs were “careless and negligent in the performance of their duties in connection with the hiring of contractors, subcontractors and suppliers, and in their supervision and inspection of the work and materials provided to the Community.” (Underlying Compl., Doc. No. 39, Ex. 19 ¶¶ 12, 43, 63-65, 143, 148.)

         The Underlying Complaint articulates the following claims: breach of contract; breach of statutory warranties; negligent construction; and negligent supervision. It seeks to recover the cost to repair and/or replace the defects, deficiencies, and nonconformities, as well as funds expended in order to address and remediate the defects, deficiencies, and nonconformities. (Id. ¶¶ 95-106, 115-24, 139-50.)

         On September 30, 2014, the Community Association filed a fourth amended complaint, which contains many of the same allegations as the original Underlying Complaint, but clarifies the following relevant points.[4] This complaint contends that Northridge “obtained the subdivision approvals and constructed the site improvements to serve the Planned Community, ” and that NVR/Ryan “contracted with [Northridge] to purchase lots upon which [NVR/Ryan] constructed Units.” The complaint explains that “[NVR/Ryan] sold and conveyed a finished home on each lot to a purchaser.” Additionally, the Fourth Amended Underlying Complaint asserts that “Northridge” constructed the Common Facilities and warranted against structural defects. Finally, it explains that the “defects and deficiencies . . . affect units, lots, common elements and limited common elements.” (Fourth Am. Underlying Compl., Doc. No. 39, Ex. 20 ¶¶ 27-29, 57, 122-23.)

         The Fourth Amended Underlying Complaint reconfigures the causes of action against Plaintiffs to include not only breach of statutory warranties, but also breach of fiduciary duty and an action for a declaratory judgment. (Id. ¶¶ 117-73.)

         Defendants denied coverage on September 26, 2013 and reaffirmed their denial on February 17, 2014. (Defs.' SOF ¶¶ 75-76.)

         B. The Insurance Policies[5]

         Defendants provided general insurance liability policies (“CGL Policies”) to Plaintiffs on an annual basis from February 15, 2004 through February 15, 2015. (Doc. No. 39, Exs. 1-10.) These policies each provide “occurrence” coverage subject to a limit of $1, 000, 000 per occurrence, a $2, 000, 000 general aggregate limit, and a $2, 000, 000 products-completed operations aggregate limit. (E.g., Id., Ex. 9 at 10.) Defendants also provided commercial excess liability umbrella policies (“Excess Policies”) to Plaintiffs from January 12, 2006 through February 15, 2014, which are triggered only if the CGL Policies are exhausted. (Id., Exs. 11-18.) Each of these policies provides excess coverage subject to limits of $2, 000, 000 per “any one occurrence, ” a $2, 000, 000 products/completed operations aggregate limit, and a $2, 000, 000 general aggregate limit. (E.g., Id., Ex. 17 at 3, 6.) The CGL Policies provide Defendants 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 this insurance applies.” “Bodily injury” is defined as “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.” “Property damage” is defined as “[p]hysical injury to tangible property, including all resulting loss of use of that property” or “[l]oss of use of tangible property that is not physically injured.” However, coverage applies to “bodily injury” and “property damage” only if caused by an “occurrence” that takes place in the “coverage territory.” An “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

(E.g., Id., Ex. 9 at 14, 25, 27-28.)

         The CGL Policies also contain numerous exclusions and endorsements, including the following:

EXCLUSION - REAL ESTATE DEVELOPMENT ACTIVITES - COMPLETED OPERATIONS
. . .
PROVISIONSA. This insurance does not apply to “bodily injury” or “property damage” that is included in the “products-completed operations hazard” and that arises out of any “real estate development activities” by or on behalf of any insured. . . .

C. The following definition is added to SECTION V - DEFINITIONS:

“Real estate development activities” means the design, site preparation, construction, marketing or sales of residential, commercial or industrial buildings.

D. The Provisions of this endorsement do not apply to the repair, maintenance, renovation, alteration or addition to an existing building owned by the Named Insured.

Id.

         “Products-completed operations hazard”:

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. However, “your work” will be deemed completed at the earliest of the following times:
(a) When all of the work called for in your contract has been completed.
(b) When all of the work to be done at the job site has been completed if your contract calls for work at more than one job site.
(c) When that part of the work done at a job site has been put to its intended use by any person or organization other than another contractor or subcontractor working on the same project.
Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will ...

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