STATE FARM FIRE AND CASUALTY COMPANY v. MCDERMOTT

Filing 22

MEMORANDUM. SIGNED BY CHIEF JUDGE PETRESE B. TUCKER ON 10/14/2014. 10/15/2014 ENTERED AND COPIES E-MAILED.(amas)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA

STATE FARM FIRE AND CASUALTY CO.

v.

CIVIL ACTION

PATRICK McDERMOTT, d/b/a PATRICK
McDERMOTT PLASTERING

N0.11-5508

MEMORANDUM
TUCKER, C.J.

October

It

'2014

Presently before the Court is Plaintiff State Farm Fire and Casualty Company's Motion
for Summary Judgment (Doc. 16), Defendant Patrick McDermott d/b/a Patrick McDermott
Plastering's Answer in Response to Plaintiffs Summary Judgment Motion (Doc. 17), Defendant
McDermott's Cross-Motion for Summary Judgment (Doc. 18), Defendant McDermott's
Memorandum of Law in Support of his Cross-Motion for Summary Judgment (Doc. 19),
Plaintiff State Farm's Response in Opposition to Defendant's Cross-Motion for Summary
Judgment (Doc. 20), and Defendant McDermott's Reply to Plaintiffs Response in Opposition to
Defendant's Cross-Motion for Summary Judgment (Doc. 21). Upon consideration of the parties'
motions with briefs and exhibits, and for the reasons set forth below, Plaintiffs Motion for
Summary Judgment is GRANTED and Defendant's Cross-Motion for Summary Judgment is

DENIED.
I.

FACTS AND PROCEDURAL BACKGROUND 1
Because the Court writes primarily for the parties, the Court sets forth only those facts

that are relevant to its conclusion. Plaintiff State Farm Fire and Casualty Company ("State
1

The facts described herein are undisputed unless otherwise noted.

1

Farm") issued five insurance policies providing comprehensive business liability coverage to
Defendant Patrick McDermott, here doing business as Patrick McDermott Plastering
("McDermott"). 2 (Second Am. Compl., 7; Answer, 7.) In March of 2012, McDermott, along
with another party, was named in an action for negligence and breach of contract/warranty
brought by the PulteGroup (hereafter referred to as the "underlying PulteGroup action"). (Second
Am. Compl. if 11; Answer if 11.) TJ;ie underlying PulteGroup action claimed that on or about
February 12, 2002, McDermott entered into a building contract with the PulteGroup to
"plaster/stucco and install window and door flashing and felt paper for approximately 299 homes
in the residential community of the Traditions at Washington Crossing, located in Washington
Crossing, Bucks County, PA." (PulteGroup, Inc. a/kla Pulte Homes, Inc. alkla Pulte Home
Corporation of Delaware County v. Patrick McDermott Plastering, LLC and Nassau
Construction Company, LLC, No. 2010-08958, Fourth Am. Compl. ,if 4-5 (Pennsylvania Court

of Common Pleas for Bucks County filed Mar 26, 2012)). From approximately May 1, 2002
through September 1, 2005, McDermott plastered and/or stuccoed and installed window and
door flashing and felt paper for the approximately 299 homes located in the Traditions at
Washington Crossing community. (Id. at, 6.) The PulteGroup further alleged that on or about
October 23, 2008, the PulteGroup, with the help of a water intrusion specialist, became aware
that McDermott had "failed to install a drip cap under the patio doors, improperly fastened the
ledger board of the deck to the homes, failed to properly install felt paper under the soffit or
between the back walls and the fascia, failed to properly flash under the window flanges, failed

2

The first agreement (Policy No. 98-LJ-0149-0) covered the period from February 15, 2002 through February 15,
2003. The second agreement (Policy No. 98-NB-7715-3) covered the period from February 15, 2003 through
February 15, 2004. The third agreement (Policy No. 98-NW-0064-2) covered the period from February 15, 2004
through February 15, 2005. The fourth agreement (Policy No. 98-NY-6273-5) covered the period from February 15,
2005 through February 15, 2006. The fifth agreement (Policy No. 98-PE-3040-5) covered the period from February
15, 2006 through February 15, 2007.

2

to use felt paper behind the cladding on the header, etc." (Id.

at~

10.) Because of these defects,

the PulteGroup claims, water intrusion became an ongoing and reoccurring issue for the
approximately 299 homes in the residential community, causing losses to PulteGroup through
lawsuits filed against them by homeowners. (Id.

at~~

11-14.)

McDermott sought out defense and indemnity from State Farm for the underlying
PulteGroup action. (Second Am. Compl. ~ 14; Answer~ 14.) State Farm claims they reserved
their right to disclaim coverage under certain exclusions and provisions found within the
business liability insurance policies. (Second Am. Compl. ~ 15, Ex. C.) State Farm is currently
providing McDermott with a defense in the PulteGroup action. (Second Am. Compl.
Answer~

~

15;

15.) State Farm has since filed the instant suit challenging their obligation to cover

McDermott.
On September 1, 2011, State Farm filed the instant action with the Eastern District of
Pennsylvania and later filed two amendments, the final amendment being filed on March 28,
2013. State Farm seeks a determination that it has no obligation to defend or indemnify
McDermott from the PulteGroup action based on certain exclusions and provisions noted in the
insurance policies issued to McDermott. On May 14, 2013, State Farm filed the instant Motion
for Summary Judgment, which was followed by a Cross-Motion for Summary Judgment by
McDermott on June 13, 2013 and various supporting briefs and documents from both parties.
The Court's analysis follows.

II. STANDARD OF REVIEW
Summary judgment is awarded only when "there is no genuine dispute as to any material
fact and the movant is entitled to a judgment as a matter oflaw." FED.R.C1v.P. 56(a); Liberty
Mut. Ins. Co. v. Sweeney, 689 F.3d 288, 292 (3d Cir. 2012). A factual dispute between the

3

parties will not defeat a motion for summary judgment unless it is both genuine and material. See

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-49 (1986); Dee v. Borough of Dunmore, 549
F.3d 225, 229 (3d Cir. 2008). A factual dispute is genuine if a reasonable jury could return a
verdict for the non-movant, and it is material if, under the substantive law, it would affect the
outcome of the suit. See Anderson, 477 U.S. at 248; Fakete v. Aetna, Inc., 308 FJd 335, 337 (3d
Cir. 2002).
The moving party must show that if the evidentiary material of record were reduced to
admissible evidence in court, it would be insufficient to permit the non-moving party to carry its
burden of proof. See Celotex v. Catrett, 477 U.S. 317, 327 (1986). Once the moving party has
carried its burden under Rule 56, "its opponent must do more than simply show that there is
some metaphysical doubt as to the material facts." Scott v. Harris, 550 U.S. 372, 380
(2007). Under Federal Rule of Civil Procedure 56(e), the opposing party must set forth specific
facts showing a genuine issue for trial and may not rest upon the mere allegations or denials of
its pleadings. See Marten v. Godwin, 499 F.3d 290, 295 (3d Cir. 2007).
At the summary judgment stage the court's function is not to weigh the evidence and
determine the truth of the matter, but rather to determine whether there is a genuine issue for
trial. See Anderson, 477 U.S. at 249 (citations omitted); Jiminez v. All American Rathskeller,
Inc., 503 F.3d 247, 253 (3d Cir. 2007). In doing so, the court must construe the facts and
inferences in the light most favorable to the non-moving party. See Horsehead Indus., Inc. v.
Paramount Communications, Inc., 258 F.3d 132, 140 (3d Cir. 2001). The court must award
summary judgment on all claims unless the non-moving party shows through affidavits or
admissible evidence that an issue of material fact remains. See, e.g., Love v. Rancocas Hosp.,

4

270 F. Supp. 2d 576, 579 (D.N.J. 2003); Koch Materials Co. v. Shore Slurry Seal, Inc., 205 F.
Supp. 2d 324, 330 (D.N.J. 2002).
The filing of Cross-Motions for Summary Judgment does not change this analysis. See
Transportes Ferreos de Venezuela II CA v. NKK Corp., 239 F.3d 555, 560 (3d Cir. 2001);
Appelmans v. City of Philadelphia, 826 F.2d 214, 216 (3d Cir. 1987). The filing of such claim
by the parties "does not constitute an agreement that if one is rejected the other is necessarily
justified or that the losing party waives judicial consideration and determination whether genuine
issues of material fact exist." Transportes Ferreos de Venezuela II CA, 239 F.3d at 560 (citation
omitted). If review of Cross-Motions for Summary Judgment reveals no genuine issue of
material fact, then judgment will be entered in favor of the party deserving of judgment in light
of the law and undisputed facts. See Id.; Iberia Foods Corp. v. Romeo, 150 F.3d 298, 302 (3d
Cir. 1998) (citation omitted); FED. R. Civ. P. 56(c).

III.

DISCUSSION
This Court sits in diversity and therefore must apply state substantive law and federal

procedural law. See Liggon-Redding v. Estate ofSugarman, 659 F.3d 258, 262 (3d Cir. 2011);
Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). McDermott is a Pennsylvania limited liability
corporation with its principal place of business in Glenside, PA. (Counter-cl. ~ 1; Answer to
Counter-cl~

1.) State Farm is a wholly-owned subsidiary of State Farm Mutual Automobile

Insurance Company, an Illinois mutual insurance company with its principal place of business in
Bloomington, Illinois.

(Counter-cl.~

2; Answer to

Counter-cl~

2.) Both parties claim

jurisdiction through 28 U.S.C. 1332(a). (Second Am. Compl. ~ 2; Counter-cl~ 4.) Both parties
seek declaratory judgment under 28 U.S.C. § 2201 and Rule 57 of the Federal Rules of Civil
Procedure. (Second Am. Compl.

~

1;

Counter-cl.~

5

3.) This case does not involve matters

"

governed by the Federal Constitution or acts of Congress, the alleged action here occurred in
Philadelphia, and both parties make claims of diversity jurisdiction and use Pennsylvania state
law to support their arguments. (Second Am Compl.
~

~~

2-15, Ex. B; Answer ~~ 2-15; Counter-cl.

4; Answer to Counter-cl~ 4; Pl.'s Mot. for Summ. J. ~~ 33-105; Mem. of Law in Support

Cross-Mot. for Summ. J. 2-8.) Additionally, Under Pennsylvania choice of law rules, an
insurance contract is governed by the law of the state in which the contract was made. See Frog,
Switch & Mfg. Co., Inc. v. Travelers Ins. Co., 193 F.3d 742, 746 (3d Cir. 1999) (citing Travelers
Indem. Co. v. Fantozzi ex rel. Fantozzi, 825 F. Supp. 80, 84 (E.D.Pa. 1993)). Pennsylvania state
law will therefore govern.

A.
The Underlying PulteGroup Action Complaint Does Not Allege an "Occurrence" as
Required by the State Farm Policies
The Supreme Court of Pennsylvania has established that "[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." Kvaerner Metals Div. of Kvaerner US., Inc. v.
Commercial Union Ins. Company, 908 A.2d 888, 896 (Pa. 2006) (citing Mutual Benefit Ins. Co.
v. Haver, 725 A.2d 743, 745 (Pa. 1999)). The Pennsylvania Supreme Court has also emphasized
that Courts are to determine the obligation by a casualty insurance company to defend and
indemnify an action brought against an insured solely by the allegations of the complaint.
Kvaerner, 908 A.2d at 896 (citations omitted). This duty to defend "carries with it a conditional
obligation to indemnify in the event the insured is held liable for a claim covered by the policy,"
and although the "duty to defend is separate from and broader than the duty to indemnify, both
duties flow from a determination that the complaint triggers coverage." General Acc. Ins. Co. of
America v. Allen, 692 A.2d 1089, 1095 (Pa. 1997) (citing Pacific Indem. Co. v. Linn, 766 F .2d
754 (3d Cir. 1985)).
6

In determining when the duty to defend commences, a court is to compare the relevant
insurance policies with the language of the underlying complaint in order to find whether the
allegations set forth within the complaint constitute the types of events that will trigger coverage.

See Kvaerner, 908 A.2d at 896-98; Mutual Benefit Ins. Co., 725 A.2d at 745-47. More
specifically, the Pennsylvania Supreme Court has stated that:
A court's first step in a declaratory judgment action concerning insurance
coverage is to determine the scope of the policy's coverage ... After determining
the scope of coverage, the court must examine the complaint in the underlying
action to ascertain if it triggers coverage. If the complaint against the insured
avers facts that would support a recovery covered by the policy, then coverage is
triggered and the insurer has a duty to defend until such time that the claim is
confined to a recovery that the policy does not cover.

General Accident Ins. Co. ofAmerica, 692 A.2d at 1095. A court's primary goal in interpreting
policy is to ascertain the intentions of the parties as manifested by the policy's terms. Kvaerner,
908 A.2d at 896-98. A court must give effect to clear and unambiguous language, but when a
provision 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. (citation omitted). Here, neither party asserts that the contract
language itself is ambiguous but they instead disagree over how the incident alleged in the
underlying PulteGroup Complaint applies to case law.
Each of the comprehensive business liability insurance policies entered into by State
Farm and McDermott contain the following language:
SECTION II: COMPREHENSIVE BUSINESS LIABILITY
COVERAGE L -BUSINESS LIABILITY

We will pay those sums that the insured becomes legally obligated to pay as
damages because of bodily injury, property damage, personal injury or
advertising injury to which this insurance applies . . . This insurance applies
only:

7

1. to bodily injury or property damage caused by an occurrence which takes
place in the coverage territory during the policy period
SECTION II: DEFINITIONS

This section contains the definitions of the words printed in bold face in
Section II of this policy. It is an integral part of the policy. The definitions
appearing below will be applied as if they were included each time the words they
define are used in Section II of this policy.
12. occurrence means:
a. an accident, including continuous or repeated exposure to substantially the
same general harmful conditions which result in bodily injury or property
damage; or
b. the commission of an offense, or a series of similar or related offenses, which
results in personal injury or advertising injury;
16. property damage means:
a. physical injury to or destruction of tangible property, including all resulting
loss of use of that property; or
b. loss of use of tangible property that is not physically injured or destroyed,
provided such loss of use is caused by physical injury to or destruction of other
tangible property ...
(Pl.'s Mot. for Summ. J., Ex. A at 18, 27, and 29-30) (emphasis in original).3 According to the
above language, an insured can only obtain coverage if the alleged bodily injury or property
damage is caused by an "occurrence," defined here as an "accident." See Kvaerner, 908 A.2d at
898; Gene's Restaurant, Inc. v. Nationwide Ins. Co., 548 A.2d 246, 24 7 (Pa. 1988); Specialty
Surfaces Int'! Inc. v. Continental Cas. Co., 609 F.3d 223, 238-39 (3d Cir. 2010). The State Farm

policy itself gives no definition for the term "accident." Courts in this district and in the state of
Pennsylvania have, however, commented on identical language found in commercial general
liability ("CGL") insurer contracts and have defined an "accident" as "[a]n unexpected and

3

Plaintiff files all five Comprehensive Business Liability Insurance Politics under Exhibit A. The language is
identical across all policies and found on the same pages in each document.

8

undesired event, or something that occurs unexpectedly or unintentionally," with "[t]he key term
in the ordinary definition of 'accident' [being] 'unexpected."' Kvaerner, 908 A.2d at 897-99;

Donegal Mut. Ins. Co. v. Baumhammers, 938 A.2d 286, 292 (Pa. 2007); Wausau Underwriters
Ins. Co. v. State Auto. Mut. Ins. Co., 557 F. Supp. 2d 502, 513 (D.NJ. 2008). This
understanding of the term "implies a degree of fortuity." Donegal Mut. Ins. Co., 938 A.2d at
292; Wausau Underwriters Ins., 557 F. Supp. 2d at 513.
State Farm first contends that the underlying PulteGroup action Complaint is, in essence,
a claim for faulty workmanship despite the fact that the document asserts only negligence and
breach of contract as causes of action. (Pl.' s Mot. for Summ. J., Ex. B.

at~~

16-42.) State Farm

then argues that the damage alleged in the PulteGroup action Complaint was a result of
McDermott's own faulty workmanship and that such failures lack the element of fortuity
required under the State Farm policy. In response, McDermott asserts that State Farm does not
have the right to base its coverage on what is alleged in essence but instead must accept the
averments of negligence and breach of contract as they have been pled by the PulteGroup.
McDermott argues that the negligence alleged by the PulteGroup constitutes the occurrence
required under the State Farm policies, and as a result State Farm must defend and indemnify
McDermott from the PulteGroup action.
In this case, the underlying PulteGroup action states:
On or about February 12, 2002, Plaintiff Pulte and Defendant [McDermott]
entered into a building contract. A true and correct copy of the aforementioned
contract is hereto attached and made part hereof, and marked as Exhibit "A" ...
Pursuant to the terms of the aforementioned contract, Defendant [McDermott]
agreed to plaster/stucco and install window and door flashing and felt paper for
approximately 299 homes in the residential community of the Traditions at
Washington Crossing, located in Washington Crossing, Bucks County, PA.
Upon information and belief, on or about October 23, 2008, Plaintiff Pulte
became aware, by a water intrusion specialist, that Defendant [McDermott] and/or

9

Defendant NCC failed to install a drip cap under the patio doors, improperly
fastened the ledger board of the deck to the homes, failed to properly install felt
paper under the soffit or between the back walls and the fascia, failed to properly
flash under the window flanges, failed to use felt paper behind the cladding on the
header, etc .... Upon information and belief, the aforementioned water intrusion
was an ongoing and re-ocurring issue for approximately 299 homes in the
residential community of the Traditions at Washington Crossing, Bucks County,
PA.
The Defendant was negligent, careless, both generally and in the following
particular respects . . . failing to properly install felt paper and flash the walls,
windows, doors and appurtenances ... failing to properly train Defendants'
employees and/or provide personnel competent in the proper procedures for
installing and/or inspecting the felt paper and flashing ... allowing and permitting
defects and/or irregularities to develop and remain in and about the walls,
windows, doors and appurtenances thereto ... failure of the Defendants and/or
Defendant's employees to notice the aforesaid defect ... failure of the Defendants
and Defendant's employees to properly flash the windows by installing the
flashing backwards ... failure of the Defendants and/or Defendant's employees to
properly flash the windows by cutting the drip caps too short ...
Defendant [McDermott] provided a written warranty guaranteeing that all work
and/or materials provided under the contract meet or exceed all applicable
Federal, State and local laws, building codes and agency regulations and that said
work and/or materials are intended for use in a residential structure and meet all
VA/FHA compliance regulations . . . Defendant [McDermott] breached the
aforementioned building contract by misapplying the plaster/stucco and failing to
properly install the felt paper and flash the windows and/or doors during the
installation process ....
(Second Am. Compl., Ex.Bat iii! 4-5, 10-11, 23, 33, and 36.) In considering whether the
allegations within the Complaint trigger the insurer's duty to defend, this Court must construe
the factual allegations of the underlying complaint liberally and resolve all doubts as to coverage
in favor of the insured. See Berg Chilling Sys. v. Hull Corp., 70 F. App'x 620, 624 (3d Cir.
2003); Westfield Ins. Co. v. Bellevue Holding Co., 856 F. Supp. 2d 683, 694 (E.D.Pa. 2012). The
analysis here must also focus on the substance of the allegations within the Complaint as

10

opposed to "the particular cause of action that a complaint pleads." Westfield Ins. Co., 856 F.
Supp. 2d at 694; Erie Ins. Exch. v. Muff, 851 A.2d 919, 926 (Pa. Super. Ct. 2004). 4

4

This Court faces the initial matter of how to read the underlying PulteGroup Action Complaint filed against
McDermott. State Farm advocates using the "gist of the action" doctrine. The gist of the action doctrine adopted by
Pennsylvania's intermediate courts is designed to maintain the conceptual distinction between breach of contract
claims and tort claims. Pennsylvania Mfrs.' Ass 'n Ins. Co. v. L.B. Smith, Inc., 831 A.2d 1178, 1182 (Pa. Super. Ct.
2003) (citations omitted). The doctrine operates by precluding plaintiffs from recasting ordinary breach of contract
claims into tort claims. Id. More specifically, "[w]hen a plaintiff alleges that the 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. (citing Yocca v. Pittsburgh Steelers Sports, Inc., 806 A.2d 936
(Pa. Commw. Ct. 2002)). This test, moreover, is concerned with the nature of the action as a whole and is not
limited to isolated instances of conduct. Id.
McDermott takes issue with the use of the gist of the action doctrine, citing the Third Circuit opinion, Berg
Chilling Systems v. Hull Corp., which states that:
[the gist of the action] test has not been adopted by the Pennsylvania Supreme Court and it does
not comport with the case law of this Circuit. We have made clear that a court undertaking a duty
to defend coverage analysis should not rely entirely upon whether a plaintiff characterizes its
claim as one arising in tort or contract.
70 F. App'x at 624. In response, State Farm lists a number of cases in which the Third Circuit not only recognizes
the gist of the action doctrine, but applies it. None of these cases, however, use the doctrine in the insurance
coverage context. In Toledo Mack Sales & Service, Inc. v. Mack Trucks, Inc., the Third Circuit uses the gist of the
action doctrine to determine whether a claim for misappropriation of trade secrets sounded primarily in tort or in
contract under a license agreement. 530 F.3d 204, 229 (3d Cir. 2008). The issue in Pediatrix Screening, Inc. v.
Telechem Int'/, Inc., involved a question of whether a fraudulent misrepresentation was to be treated as a tort or
breach of contract. 602 F.3d 541, 548 (3d Cir. 2010). In Bohler-Uddeholm Am., Inc. v. Ellwood Group. Inc., the
Third Circuit used the gist of the action test in order to determine ifthe district court erred by allowing a fiduciary
duty claim to go forward. 247 F.3d 79 (3d Cir. 2001). None of these cases deal with issues similar to the insurance
coverage matter before this Court.
In Nat'/ Fire Ins. Co. of Hartfordv. Robinson Fans Holdings, Inc., a court in the Western District of
Pennsylvania reiterated the point that neither the Pennsylvania Supreme Court nor the Third Circuit had changed
their position with regard to the gist of the action doctrine in insurance coverage cases since Berg Chilling. No. 101054, 2011 WL 2842303, at *3-5 (W.D.Pa. July 18, 2011). The court also explains why its use would be
inconsistent with the duty to defend:
The gist of the action doctrine relates to the difficulties inherent in allowing a party to proceed
with both tort and contract claims for harm that arose in connection with a contractual
relationship-such as differences in damages and standards of proof . . . In other words, the
doctrine is used to assess which claims in a case should be permitted to proceed. In this case, I am
not asked to determine whether Pennsylvania law bars the plaintiff in the underlying action from
recovering on a negligence claim, due to the contractual essence of the case. Instead, the
appropriate parameters of that litigation are issues for the presiding court.
Id. (citations and quotation marks omitted). This line of reasoning has been followed by the Superior Court of
Pennsylvania and a sister court of this district. See Inda/ex Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 83
A.3d 418, 425-426 (Pa. Super. Ct. 2013); Westfield Ins. Co., 856 F. Supp. 2d at 701 n.6 (E.D.Pa. 2012). There are
cases in which the doctrine has been used in the insurance coverage, however, none of those cases change the
precedential landscape commented on quite clearly in Berg Chilling. This Court is not asked to foreclose the
possibility of any of the claims presented in the underlying PulteGroup Action. Rather, this Court is tasked with

11

The underlying PulteGroup Action alleges both negligence and breach of contract as
causes of action, however, the courts have made clear that:
Pennsylvania law does not recognize the applicability of a general liability policy
to breach of contract and breach of warranty claims ... The purpose and intent of
a general liability insurance policy is to protect the insured from essentially
accidental injury to the person or property of another rather than coverage for
disputes between parties to a contractual undertaking.
Nationwide Mut. Ins. Co. v. CPB Int'! Inc., 562 F.3d 591, 597-99 (3d Cir. 2009); Pennsylvania
Mfrs.' Ass 'n Ins. Co. v. L.B. Smith, Inc., 831 A.2d 1178, 1181 (Pa. Super. Ct. 2003); see also
Westfield Ins. Co., 856 F. Supp. 2d at 694-696; Specialty Surfaces Int'! Inc., 609 F.3d 223, 238

(3d Cir. 2010). McDermott fails to object to State Farm's assertion that the breach of contract
action is not recognized as being applicable to a general liability policy and instead focuses on
the negligence cause of action found within the underlying PulteGroup action Complaint. (Mem.
of Law in Support Cross-Mot. for Summ. J. 2-7.)
McDermott asserts that the negligence claim alleged in the underlying PulteGroup action
is sufficient to trigger coverage under State Farm's GCL contracts. (Id) It does so by accepting
the Pennsylvania Supreme Court's definition of an "occurrence," but arguing that the events
described within the underlying PulteGroup Complaint lack the fortuity required to qualify as
accidents. (Id.) Meanwhile, State Farm alleges that the events described by the underlying
PulteGroup Complaint do not constitute negligence on the part of McDermott but rather, faulty
workmanship. The Pennsylvania Supreme Court has held that faulty workmanship in cases such
as these does not constitute "accidents" and are therefore not occurrences under CGL policies.
Kvaerner, 908 A.2d at 899 ("We hold that the definition of "accident" required to establish an
analyzing the Complaint as it is written and reading it in line with the contract agreements between the parties.
Given the clear language from the Third Circuit in Berg Chilling and the absence of subsequent precedential rulings
from either the Pennsylvania Supreme Court or the Third Circuit regarding the doctrine's use in the insurance
coverage context, this Court will decline to use the gist of the action doctrine in this matter.

12

occurrence" under the policies cannot be satisfied by claims based upon faulty workmanship.
Such claims simply do not present the degree of fortuity contemplated by the ordinary definition
of"accident" or its common judicial construction in this context."); Nationwide Mut. Ins. Co.,
562 F.3d 591, 596-98 (3d Cir. 2009). This is also true of any damage resulting from the faulty
workmanship. Nationwide Mut. Ins. Co., 562 FJd at 596-98; Millers Capital Ins. Co. v.
Gambone Bros. Dev. Co., Inc., 941 A.2d 706, 713 (Pa. Super. Ct. 2007); Zurich Am. Ins. Co. v.
R.M Shoemaker Co., 519 F. App'x 90, 93-94 (3d Cir. 2013) ("Faulty workmanship-whether
caused by the contractor's negligence alone or by the contractor's negligent supervision, which
then permitted the willful misconduct of its subcontractors--does not amount to an 'accident' or
'occurrence.' ... Nor does a foreseeable act like the subsequent water infiltration into the
structure.").
McDermott argues that because the negligence claims contained in the underlying
PulteGroup Complaint did not describe inferior plaster or flashing product and did not allege
deceptive action to disguise shoddy workmanship, then the allegations in the PulteGroup
Complaint are "based upon the 'inadvertent' and 'unintentional' results of McDermott having
paid inadequate attention to the installation process." (Mem. of Law in Support Cross-Mot. for
Summ. J. 5.) McDermott cites Schuylkill Stone Corp. v. State Auto Manual Ins. Co., a case
similar to the instant matter in which a home developer was sued for allegedly failing to design
and construct houses in a workmanlike and satisfactory manner. 735 F. Supp. 2d 150, 153
(D.N.J. 2010). There, the insurer denied coverage because they claimed that the faulty
workmanship could not be described as an "accident." Id. at 156-159. The court in that case
found that an underlying Complaint alleging negligent work performance on the part of the
insured triggered the insurance agreements made between the parties. Id

13

'

!

:1

"

McDermott also cites Wausau Underwriters Ins. Co., in which insurers claim they had no
duty to defend or indemnify the insured from claims of breach of implied warranty, implied duty
of good workmanship, and duty to exercise reasonable care stemming from the supply of stone
fascia for residential homes. 557 F. Supp. 2d 502, 505-08 (D.N.J. 2008). In that case, the court
concluded that the negligence claim in the underlying Complaint lacked sufficient information
from which to decipher what actions the claim was actually based upon. Id. at 515.
The difference, however, between this case and the cases McDermott cites is that in this
case McDermott and PulteGroup entered into a contract detailing McDermott's responsibility to
perform work in a satisfactory manner. (Second Am. Compl.,

Ex.Bat~~

4-5, Ex. B-Stucco

Contract at~~ 3 and 18; Ex. B-Contractor Agreement; Ex. B-PulteGroup Contract at~~ 3-6.)
Moreover, all of McDermott's actions within the Traditions at Washington Crossing community
were a result of his contractual agreement. (Second Am. Compl.,

Ex.Bat~~

4-5.) McDermott's

duty to perform tasks in a satisfactory manner stemmed from the contract and did not stem from
a responsibility owed due to public policy or custom. (Second Am. Compl., Ex. B

at~~

4-5, Ex.

B-Stucco Contract at~~ 3 and 18; Ex. B-Contractor Agreement; Ex. B-PulteGroup Contract at~~
3-6.)
McDermott contracted to perform his assignment in a "workmanship like manner" in
accordance with PulteGroup's specifications and quality requirements, and in accordance with
federal regulations. (Second Am. Compl., Ex. B-PulteGroup Contract at~~ 3-6.) McDermott
also agreed that his stucco, for a period of five years, would be uniform in appearance and
strong; free from chipping, falling, flaking, and separating. (Second Am. Compl., Ex. B-Stucco
Contract.) McDermott contracted to be solely responsible that all flashing was in good
condition. (Second Am. Compl., Ex. B-Stucco Contract

14

at~~

3 and 18.) McDermott does not

refute or challenge the legitimacy of any of these contracts but simply argues that this court only
consider the fact that a negligence cause of action was alleged in the underlying PulteGroup

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action, and use that fact to decide that there may be a possibility that liability could rest on
negligent work performance. (Mem. of Law in Support Cross-Mot. for Summ. J. 7 .)
Pennsylvania state law, however, holds that courts must focus on the substance of the
Complaint rather than any particular language. See Mutual Ben. Ins. Co., 725 A.2d at 745
("[T]he particular cause of action that a complainant pleads is not determinative of whether
coverage has been triggered. Instead it is necessary to look at the factual allegations contained in
the complaint.") (citations omitted); Westfield Ins. Co., 856 F. Supp. 2d at 694; Erie Ins. Exch. v.

Muff, 851 A.2d at 926. Moreover, Pennsylvania courts have also specifically counseled that
faulty workmanship does not constitute an occurrence even if, as found here, it is cast as a
negligence claim. See Mutual Ben. Ins. Co., 725 A.2d at 745 (refusing to let a negligence claim
in an underlying complaint drive the analysis of an insurance coverage issue and stating, "to
allow the manner in which the complainant frames the request for redress to control in a case
such as this one would encourage litigation through the use of artful pleadings designed to avoid
exclusions in liability insurance policies."); Westfield Ins. Co., 856 F.Supp.2d at 693-695 ("[I]n
order for a claim to trigger coverage, there must be a causal nexus between the property damage
and an 'occurrence,' i.e., a fortuitous event. Faulty workmanship, even when cast as a negligence
claim, does not constitute such an event, nor do natural and foreseeable events like rainfall.")
(collecting cases).
Here, regardless of how it is framed in the underlying PulteGroup Complaint,
McDermott's potential liability stems from his alleged failure to meet expectations which he was
contractually obligated to meet. Whether McDermott failed to meet his obligations through

15

negligence or willful shortcuts does not control this analysis. McDermott's alleged failure to live
up to contractual obligations cannot be seen as an accident or some unforeseeable event, as
McDermott was specifically tasked with forestalling such a result. Therefore, this Court finds
that there is no genuine issue of material fact with regard to whether the underlying PulteGroup

action alleged an occurrence within the meaning of the State Farm agreements. State Farm is not
required to defend or indemnify McDermott from the underlying PulteGroup action.

IV.

CONCLUSION

For the foregoing reasons, Plaintiff State Farm's Motion for Summary Judgment will be

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granted. Defendant McDermott's Cross-Motion for Summary Judgment will be denied. An
appropriate order follows.

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