FREDERICK MUTUAL INSURANCE CO. v. HALL et al

Filing 40

MEMORANDUM AND/OR OPINION SIGNED BY HONORABLE J. CURTIS JOYNER ON 10/26/17. 10/30/17 ENTERED AND COPIES MAILED TO PRO SE PARTIES AND E-MAILED.(ti, )

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

FREDERICK MUTUAL INSURANCE CO.

:
:
Plaintiff
: CIVIL ACTION
:
vs.
:
:
DONALD HALL, Individually
: NO. 15-CV-3354
and trading as HALLSTONE, INC.
:
and MARIE A. HALL, Individually :
and trading as HALLSTONE, INC.
:
and HALLSTONE, INC. and
:
R. LEE HULKO and BRADLEY B. FAIR :
:
Defendants
:

DECISION
JOYNER, J.

October 26, 2017

This civil action for declaratory judgment was tried nonjury before the undersigned on April 24, 2017.

The parties have

filed their proposed factual findings, legal conclusions and
briefing and the matter is now ripe for adjudication.

We

therefore now make the following:
FINDINGS OF FACT
1.

Plaintiff, Frederick Mutual Insurance Company is a duly

authorized and licensed Maryland insurance company which
maintains its principal place of business at 57 Thomas Johnson
Drive, Frederick, Maryland 21702.
2.

Defendants Donald Hall and Marie A. Hall are adult

individuals, husband and wife who reside at 723 Telegraph Road,
Perkasie, Bucks County, Pennsylvania 18944 and who regularly
conduct business and/or trade as Hallstone, Inc.
3.

Defendant Hallstone, Inc. is a business entity of

unknown type with a principal place of business at 723 Telegraph
Road, Perkasie, Bucks County, Pennsylvania, 18944.
4.

The primary business of Hallstone and Donald Hall is

stone masonry contracting.
5.

Frederick Mutual Insurance Co. is, and at all times

relevant to this action was, licensed and/or authorized to sell
insurance in Pennsylvania.
6.

Defendants R. Lee Hulko and Bradley B. Fair are adult

individuals who reside at 4310 Tollgate Road, New Hope, Bucks
County, Pennsylvania 18938.
7.

Beginning in or around March 2006, Defendants Hulko and

Fair contracted with Defendants Hallstone and/or Donald Hall for
the performance of certain custom stone work to be done in
conjunction with a number of improvements which they were making
to their home and property on Tollgate Road.

Under the contract,

“[a]ll material [was] guaranteed to be as specified and the above
work [was] to be performed in accordance with the drawings and
specifications submitted for the above work and completed in a
substantial workmanlike manner”.

By the time all of the

stonework was completed in 2008, Hulko and Fair had paid

2

Hall/Hallstone nearly $300,000 for the work performed over a
period of some three years.
8.

Sometime in 2005, Donald Hall had been told by a builder

for whom he was working that he needed to obtain

“maximum

coverage” in the aggregate amount of $1 million/$2 million.

In

response, Mr. Hall contacted Andrew Rumbold at the Fraser
Insurance Agency in Doylestown, PA and asked him for insurance in
those amounts which would provide “soup to nuts” coverage.
9.

Mr. Rumbold submitted an application to and a down

payment on Mr. Hall’s behalf to Frederick Mutual and, in
September 2005, Frederick Mutual wrote an “artisans” policy,
Policy No. APP2050248, for Mr. Hall/Hallstone which purportedly
provided coverage in the amounts requested and which remained in
force for the period September 27, 2005 through September 27,
2006.
10.

In the 2005-2008 time frame, it was Frederick Mutual’s

policy to mail two copies of newly written/issued policies to the
insurance agency – one for the insured and one for the agent with
the expectation that it was the responsibility of the agent to
review the policy with the insured and either hand deliver or
mail the insured their copy.

Thereafter, all billing and

subsequent communications, such as policy renewal materials, were
to be sent directly from Frederick Mutual to the insured.

In

this case, there is no evidence that Frederick Mutual ever mailed

3

a full copy of the policy to the Fraser Agency or directly to Mr.
Hall t/a Hallstone, Inc.

Rather, the only thing received by the

Fraser Agency and/or Mr. Hall/Hallstone was a copy of the
declarations sheet showing what the coverages were.
11.

At the conclusion of the one-year policy term, Hallstone

did not renew the existing policy.

However, beginning on or

about August 1, 2007, Frederick Mutual did issue another policy
to Hallstone, identical to the one which was in force for the
September, 2005 - September, 2006 time frame, which remained in
place until February, 2008 when it was cancelled for non-payment
of premium.
12.

The Fraser Agency is an independent insurance agency

and as such can and will place insurance with any of the
insurance companies for whom it is approved and/or with whom it
has a relationship.

Although by contract it represents and is an

agent for the insurance companies, as an independent agency it
can “shop” insurance for customers who come to it seeking the
best rate for the most or specific coverage.

According to the

Fraser Agency’s website:
As your independent insurance agent, we truly represent you,
the insured, and not just the insurance companies. ... We
put the best interests of our clients first from
recommending coverages to claims counseling.”
13.

As was the case with most of the contractors who

approached Mr. Rumbold seeking to obtain insurance, Mr. Hall did
not make any specific requests for coverage, aside from stating
4

his desire for “soup to nuts” coverage and did not ask any
questions about exactly what would be covered under his policy
with Frederick Mutual.

Mr. Rumbold did not have any substantive

discussions with Mr. Hall about what was and/or was not covered
under the policy at issue and at no time did Mr. Rumbold sit down
with Mr. Hall and explain the policy to him.
14.

Contrary to Frederick Mutual’s purported policies and

procedures, the Fraser Agency never received copies of the
Frederick Mutual policies which were issued to Hallstone.
Rather, it received only copies of the declarations page.
15.

The Fraser Agency never either mailed or hand-delivered

a copy of the Hallstone policies to Mr. Hall nor did Mr. Rumbold
ever sit down to review or explain what was or was not covered to
Mr. Hall.

Likewise, Mr. Hall never asked any questions or sought

any information about what the Frederick Mutual policy(ies) did
or did not cover.
16.

It was Mr. Hall’s belief that “if something was done

inadvertently,” or if his business did something and someone made
a claim against his business that he might be liable for, he
would be covered for it.
17.

Mr. Hall recalls only receiving a declarations sheet

(“dec sheet”) showing the type and amount of coverage from
Frederick Mutual.

While Mr. Hall never received a copy of the

full policy from either the Fraser Agency or in the mail from

5

Frederick Mutual, Mr. Rumbold never received any complaint or
request from Mr. Hall that he hadn’t received a copy of his
policy and there is no evidence that Mr. Hall ever sought a full
copy or complained to anyone about his not having received one.
18.

The “dec sheet” issued on Policy No. APP2050248

consisted of two pages at the top of which was the title
“ARTISANS DECLARATIONS” and name and address of the Frederick
Mutual Insurance Company and the additional notations that it was
FORM: PA - Artisans and “Direct Bill - insured, PA - Annual.”
The Insured was listed as “Hallstone Inc., 723 Telegraph Road,
Perkasie, PA 18944" and the Agency 510, “Fraser Diversified,
Inc., t/a R.A. Fraser Agency 33 Union Street, Suite #3,
Doylestown, PA 18901, [phone].

The following language

appeared on the first page:
In return for the payment of the premium, and subject to all
the terms of the policy, we agree to provide you with the
insurance as stated in this policy.
POLICY PERIOD: from 9/27/2005 to 9/27/2006, 12:01 AM
standard time at the insured premises
Form of Business: Corporation Type of Business-P10195 Masons
The following forms and endorsements are made a part of this
policy at time of issue.
AP-100 (Ed. 2.0) Contractors Special Policy
AP-0335 (Ed. 11/01) Amendatory Endorsement - Pennsylvania
ML-120 (Ed. 2.0) Insurance Consultation Services Exemption
Act-Notice

6

GL-894 (Ed. 2.0) Punitive Damages Exclusion
AP-0690 (Ed. 6/02) Exclusion - Exterior Insulation and
Finish Systems
AP-0689 (Ed. 6/02) Exclusion - Wet Rot, Dry Rot, Bacteria,
Fungi, or Protists - Contracting Operations
AP-0643 (12 99) Known Injury or Damage Amendments
BP-336 (Ed. 1.0) Premium Payments
FMT (Ed. 2/03) Terrorist Disclosure Notice
GL-899 (Ed. 2.0) Cross Liability Exclusion
AP-0360 (Ed. 7/03) Limited Fungus and Related Perils
Coverage
Property Coverages
LOCATION: Location Address: 723 Telegraph Road Perkasie, PA
18944 COUNTY: Bucks
Property Deductible Limit $250; Personal Property Off
Premises Limit $0
STRUCTURE:

Non-Sprinklered Frame Protective Device - None

COV A - Building
Limit $0 Premium $0
COV B - Business Personal Property Limit $0 Premium $0
COV C - Loss of Income Limit $0 Premium $0
VALUATION: Actual Cash Value - Building
Actual Cash Value - Business Personal Property
Auto Increase - None
STRUCTURE Endorsements:
Total Structure Premium - $0
Total Location Premium - $0
19.

The Second Page of the Artisans Declarations contained

the following language:

7

Commercial liability Coverages Apply to All Locations
COMMERCIAL LIABILITY COVERAGE
Property Damage Liability Deductible

$250

General Aggregate Limit

$2,000,000 per
policy period

Products/Completed Work Aggregate Limit $2,000,000 per
policy period
Cov L - Bodily Injury/Property Damage

$1,000,000 per
occurrence

Cov M - Medical Payments

$5,000 per person

Cov N - Products/Completed Work

$1,000,000 per
occurrence

Cov O - Fire Legal Liability

$50,000 per
occurrence

Cov P - Personal/Advertising Injury

$1,000,000 per
occurrence

Number of Employees

FT- 2; PT - 0

Liability Premium:
COMMERCIAL LIABILITY ENDORSEMENTS:
AP-222 Property Damage Liability Deductible
POLICY ENDORSEMENTS:
IRPM
IRPM 02- Classification Variation

20.

13.00%

Debit

The Frederick Mutual Policy at issue includes the following

relevant principal coverages, among others:
COVERAGE L – BODILY INJURY LIABILITY/PROPERTY DAMAGE
8

LIABILITY
“We” pay all sums which an “insured” becomes legally
obligated to pay as “damages” due to “bodily injury” or
“property damage” to which this insurance applies. The
“bodily injury” or “property damage” must be caused by an
“occurrence” which takes place in the “coverage territory,”
and the “bodily injury” or “property damage” must occur
during the policy period.
...

COVERAGE N - PRODUCTS/COMPLETED WORK
“We” pay all sums which an “insured” becomes legally
obligated to pay as “damages” due to “bodily injury” or
“property damage” arising out of the “products/completed
work hazard” to which this insurance applies. The “bodily
injury” or “property damage” must be caused by an
“occurrence” which takes place in the “coverage territory,”
and the “bodily injury” or “property damage” must occur
during the policy period.
21.

In addition, the Policy includes the following language

among its supplemental coverages:
Subject to all the “terms” of the Principal Coverages, “we”
provide the following supplemental coverages. They do not
increase the “limits” stated for the Principal Coverages.
CONTRACTUAL LIABILITY
1. “We” cover “bodily injury” or “property damage”
liability which is assumed under the following contracts or
agreements:
...
f. any part of any other contract or agreement
relating to the conduct of “your” business (including
an indemnification of a municipality in connection with
work performed for a municipality) under which “you”
assume tort liability to pay “damages” because of
“bodily injury” or “property damage.” Tort liability
means a liability that would be imposed by law in the
9

absence of any contract or agreement.
22.

The Definitions section of Frederick Mutual’s Policy

also sets forth the following relevant definitions:
...
3. “Bodily injury” means bodily harm, sickness, or disease
sustained by a person and includes required care and loss of
services. “Bodily injury” includes death that results from
bodily harm, sickness, or disease. “Bodily injury” does not
include mental or emotional injury, suffering, or distress
that does not result from a physical injury.
4.

“Coverage territory” means:
a.

the “basic territory;”

b. international waters or airspace, only if the
“bodily injury,” “property damage,” “personal injury,”
or “advertising injury” occurs in the course of travel
to or from the “basic territory”;
c.

the world, if the injury or damage arises out of:
1) “products” “you” have made or sold in the
“basic territory;” or
2) the activities of a person who normally resides
in the “basic territory,” but is away for a short
time on “your” business; and

Provided that the “insured’s” liability to pay
“damages” has been determined in a suit on the merits
in the “basic territory,” or in a settlement that “we”
have agreed to.
5. “Damages” means compensation in the form of “money” for
a person who claims to have suffered an injury.
6. “Employee” includes a “leased worker.”
not include a “temporary worker.”

“Employee” does

7. “Impaired property” means tangible property (other than
“products” or “your work”):
a.

whose value has been decreased:
10

1) because it includes “products” or “your work”
that is, or is believed to be deficient or
dangerous; or
2) because “you” failed to carry out the terms of
a contract; and
b.

whose value can be restored:
1) by the repair, replacement, adjustment, or
removal of “products” or “your work;” or
2) by “your” fulfilling the terms of the contract.

8.

“Insured” means:
a. “you” and “your” spouse, but only with respect to
the conduct of a business of which “you” are the sole
owner, if shown on the “declarations” as an individual;
b. “you” and all “your” partners or members and their
spouses, but only with respect to the conduct of a
business of which “you” are the sole owner, if shown on
the “declarations” as an individual;
c. “you” and all “your” members and managers, but only
while acting within the scope of their duties, if shown
on the “declarations” as a limited liability company;
and
d. “you” and all of “your” executive officers and
directors, but only while acting within the scope of
their duties, if shown on the “declarations” as an
organization (other than a partnership, joint venture,
or limited liability company). It also includes “your”
stockholders, but only for their liability as such.

“Insured” also includes:
...
h. “your” “employees,” for acts within the scope of
their employment by “you” (this does not include “your”
managers if “you” are a limited liability company or
“your” executive officers if “you” are an organization
other than a limited liability company). None of these
“employees” are “insured” for:

11

1) “bodily injury,” “personal injury,” and
“advertising injury” to “you” or to a fellow
“employee; or
2) “property damage” to property owned by, rented
to, or loaned to “employees,” or any of “your”
partners or members and their spouses (if “you”
are a joint venture or a partnership), or any of
“your” members (if “you” are a limited liability
company).
...
11. “Occurrence” means an accident and includes repeated
exposure to similar conditions.
12. “Personal injury” means injury (other than “bodily
injury,” “property damage,” or “advertising injury”) arising
out of one or more of the following offenses:
a. oral or written publication of material:
1) that slanders or libels a person or
organization;
2) that disparages a person’s or an organization’s
goods, products, or services; or
3) that violates a person’s right of privacy;
b.

false arrest, detention, or imprisonment;

c.

malicious prosecution; or

d. wrongful entry into, wrongful eviction from, or
invasion of the right of private occupancy of a room,
dwelling, or premises that a person occupies. This
offense must be committed by or on behalf of the owner,
landlord, or lessor of the room, dwelling, or premises.
13.

“Products/completed work hazard” a. “Products hazard” means “bodily injury” or
“property damage” occurring away from premises “you”
own or rent and arising out of “products” after
physical possession of the “products” has been
relinquished to others.

12

b. “Completed work hazard” means “bodily injury” or
“property damage” occurring away from premises “you”
own or rent and arising out of “your work.” It does
not include work that has not been completed, or that
has not been abandoned.
“Your work” is deemed completed at the earliest of the
following times:
1) when all work specified in “your” contract has been
done;
2) when all “your work” to be done at a job site has
been completed if “your” contract includes work at more
than one site; or
3) when “your work” 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
job site.
Work which requires further service, maintenance,
correction, repair, or replacement because of defect or
deficiency, but which is otherwise complete, shall be
deemed completed.
...
14. “Products” means goods or products manufactured, sold,
handled, distributed, or disposed of by “you,” others
trading under “your” name, or a person or organization whose
business or assets “you” have acquired.
a.

“Products” includes:
1) warranties or representations made at any time
with respect to the fitness, quality, durability,
or performance of “products;”
2) containers (other than vehicles), materials,
parts, or equipment furnished in connection with
such “products;” and
3) providing or failure to provide warnings or
instructions.

b.

“Products” does not include:

13

1) vending machines or other property that is
rented to or placed for the use of others, but not
sold; or
2) real property.
15.

“Property damage” means:
a. physical injury or destruction of tangible
property; or
b. the loss of use of tangible property whether or not
it is physically damaged. Loss of use is deemed to
occur at the time of the “occurrence” that caused it.
...

17.

“Your work” means:
a. work or operations performed by “you” or on “your”
behalf;
b. materials, parts and equipment supplied for such
work or operations;
c. written warranties or representations made at any
time regarding quality, fitness, durability, or
performance of any of the foregoing; and
d. providing or failing to provide warnings or
instructions.

23.

In addition, the Frederick Mutual policy contains the

following Exclusions:
“We” do not pay for a loss if one or more of the following
excluded events apply to the loss, regardless of other
causes or events that contribute to or aggravate the loss,
whether such causes or events act to produce the loss
before, at the same time as, or after the excluded event.
EXCLUSIONS THAT APPLY TO BODILY INJURY, PROPERTY DAMAGE,
PERSONAL INJURY, AND/OR ADVERTISING INJURY
1. “We” do not pay for “bodily injury,” “property damage,”
“personal injury,” or “advertising injury” liability which
14

is assumed by the “insured” under a contract or an
agreement.
This exclusion does not apply to:
a. liability that an “insured” would have had in the
absence of the contract or agreement; or
b. “bodily injury” or “property damage” covered under
Contractual Liability Coverage, provided that the
“bodily injury” or “property damage” occurs after the
effective date of the contract or agreement.
2. “We” do not pay for “bodily injury,” “property damage,”
“personal injury” or “advertising injury” that arises out of
the rendering or the failure to render a professional
service, except as covered under Incidental Medical
Malpractice Injury Coverage.
...
9. “We” do not pay for “bodily injury” or “property damage”
included within the “products/completed work hazard: except
as covered under Coverage N.
...
24.

Finally and perhaps most significantly, the Policy also

contains the following:
ADDITIONAL EXCLUSIONS THAT APPLY ONLY TO PROPERTY DAMAGE
1. “We” do not pay for “property damage” to property owned
by, occupied by, or rented to “you,” except as covered under
Coverage O.
...
5. “We” do not pay for “property damage” to that specific
part of real property on which work is being performed by:
a. “you;” or
b. a contractor or subcontractor working directly or
indirectly on “your” behalf,
if the “property damage” arises out of such work.
15

This

exclusion does not apply with respect to liability
assumed under a sidetrack agreement.
6. “We” do not pay for “property damage” to that specific
part of any property that must be restored, repaired, or
replaced because of faults in “your work.” This exclusion
does not apply to:
a. “property damage” covered under the
“products/completed work hazard” or
b.

liability assumed under a sidetrack agreement.

7. “We” do not pay for “property damage” to “products” if
the damage arises out of the “products” or their parts.
8. “We” do not pay for “property damage” to “your work” if
the “property damage” arises out of “your work” and is
included in the “products/completed work hazard.” This
exclusion does not apply if damage to the work or the part
of the work out of which the damage arises is performed by a
subcontractor on “your” behalf.
9. “We” do not pay for “property damage” to property that
has not been physically injured or destroyed, or to
“impaired property,” that arises out of:
a. a delay or failure to perform a contract by “you”
or one acting on “your” behalf; or
b. a defect, deficiency, inadequacy, or unsafe
condition in “your work” or “products.”
This exclusion does not apply to the loss of use of other
property resulting from sudden and accidental physical
injury to or destruction of “your work” or “products” after
having been put to its intended use.
25.

In April 2014, Defendants Hulko and Fair discovered

that water and mold damage to the interior and structure of their
residence necessitated the demolition, removal and replacement of
the stone wall surrounding the exterior of the silo/stairwell and
the rear flagstone terrace and the driveway stone walls, the re-

16

setting and repointing of the rear terrace walls, and repair of
the chimney at a total cost of $352,294.
26.

Inasmuch as these repairs were required because of the

alleged faulty workmanship on the part of Defendant Hallstone, on
March 4, 2015, Messrs. Hulko and Fair commenced a civil action in
the Court of Common Pleas of Bucks County, Pennsylvania against
Donald and Marie Hall, trading as Hallstone.

That Complaint

contained two counts alleging breach of warranty and violation of
the Home Improvement Consumer Protection Act, 73 P.S. §517.1, et.
seq.

Subsequently, that Complaint was amended twice, with the

result that the Second Amended Complaint now alleges state law
claims against the Halls/Hallstone for breach of warranty and
negligence in the performance of the stonework.
27.

Although Frederick Mutual has provided defense counsel

to the Halls/Hallstone to represent them in the Bucks County
action, on June 15, 2015, it instituted this Declaratory Judgment
action against all of these defendants seeking a declaration that
it has no duty to defend or indemnify the Hallstone defendants
under the terms of the policy at issue.
DISCUSSION
“It is common practice for insureds and insurance companies
to file declaratory judgment actions when there is a dispute
regarding whether the insurer has a duty to defend and/or
indemnify a policyholder making a claim under a policy.”

17

Regis

Insurance Co. v. All American Rathskeller, Inc., 2009 PA Super
99, 976 A.2d 1157, 1161 (Pa. Super. Ct. 1999).

Indeed, the

interpretation of an insurance contract is a question of law that
is properly decided by the court.

Reliance Insurance Co. v.

Moessner, 121 F.3d 895, 900 (3d Cir. 1997)(citing Standard
Venetian Blind Co. v. American Empire Ins. Co., 503 Pa. 300, 304305, 469 A.2d 563, 566 (1983)).
To establish insurance coverage, the insured bears the
initial burden of showing that the harm described in the
plaintiff’s complaint potentially falls within the scope of the
policy.

Devcon International Corp. v. Reliance Insurance Co.,

609 F.3d 214, 218 (3d Cir. 2010).

“If the complaint avers facts

that might support recovery under the policy, coverage is
triggered and the insurer has a duty to defend.”

Id.(quoting

Sikirica v. Nationwide Ins. Co., 416 F.3d 214, 225-226 (3d Cir.
2005)).

Thus, “[i]n determining the duty to defend, the

complaint claiming damages must be compared to the policy and a
determination made as to whether, if the allegations are
sustained, the insurer would be required to pay the resulting
judgment.”

State Farm Fire & Casualty Co. v. Estate of Mehlman,

589 F.3d 105, 110 (3d Cir. 2009).

It should be noted that the

duty to defend is broader than the duty to indemnify - if an
insurer is found to not have a duty to defend, it will have no
duty to indemnify.

Frog, Switch & Manufacturing Co. v. Travelers

18

Insurance Co., 193 F.3d 742, 746 (3d Cir. 1999); Travelers
Property Casualty Co. Of America v. Chubb Custom Insurance Co.,
864 F. Supp.2d 301, 313, n. 13 (E.D. Pa. 2012)(citing Kvaerner
Metals Div. Of Kvaerner U.S., Inc. v. Commercial Union Insurance
Co., 589 Pa. 317, 908 A.2d 888, 896 (2006)).
To determine whether based on its factual allegations an
underlying complaint triggers an insurer’s duty to defend, a
court views the allegations as true and liberally construes them
in favor of the insured.

Ramara, Inc. v. Westfield Insurance

Co., 814 F.3d 660, 673 (3d Cir. 2016).

“A court’s function when

interpreting an insurance policy under Pennsylvania law is to
‘ascertain the intent of the parties as manifested by the
language of the written instrument.’” Id, 814 F.3d at 676(quoting
Am. Auto. Ins. Co. v. Murray, 658 F.3d 311, 320 (3d Cir. 2011)).
See also, Duda v. Standard Insurance Co., No. 15-2302, 649 Fed.
Appx. 230, 238-239, 2016 U.S. App. LEXIS 8602 (3d Cir. May 10,
2016)(“Pennsylvania case law dictates that the proper focus for
determining issues of insurance coverage is the reasonable
expectations of the insured and in most cases, the language of
the insurance policy will provide the best indication of the
content of the parties’ reasonable expectations.”)

“In

performing the foregoing analysis, the court must evaluate the
terms of the policy to determine whether they are ambiguous.”
Devcon, supra,(citing Lucker Mfg. v. Home Ins. Co., 23 F.3d 808,

19

814 (3d Cir. 1994)).

A court must read the policy “as a whole

and construe it according to the plain meaning of its terms.”
Ramara, 814 F.3d at 677(quoting C.H. Heist Caribe Corp. v. Am.
Home Assurance Co., 640 F.2d 479, 481 (3d Cir. 1981)).

A court

construes commonly used words and phrases in their natural,
plain, and ordinary sense, with the court free to consult a
dictionary to inform its understanding of terms.

Id.;

Brotherhood Mutual Insurance Co. v. Salem Baptist Church of
Jenkintown, 985 F. Supp. 2d 624, 629 (E.D. Pa. 2013).

If the

court finds that the policy is unambiguous, it must give effect
to the terms as stated on the face of the policy.

Devcon, supra.

But if those terms are open to more than one interpretation, they
are regarded as ambiguous.

Ramara, 814 F.3d at 677 (citing Med.

Protective Co. v. Watkins, 198 F.3d 100, 103 (3d Cir. 1999)).
“Ambiguous provisions in an insurance policy must be construed
against the insurer and in favor of the insured; any reasonable
interpretation offered by the insured, therefore must control.”
Id.; Regent Insurance Co. v. Strausser Enterprises, 902 F. Supp.
2d 628636 (E.D. Pa. 2012).
Once a showing has been made that the complaint has alleged
facts which potentially fall within the scope of an insurance
policy, “the burden then shifts to the insurer to demonstrate
that an exclusion places the particular harm outside of the
policy’s reach,” bearing in mind that “[e]xclusions from coverage

20

are strictly construed against the insurer.”

Devcon, supra.

Accordingly, it seems clear that an insurer must defend its
insured until it becomes absolutely clear that there is no longer
a possibility that the insurer owes its insured a defense or
until it is clear that an exclusion may be properly applied.
Ramara, 814 F.3d at 663-664; Devcon, at 218.
In the case at hand, Plaintiff naturally asserts that its
policy does not provide coverage for the claims which are being
advanced against Hall/Hallstone by Hulko and Fair in the Bucks
County Court of Common Pleas.

Defendants rejoin that because the

Halls/Hallstone never received a copy of their Frederick Mutual
policy nor was it ever explained to them, Plaintiff is precluded
from relying on the exclusions from coverage contained therein.
To begin, we first observe that while the claims in the
underlying action are captioned as negligence and breach of
warranty, the gravamen of the Hulko/Fair Complaint is Hallstone’s
alleged defective workmanship in the performance of the stonework
at their home.

In reading the Frederick Mutual policy as a whole

and the exclusions in particular, we agree that defective
workmanship is not a covered loss.

To be sure, Nos. 5 and 6 of

the ADDITIONAL EXCLUSIONS THAT APPLY ONLY TO PROPERTY DAMAGE
makes this clear insofar as they provide, in pertinent part, that
Frederick Mutual does not pay for property damage to that
specific part of real property on which the insured or a

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contractor or subcontractor is performing work on the insured’s
behalf “if the ‘property damage’ arises out of such work,” and
does not pay for property damage to that specific part of any
property “that must be restored, repaired, or replaced because of
faults in [the insured’s] work.”

The policy also contains an

endorsement (AP 0689) which amends the commercial liability
coverage to exclude coverage for, inter alia,
“...any loss, cost, or expense arising out of any request,
demand, or order that any “insured” or others test for,
monitor, clean up, remove, contain, treat, detoxify,
neutralize, or in any way respond to or assess the effects
of:
a.

wet rot; dry rot; a bacterium; a fungus, including
but not limited to mildew and mold; or a protist,
including but not limited to algae and slime mold;
or

b.

a chemical, matter, or a compound produced or
released by wet rot, dry rot, a bacterium, a
fungus, or a protist, including but not limited to
toxins, spores, fragments, and metabolites such as
microbial volatile organic compounds.

This does not end the inquiry, however.

As the Third

Circuit has observed, “Pennsylvania law recognizes and protects
the reasonable expectations of the insured ‘regardless of the
ambiguity, or lack thereof, inherent in a given set of insurance
documents’ where policy terms may not be readily understandable,
or to protect the insured from deception or unilateral changes to
policy terms by the insurer.”

Auto-Owners Insurance Co. v.

Stevens & Ricci, Inc., 835 F.3d 388, 404, n. 21 (3d Cir.
2016)(quoting Tonkovic v. State Farm Mutual Automobile Insurance
22

Co., 513 Pa. 445, 521 A.2d 920, 925-926 (1987) and Collister v.
Nationwide Life Insurance Co., 479 Pa. 579, 388 A.2d 1346, 1353
(1978)).

This is not to say that policy terms and/or exclusions

will not be enforced against an insured who either does not read
or comprehend the meaning of those terms or exclusions.

To the

contrary, while noting that there may be occasions when courts
are justified in deviating from the plain language of insurance
contracts, the Pennsylvania Supreme Court has held that “where a
policy limitation relied upon by an insurer to deny coverage is
clearly worded and conspicuously displayed, the insured may not
avoid the consequences of that limitation by proof that he failed
to read the limitation or did not understand it.”

Standard

Venetian Blind, supra, 469 A.2d at 567(overruling Hionis v.
Northern Mutual Insurance Co., 230 Pa. Super. 511, 327 A.2d 363
(1974)).
However,

“[i]n the reasonable expectations analysis, the

insurer must demonstrate that the insured did not have a
reasonable expectation of coverage.”

West v. Lincoln Benefit

Life Co., 509 F.3d 160, 1471 (3d Cir. 2007).

Courts must

therefore examine the dynamics of the insurance transaction to
ascertain what are the reasonable expectations of the consumer.
Michael v. Stock, 2017 PA Super 99, 162 A.3d 465, 478 (2017).
Where the insurer or its agent has created in the insured a
reasonable expectation of coverage, even the most clearly-written

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exclusion will not bind the insured.

Liberty Mutual Insurance

Co. v. Treesdale, Inc., 418 F.3d 330, 344 (3d Cir. 2005)(citing
Reliance v. Moessner, 121 F.3d at 903).

And as the Court in

Tonkovic made clear: “Where ... an individual applies and prepays
for specific insurance coverage, the insurer may not unilaterally
change the coverage provided without an affirmative showing that
the insured was notified of, and understood, the change,
regardless of whether the insured read the policy.”

Tonkovic,

521 A.2d at 925.
Here, it is clear from the evidence produced at trial that
in 2005, Mr. Hall went to the Fraser Agency and asked them to
place insurance for his stone masonry business.

In doing so, he

asked Mr. Rumbold for $1 million/$2 million “soup to nuts”
coverage, which he believed meant that he would be covered for
“everything under the policy,” such that if his business “did
something and somebody made a claim against [his] business” that
he “might be liable for,” he “would be covered.”
54-56).

(N.T. 4/24/17,

When he signed up for the policy and tendered a check

for the premium, Mr. Hall was given a one-page document, which he
believed was called a “dec page.”

(N.T. 4/24/17, 56).

It is also apparent from the trial record that in the
writing of the policies, Frederick Mutual had no direct contact
at all with Mr. Hall/Hallstone.

Rather, Frederick Mutual only

wrote the policies at issue after it had been contacted by its

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agency and informed that it had a client who was seeking masons/
artisans coverage.

(N.T. 4/24/17, 25-26).

From his contact with

Mr. Hall, Mr. Rumbold understood that Mr. Hall was a masonry
contractor who had several employees and who was looking for
general liability insurance in the amount of $1 million/$2
million.

(N.T. 4/24/17, 47-52).

Based upon this information,

Mr. Rumbold completed an insurance application for Hallstone and
submitted that application and a down payment to Frederick Mutual
with the expectation that all future billings and communications,
including transmittal of the policy itself, would be between
Frederick Mutual and Mr. Hall directly.

(N.T. 4/24/17, 52-53).

Frederick Mutual’s representative testified that the Policy
issued by it to Hallstone and which was first effective on
September 27, 20051 was an artisan contractor’s policy providing
general liability insurance coverage for the policyholder and
containing the same basic exclusions as any other commercial
general liability policy on the market at that time.
4/24/17, 5-7).

(N.T.

Although it was purportedly the company’s policy

in 2005 - 2008 to mail copies of newly-issued policies to the
insurance agencies which had placed them, there is no evidence on
this record that this policy was followed in this case as both
Mr. Fraser and Mr. Rumbold testified that Frederick Mutual, like

1

This policy was identical to the policy which Frederick Mutual
issued to Hallstone effective August 2007 - February 2008 (N.T. 4/24/17, 6,
10-11).

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nearly all of the other companies for whom they wrote policies,
directly mailed insurance policies and premium billings to the
insureds themselves.

(N.T. 4/24/17, 31-33, 40-42).

Thus it is

apparent that at no time did Mr. Hall ever receive a copy of the
full insurance policy, which was 64 pages in length and contained
the exclusions upon which the plaintiff relies to disclaim
coverage, from either the Fraser Insurance Agency or Frederick
Mutual.

(N.T. 4/24/17, 56-58).

Mr. Hall therefore never had the

opportunity to read the policy provisions and exclusions and,
since Mr. Rumbold testified that he never reviewed the policy
with him, there is no evidence that he was notified of or that he
understood the terms, conditions and exclusions contained
therein. (4/24/17, 40-41, 43-45).
Inasmuch as under Pennsylvania law it is the insurer which
bears the burden of demonstrating that the insured did not have a
reasonable expectation of coverage and after examining the
dynamics and the facts underlying the insurance transaction
between these parties, we cannot find that Frederick Mutual has
sustained its burden here.

Again, the record reflects that Mr.

Hall is a stone mason who, despite apparently having a few
employees working for him, is not a particularly sophisticated
businessman.

The evidence shows that he went to the Fraser

Agency seeking what he thought would be comprehensive liability
coverage for the stone/masonry work which he was in the business

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of performing.

Although the exclusions contained in the

Frederick Mutual policy do, we find, clearly exempt defective
workmanship and the type of damages sustained by Messrs. Fair and
Hulko from coverage, we cannot give those exclusions effect in
this case.

The testimony is un-rebutted that the policy

containing those exclusions was never provided to Mr. Hall and
that those exclusions were never mentioned or explained.

We

therefore cannot find that Mr. Hall’s expectation that he was
covered for such losses/liability to have been unreasonable.
In keeping with these factual findings, we now enter the
following:
CONCLUSIONS OF LAW
1.

This Court has jurisdiction over the parties and the

subject matter of this action under 28 U.S.C. §1332 and 28 U.S.C.
§2201.
2.

Defendants Donald and Marie Hall, t/a Hallstone, Inc.

had a reasonable expectation that they would be covered under
Frederick Mutual Policy No. APP2050248 and under an identical
policy issued by Frederick Mutual and effective between August
2007 and February 2008 for the liabilities and/or losses for
which they are now being sued by Defendants Hulko and Fair in the
Bucks County Court of Common Pleas.
3. Plaintiff Frederick Mutual has failed to demonstrate that
Defendants Donald and Marie Hall and Hallstone, Inc. ever

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received copies of the policies which Plaintiff issued on their
behalf or that they read and/or understood the terms, conditions
and exclusions set forth in those policies.
4. Plaintiff Frederick Mutual has further failed to
demonstrate that Defendants did not have a reasonable expectation
of coverage for the losses sustained by Defendants Hulko and Fair
for which the Halls/Hallstone are now subject to suit in the
Court of Common Pleas of Bucks County, Pennsylvania.
5.

Frederick Mutual’s masons/artisans/commercial general

liability policy #APP2050248 effective for the policy term
9/27/2005 to 9/27/2006 and between August 2007 and February 2008
affords coverage to Donald and Marie A. Hall, t/a Hallstone, Inc.
and/or Hallstone, Inc. for the claims against them in Case No.
2015-01587 in the Court of Common Pleas of Bucks County,
Pennsylvania, captioned as R. Lee Hulko and Bradley B. Fair v.
Donald Hall and Marie A. Hall, husband and wife, Individually and
trading as Hallstone.
6.

Because there is coverage for the Halls/Hallstone,

Frederick Mutual has the duty to defend and, if appropriate, to
indemnify them for any and all damages which may be awarded in
the above-captioned civil action up to the limits of liability
established under the policies at issue here.
An Order of Judgment follows.

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