                                                                                                                           Opinions of the United
2002 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


3-29-2002

ProDent Inc v. Zurich US
Precedential or Non-Precedential:

Docket 01-2328




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Recommended Citation
"ProDent Inc v. Zurich US" (2002). 2002 Decisions. Paper 226.
http://digitalcommons.law.villanova.edu/thirdcircuit_2002/226


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                                                  NOT PRECEDENTIAL

                 UNITED STATES COURT OF APPEALS
                     FOR THE THIRD CIRCUIT
                           __________

                          NO. 01-2328
                           __________

               PRODENT, INC.; GEORGE E. FRATTALI,
                   DDS AND ASSOCIATES, LTD.,
                                             Appellants

                                 v.

                ZURICH U.S.; NORTHERN INSURANCE
                      COMPANY OF NEW YORK
                           __________

        On Appeal from the United States District Court
            for the Eastern District of Pennsylvania
                  (D.C. Civil No. 99-cv-05479)
        District Judge: Honorable Thomas N. O’Neill, Jr.
                           __________

                     Argued: March 5, 2002

      Before: ALITO, RENDELL, and HALL*, Circuit Judges,

                    (Filed: March 29, 2002)

                                Andrew S. Abramson, Esq.     [ARGUED]
                                261 Old York Road, Suite 511
                                P. O. Box 724
                                Jenkintown, PA 19046
                                    Counsel for Appellants
__________________________

    * Honorable Cynthia Holcomb Hall, Senior Judge of the United States Court of
Appeals for the Ninth Circuit, sitting by designation.

                                      William T. Salzer, Esq.      [ARGUED]
                                      Swartz, Campbell & Detweiler
                                      1601 Market Street, 34th Floor
                                      Philadelphia, PA 19103
                                      Counsel for Appellees


                             __________

                      OPINION OF THE COURT
                           __________


RENDELL, Circuit Judge.
     Appellants ProDent, Inc., and George E. Frattali, DDS and Associates, Ltd.
("ProDent"), appeal the District Court’s grant of summary judgment in favor of
Appellees Zurich U.S. and Northern Insurance Company of New York ("Zurich") in this
insurance dispute.
     ProDent contended that Zurich was liable to it by virtue of Zurich’s having issued
a liability policy to cover RACS Associates ("RACS"), who performed certain plumbing
work in connection with the renovation of ProDent’s dental offices. In an action brought
by ProDent against RACS in state court, the jury had determined that RACS Associates
was negligent in connection with its performance of the work, specifically, RACS’
installation of copper pipes instead of the PVC called for by the drawings. ProDent
argued to the District Court that Zurich, as insurer under a general liability policy, was
responsible to pay the $ 123,191.50 judgment obtained against RACS. ProDent also
urged that, although it was not the insured, it could nonetheless maintain a bad faith
claim against Zurich. The District Court granted summary judgment in favor of Zurich,
and we will affirm.
     The District Court had jurisdiction over this case pursuant to the diversity statute,
28 U.S.C. 1332, since the amount in controversy exceeded $75,000 and ProDent and
George Frattali, both Pennsylvania citizens, are completely diverse from the Defendants,
Zurich U.S. of Illinois and Northern Insurance Co. of New York. We have jurisdiction
over this appeal pursuant to 28 U.S.C. 1291.
     Our task, and the task of the District Court, as federal courts sitting in diversity is
not to decide the issue independently but to draw upon the precedents established by the
Pennsylvania Supreme Court and apply Pennsylvania substantive law to predict how the
Pennsylvania courts would resolve the issue. Nationwide Mutual Ins. Co. v. Buffetta,
230 F.3d 634, 637 (3d Cir. 2000). To the extent that the Pennsylvania Supreme Court
has not addressed the precise issue before us, we do not disregard the findings of the
intermediate appellate courts unless we are convinced that the Pennsylvania Supreme
Court would decide otherwise. Id. Our standard of review over the District Court’s
prediction of is plenary. Id.
     As noted by the District Court, the policy between RACS and Zurich obligated the
insurer to indemnify for "property damage" caused by an "occurrence" unless otherwise
excluded. Zurich contends that not only was the negligent performance by RACS not an
"occurrence," but it was also specifically excluded under the terms of the policy. We
need only address the first issue because we find that Pennsylvania law supports the
conclusion that the damages did not result from an "occurrence," as defined under the
policy.
     ProDent’s principal argument for coverage is the fact that it succeeded in
obtaining a jury verdict against RACS based upon negligence, and since the jury
specifically failed to find that there was a breach of contract, the District Court erred in
ruling against ProDent based on its view that "the gist of ProDent’s complaint was
contractual." The District Court rejected the notion that the jury’s verdict was
determinative.
     However, we need not decide the extent to which the District Court could rely on
the "gist of the complaint," as opposed to the jury verdict, because even if it should have
concluded that the claim against Zurich was based on negligence, we conclude that the
Pennsylvania appellate court authorities cited by the District Court, namely, Redev. Auth.
of Cambria Cty. v. Int’l Ins. Co., 685 A.2d 581 (Pa. Super. 1996) and Snyder Heating
Co. v. Pa. Mfrs.’ Ass’n Ins. Co., 715 A.2d 483 (Pa. Super. 1998) dictate a finding that
the injuries here did not result from "an accident," and, therefore, there was no
"occurrence." The District Court referred to those opinions, but as support for the
proposition that where the claim is "essentially contractual," there is no "occurrence"
even if there is a claim for negligence.
     In Redevelopment Authority, the Pennsylvania Superior Court held that a general
liability policy did not provide coverage when the allegation was that the insured failed
to perform certain duties properly. The court noted that "[t]he purpose and intent of
such an insurance policy is to protect the insured from liability for essentially accidental
injury to the person or property of another rather than coverage for disputes between
parties to a contractual undertaking." 685 A.2d at 589. Further, "[t]hese types of
insurance policies involve risks that are limited in nature; they are not the equivalent of a
performance bond on the part of the insurer." Snyder, 715 A.2d at 487.
     The District Court’s reasoning that the claims were "essentially contractual" is
problematic in the context of the facts here, where a breach of contract was rejected by
the jury and the Complaint alleged that RACS’s performance was below not only a
contractual standard but also an industry standard of care. However, what we do
conclude is that, as the Pennsylvania courts noted in both Redevelopment Authority and
Snyder, not every claim sounding in negligence fits within the definition of "an
occurrence." Within the terms of the policy, "occurrence" is:    "an accident, including
continuous or repeated exposure to substantially the same general harmful conditions."
The Maryland Insurance Group Contractor’s Policy, Commercial General Liability
Coverage Form, Section V. 13.
     Here, the claim was not one arising out of injury that resulted from an accident,
but, instead, was based upon negligent workmanship, similar to a claim of professional
liability or poor performance such as would be covered by a performance bond. See
Redevelopment Authority, 685 A.2d at 592. While, clearly, RACS was found liable for
the negligent performance of its work, which fell below the applicable standard of care,
that does not mean that the resulting damages were caused by "an accident." Here, all of
the damages sustained, and the work that needed to be performed, were to undo the error
or mistake made by RACS in using the copper pipe, rather than PVC. The injury and
damages were suffered by virtue of this error or mistake, not by virtue of an accident or
occurrence.
     We conclude that the recent Pennsylvania precedent on this issue must guide our
ruling. We note that while Pennsylvania law is not entirely consistent on this point, we
predict that the Pennsylvania Supreme Court would not permit recovery here, and would
follow the reasoning in Redevelopment Authority and Snyder.
     Accordingly, we will AFFIRM the judgment of the District Court.
_________________________

          TO THE CLERK OF COURT:
     Please file the foregoing Not Precedential Opinion.



                                                            /s/Marjorie O. Rendell
                                                            Circuit Judge
