                          UNPUBLISHED

UNITED STATES COURT OF APPEALS
                FOR THE FOURTH CIRCUIT


PENN AMERICA INSURANCE COMPANY,        
                 Plaintiff-Appellee,
                 v.
JOSEPH A. VALADE, d/b/a JAV,
Incorporated,
              Defendant-Appellant,               No. 01-1546

                and
EDMOND R. MCKEON, d/b/a Exterior
Wall Systems of North Carolina,
                       Defendant.
                                       
            Appeal from the United States District Court
     for the Eastern District of North Carolina, at Wilmington.
                James C. Fox, Senior District Judge.
                           (CA-00-48-7-F)

                      Argued: November 1, 2001

                      Decided: January 25, 2002

      Before WILKINSON, Chief Judge, and WILKINS and
                   KING, Circuit Judges.



Affirmed by unpublished per curiam opinion. Judge Wilkins wrote an
opinion concurring in part and dissenting in part.


                             COUNSEL

ARGUED: Maynard Moore Brown, JOHNSON & LAMBETH, Wil-
mington, North Carolina, for Appellant. Brian Orlando Beverly,
2                    PENN AMERICA INS. v. VALADE
YOUNG, MOORE & HENDERSON, P.A., Raleigh, North Carolina,
for Appellee.



Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).


                              OPINION

PER CURIAM:

   On March 16, 2001, in this declaratory judgment proceeding relat-
ing to insurance coverage, the district court for the Eastern District of
North Carolina awarded summary judgment to Penn America Insur-
ance Company ("Penn America"). Joseph A. Valade, doing business
as JAV, Incorporated ("JAV"), appeals the adverse ruling of the dis-
trict court, maintaining that it erroneously ruled in favor of Penn
America. As explained below, we affirm the district court’s award of
summary judgment.

                                   I.

   In January 1998, JAV entered into a contract with a townhouse
community in southeastern North Carolina, known as Pembroke at
Land Fall Townhouses Homeowners’ Association ("Pembroke"), to
remove synthetic stucco from several private homes at Pembroke and
replace it with a substance called synthetic hard-coat stucco. JAV
subcontracted to Edmond R. McKeon, doing business as Exterior
Wall Systems of North Carolina ("Exterior Wall"), the hard-coat
stucco work it had agreed to perform at Pembroke. After Exterior
Wall completed its stucco work, it was fully paid.

   Thereafter, JAV received complaints from Pembroke concerning
damage to Pembroke properties (the "Pembroke Damage") that had
occurred during the work subcontracted to Exterior Wall. JAV
demanded that Exterior Wall repair the Pembroke Damage, but Exte-
rior Wall refused. As a result, in order to meet its contractual obliga-
                      PENN AMERICA INS. v. VALADE                         3
tions to Pembroke, JAV repaired the Pembroke Damage caused by
Exterior Wall.

   Exterior Wall was the insured under a General Commercial Liabil-
ity Policy (the "Policy") issued by Penn America, and the parties
agree that the Policy was in effect when Exterior Wall caused the
Pembroke Damage. When Exterior Wall refused to repair the proper-
ties, JAV notified Penn America, as Exterior Wall’s insurer, that it
possessed a claim against Exterior Wall for the Pembroke Damage.
Penn America investigated JAV’s claim, but denied coverage.

   In March 1999, JAV filed a lawsuit against Exterior Wall in North
Carolina state court (the "North Carolina Lawsuit"), alleging that it
was entitled to recover from Exterior Wall for the Pembroke Damage.
In March 2000, Penn America filed this declaratory judgment action
in the Eastern District of North Carolina. Penn America named both
Exterior Wall and JAV as defendants in the declaratory judgment pro-
ceeding, seeking a declaration that "Penn America has no duty to
defend Exterior Wall in [the North Carolina Lawsuit], and no obliga-
tion to indemnify Exterior Wall for any settlement or judgment for
damages arising out of the underlying civil action." On June 23, 2000,
the district court entered default judgment against Exterior Wall
because it had failed to answer or respond to Penn America’s com-
plaint. In its default judgment, the court ruled that, under the Policy,
Penn America possessed no duty to defend or indemnify Exterior
Wall. The court decreed, by way of default, that Penn America was
relieved of any duty to defend Exterior Wall and had no obligation
to indemnify for any damages arising out of the underlying civil
action. Thereafter, on December 28, 2000, with JAV still a defendant
in the case, Penn America moved for summary judgment against JAV
maintaining that, under the Policy, it had no duty either to defend or
to indemnify in the North Carolina Lawsuit.* On March 16, 2001, the

   *In seeking summary judgment against JAV, and in this appeal, Penn
America has never maintained that JAV was bound by the district court’s
default judgment against Exterior Wall. Indeed, as we point out in Part
II, infra, JAV was not bound by the default judgment because, as an
injured third party, it was entitled to defend on the merits in the declara-
tory judgment proceeding. Fed. Kemper Ins. Co. v. Rauscher, 807 F.2d
345, 355 (3rd Cir. 1986) (recognizing that "it would be anomalous to
hold that the [third parties] should not be given an opportunity to estab-
lish their case against [the insurer] because of a default which they could
not prevent").
4                        PENN AMERICA INS. v. VALADE
district court granted Penn America’s summary judgment motion.
This appeal followed.

                                       II.

   Penn America and JAV, the parties to this appeal, assert that we
possess jurisdiction to hear and decide it pursuant to 28 U.S.C.
§ 1291. Nevertheless, pursuant to Rule 12(h)(3) of the Federal Rules
of Civil Procedure, we are obligated to examine the question of sub-
ject matter jurisdiction "[w]henever it appears" it may be lacking.2 5A
Charles Allan Wright & Arthur R. Miller, Federal Practice and Proce-
dure § 1393 (2d ed. 1990 & Supp. 2001) (collecting cases). The pos-
ture of this appeal — an insurer (Penn America) maintaining a
declaratory judgment action against an injured third party (JAV) after
default judgment has been entered against the insured (Exterior Wall)
— creates the appearance that we may lack subject matter jurisdic-
tion. We must therefore examine whether we possess jurisdiction over
this appeal.

   The Supreme Court, in Maryland Casualty Co. v. Pacific Coal &
Oil Co., 312 U.S. 270 (1941), determined that an "actual controversy"
exists between an insurer, on the one hand, and a third party injured
by the insured, on the other, when the insurer has initiated a declara-
tory judgment action against both its insured and the injured third
party seeking court determination of its obligations under an insur-
ance policy. Id. at 273-74. We had occasion to apply the principle of
Maryland Casualty in our decision in Nautilus Insurance Co. v. Win-
chester Homes, Inc., 15 F.3d 371 (4th Cir. 1994). Writing for our
Court, Judge Phillips concluded as follows:

        [a] dispute between a liability insurer, its insured, and a third
        party with a tort claim against the insured over the extent of
        the insurer’s responsibility for that claim is an "actual con-
        troversy" . . ., even though the tort claimant has not yet
        reduced his claim against the insured to judgment.
    2
     Under Rule 12(h)(3) of the Federal Rules of Civil Procedure:
        Whenever it appears by suggestion of the parties or otherwise
        that the court lacks jurisdiction of the subject matter, the court
        shall dismiss the action.
                     PENN AMERICA INS. v. VALADE                      5
Id. at 375 n.3. In so concluding, we recognized that the third party’s
interest in defining the scope of insurance coverage is independent of
the interest of the insured. When an insurer initiates a declaratory
judgment action against both an injured third party and its insured, the
injured third party acquires standing — independent of that of the
insured — to defend itself in the declaratory judgment proceeding.
Fed. Kemper Ins. Co. v. Rauscher, 807 F.2d 345, 353-56 (3rd Cir.
1986) (stating that injured third party "ha[s] standing to defend the
declaratory judgment action despite the absence of . . . the actual
insured"); Hawkeye-Sec. Ins. Co. v. Schulte, 302 F.2d 174, 177 (7th
Cir. 1962) ("It would be anomalous to hold here that an actual contro-
versy exists between [an injured third party] and [an insurer] and yet
deny [the injured third party] the right to participate in the contro-
versy."). In this regard, it would be anomalous not to permit the
injured third party an opportunity to present its case against the
insurer, which initially brought the declaratory judgment action, after
the insured defaulted.3

   Accordingly, we are constrained to conclude that we possess sub-
ject matter jurisdiction over this appeal. The default judgment entered
by the district court against Penn America’s insured, Exterior Wall,
does not negate the case or controversy existing between the insurer,
Penn America, and the injured third party, JAV. Our jurisdiction
therefore arises pursuant to 28 U.S.C. § 1291, and we will proceed to
consider the merits of this appeal.

                                  III.

   Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure,
summary judgment is appropriate "if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any mate-
rial fact and that the moving party is entitled to judgment as a matter
of law." Morrel v. Nationwide Mut. Fire Ins. Co., 188 F.3d 218, 222
n.5 (4th Cir. 1999) (internal quotations and citations omitted). This
Court reviews de novo a district court’s award of summary judgment.
Id. In conducting such de novo review, "we consider the facts in the
light most favorable to the non-moving party." Id.
  3
   See supra note 1 and accompanying text.
6                    PENN AMERICA INS. v. VALADE
                                  IV.

   On appeal, JAV maintains that the district court committed revers-
ible error in two specific respects. First, it contends that the court
erred by awarding Penn America summary judgment on the existence
of a duty under the Policy to defend Exterior Wall. Second, JAV
asserts that the district court erred by concluding that there were no
genuine issues of material fact regarding whether the claims alleged
in the North Carolina Lawsuit fell within the coverage provisions of
the Policy. We examine each of these contentions in turn.

                                   A.

   First, JAV contends that the district court incorrectly determined
that Penn America had no duty to defend Exterior Wall in the North
Carolina Lawsuit. Under North Carolina law,4 an insurer’s duty to
defend arises before the merits of the claim against the insured are
adjudicated, County of Guilford v. Nat’l Union Fire Ins. Co. of Pitts-
burgh, 422 S.E.2d 360, 363 (N.C. Ct. App. 1992). And an insurer’s
duty to defend is broader than its obligation to indemnify under the
terms of an insurance policy. Waste Mgmt. of Carolinas, Inc. v. Peer-
less Ins. Co., 340 S.E.2d 374, 377 (N.C. 1986). Moreover, an insurer
may possess a duty to defend its insured "even in an action in which
no damages are ultimately awarded." Bruce-Terminix Co. v. Zurich
Ins. Co., 504 S.E.2d 574, 578 (N.C. Ct. App. 1998).

   The courts of North Carolina utilize the "comparison test" to decide
if an insurer possesses a duty to defend its insured. Waste Mgmt., 340
S.E.2d at 378. Under the "comparison test," the allegations made in
the underlying complaint against the insured are compared to the pol-
icy provisions, and if the allegations represent a risk covered by the
insurance policy, the insurer possesses a duty to defend its insured. Id.
And, under North Carolina law, "any doubt as to coverage must be
resolved in favor of the insured." Duke Univ. v. St. Paul Fire &
Marine Ins. Co., 386 S.E.2d 762, 763-64 (N.C. Ct. App. 1990).
    4
   The parties agree that this insurance coverage dispute is governed by
the law of North Carolina.
                     PENN AMERICA INS. v. VALADE                         7
   Penn America is obligated under the Policy only to "pay those
sums that the insured becomes legally obligated to pay as damages
because of . . . ‘property damage’ to which this insurance applies."
The Policy covers "‘property damage’ only if: . . . [t]he . . . ‘property
damage’ is caused by an ‘occurrence.’" An "occurrence" is then
defined to "mean[ ] an accident," but the Policy fails to define the
term "accident."

   The Supreme Court of North Carolina has long defined the term
"accident," in the context of a general liability insurance policy, as an
unforeseen, unexpected, unusual, or unprecedented consequence.
Waste Mgmt., 340 S.E.2d at 379; Tayloe v. Hartford Accident &
Indem. Co., 127 S.E.2d 238, 240-41 (N.C. 1962). In so doing, the
court has consistently focused on the expectation or foresight of the
insured, and it has determined that "potentially damaging events that
can be anticipated are not ‘occurrences’ within the meaning of the
policy." Waste Mgmt., 340 S.E.2d at 380. Accordingly, an "accident"
does not occur when property damage is caused by defective or poor
workmanship, because an insured should foresee and expect the
resulting damage. See Wm. C. Vick Constr. Co. v. Pa. Nat’l Mut. Cas.
Ins. Co., 52 F. Supp. 2d 569, 581-83 (E.D.N.C. 2000) (recognizing
that faulty workmanship does not constitute "accident" under General
Commercial Liability Policy).5
  5
    The district court’s determination in Vick Construction that faulty
workmanship does not constitute an "accident" under North Carolina law
is consistent with authority from other jurisdictions. See generally Reli-
ance Ins. Co. v. Magavero, 640 F. Supp. 84, 86 (D. Md. 1986) (stating
that "‘occurrence’ does not include the normal, expected consequences
of poor workmanship" and that "it still connotes the idea of ‘accident’"
which means "an event or condition occurring by chance or arising from
unknown or remote causes or lack of intention or necessity"); Indiana
Ins. Co. v. Hydra Corp., 615 N.E.2d 70, 73 (Ill. App. Ct. 1993) (deter-
mining no "accident" for cracks and loose paint caused by defective
installation of concrete flooring, and stating "[a]n accident is an unfore-
seen occurrence, usually of an untoward or disastrous character or an
undesigned sudden or unexpected event of an inflictive or unfortunate
character," and further observing that "[t]he natural and ordinary conse-
quences of an act do not constitute an accident").
8                    PENN AMERICA INS. v. VALADE
   When the comparison test is applied here, i.e., the allegations in the
North Carolina Lawsuit are compared to the provisions of the Policy,
it is apparent that the allegations do not implicate a risk covered by
the Policy. JAV alleged in the North Carolina Lawsuit that Exterior
Wall, "in installing the conventional hard-coat stucco, damaged Pem-
broke at Landfall’s property including damage to driveways, patios,
chimneys, painted walls, stone walkways, slate roofs, air conditioners
and landscaping." JAV, however, made no allegations concerning
how the Pembroke Damage occurred, even though its counsel
acknowledged at oral argument that part of Exterior Wall’s work
included the effort customarily associated with cleaning up a worksite
following application of hard-coat stucco.

   In short, in order for the Pembroke Damage to be a covered risk
under the Policy, JAV was required to allege in the North Carolina
Lawsuit that Exterior Wall caused it and that it was the result of an
"accident." JAV failed, however, to make any such allegation. As
such, the district court did not err in deciding that Penn America pos-
sessed no duty to defend Exterior Wall in the North Carolina Lawsuit.

                                   B.

   JAV also maintains on appeal that the district court erred in award-
ing summary judgment to Penn America on the issue of indemnity,
asserting that a genuine issue of material fact existed concerning
whether the Pembroke Damage constituted an "occurrence" under the
Policy. Under the law of North Carolina, a party seeking coverage
under an insurance policy bears the burden of proving that any
claimed damage falls within the policy’s terms. Hobson Constr. Co.
v. Great Am. Ins. Co., 322 S.E.2d 632, 635 (N.C. Ct. App. 1984)
("We note that the insured . . . has the burden of bringing itself within
the insuring language of the policy."). This burden of proof remains
unchanged when the insurer initiates a declaratory judgment proceed-
ing concerning its coverage obligations under an insurance policy. Id.
As such, JAV must forecast evidence sufficient to demonstrate a gen-
uine issue of material fact on whether the Pembroke Damage was the
foreseen, expected, usual, or normal consequence of poor or defective
workmanship. Otherwise, such damage does not fall within the Poli-
cy’s indemnity provisions.
                     PENN AMERICA INS. v. VALADE                        9
   In addition to its failure to allege in the North Carolina Lawsuit that
the Pembroke Damage was caused by an "accident," JAV did not
forecast any evidence to demonstrate a genuine issue of material fact
concerning whether such damage was the expected consequence of
defective or poor workmanship. As a result of this failure, the district
court correctly concluded that there was no genuine issue of material
fact regarding whether the Pembroke Damage was covered by the
Policy. Accordingly, the court did not err in awarding summary judg-
ment to Penn America on the indemnity issue.6

                                   V.

   Pursuant to the foregoing, the district court’s award of summary
judgment to Penn America is affirmed.

                                                             AFFIRMED

WILKINS, Circuit Judge, concurring in part and dissenting in part:

   I concur in the part of the majority opinion affirming the grant of
summary judgment to Penn America on the indemnity claim. How-
ever, I dissent from the majority’s affirmance on the duty-to-defend
issue.

   Under North Carolina law, a liability insurer has a duty to defend
a lawsuit against its insured if, from the facts alleged in the complaint,
there is even a "possibility" that coverage could exist for some or all
of the potential liability from the suit. Waste Mgmt. of Carolinas, Inc.
v. Peerless Ins. Co., 340 S.E.2d 374, 377 n.2 (N.C. 1986); see Wash-
ington Housing Auth. v. N.C. Housing Auths. Risk Retention Pool,
502 S.E.2d 626, 629 (N.C. Ct. App. 1998) ("[T]he insured has a right
to a defense whenever the allegations show a potential that liability
  6
   In its appeal, Penn America also maintains that five Policy exclusions
bar coverage for the Pembroke Damage. These exclusions pertain to
"Damage to Property," "Damage to Your Product," "Damage to Your
Work," "Damage to Impaired Property Not Physically Injured," and "Re-
call of Products, Work, or Impaired Property." We need not analyze the
application of these exclusions because we have determined that the
Pembroke Damage does not fall within the scope of the Policy.
10                  PENN AMERICA INS. v. VALADE
will be established within the insurance coverage, and the complaint
contains no allegation of facts which would necessarily exclude cov-
erage." (internal quotation marks omitted) (alteration in original)).
Moreover, "any doubt as to coverage must be resolved in favor of the
insured." Duke Univ. v. St. Paul Fire & Marine Ins. Co., 386 S.E.2d
762, 763-64 (N.C. Ct. App. 1990).

   Penn America’s policy obligated it to "pay those sums that the
insured becomes legally obligated to pay as damages because of . . .
‘property damage’ to which this insurance applies." J.A. 30. Coverage
is provided for "‘property damage’ only if: . . . [t]he . . . ‘property
damage’ is caused by an ‘occurrence.’" Id. The policy defines "occur-
rence" as "an accident," but it does not further define "accident." Id.
at 40. North Carolina courts have defined "accident" as "an unfore-
seen event, occurring without the will or design of the person whose
mere act causes it." Tayloe v. Hartford Accident & Indem. Co., 127
S.E.2d 238, 239-40 (N.C. 1962) (internal quotation marks omitted).
That an insured’s employee’s work product is substandard does not
transform that work into an "accident," as that term is employed here.
See Wm. C. Vick Constr. Co. v. Pa. Nat’l Mut. Cas. Ins. Co., 52 F.
Supp. 2d 569, 584-86 (E.D.N.C. 1999), aff’d, 213 F.3d 634 (4th Cir.
2000) (per curiam) (unpublished table decision). On the other hand,
that an unexpected event was proximately caused by an insured’s
employee’s negligence does not prevent it from constituting an "acci-
dent." See Waste Mgmt., 340 S.E.2d at 380 (holding that leaching of
contaminants into groundwater was an "accident" even though it was
allegedly proximately caused by the insured’s negligence).

   Here, the complaint in the North Carolina lawsuit is silent regard-
ing the nature of the property damage caused by Exterior Wall, how
the damage occurred, and whether some or all of it occurred as the
result of an accident. The complaint alleges only that Exterior Wall,
"in installing . . . conventional hard coat stucco, damaged Pembroke
at Landfall’s property including damage to driveways, patios, chim-
neys, painted walls, stone walkways, slate roofs, air conditioners and
landscaping." J.A. 15. Thus, the complaint allows for the possibility
that at least some of the damage was the result of an accident. For
example, Exterior Wall might have been liable for damage that
occurred when a negligently placed bucket of stucco fell off of Exte-
rior Wall’s scaffolding. Indeed, Penn America conceded at oral argu-
                     PENN AMERICA INS. v. VALADE                      11
ment that a falling bucket would constitute an "accident" and that
damage from a falling bucket could be within the scope of JAV’s com-
plaint. Because the allegations in the complaint do not expressly
negate the possibility that some of the damage resulted from an acci-
dent, I would hold that the district court erred in granting summary
judgment to Penn America on the duty to defend issue.

   The majority’s decision to affirm is apparently based on JAV’s
concession at oral argument that Exterior Wall’s duties included
cleaning up the worksite after applying the stucco. See ante, at 8 (not-
ing the concession). The majority appears to believe this fact is signif-
icant based on (1) an assumption that all of the damage for which
Exterior Wall could be held liable was caused by Exterior Wall’s fail-
ure to conduct an adequate clean-up, and (2) a conclusion that such
a failure would not constitute an "accident." The flaw in this analysis
is that the complaint does not allege that all of the damage was caused
by a failure to conduct an adequate clean-up, nor does it allege facts
from which that proposition would necessarily follow. Accordingly,
the complaint allows the possibility that some (if not all) of the dam-
age for which Exterior Wall could be held liable was the result of a
covered occurrence.

   The majority’s decision may also be based on an assumption that
because Exterior Wall caused the damage in the course of performing
its work, any damage was necessarily the result of defective or poor
workmanship, rather than an accident. See ante, at 7 (noting that dam-
age resulting from poor workmanship is not the result of an accident).
Such an assumption is unwarranted because the complaint does not
allege that all of the damage resulted from work intentionally per-
formed by Exterior Wall. Rather, it leaves open the possibility that
some damage occurred as the result of an unforeseen event, as in the
example I have identified.

   Finally, the majority’s decision may be based on a belief that Penn
America had a duty to defend only a suit wherein the complaint spe-
cifically alleged that the damage was the result of an accident. See
ante, at 8-9 (stating that "in order for the Pembroke Damage to be a
covered risk under the Policy, JAV was required to allege in the
North Carolina Lawsuit that . . . it was the result of an accident"). In
that event, the majority has adopted an unduly restrictive reading of
12                  PENN AMERICA INS. v. VALADE
North Carolina law. See Waste Mgmt. of Carolinas, Inc. v. Peerless
Ins. Co., 323 S.E.2d 726, 730 (N.C. Ct. App. 1984) (explaining that
when "the allegations in the complaint are broad, and uncertain as to
specific facts, the insured has a right to a defense whenever the alle-
gations show a potential that liability will be established within the
insurance coverage" (internal quotation marks omitted)), rev’d on
other grounds, Waste Mgmt., 340 S.E.2d at 383.1

   Regardless of the basis for the majority’s decision, I do not agree
that the district court correctly granted summary judgment to Penn
America on the duty-to-defend claim, and I respectfully dissent from
that portion of the majority opinion.
  1
  I also would hold that none of the policy exclusions cited by Penn
America eliminated its duty to defend this suit.
