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                             2019 PA Super 223

 PENNSYLVANIA MANUFACTURERS              :     IN THE SUPERIOR COURT OF
 INDEMNITY COMPANY                                   PENNSYLVANIA


               v.


 POTTSTOWN INDUSTRIAL COMPLEX            :


 LP, THE PRIDE GROUP, INC. AND           .     No. 3489 EDA 2018
 LIBERTY MUTUAL INSURANCE CO.            .




 APPEAL OF POTTSTOWN INDUSTRIAL          :


 COMPLEX, LP

             Appeal from the Order Entered November 5, 2018
   In the Court of Common Pleas of Montgomery County Civil Division at
                            No(s): 2017-09855

BEFORE:    BENDER, P.J.E., GANTMAN, P.J.E., and COLINS*, J.

OPINION BY COLINS, J.:                                FILED JULY 22, 2019

     This is an appeal from an order granting a declaratory judgment in favor

of an insurer, Pennsylvania Manufacturers Indemnity Company (PMA), in a

declaratory judgment action that PMA brought against its insured, Pottstown

Industrial Complex LP (Insured). The trial court's order granted PMA's motion

for judgment on the pleadings and issued a declaratory judgment that PMA

has no obligation to defend or indemnify Insured with respect to an action

brought against Insured by Insured's tenant, The Pride Group, Inc. (Pride

Group), for water damage to Pride Group's inventory (the Underlying Action).

For the reasons set forth below, we reverse.

     The complaint in the Underlying Action alleges that the premises that

Pride Group leased from Insured were flooded during rainstorms on four


   Retired Senior Judge assigned to the Superior Court.
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occasions between July 2013 and June 2016 and that these floods damaged

and rendered worthless over $700,000 in inventory that Pride Group stored

on the premises. Pride Group Second Amended Complaint ¶¶16-20, 39-43,

61, 65, 67, 70. The first of these floods occurred on July 22, 2013, when

"extensive amounts of rainwater infiltrated from the roof area and into the

[p]remises, cascading across" and destroying inventory worth over $397,000;

the other three floods occurred in 2015 and 2016. Id. ¶¶16-20, 39, 61, 67.

      Pride Group alleges that the water entered the premises due to roof

leaks, that Insured was responsible under the lease for keeping the roof "in

serviceable condition and repair," and that the floods were caused by Insured's

failure to properly maintain and repair the roof. Pride Group Second Amended

Complaint ¶¶1, 7-8, 15-16, 23-34, 39, 44-48, 53-54, 57, 60-63, 66-69, 74-

75 & Ex. A at 18 ¶14(a). Pride Group pleads these claims as a single cause

of action for breach of contract. Id. ¶¶1, 71-77. The complaint, however,

also specifically pleads that Insured was negligent in its maintenance of and

repairs to the roof. Id. ¶¶1, 14-15, 74-75. The conditions of the roof that

Pride Group alleges contributed to the floods include poor caulking of the roof,

gaps and separations in the roofing membrane, undersized drain openings,

and accumulated debris and clogged drains.     Id. ¶¶30-31, 45-48 & Exs. F &
I.

      PMA provided commercial general liability (CGL) insurance coverage to

Insured under CGL Policy No. 301201-03-93-89-2 (the PMA Policy).            PMA



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Declaratory Judgment Complaint 112 & Ex. 2; Insured's Answer 112. The PMA

Policy provided coverage to Insured for the period November 1, 2012 to
November 1, 2013, the time period in which the July 2013 flood of Pride
Group's leased premises occurred. PMA Policy, Declarations at 1. PMA did

not provide CGL coverage to Insured after November 1, 2013. Liberty Mutual

Fire Insurance Company (Liberty Mutual) issued CGL insurance policies
covering Insured for the periods November 1, 2013 to November 1, 2014,

November 1, 2014 to November 1, 2015, and November 1, 2015 to November

1, 2016 (the Liberty Mutual Policies).

      The PMA Policy provides coverage of $1 million per "occurrence" to

Insured for bodily injury and property damage liability during the policy
period, with an aggregate limit of liability of $2 million.       PMA Policy,

Declarations at 2. The PMA Policy states with respect to this coverage:

      a. We will pay those sums that the insured becomes legally
      obligated to pay as damages because of "bodily injury" or
      "property damage" to which this insurance applies. We will have
      the right and duty to defend the insured against any "suit" seeking
      those damages. However, we will have no duty to defend the
      insured against any "suit" seeking damages for "bodily injury" or
      "property damage" to which this insurance does not apply....
                             *       *          *
      b. This insurance applies to "bodily injury" and "property
      damage" only if:
      (1) The "bodily injury" or "property damage" is caused by
      an "occurrence" that takes place in the "coverage territory";
      (2) The "bodily injury" or "property damage" occurs during the
      policy period   ....

Id., CGL Coverage Form at 1 (emphasis added). The PMA Policy defines

"property damage" and "occurrence" as follows:

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     13. "Occurrence" means an accident, including continuous or
     repeated exposure to substantially the same general harmful
     conditions.
                       *            *
     17. "Property damage" means:
     a. Physical injury to tangible property, including all resulting loss
     of use of that property. All such loss of use shall be deemed to
     occur at the time of the physical injury that caused it; or
     b. Loss of use of tangible property that is not physically injured.
     All such loss of use shall be deemed to occur at the time of the
     "occurrence" that caused it.
     For the purposes of this insurance, electronic data is not tangible
     property.

Id., CGL Coverage Form at 14-15.

     Pride Group served the Underlying Action on Insured on April 8, 2016.

On April 12, 2016, Insured notified PMA of the Underlying Action and

requested that PMA provide a defense and indemnity. On April 25, 2016, PMA

sent Insured a letter advising Insured that it was defending Insured under a

reservation of rights. PMA Declaratory Judgment Complaint, Ex. 3. On May

15, 2017, PMA filed the instant declaratory judgment action. PMA also named

as defendants Pride Group and Liberty Mutual because their interests could be

affected by the declaratory relief that it sought against Insured. On August

21, 2017, Liberty Mutual filed a counterclaim against Insured seeking a
declaratory judgment that Insured is not entitled to coverage under the

Liberty Mutual Policies. After the pleadings were closed, PMA filed a motion

for judgment on the pleadings seeking a declaratory judgment that PMA has

no obligation to defend or indemnify Insured on the ground that the
Underlying Action does not allege an "occurrence."


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      On November 5, 2018, the trial court entered an order granting PMA's

motion and the requested declaratory relief, holding that the allegations of

inadequate roof repairs       in   the Underlying Action are claims for faulty
workmanship and faulty workmanship does not constitute an "occurrence"

under Kvaerner Metals Division of Kvaerner U.S., Inc. v. Commercial
Union Insurance Co., 908 A.2d 888 (Pa. 2006), and Millers Capital
Insurance Co. v. Gambone Brothers Development Co., 941 A.2d 706 (Pa.

Super. 2007). Insured timely filed the instant appeal.'

      Insured raises three issues for our review:

      Did   the   trial   court    err   in       Kvaerner's "faulty
                                               extending
      workmanship" analysis in a matter of first impression to claims
      against a commercial landlord by its tenant for tenant personal
      property damage caused by the purported defective condition of
      the landlord's property?




' Liberty Mutual did not move for judgment on the pleadings on its
counterclaim against Insured and the trial court's order did not dispose of that
claim. The trial court's order is therefore not a final order under Pa.R.A.P.
341(b)(1). This appeal, however, is properly before this Court as an
appealable interlocutory order under Pa.R.A.P. 311 because the trial court's
order fully resolved PMA's claim for declaratory relief and the entire
declaratory judgment dispute between PMA and Insured. Pa.R.A.P. 311(8)
("An appeal may be taken as of right and without reference to Pa.R.A.P. 341(c)
from ... [a]n order that is made final or appealable by statute or general rule,
even though the order does not dispose of all claims and of all parties"); 42
Pa.C.S. § 7532 (declaratory judgment "shall have the force and effect of a
final judgment or decree"); Pennsylvania Manufacturers' Association
Insurance Co. v. Johnson Matthey, Inc., 188 A.3d 396, 399-400 (Pa.
2018); Nationwide Mutual Insurance Co. v. Arnold,     A.3d                 1


2019 PA Super 213, *7 -*8 (Nos. 1207, 1208 WDA 2018, filed July 11, 2019);
Tuscarora Wayne Insurance Co. v. Hebron, Inc., 197 A.3d 267, 270-71
(Pa. Super. 2018); see also Pa.R.A.P. 341 Note.
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      Did the trial court err in ruling that the Policy's exceptions to the
      contractual liability exclusions are "immaterial" to its
      determination of whether the Underlying Complaint constitutes an
      "occurrence" in contravention of well -established tenets of
      insurance law requiring that the Policy be viewed as whole, and
      read so that no provisions are superfluous?

      Did the trial court err in holding that it did not need to defer
      determination for discovery into the party's competing
      interpretations of "occurrence" based upon the parties' course of
      performance, reasonable expectations, and evidence of trade
      usage?

Appellant's Brief at 7. We conclude that trial court erred in holding that PMA

has no duty to defend or indemnify Insured under Kvaerner and Gambone

Brothers. We therefore do not address Insured's second and third issues.

      The interpretation of an insurance policy is a question of law. Donegal

Mutual Insurance Co. v. Baumhammers, 938 A.2d 286, 290 (Pa. 2007);
Kvaerner, 908 A.2d at 897; Gambone Brothers, 941 A.2d at 712. Our
review of the trial court's order holding that the PMA Policy does not provide

Insured coverage with respect to the Underlying Action is therefore plenary

and de novo. American & Foreign Insurance Co. v. Jerry's Sport Center,
Inc., 2 A.3d 526, 532-33 (Pa. 2010); Baumhammers, 938 A.2d at 290.

      In determining whether an insurance policy provides coverage for a suit

brought against the insured, a court must compare the terms of the insurance

policy to the allegations of the complaint filed against the insured. Jerry's

Sport Center, Inc., 2 A.3d at 541; Kvaerner, 908 A.2d at 896; Indalex
Inc. v. National Union Fire Insurance Co. of Pittsburgh, 83 A.3d 418,
421 (Pa. Super. 2013). Where the policy terms are clear and unambiguous,

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the courts must give effect to the policy's language; policy terms that are
ambiguous must be construed in favor of the insured. Baumhammers, 938

A.2d at 290; Kvaerner, 908 A.2d at 897; Indalex, 83 A.3d at 420-21;
Gambone Brothers, 941 A.2d at 712.

      The insurer's duty to defend is broader than its duty to indemnify.
Jerry's Sport Center, Inc., 2 A.3d at 540; Kvaerner, 908 A.2d at 896 n.7;
Penn -America Insurance Co. v. Peccadillos, Inc., 27 A.3d 259, 265 (Pa.
Super. 2011).    If a complaint against the insured pleads facts that are
potentially within the scope of the policy's coverage, the insurer has a duty to

defend the action until all covered claims are removed from the action.
Jerry's Sport Center, Inc., 2 A.3d at 541-42; Indalex, 83 A.3d at 421;
Peccadillos, Inc., 27 A.3d at 265. The complaint in the Underlying Action
plainly asserts claims for property damage against Insured that occurred while

the PMA Policy's coverage was in effect, as it seeks over $397,000 for damage

to Pride Group's inventory in the July 2013 flood. The critical issue here is

whether, under the allegations in that complaint, the property damage was

"caused by an 'occurrence." PMA Policy, CGL Coverage Form at 1.

      A claim for damages from the insured's improper performance of
contractual obligations does not allege an "occurrence" where the only
property damaged is the product or property that the insured supplied or on

which it worked or where the damages sought are for the insured's failure to

deliver the product or perform the service it contracted to provide. Kvaerner,


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908 A.2d at 898-900; Erie Insurance Exchange v. Abbott Furnace Co.,
972 A.2d 1232, 1237-39 (Pa. Super. 2009); Gambone Brothers, 941 A.2d

at   713-14; Snyder Heating Co.           v.   Pennsylvania Manufacturers'
Association Insurance Co., 715 A.2d 483, 486-87 (Pa. Super. 1998).
Faulty workmanship itself does not constitute an "occurrence." Kvaerner,

908 A.2d at 900.

      These precedents, however, do not hold that the fact that liability is
based on failure to properly perform contractual duties precludes the existence

of an "occurrence" where the claim is for damage to property not supplied by

the insured and unrelated to what the insured contracted to provide.         In

Kvaerner, the underlying action alleged only damage to the coke oven
battery that the insured built and sought as damages the cost of replacing the

coke oven battery or the difference between the defective coke oven battery

and what the insured had warranted that it would deliver. 908 A.2d at 891.

The Court held that there was no allegation of an "occurrence" that could

trigger CGL insurance coverage because the CGL policies defined "occurrence"

as "an accident," and faulty workmanship that damaged only the work product

that the defendant supplied does not constitute an accident. Id. at 897-900.

The Court held that treating claims of faulty workmanship that damaged only

the insured's work product itself as an "occurrence" would convert CGL
insurance into a performance bond guaranteeing the insured's work. Id. at

899. The Court specifically noted that the purpose of the requirement of an


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"occurrence" in CGL policies is to limit the risk insured to "the possibility that

the goods, products or work of the insured, once relinquished and completed,

will cause bodily injury or damage to property other than to the completed

work itself and for which the insured [ma]y be found liable" and to exclude

coverage "for economic loss because the product or completed work is not

that for which the damaged person bargained." Id. at 899 n.10 (quoting

Henderson, Insurance Protection for Products Liability and Completed

Operations; What Every Lawyer Should Know, 50 Neb. L. Rev. 415, 441

(1971)).

      Gambone Brothers, Abbott Furnace, and Snyder Heating likewise
involved claims that the insured's faulty workmanship damaged the insured's

product or the project on which the insured worked, not claims for damages

to other property completely distinct from and unconnected to the insured's

contract.   In Gambone Brothers, this Court held that claims for water
damage to houses that the insured had constructed did not allege an
"occurrence" and were therefore not covered by its liability insurance policies.

941 A.2d at 708, 713-14. The Court held that the claims for damage to the

houses were indistinguishable from the type of claim in Kvaerner because

they alleged faulty workmanship and damage to the insured's products
themselves, the houses. Id. at 713.

      In Abbott Furnace, this Court held that there was no liability insurance

coverage where the underlying complaint alleged that the furnace that the


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insured   supplied   was inadequate and did not properly perform the
manufacturing operation for which it was purchased and the purchaser sought

to recover the cost of repairing and partially replacing the furnace. 972 A.2d

at 1234-35, 1237-39. The only other property that the purchaser claimed was

damaged consisted of product manufactured using the furnace, which was

damaged by the furnace's inadequate performance; there was no claim of any

leak, explosion, or other event causing damage to other property outside the

furnace. Id.
      In Snyder Heating, the underlying claims were that the insured had

not properly performed its boiler maintenance contract and that the boilers

were damaged as a result. 715 A.2d at 486. This Court held that those claims

did not satisfy the requirement of an "occurrence" because the complaint

simply alleged that the insured did not satisfy its contractual obligations and

"fails to allege any active malfunctioning on Snyder's part." 715 A.2d at 487

(emphasis omitted). The Court explained:

      "General liability insurance policies are intended to provide
      coverage where the insured's product or work causes personal
      injury or damage to the person or property of another." ... These
      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.

Id. (quoting Ryan Homes, Inc. v. Home Indemnity Co., 647 A.2d 939 (Pa.

Super. 1994)) (citations omitted).

      In contrast, where the underlying claims allege that the insured's faulty

work caused personal injury or an event that damaged other property, this

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Court has concluded that there was an "occurrence" and that the insurer had

a duty to defend. Indalex, 83 A.3d at 425-46. In Indalex, the underlying
actions alleged that the insureds supplied windows and doors that "were
defectively designed or manufactured and resulted in water leakage that

caused physical damage, such as mold and cracked walls, in addition to
personal injury" and asserted claims based on strict tort liability, negligence,

breach of warranty, and breach of contract.       Id. at 419-20.     This Court

distinguished Kvaerner and Gambone Brothers on the ground that those

cases involved coverage for damage to the product that the insured supplied,

not personal injury or damage to other property, and held that because the

underlying actions alleged "property loss, to property other than [the
insureds'] products, and personal injury," the claims were for damages caused

by an "occurrence." Indalex, 83 A.3d at 422-23, 426.

      Here, the Underlying Action alleges damage to other property, Pride

Group's inventory stored on the premises, caused by a distinct event, flooding,

and seeks damages for the destruction of that other property, not for the cost

of repairing or replacing the defective item that Insured supplied, the
inadequate roof.    The allegations in the Underlying Action are therefore
comparable to those in Indalex and unlike Kvaerner, Gambone Brothers,

and the other decisions rejecting coverage.      Holding that such claims are

covered by a CGL policy is consistent with the rationale of Kvaerner that the

term "occurrence" must not be interpreted so broadly that it converts the
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policy into a performance bond, as this construction does not provide coverage

for loss of the value of the insured's performance. Rather, it construes the

policy as providing insurance for a risk that CGL policies are intended to cover,

damage that the insured causes to another person's property. Kvaerner, 908

A.2d at 899 n.10; Snyder Heating, 715 A.2d at 487.2


2 PMA also relies on a number of federal cases interpreting Pennsylvania law.
Most of these cases are plainly inapplicable here, as they involved only claims
that the insured's inadequate performance of a contract resulted in damage
to the item that it constructed or participated in constructing or claims that
the insured's product failed to satisfy the buyer's contractual expectations, not
claims that the insured damaged other unrelated property. See Specialty
Surfaces International, Inc. v. Continental Casualty Co., 609 F.3d 223,
227-28, 238-39 (3d Cir. 2010) (damage was to insured's work and work of
other contractor on the project); Lenick Construction, Inc. v. Selective
Way Insurance Co., 737 Fed. Appx. 92, 93-95 (3d Cir. 2018) (claim was for
damage to condominium units caused by insured's work in construction of the
units); Westfield Insurance Co. v. Bellevue Holding Co., 856 F. Supp. 2d
683, 686-90, 701 (E.D. Pa. 2012) (damage was to houses constructed by the
insured); Roman Mosaic & Tile Co. v. Liberty Mutual Insurance Co.,
2012 WL 1138587 at *1 -*2 (E.D. Pa., No. 11-6004, Apr. 5, 2012) (damage
was to condominium on which insured was a subcontractor); Peerless
Insurance Co. v. Brooks Systems Corp., 617 F.Supp.2d 348, 351 (E.D. Pa.
2008) (claim was for damage to equipment designed and constructed by
insured); Nationwide Mutual Insurance Co. v. CPB International, Inc.,
562 F.3d 591, 594 (3d Cir. 2009) (component supplied by insured was unfit
for use in buyer's product); Atain Insurance Co. v. East Coast Business
Fire, Inc., 2018 WL 637579 at *1 (E.D. Pa., No. 17-2545, Jan. 31, 2018)
(claim was for failure of fire suppression system to perform, not for damage
from event caused by insured's work or product). Moreover, none of the
federal decisions is binding on this Court. Bochetto v. Piper Aircraft Co.,
94 A.3d 1044, 1050 (Pa. Super. 2014); Mutual Benefit Insurance Co. v.
Goschenhoppen Mutual Insurance Co., 572 A.2d 1275, 1278 (Pa. Super.
1990). To the extent that any of the federal decisions suggest that claims
against an insured for damage to another's property that is unconnected to
the insured's contract cannot arise out of an "occurrence" simply because the
insured is alleged to have negligently performed a contractual obligation, we


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      Moreover, such coverage is not based on treating Insured's contractual

performance as an "occurrence." Although Insured's liability is based on its

performance of its duties under the lease, the "occurrence" that is alleged to

have caused the property damage is a flood. As noted above, the PMA Policy

defines "occurrence" as "an accident, including continuous or repeated
exposure to substantially the same general harmful conditions." PMA Policy,

CGL Coverage Form at 14. An "accident," in turn, is "[a]n unexpected and

undesirable    event,'   or   'something     that   occurs   unexpectedly    or

unintentionally.' Kvaerner, 908 A.2d at 897-98. The flooding of a building

with water "cascading" through the premises, Pride Group Second Amended

Complaint 1116, is an "unexpected and undesirable event" and therefore falls

within the definition of the term "occurrence" under the PMA Policy.

      The fact that the Underlying Action asserts only a breach of contract

cause of action does not change our conclusion that it alleges an "occurrence"

that is potentially within the scope of the PMA Policy's coverage.     It is the
factual allegations of the underlying complaint that determine whether the

claims are within the coverage of an insurance policy, not the label of the

cause of action selected by the underlying plaintiff.        Mutual Benefit
Insurance Co. v. Haver, 725 A.2d 743, 745 (Pa. 1999). The complaint in

the Underlying Action pleads that Insured was negligent in its maintenance of



conclude that they are neither persuasive nor an accurate statement of
Pennsylvania law.

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and repairs to the roof. Pride Group Second Amended Complaint VOL 14-15,

74-75.   PMA does not claim that those negligence allegations have been

dismissed from the Underlying Action.

      In addition, the PMA Policy does not exclude all otherwise -covered

property damage claims simply because they are based on duties under a

contract. A separate coverage in the PMA Policy for personal and advertising

injury liability has an exclusion for "breach of contract" that excludes claims

"arising out of a breach of contract." PMA Policy, CGL Coverage Form at 6.

No such exclusion appears in the bodily injury and property damage liability

coverage section of the PMA Policy. Id., CGL Coverage Form at 2-6. Rather,

the PMA Policy's only contract exclusion from its bodily injury or property

damage coverage is limited to claims that "the insured is obligated to pay

damages by reason of the assumption of liability in a contract or agreement,"

and provides that

      [t]his exclusion does not apply to liability for damages:
      (1) That the insured would have in the absence of the contract or
      agreement; or
      (2) Assumed in a contract or agreement that is an "insured
      contract", provided the "bodily injury" or "property damage"
      occurs subsequent to the execution of the contract or agreement.


Id., CGL Coverage Form at 2. "Insured contract" is defined as including "[a]

contract for a lease of premises." Id., CGL Coverage Form at 13. Thus, even

if this assumed liability exclusion were construed as applying to claims based




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on the insured's own conduct,3 it would be inapplicable here, as the
contractual obligations alleged in the Underlying Action are under a lease.

      Because the Underlying Action alleges damage to other property, not

property that Insured contracted to provide, and that the damage was caused

by an accident, a flood, it includes claims for property damage caused by an

"occurrence." We therefore reverse the trial court's judgment that PMA has

no duty to defend or indemnify Insured with respect to the Underlying Action.

      Order reversed. Case remanded for further proceedings consistent with

this opinion. Jurisdiction relinquished.

Judgment Entered.




Jseph D. Seletyn,
Prothonotary


Date: 7/22/19




3 As PMA itself argues, it appears that this assumed liability exclusion has no
applicability to claims, such as those here, based on the insured's own breach
of duties assumed under a contract. See Brooks v. Colton, 760 A.2d 393,
395-96 (Pa. Super. 2000) (exclusion for assumption of liability in a contract
applies to and excludes from coverage only liability based on indemnity
agreements under which the insured assumes liability for damages caused by
another party).
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