Nautilus Ins. Co. v. 200 Christian St. Partners, LLC
Nautilus Ins. Co. v. 200 Christian St. Partners, LLC
Opinion of the Court
Presently before the Court are Nautilus Insurance Co.'s Motions for Judgment on the Pleadings. (Nautilus I MJP, ECF No. 14; Nautilus II MJP, ECF No. 41.)
*562I. BACKGROUND
This action relates to two homes that Defendant constructed in Philadelphia, Pennsylvania. One of the homes is located at 501A South 12th Street and the other is located at 507 South 12th Street. The owners of each of the homes (collectively, the "Owners") allege that the homes were defectively constructed. They have each brought lawsuits against Defendants for damages regarding the defects. On November 4, 2016, the owners of the home located at 501A South 12th Street filed a complaint in this Court. (See Compl., Milo, LLC v. Procaccino et al. , No. 16-5759 (E.D. Pa. Nov. 4, 2016) ("Milo ") (ECF No. 1).) On September 21, 2017, the owners of the home located at 507 South 12th Street filed a complaint in the Court of Common Pleas of Philadelphia County. (See Compl., Zachary Klehr et al. v. Procaccino et al. , No. 170902547 (Ct. Com. Pl., Phila. Cty., Pa. Sep. 21, 2017) ("Klehr ") ) (Klehr complaint, together with Milo complaint, the "Underlying Complaints"). On January 9, 2018, and May 2, 2018, Defendants filed joinder complaints adding subcontractors and product suppliers as defendants in each underlying action.
In their respective underlying complaints, the Owners assert similar allegations that Defendants purposefully marketed themselves as sellers of luxury homes yet sold the Owners homes that were riddled with construction defects. The Owners allege that Defendants, when confronted with the defects, failed to adequately remedy the defects or inform the Owners of the significance of the defects. Each lawsuit alleges: (1) violations of the Pennsylvania Uniform Trade Practices and Consumer Protection Law for Defendants' misrepresentation of the quality and character of the home; (2) breach of contract and violation of the Pennsylvania Real Estate Seller Disclosure Law for failure to disclose material defects in the property; (3) breach of Defendants' implied warranty of habitability for construction of an unsafe home, use of faulty materials, and failure to construct the homes in a workmanlike manner according to sound building standards and architectural drawings; (4) breach of express warranty that all defects would be remedied; (5) negligence in construction of the home; (6) negligence in selecting, training, and supervising employees and subcontractors; and (7) civil conspiracy for conspiring to fraudulently represent that they had constructed a home free from major defects. The Owners seek actual, treble, and punitive damages.
Nautilus is providing Defendants with a defense against the Owners' lawsuits pursuant to a Commercial Lines Policy of insurance that it issued to Defendants for the time periods covering the damages to the Owners' homes. (Nautilus Policy, Nautilus I MJP Ex. A, Nautilus II MJP Ex. B.) On April 2, 2018, and April 12, 2018, Nautilus filed Complaints in this Court against Defendants and the respective Owners
II. LEGAL STANDARD
The Federal Rules of Civil Procedure allow a party to move for judgment on the pleadings under Rule 12(c) "[a]fter the pleadings are closed-but early enough not to delay trial." Fed. R. Civ. P. 12(c). We may grant a Rule 12(c) motion only if there are no issues of material fact remaining. See Rosenau v. Unifund Corp. ,
Because "[t]he interpretation of an insurance policy is a. question of law ... [c]ourts may ... dispose of such cases on motions for judgment on the pleadings where the sole issue concerns the interpretation of the policy." Allstate Ins. Co. v. Key-Berthau , No. 08-768,
III. DISCUSSION
Nautilus contends that all of the allegations in the Underlying Complaints stem from issues regarding Defendants' faulty workmanship. The parties agree that Pennsylvania law does not consider faulty workmanship to be an "occurrence" that is covered under a Commercial General Liability ("CGL") policy. However, Defendants and the Owners counter that Pennsylvania law does recognize product-related tort claims, such as product malfunctions, as "occurrences," and the Underlying Complaints allege such malfunctions. Moreover, Defendants argue that there were no bargained-for standards between the Owners and Defendants regarding Defendants' work product, the homes. Defendants argue that, without such standards in place, any defects in the homes are sufficiently accidental to constitute "occurrences."
A. Applicable Law
In order to determine whether Nautilus is required to defend Defendants in the underlying lawsuits, we must (1) "determine the scope of coverage under the insurance policy itself" and (2) "ascertain whether the complaint against the insured states a claim that is potentially covered under the policy." Allstate Ins. Co. v. Drumheller ,
*564J.J.D. Urethane Co. v. Westfield Ins. Co. , No. 1440 EDA 2017,
B. Scope of Coverage Under the Nautilus Policy
The policy between Nautilus and Defendants includes CGL coverage. With regard to such coverage, the policy states:
a. [W]e 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" ...
(Nautilus Policy § I(A)(1)(a-b).) The policy defines "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Nautilus Policy § V(13).)
Therefore, whether Nautilus has a duty to defend Defendants in the underlying suits depends upon whether there was an "occurrence" triggering coverage. When an "occurrence" is defined as an "accident" under a CGL policy, as it is here, courts look to the ordinary definition of the word "accident" to examine "whether the damage that is the impetus of [the] suit was caused by an accident, so as to constitute an occurrence under the policy." Kvaerner ,
C. Whether an Underlying Complaint States a Claim That is Potentially Covered Under the Policy
Faulty workmanship is not considered an "occurrence" triggering an insurer's duty to defend because "such claims simply do not present the degree of fortuity contemplated by the ordinary definition of 'accident.' " Kvaerner ,
*565Specialty Surfaces ,
However, there are two relevant circumstances that may trigger coverage under a CGL policy. First, the Pennsylvania Supreme Court has approvingly cited a case holding that "a CGL policy may provide coverage where faulty workmanship caused bodily injury or damage to another property ..." Kvaerner ,
Both of these circumstances were present in Indalex . The court in Indalex found that the insurer had a duty to defend the insured contractor. In Indalex , a number of homeowners sued the defendant for "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." Id. at 419-20. The Indalex court stated that "we have an off-the-shelf product that failed and allegedly caused property damage and personal injury ... Here, there are issues framed in terms of a bad product, which can be construed as an 'active malfunction,' and not merely bad workmanship." Id. at 424. The court concluded that an active malfunction is fortuitous enough to constitute an "occurrence," and that the complaint sufficiently alleged such a claim to potentially bring the suit within the scope of the policy's coverage. Id. at 425.
Although the Pennsylvania Supreme Court has not yet adopted the holding in Indalex , we are persuaded that they will do so. First, the Pennsylvania Supreme Court has supported the position that CGL policies cover tort liability such as product defect claims. See Kvaerner ,
Nautilus urges us to ignore Indalex for two reasons. First, it argues that the definition of "occurrence" in Indalex was different from the definition in the policy at issue in this case, rendering Indalex inapplicable. In Indalex , the policy defined "occurrence" as "an accident, including *566continuous or repeated exposure to conditions, which results in Bodily Injury or Property Damage neither expected nor intended from the standpoint of the Insured. " Indalex ,
Next, Nautilus urges us to ignore Indalex because the "gist" of the underlying lawsuits is in contract, such that the Owners are precluded from bringing negligence claims like those in Indalex . The Pennsylvania Superior Court followed such an approach in Erie Ins. Exchange v. Abbott Furnace Co. ,
D. The Instant Underlying Complaints Sufficiently Allege Product-Related Tort Claims
In order to determine whether the Underlying Complaints sufficiently allege product-related tort claims, we must examine the allegations made in the Underlying Complaints.
The underlying complaint in Nautilus II similarly alleges that Defendants "represent[ed] that they do not 'skimp' on construction" and that the home was constructed with "faulty materials." (Klehr Am. Compl. ¶¶ 5, 33, 224, 227, 237, Nautilus II Ex. A.) The complaint also alleges issues with specific products, such as windows, a door, the air conditioning, and the moisture barrier. (Id. ¶¶ 60-61, 98, 106.) As in the underlying complaint in Nautilus I, the underlying complaint in Nautilus II alleges that Defendants acknowledged that water damage "was from one of [the] windows." (Id. at ¶ 88.) Finally, the complaint alleged that these defects were "life-threatening." (Id. ¶ 126.)
Defendants raise two arguments in support of the contention that Nautilus has a duty to defend in the underlying lawsuits. First, Defendants argue that the Owners did not contract with them for the construction of the Owners' homes; rather, they contracted for the purchase of the completed homes. Defendants argue that they did not have any bargained-for contractual standards to live up to and any defects contained in the homes were unforeseeable malfunctions. This argument fails because the focus of our inquiry is whether damages stemming from faulty workmanship are foreseeable; the presence of a contract with bargained-for standards contributes to foreseeability, but is not required. See, e.g., CPB Int'l ,
Moreover, the Third Circuit expressly rejected Defendants' argument in Nationwide Mutual Insurance Co. v. CPB International, Inc. ,
However, the court in CPB International did not address whether the use of a defective product could be considered an "occurrence" when the underlying complaint alleged a negligence claim for use of the defective product, rather than solely for breach of contract, and when it caused personal injuries. As mentioned above, the Pennsylvania Superior Court in Indalex found that an insurer's duty to defend was triggered by an occurrence when the underlying complaints alleged product-related tort claims that caused personal injuries. In Indalex , the parties' submissions to the court sampled from and discussed language from at least one of the underlying complaints that included allegations similar to those alleged in this case: "[window] products were in a defective condition unreasonably dangerous to the user/consumer or its property"; "[a]s a result of the defective products ... Plaintiffs have sustained actual damages as outlined above," including mold contamination due to water infiltration; "[l]ack of proper door/window flashing has caused water to infiltrate the buildings"; and other references to "design and/or construction defects." See Opp. to Def.'s Mot. Summ. Judg. 17-22, Indalex Inc. et al. v. Nat'l Ins. Co. of America , No. GD 06-21147 (Ct. Com. Pl., Allegheny Cty., Pa. Mar. 16, 2011) (discussing Compl., The Gardens at Cypress Bay Property Owners Assoc., Inc. v. The Gardens at Cypress Bay Inc. , No. 03-CP-26-1421 (Ct. Com. Pl., Horry Cty., S.C.) ).
The allegations in the Underlying Complaints in this case and in Indalex are more clearly product-related than the allegations in underlying complaints that courts in the Third Circuit and the Pennsylvania Superior Court have found insufficient. In Lenick , the Third Circuit found that a subcontractor's insurer did not have a duty to defend the subcontractor in a construction suit because the underlying complaint insufficiently pleaded a product-related tort claim: "though the various complaints assert that others may be liable for the property damage, they do not allege that [subcontractor] should be held liable (in negligence or under any other theory) for the faulty products or poor workmanship of others." Lenick ,
Here, although the Owners primarily allege claims for faulty workmanship, they also explicitly bring a claim for negligence, stating broadly that Defendants should be liable for negligently constructing the homes in a manner that presented a danger to the Owners. The Owners also make *569allegations specific to a product defect theory of negligence, such as that Defendants used faulty materials and that specific materials have caused problems. Moreover, the underlying complaint in Nautilus I alleges physical injury, such as respiratory issues, to persons in the home as a result of the issues with the home. The underlying complaint in Nautilus II similarly alleges that the hazards are "life-threatening." (Klehr Compl. ¶ 126.) The breadth of the negligence claim, in combination with allegations regarding use of faulty materials, issues with specific materials, and personal injuries, persuades the Court that the Underlying Complaints could encompass product-related tort claims. We cannot foreclose the possibility that Defendants used a third party's product that actively malfunctioned in an "occurrence." Even though these allegations are far from specific or cohesive, we are required to resolve all doubts in favor of the insured. See CPB Int'l, Inc. ,
IV. CONCLUSION
For the foregoing reasons, Nautilus's Motions for Judgment on the Pleadings will be denied. An appropriate Order follows.
All citations to "Nautilus I" refer to Case No. 18-1364 and all citations to "Nautilus II" refer to Case No. 18-1545.
Nautilus's Complaint in Nautilus II also included several of Defendants' subcontractors as defendants, but those defendants have not responded to this Motion.
Although we are required to determine whether there is a duty to defend "solely from the language of the complaint against the insured ," Lenick ,
Indalex involved many similar, but not identical, underlying complaints, of which Gardens is only one. See First Am. Compl. 7-8, Indalex Inc. et al. v. Nat'l Union Fire Ins. , No. GD-06-021147 (Ct. Com. Pl., Allegheny Cty., Pa.). The parties' filings in the Indalex case are public records and we may take judicial notice of their existence and contents. See Fed. R. Evid. 201(b) (permitting judicial notice of matters of public record).
Reference
- Full Case Name
- NAUTILUS INSURANCE CO. v. 200 CHRISTIAN STREET PARTNERS, LLC
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