Main St. Am. Assurance Co. v. Howard Lynch Plastering, Inc.

585 F.Supp.3d 737

MAIN STREET AMERICA ASSURANCE COMPANY

v.HOWARD LYNCH PLASTERING, INC., et al.

CIVIL ACTION NO. 21-3977

United States District Court, E.D. Pennsylvania.

Filed February 14, 2022

Ezra S. Gollogly, Kramon & Graham, Susan M. Hogan, Karmon & Graham, P.A., Baltimore, MD, Gerald D. Wixted, Richard J. Orr, Dilworth Paxson LLP, Princeton, NJ, for Main Street America Assurance Company.

Mark C. Clemm, Katie M. Clemm, Clemm and Associates, LLC, Blue Bell, PA, for W.B. Homes, Inc.

MEMORANDUM

KEARNEY, District Judge

A business insurer asks us to declare its coverage obligations to an insured home builder seeking a defense or indemnity for losses caused by alleged faulty or defective construction of thirty-four homes. Every claim arises from a defaulted, defunct subcontractor's workmanship. The subcontractor purchased insurance requiring the insurer to defend and indemnify the subcontractor and home builder for losses arising from an "occurrence." An "occurrence" does not generally include defective construction under Pennsylvania law. We today address a present existing complaint in state court, one arbitration settled without notice to the insurer, and thirty-two homeowner complaints resolved by the home builder before a dispute process without notice to the insurer. The insurer asks us to declare it need not defend or indemnify its insured home builder and subcontractor in the pending lawsuit involving claims of defective construction. We find the insurer need not defend or indemnify the insured home builder and subcontractor in the pending lawsuit. We find the insurer need not indemnify the home builder in the resolved arbitration and in the other thirty-two homeowners’ claims which the home builder (to its credit) resolved before a dispute process. We are not persuaded by the home builder's attempt to recharacterize the underlying claims as sounding in products liability. We enter summary judgment declaring the insurer has no obligation to defend or indemnity the home builder or subcontractor in the pending lawsuit or indemnify the home builder for losses in the resolved claims.

I. Undisputed material facts.

W.B. Homes, Inc. builds homes. It built homes in Montgomery County using Howard Lynch Plastering, Inc. as its subcontractor.¹ W.B. Homes required Howard Lynch to obtain liability insurance for its construction work.²

Howard Lynch purchases commercial general liability insurance from Main Street.

Howard Lynch purchased a commercial general liability insurance policy from Main Street America Assurance Company.³ Main Street agreed to defend and indemnify Howard Lynch for damages caused by "bodily injury" or "property damage."⁴ Main Street only covered bodily injury or property damage "caused by an ‘occurrence.’ "⁵ The parties defined "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."⁶ Main Street issued certificates of insurance to W.B. Homes under the policies.⁷

The three types of claims against W.B. Homes and Howard Lynch.

This dispute concerns three sets of claims against W.B. Homes involving the homes it constructed using Howard Lynch as its subcontractor.

First, William McGinnis and Rose Marie McGinnis sued W.B. Homes in the Montgomery County Court of Common Pleas (the "McGinnis Litigation").⁸ The McGinnisses alleged W.B. Homes defectively constructed their home by installing missing flashing, gaps in sills, exposed wood, inadequate drainage, inadequate kickout flashing, improper control joints, inadequate window head flashing, and lack of flashing detail at stone/stucco intersections, among other defects.⁹ The McGinnisses claimed these defects caused damages necessitating expensive repairs.¹⁰ W.B. Homes filed a joinder complaint in the McGinnis Litigation against Howard Lynch.¹¹ W.B. Homes alleged Howard Lynch must indemnify W.B. Homes for the McGinnisses’ claims under a subcontractor agreement between W.B. Homes and Howard Lynch.¹² Main Street is defending Howard Lynch in the ongoing McGinnis Litigation subject to a reservation of rights.¹³

Second, Rodwige and Camille Desnoyers sued W.B. Homes in arbitration for defectively constructing their home (the "Desnoyers Arbitration").¹⁴ The Desnoyers alleged many construction defects in their home, including inadequate or improper caulking, flashing, joints, stucco termination, and thickness of stucco.¹⁵ The Desnoyers and W.B. Homes settled the arbitration without Main Street's involvement.¹⁶ Nationwide Insurance Company notified Main Street of the Desnoyers Arbitration after the settlement.¹⁷

Third, homeowners of thirty-two homes in Montgomery County claimed W.B. Homes's construction defects caused them harm (the "Homeowner Claims").¹⁸ W.B. Homes remediated the construction defects in all thirty-two homes without involving Main Street or litigating the claims.¹⁹ W.B. Homes's insurance agent later sought coverage from Main Street for "reimbursement" of W.B. Homes's costs to repair property damage caused by Howard Lynch's allegedly defective construction.²⁰

Howard Lynch defaults; W.B. Homes admits claims against it concern defective construction.

Main Street sued W.B. Homes and Howard Lynch in our Court.²¹ Main Street seeks a declaratory judgment it need not defend or indemnify Howard Lynch or W.B. Homes in the McGinnis Litigation, Desnoyers Arbitration, and the Homeowner Claims.²²

W.B. Homes admits Main Street's claim the McGinnis Litigation, Desnoyers Arbitration, and Homeowner Claims "seek damages caused by the allegedly defective construction" of the properties involved in those actions.²³ Main Street and W.B. Homes stipulated: "Each claim against W.B. Homes (and, by extension, against Howard Lynch), whether or not it has led to litigation, ‘seek[s] damages caused by the allegedly defective construction of the [h]omes.’ "²⁴ Main Street also submitted stipulated facts signed by W.B. Homes with its Motion for summary judgment.²⁵ W.B. Homes again stipulated: "The homeowners’ Claims and the claims alleged in the Legal Proceedings seek damages caused by the allegedly defective construction of the Homes."²⁶

Howard Lynch did not answer Main Street's Complaint.²⁷ Our Clerk of Court entered default against Howard Lynch.

II. Analysis

Main Street moves for summary judgment.²⁸ It originally moved we declare Main Street need not defend or indemnify Howard Lynch or W.B. Homes in the McGinnis Litigation, Desnoyers Arbitration, and the Homeowner Claims.²⁹ Main Street later clarified it seeks a declaration regarding its duty to defend only for the McGinnis Litigation; it seeks only declarations regarding its duty to indemnify the Desnoyers Arbitration and Homeowner Claims.³⁰ Main Street argues it only agreed to cover "occurrences," but the McGinnis Litigation, Desnoyers Arbitration, and Homeowner Claims do not allege damages from "occurrences."³¹ Main Street argues these three disputes concern damages from "the effects of faulty construction," which "are not ‘occurrences’ " under Pennsylvania law.³² Main Street also argues W.B. Homes breached the insurance policies because W.B. Homes did not timely notify Main Street of its alleged coverage obligations and settled the Desnoyers Arbitration and the Homeowner Claims without Main Street's involvement.³³ Main Street alternatively seeks default judgment against Howard Lynch for its non-appearance.³⁴

W.B. Homes responds the McGinnis Litigation, the Desnoyers Arbitration, and the Homeowner Claims arise from "occurrences" because they involved malfunctioning products, not defective construction.³⁵ W.B. Homes argues Main Street must cover the alleged damages because the policy contained a "Products Completed Operations Hazard" permitting coverage.³⁶ Howard Lynch did not respond to Main Street's Motion.

We grant summary judgment to Main Street. Main Street has no duty to defend or indemnify W.B. Homes and Howard Lynch in the McGinnis Litigation because the McGinnisses allege damages from defective construction, which Main Street did not agree to cover. Main Street has no duty to indemnify W.B. Homes for sums paid to settle the Desnoyers Arbitration and Homeowner Claims because those disputes also concern construction defects.

"Under Pennsylvania law, an insurer has a duty to defend if the complaint filed by the injured party potentially comes within the policy's coverage."³⁷ "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."³⁸ We apply the "four corners rule" to determine whether an insurer must defend its insured.³⁹ "Under the four corners rule, a court in determining if there is coverage does not look outside the allegations of the underlying complaint or consider extrinsic evidence."⁴⁰

We view the allegations of the underling action as true and liberally construe them in favor of the insured.⁴¹

An insurer's duty to indemnify is narrower than its duty to defend.⁴² "A duty to indemnify does not arise until the insured is found liable for a covered claim."⁴³ The duty to indemnify "flows from a determination that the complaint triggers coverage."⁴⁴ The duty to indemnify inquiry "is fact-intensive insofar as it requires a determination that the insurer's policy actually covers the incident in question."⁴⁵ While we "can decide an insurer's duty to defend based solely on the pleadings in the underlying case," the duty to indemnify "depends upon the existence or nonexistence of facts" establishing coverage.⁴⁶

A. Main Street need not defend or indemnify W.B. Homes or Howard Lynch in the McGinnis Litigation.

Main Street agreed to cover damages arising from an "occurrence."⁴⁷ An "occurrence" does not generally include defective construction under Pennsylvania law.⁴⁸ The Pennsylvania Supreme Court reasons commercial general liability policies define an "occurrence" as an "accident," but "faulty workmanship does not constitute an ‘accident.’ "⁴⁹ A contrary...