Erie Ins. Exchange v. Little Ducklings Daycare, et

J-A14016-17

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

ERIE INSURANCE EXCHANGE IN THE SUPERIOR COURT OF
PENNSYLVANIA
v.

LITTLE DUCKLINGS DAY CARE
ASSOCIATES, LP, LITTLE DUCKLINGS
DAYCARE GP LLC AND LITTLE
DUCKLINGS DAYCARE & PRESCHOOL,
MARYANN C. TOLSON AND RICHARD
TOLSON, ANN MARIE DELUCA AND
MICHAEL DELUCA, THE ESTATE OF
CARMEN NERI AND MICHAEL G. NERI,

APPEAL OF: THE ESTATE OF CARMEN
NERI, AND MICHAEL G. NERI

No. 168 EDA 2017

Appeal from the Judgment Entered December 22, 2016
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): June Term, 2015, No. XX-XXXXXXX

BEFORE: BENDER, P.J.E, BOWES AND SHOGAN, JJ.

MEMORANDUM BY BOWES, J.: FILED SEPTEMBER 27, 2017

Michael G. Neri, individually, and in his capacity as Executor of the

Estate of Carmen Neri (collectively “Landlord”), appeals from the December

22, 2016 grant of summary judgment in favor of Erie Insurance Exchange

(“Erie”) in this insurance coverage dispute.1 We affirm.

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1
An estate cannot commence an action in its own name. The personal
representative of the estate brings the action in his official capacity on behalf
of the estate.
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Erie filed the within declaratory judgment action on June 19, 2015,

seeking a declaration that it did not owe the Little Ducklings Daycare and

Preschool LLC (the “Daycare”), its members and their spouses (collectively

“Underlying Defendants”), a duty to defend or indemnify in the underlying

action captioned Neri, et al v. Hatzold, et al, No. 3335 May Term 2014,

Philadelphia (“Underlying Case”). The trial court granted summary judgment

in favor of Erie, and Landlord filed the within appeal.

Since the insurance policy and the pleadings in the Underlying Case

govern the scope of coverage, we glean the relevant facts from those

documents. On March 1, 2010, the Daycare entered into a five-year lease

(“Lease”) with Landlord for the premises located at 7820 Frankford Avenue

in Philadelphia. Daycare members and sisters, Maryann C. Tolson and Ann

Marie DeLuca, executed the Lease on behalf of the LLC. The Lease provided,

inter alia, that Daycare was obligated to purchase commercial general

liability insurance on an occurrence basis, verify that it had obtained such

coverage, and provide proof of same to Landlord by providing a copy of the

declaration page “naming Landlord as an additional insured thereunder.”

Daycare complied and purchased the Erie Ultraflex occurrence-based

commercial general liability policy that is the subject of the instant dispute.

The Lease identified Maryanne L. and Thomas Hatzold, their parents, as

guarantors (“Guarantors”) on the Lease, and they executed a written lease

guaranty agreement (“Guaranty”) the same day.

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Subsequently, the Daycare defaulted on the rent and Landlord

threatened to exercise available remedies under the Lease and Guaranty.2

However, on September 1, 2011, in lieu of exercising those remedies,

Landlord entered into a Forbearance Agreement (“Forbearance Agreement”)

with the Daycare, the Guarantors, and Michael DeLuca, husband of LLC

member Ann Marie DeLuca. The parties stipulated therein that the rent was

$30,744 in arrears. However, beginning in September 2011, the arrearages

would be satisfied by Mr. DeLuca, a master carpenter, who would make

improvements to the home of Mary T. Neri, Landlord’s mother, “until the

Rent Arrearages are paid in full.” Forbearance Agreement, Article 2.3.

Under the terms of the Forbearance Agreement, “[t]he nature, scope, extent

and cost of the Improvements, and the value of any and all services

performed by DeLuca, shall be determined by the mutual consent of the

Landlord and DeLuca[,]” but neither Landlord nor the homeowner would pay

DeLuca for his services. Id. DeLuca would have to look exclusively to the

Daycare or Guarantors for payment or compensation. Id. at 2.4.

The Forbearance Agreement also provided that, when the forbearance

period terminated either by default or expiration, “the Landlord may take

____________________________________________

2
Section 19 of the Lease defined default and remedies for default available
to Landlord including termination, acceleration of the balance of the rent, re-
entry and re-leasing of the property, confession of judgment, any other
remedies existing at law or in equity.

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any enforcement action against the [Daycare] and the Guarantors to collect

the Rent Arrearages.” Id. at 2.5. Landlord also advanced $7,100 to Mr.

DeLuca to purchase construction materials for the anticipated improvements

to the his mother’s home.

Landlord filed the Underlying Case against Daycare, Guarantors, the

DeLucas and the Tolsons on March 23, 2015. Landlord pled in count I of his

complaint that the Daycare breached the Lease by failing to pay rent when

due, and leveled the same allegation against Guarantors at count II. Count

III contained allegations that Mr. DeLuca’s negligent performance of the

home improvements, specifically failing to install the proper windows,

properly account for the $7,100 advance, finish the improvements, and

properly secure a patio roof, which allegedly resulted in additional damage to

Mary Neri’s home, constituted a breach of the Forbearance Agreement by all

of the Underlying Defendants, and Landlord sought damages representing

the amount of the outstanding rent.

In addition, and most importantly for purposes of this appeal, Landlord

pled a count in negligence. He alleged that he relied on the “skill, judgment

and good faith of Defendant, Michael DeLuca, in making the home

improvements contemplated by the Forbearance Agreement,” and that

damage to the Neri residence resulted from the negligence and gross

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negligence of the Underlying Defendants. Complaint at ¶58.3 The remaining

counts contained allegations of intentional torts of conversion, bad faith,

fraud and deceit, and conspiracy. Erie defended the Underlying Case under

a reservation of rights pending a final decision in this case.

After Erie filed the within declaratory judgment action, none of the

Underlying Defendants filed a responsive pleading to Erie’s complaint.

Consequently, Erie was granted a default judgment against them. However,

Landlord filed a timely answer and new matter, Erie filed preliminary

objections to Landlord’s new matter,4 and after the court overruled those

preliminary objections, Erie filed a reply to new matter.

Erie subsequently filed a motion for summary judgment against

Landlord on two independent bases: first, that the Daycare, the Tolsons, and

the DeLucas were not “insureds” for the claims pled in the Underlying

Complaint; and second, that the pleadings did not allege an “occurrence”

that would trigger coverage under the Policy. The trial court entered

____________________________________________

3
In the Underlying Case, Landlord is seeking damages for both breach of
contract and negligence based upon faulty workmanship and property
damage to the home of Mary T. Neri. Mary T. Neri is not a plaintiff in the
Underlying Case.
4
Erie pled that Landlord was not an insured under the policy and had no
standing to assert a bad faith action against the insurer. Erie also alleged
that Landlord did not plead a valid assignment to pursue a bad faith claim,
and, furthermore, it defended its coverage position as reasonable and
supported by legal authority.

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summary judgment in favor of Erie on the latter theory: that the Underlying

Complaint did not allege an occurrence that would trigger coverage under

the commercial general liability insurance policy issued by Erie to Little

Ducklings Daycare. Consequently, the insurer had no duty to defend or

indemnify Underlying Defendants on the underlying claim.

Landlord timely appealed and presents eight questions for our review:

[1] Whether the trial court erred because it improperly
reconsidered and reversed its prior order which had overruled
Erie’s Preliminary Objections?

[2] Whether the trial court erred because the issue of which
persons and/or entities are insured under the Erie Policy, and
whether as individuals, a partnership, a limited liability company
or other entity, are disputed questions of fact that have yet to
be determined?

[3] Whether the trial court erred because it concluded that the
damage to the property in question, was to the insured’s “work
product” (which consists of the operation of a daycare and
preschool) and, therefore, not covered under the Erie Policy,
rather than constituting damage to the property of another,
which the court expressly found would be covered under the
Erie Policy?

[4] Whether the trial court erred because it failed to recognize
that the Forbearance/Indemnity Agreement at issue is an
“insured contract” under the Erie Policy?

[5] Whether the trial court erred because it failed to recognize
that the Erie Policy covers liability for property damage because
the insured assumed the tort liability of another in an insured
contract regardless of whether said damage was the result of an
occurrence?

[6] Whether the trial court erred because its holding, i.e., that
the Erie Policy covered property damage only if said damage
was the result of an “accident,” contradicted, modified or

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altogether nullified the explicit coverage that the insured had
purchased for property damage occurring under an insured
contract?

[7] Whether the trial court erred because negligence can be
considered an “occurrence” under the Erie Policy and
Pennsylvania law?

[8] Whether the trial court erred because it failed to recognize
that some or all of the damage to the property in question was
caused by the continuous or repeated exposure to substantially
the same harmful conditions, thereby constituting an
“occurrence” under the Erie Policy and Pennsylvania law?

Appellant’s brief at 9-10.

Landlord is challenging the trial court’s grant of summary judgment in

favor of Erie herein. In reviewing the grant of summary judgment, our

scope of review is plenary.

Accordingly, we must consider the order in the context of the
entire record. Our standard of review is the same as that of the
trial court; thus, we determine whether the record documents a
question of material fact concerning an element of the claim or
defense at issue. If no such question appears, the court must
then determine whether the moving party is entitled to judgment
on the basis of substantive law. Conversely, if a question of
material fact is apparent, the court must defer the question for
consideration of a jury and deny the motion for summary
judgment. We will reverse the resulting order only where it is
established that the court committed an error of law or clearly
abused its discretion.

Am. Nat'l Prop. & Cas. Cos. v. Hearn, 93 A.3d 880, 883 (Pa.Super. 2014)

(quoting Grimminger v. Maitra, 887 A.2d 276, 279 (Pa.Super. 2005)

(quotations omitted). We “view the record in the light most favorable to the

non-moving party, and all doubts as to the existence of a genuine issue of

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material fact must be resolved against the moving party.” Evans v.

Sodexho 946 A.2d 733, 739 (Pa.Super. 2008) (quotation omitted).

The issue herein is whether the insurer had a duty under a commercial

general liability policy issued to the Daycare to defend and indemnify the

Daycare and others in the underlying suit brought by the Landlord. Such a

duty depends upon whether the third party's complaint triggers coverage

under the policy. Kvaerner Metals Div. of Kvaerner U.S., Inc. v.

Commercial Union Ins. Co., 908 A.2d 888, 896 (Pa. 2006). The court

resolves the question of coverage. Am. & Foreign Ins. Co. v. Jerry’s

Sport Ctr., Inc., 2 A.3d 526 (Pa. 2010). That determination involves the

construction of an insurance policy and the scope of coverage, which is a

matter of law in a declaratory judgment action. Am. Nat’l Prop. & Cas.

Cos., supra. The following principles apply:

When interpreting an insurance policy, we first look to the terms
of the policy. When the language of the policy is clear and
unambiguous, we must give effect to that language. However,
when a provision in the policy is ambiguous, the policy is to be
construed in favor of the insured. Also, we do not treat the
words in the policy as mere surplusage and, if at all possible, we
construe the policy in a manner that gives effect to all of the
policy's language.

We then compare the terms of the policy to the allegations in the
underlying complaint. It is well established that an insurer's
duties under an insurance policy are triggered by the language of
the complaint against the insured. In determining whether an
insurer's duties are triggered, the factual allegations in the
underlying complaint are taken as true and liberally construed in
favor of the insured. It does not matter if in reality the facts are
completely groundless, false or fraudulent. It is the face of the

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complaint and not the truth of the facts alleged therein. In
addition, an insurer's duty to defend ... is broader than the duty
to indemnify. If an insurer does not have a duty to defend, it
does not have a duty to indemnify. However, both duties flow
from a determination that the complaint triggers coverage.

Indalex Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 83 A.3d

418, 421 (Pa.Super. 2013) (citations and quotation marks omitted).

An insurance company owes an obligation to defend its insured

“whenever the complaint filed by the injured party may potentially come

within the policy’s coverage.” Id. at 425. The goal of construction is to

ascertain the intentions of the parties as manifested in the terms of the

policy and to give effect to language that is clear and unambiguous. Pa.

Nat'l Mut. Cas. Ins. Co. v. St. John, 106 A.3d 1 (Pa. 2014); 401 Fourth

Street v. Investors Insurance Co., 879 A.2d 166, 170 (Pa. 2005).

Our standard of review in a declaratory judgment action is
limited to determining whether the trial court clearly abused its
discretion or committed an error of law. We may not substitute
our judgment for that of the trial court if the court's
determination is supported by the evidence. Additionally, [w]e
will review the decision of the lower court as we would a decree
in equity and set aside the factual conclusions of that court only
where they are not supported by adequate evidence. The
application of the law, however, is always subject to our review.

Peters v. Natl. Interstate Ins. Co., 108 A.3d 38, 42 (Pa.Super. 2014)

(quoting Erie Ins. Grp. v. Catania, 95 A.3d 320, 322 (Pa.Super. 2014)).

Preliminarily, we offer the following observations. Erie issued the

commercial general liability policy to Little Ducklings, a daycare and

preschool located at 7820 Frankford Avenue in Philadelphia. The issue

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herein is whether Erie has a duty under the Policy to defend and/or

indemnify the Daycare, the Tolsons, the DeLucas, and the Guarantors in the

Underlying Case commenced by Landlord for unpaid rent and damages

caused by unworkmanlike repairs to another property performed by

someone with no ownership interest in the Daycare. The underlying case

has nothing to do with childcare or accidents or occurrences on the Daycare

premises. Rather, it involves contract and tort claims for allegedly faulty

workmanship performed by Mr. DeLuca, the husband of one of the Daycare

partners, at the home of Mary T. Neri. Mr. DeLuca, a master carpenter,

undertook the renovations pursuant to the Forbearance Agreement to offset

the Daycare’s rental arrearages.

We are mindful that the reasonable expectations of the parties

ultimately guide our construction of the insurance contract. The parties to

the insurance contract could not have reasonably expected that the Policy

would provide coverage for damages related to renovations undertaken by

the husband of a partner of the Daycare at a site unconnected to the

Daycare. Against this backdrop, we address Landlord’s issues.5

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5
Landlord does not challenge the trial court’s ruling that Erie had no duty to
defend or indemnify the Underlying Defendants on the breach of contract
claims arising from the Lease, Guaranty, and the Forbearance Agreement.
We would also note that relief sought in the nature of unpaid rent does not
fall within the coverage of the Policy.

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J-A14016-17

First, Landlord challenges the trial court’s ability to grant summary

judgment in favor of Erie. He contends that the trial court conclusively

rejected Erie’s coverage position when it overruled Erie’s preliminary

objections to Landlord’s new matter, and that the trial court was bound by

its earlier decision that the underlying claims did not trigger coverage.

Appellant’s brief at 23. Although Landlord concedes a motion for summary

judgment is not limited to the pleadings, as is the case with preliminary

objections, he maintains the coverage issue was “settled” at the preliminary

objection stage since there was no discovery conducted and the record was

not supplemented with admissions or affidavits.

Erie characterizes Landlord’s argument as one implicitly invoking the

coordinate jurisdiction rule as a bar to the court reexamining an issue, and

contends that the argument is meritless for five reasons. First, Erie

maintains that the argument is waived since Landlord did not raise the rule

in opposition to summary judgment. Pa.R.A.P. 302(a). Erie also directs our

attention to Meyer-Chatfield Corp. v. Bank Fin. Servs. Group, 143 A.3d

930, 938 n.4 (Pa.Super. 2016), where this Court held that hinting at such an

argument in a motion for reconsideration is insufficient to preserve the issue

for appeal.

Second, Erie points out that the preliminary objections were limited to

Landlord’s assertions of bad faith that were pleaded as new matter, not to

the underlying issue of coverage. Third, Erie relies upon Salerno v. Phila.

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Newspapers, Inc., 546 A.2d 1168, 1170 (Pa.Super. 1988), in support of its

contention that the coordinate jurisdiction rule is inapplicable where, as

here, the same judge ruled on both the preliminary objections and the

summary judgment motion. Fourth, Erie argues the rule does not apply

between orders overruling preliminary objections and orders granting

summary judgment, even when the record is unchanged. K.H. v. Kumar,

122 A.3d 1080, 1092 (Pa.Super. 2015). Finally, Erie contends that the trial

court erred when it overruled its preliminary objections. Landlord, in

response, disavows any reliance upon the coordinate jurisdiction rule, but

offers no legal authority or factual support for his contention that the earlier

decision overruling preliminary objections to new matter alleging bad faith

was conclusive of the issue of whether coverage was triggered at the

summary judgment stage.

We agree with Erie that the coordinate jurisdiction rule does not

operate on the facts herein to preclude the same trial court from re-visiting

an issue addressed by its earlier ruling. Furthermore, the preliminary

objections were directed at Landlord’s standing and allegations that Erie was

acting in bad faith that could bar Erie’s claims “in whole or in part,” and

coverage was not implicated. Hence, we find no merit in Landlord’s claim

that summary judgment was foreclosed based on the earlier disposition of

preliminary objections to new matter.

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J-A14016-17

Next, Landlord contends that it was “clear error” for the trial court to

conclude that Mr. DeLuca was an insured under the Policy.6 He argues that,

assuming arguendo that the Daycare was an LLC as he pled, the spouses of

members of an LLC would not be insureds. Furthermore, he posits that if

the Daycare was insured as a partnership, as suggested by the declarations,

the spouses of partners were not insureds unless the claim arose from the

conduct of the daycare business. Landlord points out that even the Daycare

rejected the latter position.

At first blush, Landlord appears to be suggesting that Mr. DeLuca was

not an insured under either scenario and that the trial court erred in so

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6
Landlord pled that Little Ducklings was an LLC. The Erie Policy provides:

1. If you are designated in the Declarations as

a. An individual, you and your spouse are insureds, but
only with respect to the conduct of a business of which you
are the sole owner.

b. A partnership or joint venture, you are an insured. Your
members, your partners, and their spouses are also
insureds, but only with respect to the conduct of your
business.

c. A limited liability company, you are an insured. Your
members are also insureds, but only with respect to the
conduct of your business. Your managers are insureds, but
only with respect to their duties as your managers.

Erie Policy, Section II 1., at 7.

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finding. We are puzzled by Landlord’s position because the trial court’s

finding that Mr. DeLuca was an insured under the Policy appeared to be a

favorable one, and Landlord failed to explain how he was aggrieved by the

ruling. However, Landlord then hypothesizes that Mr. DeLuca might be an

insured under the Policy as a “volunteer.”7 We glean from Landlord’s

statement of the issue, together with his meandering argument, that his real

contention is that Mr. DeLuca’s status presented a genuine issue of material

fact that precluded the grant of summary judgment.

Landlord offers no support for the proposition that Mr. DeLuca’s status

presents an issue of fact rather than law. Furthermore, Landlord fails to

offer any discussion or analysis as to how coverage was affected by Mr.

DeLuca’s status. Since Landlord did not develop his argument on this issue,

it is waived. See Karn v. Quick & Reilly, Inc., 912 A.2d 329, 336

(Pa.Super. 2006) (“[A]rguments which are not appropriately developed are

waived”).

In his third issue, Landlord alleges that the trial court erred in

concluding that the property damage to the Neri residence was not covered

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7
Assuming Mr. DeLuca was a volunteer worker as Landlord pled in the
Underlying Case, he would only be an insured “while performing duties
related to the conduct of [the insured’s] business.” Erie Policy, Section II
2(a). Furthermore, a volunteer would not be insured for property damage to
property “over which physical control is being exercised for any purpose by
you, any of your ‘employees,’ volunteer workers . . .” Id. at 2 (2)(b).

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because it was damage to the insured’s “work product.” He contends that

the Daycare’s work product consisted of operation of a daycare and

preschool, and that the damage to the property of another was covered.

Landlord’s corresponding argument in his brief, however, is devoted to the

Policy’s language regarding property damage for which an insured has

assumed liability in an insured contract, which is implicated in his fourth,

fifth, and sixth issues. We find Landlord’s third issue waived as stated. To

the extent it is subsumed in the other issues, we will address it in that

context.

Landlord acknowledges that the Policy does not generally provide

coverage for breaches of contract. However, he argues that the exclusion

for breach of contract does not apply to liability for damages “[a]ssumed in a

contract or agreement that is an ‘insured contract,’” and contends that the

Forbearance Agreement is such a contract. An insured contract is defined as

“That part of any other contract or agreement pertaining to your business . .

. under which you assume the tort liability of another party to pay for “bodily

injury” or “property damage” to a third person or organization. Tort liability

means a liability that would be imposed by law in the absence of any

contract or agreement.” Erie Policy, Section V. Definitions, 9f., at 11.

Landlord relies upon this provision as providing for coverage for his

intentional tort claims of conversion, conspiracy, bad faith and breach of the

covenant of good faith and fair dealing, and fraud and deceit.

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Landlord alleges that the parties to the insurance contract reasonably

would have expected that there would be insured contracts such as the

Forbearance Agreement, and that Erie agreed to defend and indemnify such

claims. He argues further that the Forbearance Agreement pertains to “[the

named insured’s] business,” and contains language whereby the named

insured assumes the liability of another. Landlord construes the Forbearance

Agreement as an agreement by the Daycare to indemnify and hold Landlord

harmless from DeLuca’s damage to property, and he urges us to give effect

to the intent of the parties as indicated by the clear language of the

Forbearance Agreement.

Erie counters first that policy exclusions and exceptions are irrelevant

if no occurrence is alleged, as was the case herein. In other words, unless

there is ostensible coverage, Erie would not have us reach the exclusions

and exceptions. Second, Erie argues that the Forbearance Agreement was

not an insured contract. An “insured contract,” according to Erie, is a

defend-and-hold–harmless provision. In order to fall within the definition,

the named insured, i.e., the Daycare, would have had to agree to assume

the tort liability of DeLuca, and the Forbearance Agreement contains no such

agreement. Furthermore, Erie contends that even an insured contract

provision would not apply to the claims made by Landlord against the

Daycare, the DeLucas, the Tolsons, or the Hatzolds, but only to claims of

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third parties who sued Landlord for damages for personal injury or property

damage due to DeLuca’s negligent workmanship.

The unambiguous language of the Policy supports Erie’s interpretation

of an insured contract. In the September 1, 2011 Forbearance Agreement

between Landlord, Tenant, Guarantors, and Michael DeLuca, Landlord agreed

to forbear from exercising his rights and remedies for default of the Lease in

return for home improvements to be performed by Michael DeLuca at the

home of Mary T. Neri. The home improvements were characterized as an

alternate manner and mode of paying the rental arrearages due under the

Lease. Forbearance Agreement, Article 2.3. The Forbearance Agreement

provided further that, upon the termination or expiration of the forbearance

period, “the Landlord may take any enforcement action against [Daycare]

and the Guarantors to collect the Rent Arrearages.” Id. at Article 2.5.

Landlord’s correspondence to the Daycare and DeLuca dated November 18,

2013, is consistent with that Agreement. Landlord advised its tenant and

Mr. DeLuca that they were in default of Article 4 of the Forbearance

Agreement, that the Agreement was terminated due to Mr. DeLuca’s failure

to undertake and finish the improvements and to provide the Landlord with a

proper accounting of the $7,100 advanced, and that the rent arrearages

were immediately due and payable.

Conspicuously absent in the Forbearance Agreement is any agreement

by the Daycare, DeLuca and the Guarantors to assume liability to Landlord

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for property damage tortiously caused to the Neri residence by DeLuca. The

Agreement provides only that the Daycare and Guarantors would indemnify

and hold Landlord and homeowner harmless in the event the latter were

sued for liability arising out of any occurrence in or at the Neri residence or

DeLuca’s occupancy or use of that residence. The Underlying Defendants

agreed to “indemnify, defend, save and hold Landlord and the Homeowner

and their respective attorneys, agents and representatives, harmless against

and from all suits, actions, liabilities . . . arising out of any occurrence in or

at the Premises or the occupancy or use by DeLuca of the Premises . . .

(c) any act, omission or negligence on the part of DeLuca
or any of his agents, contractors, servants, employees, licensees
or invitees or of any other persons or occupants of the Premises
or the public; or

(d) any failure on the part of DeLuca to keep, observe and
perform any of the terms, covenants, agreements, provisions,
conditions or limitations contained in this Agreement on DeLuca’s
part to be kept, observed and performed.

Forbearance Agreement at 3, ¶3.2.

Thus, while there is insured contract language in the Forbearance

Agreement, the Underlying Case does not implicate that provision. The

Underlying Case does not involve indemnification of Landlord for claims

asserted against him or the homeowner by third parties arising out of an

occurrence or use of the Neri premises by DeLuca. Furthermore, the

inapplicable insured contract provision does not provide coverage for the

intentional torts pled. The Policy exclusion for property damage “expected

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or intended from the standpoint of the insured” governs and rules out

coverage for intentional torts. Policy Section I(2). Thus, there is no merit in

Landlord’s claim that coverage is supplied under the insured contract

provision.

Finally, Landlord alleges that the trial court erred in finding that there

was no accident or occurrence pled in the Underlying Complaint that would

trigger coverage. Landlord pled that Underlying Defendants “owed Plaintiffs

a duty, inter alia, to perform the home improvements contemplated thereby

in an honest, professional and expeditious manner and without damaging

the subject home or property.” Underlying Complaint, ¶ 51, at 9. He

alleges that the Underlying Defendants allegedly breached the Forbearance

Agreement by failing to order and install appropriate windows, account for

the $7,100 advance, complete the improvements, and secure a section of

patio roof. The latter purportedly resulted in damage to the roof and

supporting structures. Landlord incorporated those same allegations in

support of his negligence and intentional tort claims against the Underlying

Defendants.

The trial court concluded that the pleadings in the Underlying

Complaint did not allege an accident to which the policy applies. “Rather,

the underlying action alleges facts seeking redress for defendants’ breaches

of the lease agreement, the guaranty agreement and Forbearance

Agreement[,]” and general liability policies do not apply to breach of contract

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claims. Trial Court Opinion, 12/5/16, at 7. Specifically, the court

determined that the first three counts of the complaint were for breach of

contract, not accidental injury, and Erie had no duty to defend or indemnify.

As to the negligence claims for Mr. DeLuca’s work, the court found that these

averments concerned property damage to the work product itself, which was

excluded under the terms of the Policy.8 Id. at 8.

Landlord argues first that coverage under the Policy is not limited to

accidents. In support thereof, he points to the provision imposing liability

for property damage caused by tortious conduct under insured contracts and

claims that such an interpretation would nullify the express language of the

Policy. He maintains further that negligence can be an “occurrence” under

the Erie Policy and Pennsylvania law, and that Mr. DeLuca’s negligence,

which was neither expected nor intended, constituted an occurrence.9

In support thereof, Landlord directs our attention to Barber v.

Harleysville Mutual Insurance Co., 450 A.2d 718 (Pa.Super. 1982),
____________________________________________

8
The trial court characterized the allegations of Mr. DeLuca’s negligence in
the performance of the home improvement work as property damage arising
from poor workmanship to the work product itself. The court reasoned that
to permit coverage on the facts alleged “would convert Erie’s policy into a
performance bond” that guaranteed the work, rather than a liability policy
intended to insure against accidents. Trial Court Opinion, 12/5/16, at 8. In
conclusion, the trial court found that Erie had no duty to defend the insureds
against claims of faulty workmanship, and certainly no duty to indemnify.
9
The Policy excludes coverage for property damage “expected or intended
from the standpoint of the insured.” Erie Policy, Section I, 2a.

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where this Court acknowledged that a counterclaim alleging property

damage flowing from insured contractor’s breach of a construction contract

could be accidental and neither intended or expected, and perhaps be

covered under a liability policy. In that case, the insurer was required to

defend the counterclaim. In short, Landlord contends that allegations that

property damage resulted from Mr. DeLuca’s negligent performance of his

contractual obligations “could easily involve an accident that DeLuca neither

expected nor intended to have occurred.” Appellant’s brief at 33.

Finally, Landlord assails the trial court’s conclusion that the damage to

the Neri residence was to the product itself and thus, excluded. Landlord

points to the Policy language defining an “occurrence” as “an accident,

including continuous or repeated exposure to substantially the same general

harmful conditions.” Erie Policy, § V, ¶13. Landlord alleges that, although

Mr. DeLuca did not perform any improvements to the interior of the Neri

residence, that property became “exposed to harmful conditions, resulting in

tens of thousands of dollars in damage to the property,” namely mold.

Complaint, ¶ 52(e).

Erie counters that the Underlying Complaint seeks redress for breach

of contract, which is not an “occurrence” that would trigger coverage under

the Policy. Erie relies upon Redev. Authority of Cambria County v. Int’l

Ins. Co., 685 A.2d 581, 589-90 (Pa.Super. 1996) (en banc), where the

Authority was sued for breach of contract and negligence in its operation and

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improvement of a municipal water system. The Authority sought a defense

from its general liability insurer, and the trial court ruled that the insurer had

a duty to defend. This Court reversed, finding that despite the negligence

allegations in the complaint, the claims were based upon breach of duties

imposed under the contract that were not an accident or occurrence

contemplated within the policy. We recognized that the purpose of a general

liability policy was to protect the insured from liability for accidental injury to

person or property, not for breach of contract or breach of warranty.

Erie focuses our attention on the Supreme Court’s decision in

Kvaerner, supra, as well as our more recent decisions in Millers Capital

Ins. Co. v. Gambone Bros. Development Co., Inc., 941 A.2d 706

(Pa.Super. 2007) and Erie Insurance Exchange v. Abbott Furnace Co.,

972 A.2d 1232 (Pa.Super. 2009). This Court held therein that claims of

negligence due to faulty workmanship of a contract do not constitute an

occurrence. Missing was the “degree of fortuity contemplated by the

ordinary definition of ‘accident.’” Kvaerner, at 899. Erie points out that the

definition of occurrence herein is nearly identical to the definition in

Kvaerner.

Erie’s duty to defend and/or indemnify its policyholder against a suit

by a third party is based on whether the underlying complaint triggers

coverage. Gambone, supra. The Erie Policy obligates the insurer to “pay

those sums that the insured becomes legally obligated to pay as damages

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because of . . . ‘property damage’ to which this insurance applies.” Erie

Policy, Section I–Coverages 1.a, at 1. The 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.’” Id. at 1.b. An “occurrence” is defined as “an accident, including

continuous or repeated exposure to substantially the same general harmful

conditions.” Id. at Section V. Definitions, at 12. Excluded from coverage is

damage caused by faulty workmanship to the work product itself. Id. at

Section I, 2. Exclusions, j.

The declaration sheet of the Erie Policy provides for coverage at “the

stated address of the named insured,” namely the Daycare and preschool

premises. Erie Policy Declarations. It also states that the insurance applies

to the premises described in the supplemental declarations, which does not

include the Neri residence. The insured operation is listed as a daycare and

preschool.

We agree with Erie that Landlord’s underlying claims for Mr. DeLuca’s

failure to complete work and faulty workmanship is a contract dispute at its

core. See Kvaerner, supra. The Forbearance Agreement itself cements

that conclusion as it defines home improvements performed by Mr. DeLuca

as the “payment of rent arrearages” owing by the LLC and the individual

guarantors. Forbearance Agreement, Article 2.3. Notably, Mr. DeLuca’s

alleged failure to complete the work or perform it in a workmanlike manner

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constituted default under the Forbearance Agreement, and upon default, the

rent arrearages became due.10 The damages alleged to have occurred to the

Neri residence were “a direct and proximate result of Defendants’ breach of

the Forbearance Agreement.” Underlying Complaint, ¶54. In short, the

home improvement work was a contractual undertaking intended to

compensate Landlord for unpaid rent.11

Nor did Landlord allege facts in the underlying complaint suggesting a

“continuous or repeated exposure . . . to harmful conditions.” Contrary to

Landlord’s representation, he did not plead that mold resulted from any

negligent repairs to the Neri home. See e.g. Indalex Inc., supra (where

insured’s windows and doors were defectively designed and manufactured,

____________________________________________

10
Default was defined as either an occurrence of default under the lease,
death or incapacity of Guarantors or DeLuca, or “a) The failure by DeLuca to
undertake or finish the Improvements at the Premises as provided for in this
Agreement.” Forbearance Agreement Article 4.1(a). Upon default, the rent
arrearages would immediately become due.
11
Although our courts have not adopted the gist of the action doctrine in the
insurance coverage context, it would seem to foreclose Landlord’s claims for
negligent workmanship and intentional torts herein. In Indalex Inc, v.
Nat’l Union Fire Ins. Co., 83 A.3d 418 (Pa.Super. 2013) (quoting Reardon
v. Allegheny College, 926 A.2d 477, 486 (Pa.Super. 2007), this Court
noted that the doctrine forecloses tort claims “(1) arising solely from the
contractual relationship between the parties; (2) when the alleged duties
breached were grounded in the contract itself; (3) where any liability stems
from the contract; and (4) when the tort claim essentially duplicates the
breach of contract claim or where the success of the tort claim is dependent
on the success of the breach of contract claim.”

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causing water to leak into homes and cause mold, cracked walls, and

personal injury, constituted an occurrence).

In addition to the foregoing, Erie reasserts its alternative basis for

summary judgment, which the trial court rejected. We find it persuasive and

affirm on this basis as well. Landlord pled that the Daycare was an LLC.

The Policy declarations identified it as a partnership. Erie contends that,

regardless of whether the Policy covered the Daycare as an LLC or a

partnership, the Tolsons and DeLucas were not insureds under the Policy for

the home improvements at the Neri residence as that was not work

associated with the conduct of the Daycare. The trial court disagreed, and

concluded that default under the Forbearance Agreement was related to the

daycare operation because the Agreement was calculated to “allow the

business to remain a going concern.” Trial Court Opinion, 12/5/16, at 6.

However, the trial court ultimately found no coverage because even if

though Mr. DeLuca was an insured, claims of faulty workmanship to the Neri

residence were allegations of damage to the insured’s work product and

excluded from coverage.

We agree with Erie that the home improvements Mr. DeLuca

performed were not “the conduct of” the insured Daycare, as that term was

used in the Policy. A daycare and preschool provides childcare. The home

renovation work performed at the Neri residence by Mr. DeLuca to offset

rental arrearages was too attenuated from childcare to make him an insured

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under the Policy for that work. This is especially true where the “nature,

scope, extent and cost of the Improvements . . . shall be determined by the

mutual consent of the Landlord and DeLuca.” Forbearance Agreement,

Article 2.3, at 2.12

Hence, we agree with Erie that it was not obligated to provide a

defense to Mr. DeLuca or the rest of the Underlying Defendants for claims

that did not involve the operation of the Daycare as a daycare, and we affirm

the grant of summary judgment in favor of Erie on this additional basis.

Judgment affirmed.

Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 9/27/2017

____________________________________________

12
One could argue that this language in the Forbearance Agreement
contemplated a contractual arrangement between Mr. DeLuca and Landlord.

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