Lenick Construction Inc v. Selective Way Insurance Co

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 16-1891
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LENICK CONSTRUCTION, INC.,
Appellant

v.

SELECTIVE WAY INSURANCE COMPANY
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On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 2-14-cv-02701)
District Judge: Honorable Cynthia M. Rufe
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Submitted Under Third Circuit L.A.R. 34.1(a)
March 20, 2018

Before: SMITH, Chief Judge, HARDIMAN, and ROTH,
Circuit Judges.

(Opinion Filed: June 6, 2018)
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OPINION *
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*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does
not constitute binding precedent.
HARDIMAN, Circuit Judge.

Lenick Construction, Inc. appeals a summary judgment in favor of Selective Way

Insurance Company on Lenick’s declaratory judgment action for insurance coverage. The

District Court held that Selective had no duty to defend or indemnify Lenick in state-

court litigation that arose out of problems experienced by a condominium development in

South Philadelphia. We will affirm.

I

The dispute underlying this coverage action began between The Villas at Packer

Park Condominium Association and various entities collectively referred to as Westrum.

Westrum was hired as the general contractor for the 92-unit development, and it

subcontracted with Lenick to perform rough and finish carpentry and to install paneling,

windows, and doors provided by the developer. Upon completion of the project, it was

discovered that some units experienced water infiltration, leaks, and cracked drywall.

In February 2013, the Villas sued Westrum in the Philadelphia County Court of

Common Pleas, alleging contract and warranty claims. Westrum impleaded Lenick (and

others), asserting claims for breach of contract and indemnification.

Soon after it had been joined as a defendant, Lenick notified its insurer (Selective)

of the claims, stating that the commercial general liability (CGL) policy in effect when

the defects were discovered entitled Lenick to defense and indemnification. Selective

initially denied Lenick’s request, but eventually agreed to defend Lenick, subject to a

reservation of rights.

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 In response to Selective’s reservation of rights letter, Lenick filed an action in the

Court of Common Pleas seeking a declaration that Selective was obliged to defend and

indemnify Lenick. After Selective removed the action to federal court, the parties filed

cross-motions for summary judgment regarding Selective’s duty to defend, and Selective

also filed a motion for summary judgment on its duty to indemnify. For its part, Lenick

sought reimbursement for fees that it incurred in the time period between its demand for a

defense and Selective’s agreement to provide one. The District Court concluded that the

allegations against Lenick were not covered under its CGL policy, so Selective had no

duty either to defend or indemnify Lenick. Lenick timely appealed.

II 1

Under Pennsylvania law, we decide whether a duty to defend exists by first

reviewing the language of the insurance policy to determine when it provides coverage,

and then examining the complaint against the insured to ascertain whether its allegations

“constitute the type of instances that will trigger coverage.” 2 Kvaerner Metals Div. of

Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888, 896–97 (Pa. 2006). “If

the complaint filed against the insured avers facts which would support a recovery that is

covered by the policy, it is the duty of the insurer to defend until such time as the claim is

confined to a recovery that the policy does not cover.” Erie Ins. Exch. v. Transamerica

1
The District court had jurisdiction under 28 U.S.C. § 1332. We have jurisdiction
under 28 U.S.C. § 1291. We exercise plenary review over summary judgments. Specialty
Surfaces Int’l, Inc. v. Cont’l Cas. Co., 609 F.3d 223, 229 n.1 (3d Cir. 2010).
2
The pleadings relevant to our review include the Villas’ original complaint
against Westrum, various amended complaints filed by the Villas against the defendant
subcontractors, and the original and amended versions of the joinder complaints.
3
Ins. Co., 533 A.2d 1363, 1368 (Pa. 1987) (citation omitted). We liberally construe and

accept as true all factual allegations against the insured, Nationwide Mut. Ins. Co. v. CPB

Int’l, Inc., 562 F.3d 591, 595–96 (3d Cir. 2009), but we may not stray outside the four

corners of the complaint against the insured or consider extrinsic evidence, Kvaerner, 908

A.2d at 896. Instead, “an insurer’s duty to defend and indemnify [is] determined solely

from the language of the complaint against the insured.” Id. (emphasis added); State

Farm Fire & Cas. Co. v. DeCoster, 67 A.3d 40, 45–46 (Pa. Super. Ct. 2013).

In this case, Lenick’s CGL policy insured it against bodily injury and property

damage caused by an “occurrence,” which an endorsement to the policy defined as “an

accident, including continuous or repeated exposure to substantially the same general

harmful conditions.” Supp. App. 175. Lenick contends that the pleadings established

occurrences under Pennsylvania law in three ways: (1) the damage occurred to areas of

the property on which Lenick did not work, (2) the damage was caused by work

performed by other subcontractors, and (3) the damage was caused by defects in the

materials that Lenick used rather than by its own faulty workmanship. Selective counters

that Lenick’s liability arises from its own faulty workmanship, which is not covered as an

occurrence under the policy.

With respect to its first argument, Lenick acknowledges that the Pennsylvania

Supreme Court held in Kvaerner Metals v. Commercial Union Insurance that there is no

occurrence when the complaint “avers only property damage from poor workmanship to

the work product itself.” 908 A.2d at 900. Lenick emphasizes that the various complaints

identify leaks, water infiltration, and cracked drywall, which were unrelated to Lenick’s

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work. Lenick argues that, if presented with this question, the Pennsylvania Supreme

Court would find that “consequential damages beyond the work itself[] are ‘occurrences’

under CGL policies.” Lenick Br. 27 (emphasis omitted). We disagree. As we said in

Specialty Surfaces International v. Continental Casualty: “damages that are a reasonably

foreseeable result of the faulty workmanship are . . . not covered,” even when such

damage occurs to areas outside the work provided by the insured. 609 F.3d 223, 239 (3d

Cir. 2010) (citing Millers Capital Ins. Co. v. Gambone Bros. Dev. Co., 941 A.2d 706,

713–14 (Pa. Super. Ct. 2007)). Because the Supreme Court of Pennsylvania has not

subsequently issued a contrary opinion, we must follow the determination of the

Specialty Surfaces panel. See id. at 231; see also Debiec v. Cabot Corp., 352 F.3d 117,

131 (3d Cir. 2003) (noting that this court will adhere to previous decisions “in the

absence of a clear statement by the Pennsylvania Supreme Court to the contrary or other

persuasive evidence of a change in Pennsylvania law” (citation omitted)).

Lenick’s second argument—that the faulty workmanship of others led to the later

failure of Lenick’s own work—is similarly unavailing. Though Lenick cites two

affidavits to support this argument, we examine only the underlying complaints for the

factual allegations made against Lenick. Kvaerner, 908 A.2d at 896; DeCoster, 67 A.3d

at 45–46. As noted by the District Court, though the various complaints assert that others

may be liable for the property damage, “they do not allege that Lenick should be held

liable (in negligence or under any other theory) for the faulty products or poor

workmanship of others. Lenick’s own faulty workmanship is the only legal theory under

which Lenick, as opposed to other contractors or subcontractors, could be found liable.”

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Lenick Constr., Inc. v. Selective Way Ins. Co., 2016 WL 1161571, at *5 (E.D. Pa. Mar.

23, 2016) (first emphasis added). We perceive no error in the District Court’s conclusion

regarding this issue.

Finally, Lenick’s contention that the property damage was caused by defects in the

materials provided to it by the developer also lacks support in the pleadings. Here again,

Lenick points only to extrinsic evidence to support this argument. Because the pleadings

do not contain allegations sufficient to support a claim that the windows, doors, and/or

panels used by Lenick “actively malfunctioned, directly and proximately causing” the

property damage to the project, this argument fails. Indalex Inc. v. Nat’l Union Fire Ins.

Co. of Pittsburgh, 83 A.3d 418, 424 (Pa. Super. Ct. 2013) (quoting Erie Ins. Exch. v.

Abbott Furnace Co., 972 A.2d 1232, 1238 (Pa. Super. Ct. 2009)). 3

III

For the reasons stated, we will affirm the District Court’s summary judgment.

3
Because the duty to defend is broader than the duty to indemnify, Lenick’s claim
for indemnification also fails. See Kvaerner, 908 A.2d at 896 n.7. Its argument that
Selective acted in bad faith fails because it has presented no evidence that Selective “did
not have a reasonable basis for denying benefits under the policy and that [it] knew of or
recklessly disregarded its lack of reasonable basis.” Grossi v. Travelers Personal Ins.
Co., 79 A.3d 1141, 1148 (Pa. Super. Ct. 2013) (citation omitted).
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