Insurer Not Obligated to Defend or Indemnify Insured for Breach of Contract Claims (PA)
In Atain Insurance Co. v. Xcapes et al., the United States District Court for the Eastern District of Pennsylvania analyzed whether Atain Insurance Company (“Atain”) was obligated to, inter alia, defend and indemnify its insured, Xcapes, a home improvement contractor, with respect to state lawsuits filed against Xcapes asserting breach of contract, unjust enrichment/quasi contract, violations of the Home Improvement Consumer Protection Act and violations of the Unfair Trade Practices and Consumer Protection law. After initially agreeing to defend Xcapes under a reservation of rights, Atain commenced the instant declaratory judgment action to seek confirmation that it was not obligated to defend or indemnify Xcapes. After filing the complaint, Atain filed a motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c).
In its motion, Atain argued it was under no obligation to defend or indemnify Xcapes because the underlying lawsuits only asserted claims of “breach of contract and faulty workmanship” and therefore, did not allege “property damage caused by an occurrence” as required by the commercial general liability policy Atain issued to Xcapes. Applying long-standing Pennsylvania case law regarding insurance contract interpretation, the Court analyzed the specific allegations in the underlying lawsuits, citing allegations of Xcapes’ “workmanship deficiencies”, “workmanship issues” and assertions that Xcapes failed to perform the agreed to work “in a reasonable and workmanlike manner”. In opposition, Xcapes argued the alleged property damage, which was outside the scope of work Xcapes agreed to perform, constituted an occurrence.
Ultimately, the Court held Atain was not obligated to defend or indemnify Xcapes because the underlying lawsuits did no more than assert allegations of breach of contract. In doing so, the Court determined that damages appeared to solely arise out of contractual disagreements, which “no more qualify as occurrences than do damages arising from faulty workmanship”. Significantly, this case is a reminder of the emphasis given to the four corners of the complaint in coverage analysis and the unavailability of coverage for faulty workmanship.
Thanks to Lauren Berenbaum for her post. Please feel free to contact Vincent F. Terrasi with any questions or comments.