Phila. judge dismisses construction co. declaratory judgment suit against insurer

A Philadelphia judge has dismissed a commerce action that had been filed back in January by a Huntingdon Valley, Pa. construction company against two Philadelphia residents and a Media, Pa. insurance company.

In his March 27 memorandum and order, Common Pleas Court Judge Albert J. Snite, Jr. simultaneously sustained preliminary objections that had been filed by the defendants and dismissed the action in its entirety.

Calfayan Construction Associates Inc. had filed suit in the court’s commerce program on Jan. 8 against Erie Insurance Exchange, Laura Raymond and Dan Garofalo over allegations that the defendants committed a breach of contract and bad faith arising from an underlying complaint.

In that original complaint, docketed in January 2012, Raymond and Garafalo, who owned property on the 5000 block of Hazel Avenue in Philadelphia, claimed that Calfayan was liable for negligent construction and breach of contract, according to the record.

Erie Insurance had provided a contractor’s policy with commercial general liability coverage to Calfayan from a period of Jan. 1, 2011 to Jan. 1, 2012.

Upon being served with the original complaint, Calfayan notified Erie of the civil claims, but Erie subsequently denied coverage in the case, saying that the claims did not fall within the insuring agreement because they didn’t allege that an “occurrence” caused property damage during the policy period.

Calfayan then lodged a three-count complaint against Erie for breach of contract, bad faith and declaratory judgment that the insurer had an obligation under the policy to indemnify the construction company in the underlying litigation, which had been placed on deferred status on Jan. 25 of this year pending the outcome of the declaratory judgment suit.

In his memorandum opinion, Snite wrote that he decided to sustain the defendants’ preliminary objections in the declaratory judgment action because the underlying complaint fails to allege an “occurrence” within the meaning of the Erie policy, such that the policy has not been triggered and the insurer has no duty to defend Calfayan.

In order for coverage to be triggered, the judge wrote, any bodily injury or property damage must be caused by an “occurrence” within the meaning of the policy, and that the policy defines an occurrence as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

The policy, the judge noted, also states that property damage does not include any loss, cost or expense to “correct” any defective, faulty or incorrect work performed by contractors or subcontractors.

The Pennsylvania Supreme Court held in a prior case that faulty workmanship could not establish an “occurrence” under a general liability policy, Snite noted.

In the underlying Calfayan case, the plaintiffs alleged that their home experienced problems due to Calfayan’s stoppage of work on the property, including mold conditions, the need to remove debris, the repair of items broken by construction personnel, and other problems.

The property owners, who are the plaintiffs in the underlying action, seek to have the court require Calfayan to remedy the defective performance, to reimburse the homeowners for costs they have incurred, and will incur relating to the problematic conditions, and otherwise provide compensation for items such as loss of use, defective construction and other damages.

“This is, simply, a poor workmanship claim, and there are no factual allegations of an ‘occurrence’ in the complaint to include ‘property damage’ under the policy,” Snite wrote. “Instead … property damage under the Erie policy does not include any loss, cost or expense to correct any defective, faulty or incorrect work performed by Calfayan or by any contractors or subcontractors working directly or indirectly on Calfayan’s behalf.”

In Calfayan’s reply in opposition to the preliminary objections, it argued that the underlying complaint is not only an allegation of poor workmanship, but also an allegation that Calfayan negligently supervised the construction work on the home, the judge’s memorandum notes.

Snite, however, wrote that Calfayan’s argument that the negligent supervision is an independent basis for coverage under the insurance policy is flawed.

“As noted above, ‘property damage’ to trigger an ‘occurrence’ does not include corrective work by Calfayan or subcontractors working on Calfayan’s behalf,” the judge wrote. “Negligent supervision of subcontractors itself therefore does not constitute property damage under the policy.”

Snite wrote that under the “clear terms” of the insurance policy, the underlying claim is outside of the scope of the policy, and therefore the preliminary objections must be sustained and the declaratory judgment complaint must be dismissed in its entirety.