2008 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit 12-31-2008 

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. B oy le P r e c e de nt i al or N on-P r e c e de nt i al : N on-P r e c e de nt i al D ocke t N o . 07-3930

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Thi s de c i sion i s br ou ght t o you for f r e e and ope n a c c e s s b y the O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit at V i l l a nova U nive r sity S choo l of L a

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w Di git al Reposit ory

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w . vi l l a nova . e du . Re c omme nde d C it at ion " P r ude nt i al P r op v

. Bo y le " (2008). 2008 D e cisio n s . P ape r 23. http://d i git alc ommon s .l a

w . vi ll anova . e du/thir dc ir c uit_2008/23H onor abl e A . W al l ace T as hi m a, Seni orJ udge of the U n it ed S t at es * C our tof A ppeal s fort he N i nt h C i r cui t , s i t t i ng bydes i gnat i on. NOT P RE CE DE NT I AL U N IT E D S T A T E S C O U R T O F A P P E A L S F O R T H E T H IR D C IR C U IT N o. 07- 3930

P RU DE NT I AL P RO P E RT Y AND C AS UAL T Y I NS UR ANC E CO M P ANY v. J OS E P H J . BO YL E ; J E ANNE BO YL E ; J OHAN E . S I GGE ; P E RN I L L A M . C. S I GG; M I CH A EL B O W N ; V A LU E G U A RD U SA , I N C; FO X & RO A CH LP; FOX & RO AC H/ TRI DEN T CO RPORA TI ON ; HO M ESS ENTI ALS LP

J OSEPH J . BO YLE A ND J EAN NE B OY LE, Ap p e lla n ts

O n A p p ea l from the U n it ed S tat es D istri ct C o u rt fort he East ern D i s t r i ctof Penns y l vani a ( D . C . N o. 06- cv- 00506 ) D i s t r i c tJ u d g e : H o n o r a b l e R o b e r tF . K e l l y Subm i t t ed U nderT hi r d C i r cui tL A R 34. 1( a)

O ct ober31, 2008 Be f o r e : S L OVI T E R, S T AP L E T ON, a n d T AS HI M A, C i r cui tJudges * ( Fi l ed: D ece m ber31, 2008) OP I NI ON2

T A S H IM A , C i r cui tJudge . P ru d e n tial P ro p e rtya n d C a su a ltyIn su ra n c e C o m p a n y(“ P ru d e n tial” ) b ro u g h t th is ac ti o n ag ains t i ts i n su red s, Jo sep h an d Jea n n e B o y le (th e “ B o y les”) f o r a d ec laratory ju d g m e n t th a t ith a d n o d u tyto d e f e n d o r in d e m n if

yth e B o y les in a n u n d e rly in g law su it re late d to th e sa le o f

th e ir h o m e . T h e D istric t C o u rt g ra n ted su m m a ryju d g m e n t to P ru d e n tial a n d th e B o y les a p p e a l. I. T he B oy l es bui l ta hous e i n 1995 on pr oper t yt heyow ned i n K enneth Squar e, Penns y l vani a. I n 2003, t heys ol d t he pr oper t yt o M r . and M r s . Si gge. A ft erm ovi ng i n, t he Si gges di s cover ed s ubs t ant i al r oti ns i de the ext er i orceda rs i di ng of the hous e and defe ct s i n t he r oof and w i ndow s . I n 2004, t heycomm ence d an ac t i on agai ns ts ever al defe nd ants , i ncludi ng t he B oy l es. T h e S i g g e s a l l e g e d s e v e r a l c l a i ms a g a i n s tt h e Bo y l e s , i n c l u d i n g i n Co u n tI V, br eac h of an i m pl i ed w arr antyof habi t abi l i t yand fi t nes s . T he B oy l es t ender ed def ens e of t he ac t i on t o Prudent i al undert hei rhom eow ner ’ s pol i cy , w hi ch pr ovi ded thatPr udent i al w o u ld d e f

e n d th e B o y les , an d p a ya n yre su lti n g d a m a g e s, if a “ a c laim is m a d e o r su it i s br oughtagai ns tan i ns ur ed fordamages beca us e of bodi l yi nj ur y , i ncl udi ng per s onal i nj ur y , orpr oper t ydamage caus ed byan occ ur r ence t o w hi ch thi s cover age a ppl i es . ” The p o licyd e f

in e s “ o c c u rre n c e ” a s: a l os s oracc i denti ncl udi ng cont i nuous orr epea t ed expos ur es t o s ubs t ant i al l yt he s ame har m ful condi t i ons , even though s epar at ed i n t i m e ors pat i al di s t ance , w hi ch1 T h e D is tr ic t C o u rt a ls o d e n ie d re c o n s id e ra tio n . 1 3 r es ul t s dur i ng t he pol i cyper i od i n: a. bodi l yi nj ur y ; or b. pr oper t ydamage. O ccurr ence does noti ncl ude negl i gentm i s r epr es ent at i ons orom i s s i ons of any n a tu re o r k in d in th e s a le o f re a l o r p e rs o n a l p ro p e rt y . T he pol i cydoes notdefi ne “l os s . ” I tdefi nes “ac ci dent ” as “an uni nt ended, undes i gned, s udden, and unexpe ct ed cove r ed eve nt . ” I tdefi nes pr oper t ydamage as

“ p h y sic a l d a m a g e to o r d e stru c tio n o f tan g ib le p ro p e rty , inc lu d in g lo ss o f u se o f tan g ib le p ro p e rt yre s u ltin g f

ro m its p h y s ic a l d a m a g e o r d e s tru c tio n .” P rud en ti al de n ied th e re q u ested d ef en se. Instea d , itco m m en ce d this acti o n fo r a decl ar at or yj udgm entt hati tw as notobl i gat ed t o defe nd ori ndemni fyt he B oy l es . T he Si gge ac t i on w as t hen s et t l ed for$140, 000, w i t h t he B oy l es contr i but i ng $20, 000 t o t he s et t l ement . T he B oy l es t hen fi l ed a c ount er cl ai m agai ns tPr udent i al forbr eac h of contr act and bad f

ai t h i n Prudent i al ’ s r efus al t o defe nd t hem, s eeki ng $20, 000 i n i ndemni fi cat i on a n d $ 4 8 ,6 2 2 in d e f

e n s e c o s ts in d e f

e n d in g th e S ig g e a c tio n . T he D i s t r i ctC our tgr ant ed s um m aryj udgm entt o Prudent i al . I tconcl uded thatt he C ountI V cl ai m forbr eac h of an i m pl i ed w arr antyof habi t abi l i t yw as nota cl ai m for“a lo ss , ac c id e n t, or o c c u rre n c e th a t w a s in ten d e d to trig g e r c o v e ra g e .” T h e B o y les a p p e a l. 1 II. T he D i s t r i ctC our thad j ur i s di ct i on pur s uantt o 28 U . S. C . § 1332. W e have4

ju risd ictio n p u rsu a n t to 2 8 U .S .C . § 1 2 9 1 . O u r re v iew o f a g ra n t o f

su m m a ryju d g m e n t is p le n a ry. C ur l ey v . K l em , 298 F. 3d 271, 276 ( 3d C i r . 2002) . T he i nt erpr et at i on of an in s u ra n c e c o n tr a c t is s u e d in P e n n s y lv a n ia is g o v e rn e d b yP e n n s y lv a n ia la w . Fr og, Sw i t ch & M f g. C o. v. Trav el ers I

ns . C o. , 1 9 3 F .3 d 7 4 2 , 7 4 5 -4 6 (3 d C ir . 1 9 9 9 ).

III . An i ns ur er ’ s dut yt o defe nd a thi r d- par t ycompl ai nttur ns on w hether t he a lle g a tio n s o f

th e c o m p la in t tr ig g e r c o v e ra g e . G en. A cci dent I ns . C o. v. A l l en , 692 A . 2d 1089, 1095 ( Pa. 1997) . T o m ake thi s det erm i nat i on, a courts houl d “as cert ai n t he s cope of the i ns ur ance cover age a nd t hen ana l y ze the al l egat i ons i n t he compl ai nt . ” R edev el opm ent

A uth. v. I

nt ’ lI ns . C o. , 685 A . 2d 581, 589 ( Pa. Super . C t . 1996) ( ci t at i on and i nt ernal quot at i on m arks om i t t ed) . A n i ns ur er ’ s dut yt o defe nd ar i s es w heneve rt he a lle g a tio n s o f

th e c o m p la in t p o te n tia lly f a ll w ith in th e p o lic y ’s c o v e ra g e . LuckerM f g. v. H om e I ns . C o. , 2 3 F .3 d 8 0 8 , 8 1 3 (3 d C ir . 1 9 9 4 ). T he B oy l es cont end thatC ountI V of the Si gge compl ai ntt r i gger s cover age b e c a u se , ap p ly in g th e lan g u a g e a n d d e f in iti o n s o f

th e P ru d e n tial h o m e o w n e r’s p o licy , it i s a cl ai m for“pr oper t ydamage caus ed by. . . a l os s oracc i dent. . . noti ncl ud[i ng] negl i gentm i s r epr es ent at i ons orom i s s i ons of anyki nd i n t he s al e of r eal orper s onal pr oper t y . ” W e di s agr ee. I ti s notdi s put ed thatt he br eac h of an i m pl i ed w arr antyof habi t abi l i t ydoes not c o n s titu te a n “ a c c id e n t” a s d e f in e d in th e P ru d e n tia l p o lic y . See Redev el opm ent A uth. ,5

685 A . 2d at589 ( not i ng t hata cl ai m t hat“ar i s es outof a br eac h of contr act ” i s “notan acc i dent ”) . T he B oy l es s eem t o conce de as m uch. R ather , t he B oy l es cont end thatC ountI V r epr es ent s a cl ai m fora “l os s , ” and lo ss e s a re “ o b v io u slyf

a r b ro a d e r th a n m e re a c c id e n ts.” T h e P ru d e n tial p o licyd o e s n o t, ho w ever, cov er l osses per se , butr ather“pr oper t ydamage caus ed by . . . a l oss” ( emphasi s added) . C ountI V of the Si gge compl ai ntdoes notal l ege pr oper t ydamage caus ed bya l os s . I tal l eges t he “l os s of the bene fi tof the bar gai n” w hen the Si gges pur chas ed an uni nhabi t abl e home fr om t he B oy l es . T he gr avamen of the compl ai nti s t he contr actual br eac h t hatoccurr ed att he mom entof s al e – nott he pr oper t ydamage t hat o c c u rr e d y e a rs e a rl ie r. T hi s concl us i on i s cons i s t entw i t h Penns y l vani a l aw on t he i m pl i ed w arr antyof habi t abi l i t y , w hi ch hol ds t hatt he meas ur e of da m ages fori t s br eac h i s t he “di ffe r ence betw een the m arketvalue of the ho use as con struct ed an d the m arketvalue that the h ou se w oul d have ha d i f cons t ruct ed as pr om i s ed. ” G adbois v. Leb- C o B ui lders , I nc. , 458 A . 2d 555, 559 ( Pa. Super . C t . 1983) . I n ot herw or ds , t he i nj ur yi s one of e conomi c l os s on t he c o n t r a c t , n o td a m a g e t o t a n g i b l e p r o p e r t y. Fi nal l y , ot hercour t s have s quar el yhel d t hata cl ai m form i s r epr es ent at i on i n t he s al e of pr oper t y– an ac t i on s i m i l art o t hatfora br eac h of i m pl i ed w arr anty– does not c o n s titu te a c la im f

o r “ p ro p e rt yd a m a g e ” a s d e f in e d in th e typ ic a l h o m e o w n e r’ s p o lic y . S e e , e . g . , Sa

f e c o I n s . Co . v . An dr e ws , 915 F. 2d 500, 502 ( 9t h C i r . 1990) ( not i ng t hat2 T he B oy l es al s o cont end thatt hi s cas e s houl d be r emanded t o t he D i s t r i ct

C our tbeca us e Prudent i al fai l ed t o compl yw i t h a di s coveryr eques tforcopi es of in su ra n c e a g re e m e n t f

o r p rio r y e a rs. T h e B o y les d id n o t ra ise th is iss u e in re sp o n se to Prudent i al ’ s m ot i on fors um m aryj udgm entori n anys ubs equentfi l i ngs i n t he D i s t r i ct C o u rt . C o n s e q u e n tly, th e yh a v e w a iv e d th is a rg u m e n t. See New C as t l e C ount y v. H al l i bur t on N U

S C or p. , 111 F. 3d 1116, 1125 n. 10 ( 3r d C i r . 1997) ( “N ew C as t l e w ai ved i t s di s coveryrul e ar gum entbyfai l i ng t o r ai s e i tbefor e the magi s t r at e j udge ort he di s t r i ct cour ti n t he fi r s ti ns t ance . ”) . R egar dl es s , t he i s s ue does notaff ecthow t o cons t rue the l a n g u a g e o f

t h e o p e r a t i v e p o l i c y. 6 cl ai m s fornegl i gentm i s r epr es ent at i on “do notexpos e [the def endant ] t o l i abi l i t yforany dam age to t ang i ble pr op erty , bu trather for econ om i c l oss r esul t i ng from [t he d efen dan t ’s ] al l eged f ai l ur e t o di s coverand di s cl os e fa ct s r el evantt o t he pr oper t y ’ s val ue and d e sira b ili ty ” ); Stat e Farm F i r e & C as . C o. v. B r ew er , 91 4 F . S up p. 14 0, 14 2 (S. D . M i ss. 1996) ( not i ng t hatt he ca s e l aw i s “vi r tual l yunani m ous ” thatdamages fl ow i ng fr om m i s r epr es ent at i on “have no bas i s i n pr oper t ydamage” butar e “e conomi c and c ont r actual in n a tu re ” ) ( c o lle c tin g e x a m p le s ). B e c a u se th e c laim f

o r b re a c h o f

a n im p lied w a rra n tyo f h a b itab ili tyis n o t a c laim for“pr oper t ydamage caus ed by. . . a l os s , ” C ountI V of the Si gge compl ai ntdi d not t r i g g e rc o v e r a g e ; c o n s e q u e n t l y , P ru d e n t i a l h a d n o d u t yt o d e f e n d t h e Bo y l e s . I tf

o l l o ws th a t P ru d e n tia l h a d n o d u ty to in d e m n if yth e B o y le s . See Pac. I ndem . C o. v. Li nn , 59 0 F. Supp. 643, 651 ( E . D . Pa. 1984) . I tal s o fol l ow s t hatt he B oy l es ’ count er cl ai m s forbr eac h of contr actand bad f

ai t h fai l as a mat t erof l aw beca us e theycannots ur vi ve a d e te rm in a tio n th a t th e in s u re r h a d n o d u ty to d e f e n d . See Frog, Sw i t ch & M f g. C o. , 193 F. 3d at751 n. 9. 27 I V. F o r th e re a so n s s e t f

o rth a b o v e , w e w ill a f

f irm th e ju d g m e n t o f

th e D istric t C o u rt.