NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

______________

No. 17-3477

______________

FREDERICK MUTUAL INSURANCE CO.,

Appellant

v.

DONALD HALL, INDIVIDUALLY AND TRADING 

AS HALLSTONE, INC.; MARIA A. HALL, 

INDIVIDUALLY AND TRADING AS HALLSTONE, INC.;

HALLSTONE, INC.; R. LEE HULKO; BRADLEY B. FAIR

______________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. Civ. No. 2-15-cv-03354)

Honorable J. Curtis Joyner, District Judge

______________

Submitted under Third Circuit LAR 34.1(a)

November 5, 2018

BEFORE: HARDIMAN, KRAUSE, and GREENBERG, Circuit Judges

(Filed: November 8, 2018)

______________

OPINION*

______________

____________________

*This disposition is not an opinion of the full court and pursuant to I.O.P. 5.7 does not 

constitute binding precedent.
2

GREENBERG, Circuit Judge.

I. INTRODUCTION

Plaintiff-Appellant Frederick Mutual Insurance Company (“Frederick”) has filed

this appeal in a declaratory judgment action in which it sought to have the District Court 

declare that it did not have the duty to defend and indemnify Defendant-Appellee 

Hallstone, Inc. (“Hallstone”) under an insurance policy that Frederick issued to Hallstone 

in a state court action against Hallstone. After holding a bench trial, the Court entered 

judgment for Hallstone, finding that the policy obligated Frederick to defend Hallstone in 

the state court action. We will reverse.

II. FACTUAL BACKGROUND

We rely on the District Court’s findings of fact during its bench trial. DefendantAppellees Donald and Marie Hall formed Hallstone to provide stone masonry work for 

residential premises. On the advice of a builder, Donald Hall (“Hall”), a principal in 

Hallstone, approached the Fraser Insurance Agency (“Fraser”) to obtain an insurance

policy to provide in Hall’s words “maximum,” “soup to nuts” coverage for Hallstone. 

Fraser obtained a liability policy from Frederick for Hallstone. Hall and Frederick did 

not have direct contact and Hall never asked for or received a copy of the policy

Frederick issued.

Beginning in or around March 2006, Defendant-Appellees R. Lee Hulko and 

Bradley B. Fair (“the Customers”) contracted with Hallstone to provide custom stone 

masonry work for their home. This project obviously was a substantial undertaking as it 
3

took several years to complete and the Customers paid nearly $300,000 for the project. 

In April 2014, the Customers discovered that some of the stone masonry work that

Hallstone had undertaken had been damaged and required substantial repairs ultimately 

costing $352,294. The Customers attributed the damage to what they regarded was 

Hallstone’s substandard and defective work and consequently they filed a state court 

action in Pennsylvania against Hallstone alleging breach of warranty, negligence, and 

related statutory claims.

While defending Hallstone in the state court action, Frederick filed this declaratory 

judgment action in the District Court, seeking a determination that it did not have a duty 

under its policy to defend and indemnify Hallstone for its defective workmanship. 

Frederick filed a motion for summary judgment but the Court denied the motion as it 

found that there was a question of fact on the question of whether Hall received a copy of 

the insurance policy from Frederick. At the ensuing bench trial, the Court found that the 

insurance policy unambiguously excluded faulty workmanship coverage. But the Court

also found that Hall believed the policy provided coverage ‘“if something was done 

inadvertently’, or if his business did something and someone made a claim against his 

business that he might be liable for,” Frederick Mut. Ins. Co. v. Hall, No. 15-3354, 2017 

WL 4883157, at *2 (E.D. Pa. Oct. 30, 2017), and that Frederick never provided Hall with 

a copy of the policy to contradict his belief. Id. at *10. The Court’s ultimate finding was 

that Hallstone had a reasonable expectation of workmanship coverage, and, accordingly,

it entered judgment for Hallstone.
4

III. DISCUSSION

The District Court had diversity of citizenship jurisdiction under 28 U.S.C. § 

1332(a). We have jurisdiction under 28 U.S.C. § 1291. We review the Court’s findings 

of fact for clear error, and review its conclusions of law de novo. See Clientron Corp. v. 

Devon IT, Inc., 894 F.3d 568, 575-76 (3d Cir. 2018). This matter is governed by 

Pennsylvania law.

In reaching its decision, the District Court found that the insurance policy 

unambiguously excluded coverage for the faulty workmanship claims the Customers

made in the underlying state court action, a conclusion with which we concur. That

finding should have been the end of the Court’s inquiry.

It is well-settled that when policy language is unambiguous, we give effect 

to that language. It is also well-settled that the focus of any inquiry 

regarding issues of coverage under an insurance policy is the reasonable 

expectations of the insured. An insured, however, may not complain that 

its reasonable expectations have been frustrated when the applicable policy 

limitations are clear and unambiguous.

Millers Capital Ins. Co. v. Gambone Bros. Dev. Co., 941 A.2d 706, 717 (Pa. Super. Ct. 

2007) (citations omitted). “[G]enerally, courts cannot invoke the reasonable expectation 

doctrine to create an ambiguity where the policy itself is unambiguous.” Matcon 

Diamond, Inc. v. Penn Nat’l Ins. Co., 815 A.2d 1109, 1114 (Pa. Super. Ct. 2003). 

Having found the policy unambiguous, the Court should have entered judgment for 

Frederick.

Nevertheless, the District Court, relying heavily on Tonkovic v. State Farm Mut. 

Auto. Ins. Co., 521 A.2d 920 (Pa. 1987), held that the facts of this case warranted the 
5

application of the reasonable expectation doctrine. In Tonkovic, an insured specifically 

had sought to obtain disability insurance from an insurance company that would cover his 

mortgage payments in the event he was disabled in an accident, even if he was entitled to 

workmen’s compensation benefits by reason of his injury. Id. at 921. Yet,

notwithstanding the circumstance that he made his intentions clear to the insurance agent 

and in his insurance application, the company issued him a policy that excluded disability 

payments when workmen’s compensation was available to an insured as a result of an

accident. Id. at 922. Although the agent contended Tonkovic had received a copy of the 

policy that unambiguously contained the exclusion, substantial evidence was presented at 

trial that he did not receive a copy of the policy. Id. Finding the company liable, the 

Pennsylvania Supreme Court held that there was

a crucial distinction between cases where one applies for a specific type of 

coverage and the insurer unilaterally limits that coverage, resulting in a 

policy quite different from what the insured requested, and cases where the 

insured received precisely the coverage that he requested but failed to read 

the policy to discover clauses that are the usual incident of the coverage 

applied for. When the insurer elects to issue a policy differing from what 

the insured requested and paid for, there is clearly a duty to advise the 

insured of the changes so made. The burden is not on the insured to read the 

policy to discover such changes, or not read it at his peril.

Id. at 925.

In contrast, Hall did not apply for the specific type of insurance coverage he now 

claims that he expected as he asked in general terms for “soup to nuts” coverage though a 

broad term that was not specific. Thus, Frederick could regard Hall’s application for 

insurance as seeking a general liability insurance policy. However, “[a] liability policy 

does not provide a guarantee of the policyholder’s workmanship.” Standard Venetian 
6

Blind Co. v. Am. Empire Ins. Co., 469 A.2d 563, 567 (Pa. 1983) (Hutchinson, J., 

concurring). “Such a guarantee is not within its coverage. I do not believe a businessman 

of ordinary intelligence could reasonably expect to obtain a defense against and 

indemnity for the cost of properly performing his contract or replacing his failed product 

under a liability policy.” Id. (citing Selected Risks Ins. Co. v. Bruno, 718 F.2d 67 (3d 

Cir. 1983)).

A businessman purchases a liability insurance policy to transfer the risk and 

cost of unexpected and unintended happenings (occurrences) to his 

insurance company. The company agrees to assume that risk for a 

calculated premium. The company does not, however, provide a guarantee 

of the businessman's workmanship or his products for that premium and 

typically protects itself against such claims by excluding coverage for 

property in the care, custody or control of the insured or property as to 

which the insured for any purpose is exercising control or by language . . . . 

There is usually some form of insurance available to cover injury to or 

destruction of the excluded property at a higher premium which is 

commensurate with the risk. The exclusion is to eliminate securing the 

same coverage under a liability policy at cheaper rates.

Id. at 571 (internal quotation marks omitted) (quoting F.D. Cooke, Jr., Care Custody or 

Control Exclusions, 1959 Ins. L.J. 7, 10, (1959). 

In Venetian Blind, the Pennsylvania Supreme Court rejected the insured’s 

argument that it neither was made aware of nor understood the exclusion of workmanship 

coverage from its policy, as it found that “the lack of knowledge or understanding of a 

clearly drafted exclusion clause in a written contract of insurance executed by both 

parties does not render the clause unenforceable.” Id. at 564. Although Hall argues that 

he never received a copy of the policy, a contention that we accept, and therefore he was 

unaware of the exclusion, this circumstance does not change the fact that he was seeking 
7

general liability insurance. At no point did he specify that he desired the more costly 

workmanship insurance. As the court held in Matcon, an insured’s failure to request or 

bargain for a particular coverage precludes a court from finding that the insured expected 

such coverage, whether or not the insured received a copy of the policy. 815 A.2d at 

1115.

Even if we agreed with the District Court’s invocation of the reasonable 

expectation doctrine, Pennsylvania case law makes clear that the Court’s application of 

the doctrine was flawed. As we have held under Pennsylvania law, “[o]nly objectively 

reasonable expectations are protected[.]” Selected Risk, 718 F.2d at 71. Hall’s claim that 

he expected Hallstone’s “maximum,” “soup to nuts” liability policy to include 

workmanship coverage is no more reasonable than if a purchaser of auto insurance

expected his policy to cover repairs if his car breaks down, even if he asked for “soup to 

nuts” coverage. See id. (holding that the insured was not reasonable to expect his basic 

homeowner’s insurance policy to provide coverage for intentional criminal acts). It is 

simply not the kind of coverage insurance agents and insurance companies expect to 

provide unless the insured explicitly requests such coverage.

If we were to allow an insured to override the plain language of a policy 

limitation anytime he or she was dissatisfied with the limitation by simply 

invoking the reasonable expectations doctrine, the language of insurance 

policies would cease to have meaning and, as a consequence, insurers 

would be unable to project risk. The inability to project risk would 

dissuade insurers from doing business in the Commonwealth and the net 

result would be an increase in premiums for consumers. We refuse to set 

such a deleterious sequence of events into motion.
8

Millers, 941 A.2d at 717-18. Accordingly, we will reverse the District Court’s judgment

entered on October 30, 2017, for Hallstone, and will remand the matter to that Court to 

enter judgment for Frederick. See 28 U.S.C. § 2106.