Court Opinion

ID: 4548840
Source: CourtListenerOpinion
Date Created: 2020-07-16 21:00:23.980133+00
Date Added: 2024-06-11T09:12:25.749609
License: Public Domain

NOT PRECEDENTIAL

            UNITED STATES COURT OF APPEALS
                 FOR THE THIRD CIRCUIT

                         _____________

                          No. 19-1506
                         _____________

                 NAUTILUS INSURANCE CO,
                                Appellant

                                v.

200 CHRISTIAN STREET PARTNERS LLC; VIRGIL PROCACCINO;
               ARTHUR ELWOOD; MILO LLC

          On Appeal from the United States District Court
             for the Eastern District of Pennsylvania
              (D.C. Civil Action No. 2:18-cv-1364)
           District Judge: Honorable R. Barclay Surrick

                         _____________

                          No. 19-1507
                         _____________

             NAUTILUS INSURANCE COMPANY,
                               Appellant

                                v.

 200 CHRISTIAN STREET PARTNERS LLC; VIRGIL PROCACCINO;
   ARTHUR ELWOOD; ZACHARY KLEHR; DEBORAH GORDON
  KLEHR, H/W; HARMAN DEUTSCH CORP; AB CONSTRUCTION
 LLC; TIR EOGHAIN CONSTRUCTION INC d/b/a Duggan Excavation;
       E&A DRYWALL CORPORATION; HIGH END DESIGN
INSTALLATIONS LLC; JELD WEN WINDOWS AND DOORS; MAXI-
 TECH ROOFING INC; PHILLY BRICK AND STONE RESTORATION
  LLC; TAGUE LUMBER OF MEDIA INC; STRAWBRIDGE CROWE
                  LLC, t/a J. Maloney & Son
                   On Appeal from the United States District Court
                      for the Eastern District of Pennsylvania
                       (D.C. Civil Action No. 2:18-cv-1545)
                    District Judge: Honorable R. Barclay Surrick
                                  ______________

                              Argued on March 10, 2020
                                  ______________

           Before: CHAGARES, RESTREPO, and BIBAS, Circuit Judges.

                                (Filed: July 16, 2020)

Anthony L. Miscioscia [ARGUED]
Edward M. Koch
Timothy A. Carroll
White and Williams LLP
1650 Market Street
One Liberty Place, Suite 1800
Philadelphia, PA 19103

      Counsel for Appellant

Peter R. Bryant [ARGUED]
Bochetto & Lentz, P.C.
1524 Locust Street
Philadelphia, PA 19102

      Counsel for Appellees Milo, LLC, Zachary Klehr,
      and Deborah Gordon Klehr, h/w

Jonathan A. Cass [ARGUED]
Carl L. Engel
Cohen Seglias Pallas Greenhall & Furman, PC
30 South 17th Street, 19th Floor
Philadelphia, PA 19103

      Counsel for Appellees 200 Christian Street Partners, LLC,
      Virgil Procaccino, and Arthur Elwood

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                                     ______________

                                        OPINION*
                                     ______________

RESTREPO, Circuit Judge

       Nautilus Insurance Company (“Nautilus”) appeals the District Court’s Orders

denying Nautilus’ motions for judgment on the pleadings. Nautilus is ultimately seeking

declaratory judgments that it does not have a duty to defend and indemnify appellees 200

Christian Street Partners, LLC, Virgil Procaccino, and Arthur Elwood (collectively,

“Insureds”) in two underlying lawsuits. We agree with the District Court that Nautilus

has a duty to defend the Insureds, and therefore, for the following reasons, we affirm.

                                              I.

       Underlying Nautilus’ declaratory judgment actions are two lawsuits (“Klehr and

Milo Actions” or collectively, “Underlying Actions”) in which the respective

homeowners claim the Insureds are liable for defects in the construction of their homes.

Nautilus is currently providing the Insureds with a defense in the Underlying Actions,

subject to a reservation of rights, since the Insureds are claiming coverage as

policyholders under Nautilus’ Commercial Lines Policies of insurance for the time period

covering the construction of and alleged damages to the homes. These policies include

commercial general liability (CGL) coverage.

       *
        This disposition is not an opinion of the full Court and, pursuant to I.O.P. 5.7, does
not constitute binding precedent.
                                              3
       In April 2018, Nautilus sought in the District Court two declaratory judgments

clarifying that it is not obligated to defend and indemnify the Insureds in either of the

Underlying Actions. Nautilus argued that the Complaints filed in the Klehr and Milo

Actions alleged faulty workmanship, which was not covered under the Insureds’

respective insurance policies. Nautilus subsequently filed motions for judgment on the

pleadings in both cases. The District Court denied the motions, finding that Nautilus had

a duty to defend the Insureds because the Complaints filed in the Underlying Actions

sufficiently alleged product-related tort claims that may fall within the scope of coverage

of the relevant insurance policies. Nautilus appealed both District Court Orders and the

cases were consolidated for purposes of this appeal.

                                             II.1

       The District Court had jurisdiction pursuant to 28 U.S.C. § 1332, and despite the

Insureds’ arguments to the contrary, we have appellate jurisdiction under 28 U.S.C. §

1292(a)(1). “A district court’s injunctive order, even if it is not a final judgment, is

1
  Following the filing of their briefs in this appeal, the Insureds filed on the day before
oral argument a motion to dismiss this appeal for lack of jurisdiction. The Insureds’
motion is denied. The motion purports to rely on Fed. R. Civ. P. 19, which speaks to the
trial court’s subject matter jurisdiction if all necessary and indispensable parties have not
been joined in an action. Initially, we note that it appears the Insureds have failed to cite
any court of appeals case applying Rule 19 in this context in the first instance. In any
event, the Insureds have failed to show how any defendants that may have been added or
not added to the relevant Complaints in the Underlying Actions are prejudiced by their
absence from this appeal. See Marvel Characters, Inc. v. Kirby, 726 F.3d 119, 134 (2d
Cir. 2013) (quoting CP Sols. PTE, Ltd. v. Gen. Elec. Co., 553 F.3d 156, 160 (2d Cir.
2009)) (finding no prejudice when “the potential prejudice to an absent party under Rule
19(b) is mitigated where a remaining party ‘could champion [his or her] interest’”). If
anything, our reasoning with respect to Nautilus’ duty to defend in this consolidated
appeal gives guidance to other insureds under the policies.
                                              4
immediately appealable under 28 U.S.C. § 1292(a)(1).” Ramara, Inc. v. Westfield Ins.

Co., 814 F.3d 660, 669 (3d Cir. 2016). Applying Ramara’s functional test, the District

Court’s Orders here provide injunctive relief because they direct Nautilus to

prospectively defend the Insureds in the Underlying Actions, grant some relief that the

Insureds requested, and could be enforced pendente lite by contempt, if necessary. See
id. at 669–72.

       We review a District Court’s Order denying judgment on the pleadings de novo.

Zimmerman v. Corbett, 873 F.3d 414, 417 (3d Cir. 2017). We must accept as true all

facts in the pleadings and “draw all reasonable inferences in favor of the non-moving

party.” Id. at 417-18. Under Pennsylvania law, which the parties agree governs, “[t]he

interpretation of an insurance policy is a question of law that we will review de novo.”

Hanover Ins. Co. v. Urban Outfitters, Inc., 806 F.3d 761, 764–65 (3d Cir. 2015) (quoting

Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d
888, 897 (Pa. 2006)).

                                             III.

       When interpreting an insurance policy under Pennsylvania law, courts must look

to the language and terms of the policy, with any ambiguities liberally construed in favor

of the insured. Indalex Inc. v. Nat’l Union Fire Ins. Co., 83 A.3d 418, 420–21 (Pa.

Super. 2013). The factual allegations in the Complaint are taken as true and similarly

liberally construed in favor of the insured. Id. at 421. Further, “an insurer has a duty to

defend if there is any possibility that its coverage has been triggered by allegations in the

underlying complaint.” Ramara, 814 F.3d at 674 (citing Am. & Foreign Ins. Co. v.

                                              5
Jerry’s Sport Ctr., Inc., 2 A.3d 526, 541 (Pa. 2010)). The Pennsylvania Supreme Court

held in Kvaerner that “the definition of ‘accident’ required to establish an ‘occurrence’

under the policies cannot be satisfied by claims based upon faulty workmanship.”

Kvaerner, 908 A.2d at 899. There is a distinction between a claim of faulty

workmanship, for which an insurer does not have a duty to defend, and a claim of an

“active malfunction” of a product, for which an insurer does have such a duty, since an

active malfunction is sufficiently fortuitous as to constitute an “occurrence.” See Indalex,
83 A.3d at 422-24.

       Nautilus argues that the claims in the relevant Complaints in the Underlying

Actions stem from the Insureds’ alleged faulty workmanship, so the defects alleged are

not “occurrences.” Liberally construing the Complaints in favor of the Insureds,

however, the Complaints allege the use of faulty materials, and the active malfunction of

products, such as the windows and moisture barriers. These active product malfunctions

constitute “occurrences” under the Commercial Lines Insurance policies relevant here.

See Kvaerner, 908 A.2d at 896 (“It is well established that an insurer’s duties under an

insurance policy are triggered by the language of the complaint against the insured.”).

Thus, the District Court properly held that Nautilus has a duty to defend the Insureds in

the Klehr and Milo Actions. Ramara, 814 F.3d at 673–74.2

       2
         Having determined that the District Court properly denied Nautilus’ motions for
judgment on the pleadings, in that a duty to defend was triggered because the Complaints
in the Underlying Actions, liberally construed, allege active malfunctions that constitute
“occurrences,” it is unnecessary to address the remaining arguments regarding the
triggering of the duty to defend.
                                             6
For the foregoing reasons, we affirm the Orders of the District Court.

                                     7