ATAIN INSURANCE COMPANY v. BASEMENT WATERPROOFING SPECIALIST, INC. D/B/A OLD FAMILY CONSTRUCTION

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

ATAIN INSURANCE COMPANY, CIVIL ACTION

Plaintiff,

NO. 20-5440-KSM

v.

BASEMENT WATERPROOFING

SPECIALISTS, INC., d/b/a OLD FAMILY

CONSTRUCTION,

Defendant.

MEMORANDUM

Marston, J. November 3, 2021

Plaintiff Atain Insurance Company seeks a declaratory judgment that it does not owe a

duty to defend or indemnify its insured, Defendant Basement Waterproofing Specialists, Inc.

d/b/a Old Family Construction (“Basement, Inc.”), in the underlying state court action arising out

of injuries allegedly sustained by one of Basement, Inc.’s customers after Basement, Inc.

installed a new French drain system in his home. (Doc. No. 1.) Basement, Inc. filed a

declaratory judgment counterclaim, seeking the opposite: a declaration that Atain owes it a

defense and indemnity. (Doc. No. 3 at pp. 15–17.)

Presently before the Court is Atain’s motion for judgment on the pleadings (Doc. No.

11), and Basement, Inc.’s cross-motion. For the reasons that follow, the Court grants Atain’s

motion and denies Basement, Inc.’s motion.

I. Background

The material facts of this case are undisputed.

A. The Budman Action

Gary Budman—the plaintiff in the underlying state court action—owns a single-family

home in New Jersey, and in March 2020, Budman hired Basement, Inc. to perform work on his

property. (Doc. No. 1-5, Budman Compl. at ¶¶ 3–14; Doc. No. 1 at ¶¶ 12–17.) Before March

2020, the property had a French drain system, which “generally worked satisfactorily”; however,

during heavy rainstorms, “minimal water would accumulate around one of the front walls, and

water would enter the basement.” (Budman Compl. at ¶¶ 4–5.) At the time, that front wall had a

small crack in it and no bowing. (Id. at ¶ 6.)

Budman sought an opinion on how to remedy the issue. (Id. at ¶ 7.) On March 24,

George Sowers, a Basement, Inc. representative, inspected the property, and advised Budman

that a new French drain system would need to be installed “to ensure that water would no longer

accumulate around one of the front walls or enter the basement during a rainstorm.” (Id. at ¶¶

10–11; Doc. No. 1 at ¶ 14.) Budman alleges that although the construction would affect the

“structural foundation of the Property,” Sowers represented that Basement, Inc. did not need to

consult with an engineer. (Budman Compl. at ¶ 12.)

Budman and Basement, Inc. then entered into agreement pursuant to which Budman

would pay Basement, Inc. $16,000 to install a French drain system, reinforce the wall with rebar,

and repair the crack in the wall. (Id. at ¶ 13; Doc. No. 1-5, Ex. A at pp. 42–43.) Basement, Inc.

began work on the property on March 26 and finished work around 5:00 p.m. on March 27.

(Budman Compl. at ¶¶ 14–18.) Budman alleges that the workers confirmed that when the work

was complete, there would be no further water issues. (Id. at ¶¶ 14–16.)

Later that evening, there was a rainstorm. (Id. at ¶ 19.) The next day, Budman and his

wife inspected the property and discovered “flooding around the front wall as well as three other

walls.” (Id. at ¶¶ 20–21.) “In addition, there was extensive fracturing and bowing on the front

wall that [Basement, Inc.] represented it reinforced and repaired.” (Id. at ¶ 21.)

Budman reached out to Basement, Inc., and Basement, Inc. sent an engineer, Wynfred

Sibley, to investigate. (Id. at ¶¶ 22–23.) Sibley informed Budman “that a French drain system

would not be sufficient to prevent the water issues affecting the Property, and that the work

should have been performed on the outside of the Property.” (Id. at ¶ 24.) Budman claims that

Basement, Inc.’s owner would not allow him to review Sibley’s report and believes that the

property is now in danger of collapse. (Id. at ¶¶ 25, 27.)

On August 18, 2020, Budman filed the underlying action in state court against Basement,

Inc., asserting claims for breach of contract (Count I), negligence (Count II), consumer fraud

violations (Count III), common law fraud (Count IV), breach of the covenant of good faith and

fair dealing (Count V), and a declaratory judgment (Count VI). (Doc. No. 1-5 at pp. 26–35.)

Budman seeks damages in excess of $100,000. (Id. at p. 10.)

Basement, Inc. demanded that Atain, its insurer, provide it with coverage for the Budman

action. (Doc. No. 1 at ¶ 3.) Atain denied Basement, Inc.’s claim on October 30, 2020. (Id. at

¶ 34; Doc. No. 1-4, Ex. 3 at pp. 2–8 (Oct. 30, 2020 Ltr. from C. Tellner to K. Klinger).)

B. The Policy

At the time of the underlying incident in March 2020, Basement, Inc. had an active

insurance policy with Atain. (See Doc. No. 1 at ¶ 2 (“Atain issued Basement Inc. an insurance

policy . . . for the policy period of August 5, 2019 to August 5, 2020.”); Doc. No. 1-3 (the

policy).) The Commercial General Liability Coverage provision provides:

SECTION I – COVERAGES

COVERAGE A - BODILY INJURY AND PROPERTY DAMAGE

LIABILITY

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated

to pay as damages because of “bodily injury” or “property damage”

to which this insurance applies. We will have the right and duty to

defend the insured against any “suit” seeking those damages.

However, we will have no duty to defend the insured against any

“suit” seeking damages for “bodily injury” or “property damage” to

which this insurance does not apply. We may, at our discretion,

investigate any “occurrence” and settle any claim or “suit” that may

result.

b. This insurance applies to “bodily injury” and “property damage”

only if:

(1) The “bodily injury” or “property damage” is caused by an

“occurrence” that takes place in the “coverage territory” . . .

(Doc. No. 1-3 at p. 52.)

In turn, Section V of the policy defines “occurrence” as “an accident, including

continuous or repeated exposure to substantially the same general harmful conditions.” (Id. at

p. 66.)

C. Procedural History

On October 30, 2020, Atain filed this lawsuit seeking a declaration that it is not required

to defend or indemnify Basement, Inc. against Budman’s claims in the underlying state court

action. (Doc. No. 1.) Basement, Inc. filed its answer and a counterclaim, seeking a declaratory

judgment that Atain owes it a defense and indemnity, on December 8, 2020. (Doc. No. 3.)

Subsequently, Atain filed the instant motion for judgment on the pleadings (Doc. No. 11),

Basement, Inc. filed a response brief and cross-motion (Doc. No. 12), and Atain filed a reply

(Doc. No. 13).

II. Legal Standards

A. Judgment on the Pleadings

“After the pleadings are closed—but early enough not to delay trial—a party may move

for judgment on the pleadings.” Fed. R. Civ. P. 12(c). Judgment on the pleadings is appropriate

if “the movant clearly establishes that no material issue of fact remains to be resolved and that he

is entitled to judgment as a matter of law.” Rosenau v. Unifund Corp., 539 F.3d 218, 221 (3d

Cir. 2008) (quoting Jablonski v. Pan Am. World Airways, Inc., 863 F.2d 289, 290–91 (3d Cir.

1988)). A dispute of fact is material if there is sufficient evidence for a reasonable factfinder to

find in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986).1 When determining whether the moving party is entitled to judgment as a matter of law,

the Court must view the facts in the light most favorable to the non-moving party. Rosenau, 539

F.3d at 221; Shelly v. Johns-Manville Corp., 798 F.2d 93, 97 n.4 (3d Cir. 1986). “In deciding a

motion for judgment on the pleadings, a court may consider ‘the pleadings and attached exhibits,

undisputedly authentic documents attached to the motion for judgment on the pleadings if

plaintiff’s claims are based on the documents, and matters of public record.’” Burlington Ins.

Co., 484 F. Supp. 3d at 240 (quoting Atiyeh v. Nat’l Fire Ins. Co. of Hartford, 742 F. Supp. 2d

591, 595 (E.D. Pa. 2010)).

“The interpretation of an insurance contract is a question of law.” Atain Ins. Co. v. E.

Coast Business Fire, Inc., Civil Action No. 17-2545, 2018 WL 637579, at *1 (E.D. Pa. Jan. 31,

2018) (citing Am. Auto. Ins. Co. v. Murray, 658 F.3d 311, 320 (3d Cir. 2011)). “Whether a claim

1 Although Anderson defined materiality in the context of a motion for summary judgment, courts have

applied this definition when reviewing a motion for judgment on the pleadings. See, e.g., Burlington Ins.

Co. v. Shelter Structures, Inc., 484 F. Supp. 3d 237, 240 & n.17 (E.D. Pa. 2020).

is within a policy’s coverage or is barred by an exclusion may be determined on a motion for

judgment on the pleadings.” Id.

B. Contract Interpretation

Under Pennsylvania law, “[c]ontract interpretation is a question of law that requires the

court to ascertain and give effect to the intent of the contracting parties as embodied in the

written agreement.” In re Old Summit Mfg., LLC, 523 F.3d 134, 137 (3d Cir. 2008) (alteration in

original) (quoting Dep’t of Transp. v. Pa. Indus. for the Blind & Handicapped, 886 A.2d 706,

711 (Pa. Commw. Ct. 2005)); see also Pa. Env’t Def. Found. v. Pennsylvania, 255 A.3d 289, 304

(Pa. 2021). Courts applying Pennsylvania law are required to give effect to a contract’s clear and

unambiguous language. 401 Fourth Street, Inc. v. Invs. Ins. Grp., 879 A.2d 166, 171 (Pa. 2005);

see also Wilson v. Hartford Cas. Co., 492 F. Supp. 3d 417, 426 (E.D. Pa. 2020). A contract’s

terms “are ambiguous if they are subject to more than one reasonable interpretation when applied

to a particular set of facts.” Madison Constr. Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100,

106 (Pa. 1999); see also Atain, 2018 WL 637579, at *2 (“Contract language is ambiguous if it is

reasonably capable of more than one meaning.”). However, courts must not “distort the meaning

of the language or resort to a strained contrivance in order to find an ambiguity,” and must give

effect to a contract’s clear and unambiguous terms. Madison Constr. Co., 735 A.2d at 106.

C. The Duty to Defend and Indemnify

An insurer’s “duty to defend is distinct from its duty to provide coverage. It is

interpreted more broadly than the duty to indemnify.” Hartford Cas. Ins. Co. v. New Hope

Healthcare, Inc., 803 F. Supp. 2d 339, 344 (E.D. Pa. 2011) (citations omitted). The duty to

defend is triggered whenever the factual allegations in the complaint “may potentially come

within the coverage of the policy.” Sapa Extrusions, Inc. v. Liberty Mut. Ins. Co., 939 F.3d 243,

250 (3d Cir. 2019) (emphasis added) (cleaned up); see also Sabia Landscaping v. Merchants

Mut. Ins. Co., Civil Action No. 13-3820, 2013 WL 6022129, at *2 (E.D. Pa. Nov. 6, 2013); Atain

Ins. Co., 2018 WL 637579, at *2 (explaining that as long as this is requirement is met, the

insurer is obligated to defend the insured “even if the suit is groundless, false, or fraudulent”

(cleaned up)). Given the broad scope of the duty to defend, courts construe the complaint in the

underlying action liberally, accepting the factual allegations as true and resolving all doubts as to

coverage in favor of the insured. Atain, 2018 WL 637579, at *2. And “[i]f a single claim in a

multiple-claim complaint is potentially covered, the duty to defend attaches until the underlying

plaintiff can no longer recover on a covered claim.” Id. (citation omitted).

On the other hand, the duty to indemnify “is not necessarily limited to the factual

allegations of the underlying complaint”; instead, “there must be a determination that the

insurer’s policy actually covers a claimed incident.” Sapa Extrusions, Inc., 939 F.3d at 250

(cleaned up); see also Atain, 2018 WL 637579, at *2 (“A duty to indemnify does not arise until

the insured is found liable for a covered claim.”). Thus, there can be a duty to defend but no

duty to indemnify.

III. Discussion

Atain argues that it is entitled to judgment on the pleadings and has no obligation to defend

or indemnify Basement, Inc. because the damage to the Budman property is not an “occurrence”

within the meaning of the policy.

Under the Commercial General Liability Policy, Atain “will pay those sums that the

insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property

damage’ to which this insurance applies.” (Doc. No. 1-3 at p. 52.) But insurance coverage only

applies to “‘bodily injury’ or ‘property damage’ . . . caused by an ‘occurrence,’” which is defined

as “an accident, including continuous or repeated exposure to substantially the same general

harmful conditions.” (Id. at pp. 52, 66.) The policy does not define “accident.” (See generally

id.) As the Pennsylvania Supreme Court has explained, however, “[w]ords of common usage in

an insurance policy are construed according to their natural, plain, and ordinary sense,” and

“[t]he key term in the ordinary definition of ‘accident’ is ‘unexpected,’” which “implies a degree

of fortuity.” Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908

A.2d 888, 897–98 (Pa. 2006) (noting that Webster’s Dictionary defined “accident” as “‘an

unexpected and undesirable event,’ or ‘something that occurs unexpectedly or unintentionally’”).

Bearing these definitions in mind, we now turn to the causes of action asserted in the

underlying complaint and consider whether the allegations qualify as an “occurrence.” See Utica

Mut. Ins. Co. v. Voegele Mech., Inc., 418 F. Supp. 3d 78, 91 (E.D. Pa. 2019) (“[I]t is well-settled

law in Pennsylvania that it is the nature of the allegations themselves, not the particular cause of

action that is pled in the complaint that determines whether coverage has been triggered.”).

First, Budman brings a breach of contract claim against Basement, Inc. (Budman Compl.

at pp. 6–7 (Count I).) “Breach of contract claims are not covered under commercial general

liability insurance policies. General liability policies are intended to protect insureds from

accidental injuries, not damages arising out of contractual disputes.” Atain, 2018 WL 637579, at

*3 (citations omitted) (“Count I of the underlying complaint asserts a cause of action against [the

insured] for breach of contract. Because those allegations arise out of [the insured’s] contractual

obligations, they are not a covered ‘occurrence.’”); see also Specialty Surfaces Int’l, Inc. v.

Cont’l Cas. Co., 609 F.3d 223, 238 (3d Cir. 2010) (holding that the insurer did not have a duty to

defend the insured because the underlying plaintiff alleged only a breach of contract and “a

breach of contract claim could not constitute an ‘occurrence’ in a commercial generally liability

policy under Pennsylvania law.”); Westfield Ins. Co. v. Bellevue Holding Co., 856 F. Supp. 2d

683, 694 (E.D. Pa. 2012) (“Pennsylvania law holds that a general liability policy protects against

‘essentially accidental injury,’ and not merely contractual disputes.”); Tower Ins. Co. v. Dockside

Assocs. Pier 30 LP, 834 F. Supp. 2d 257, 263 (E.D. Pa. 2011) (“A claim arising from a breach of

contract is not covered under a general liability policy because it is not considered an

‘occurrence.’”). In addition, for the reasons discussed below, the Court finds that the breach of

contract claim is not an occurrence given that the allegations are grounded in faulty

workmanship. Accordingly, the breach of contract claim is not covered by the policy.

Second, Budman brings a negligence claim against Basement, Inc. (Budman Compl. at

p. 7 (Count II).) Budman alleges that Basement, Inc. had a duty to provide its professional

services—which included installing a French drain system, repairing the crack in the front wall,

and reinforcing the wall with rebar—within a certain standard of care, and that Basement, Inc.

deviated from that standard, resulting in damages to the property, including flooding and

extensive fracturing and bowing of the front wall. (See id. at ¶¶ 13, 21, 26, 33–36.) Although

Count II is framed as a negligence claim, the allegations sound in contract, as Budman

essentially alleges that Basement, Inc. failed to provide the services that it had contracted to

provide (namely, failure to properly install the French drain system, repair the crack in the wall,

and reinforce the wall). See Atain Ins. Co., 2018 WL 637579, at *3 (“In count II of the

underlying complaint, designated as a claim for negligence, the plaintiffs allege that East Cost

failed to properly install, inspect, service, and maintain the fire suppression system and smoke

detectors—work they had entered into a contract to perform . . . . These allegations for faulty

workmanship are grounded in contract.”).

In addition, Atain argues that Budman’s assertion that Basement, Inc. acted negligently

when professionally servicing his home boils down to a claim for faulty workmanship, which

does not constitute an occurrence. We agree.

In the seminal decision, Kvaerner Metals Division of Kvaerner U.S., Inc. v. Commercial

Union Insurance Co., the Pennsylvania Supreme Court held that “the definition of ‘accident’

required to establish an ‘occurrence’ . . . cannot be satisfied by claims based upon faulty

workmanship.” 908 A.2d at 899 (“Such claims simply do not present the degree of fortuity

contemplated by the ordinary definition of ‘accident.’”). Since then, “courts have consistently

held that claims based upon faulty workmanship do not amount to an ‘occurrence’ that triggers

an insurer’s duty to defend.” Quality Stone Veneer, Inc. v. Selective Ins. Co. of Am., 229 F.

Supp. 3d 351, 358–59 (E.D. Pa. 2017) (collecting cases); see, e.g., Sapa Extrusions, Inc., 939

F.3d at 256–57 (holding that the underlying plaintiff’s allegations did not amount to an

occurrence that would trigger coverage because “at bottom, the Complaint alleged faulty

workmanship”); Atain Ins. Co., 2018 WL 637579, at *4 (“In essence, the claims in Counts II, III,

and IV are for faulty workmanship and breach of contract . . . Claims of faulty workmanship do

not arise from an accident. Thus, they do not qualify as an ‘occurrence’ under a general liability

policy.”).

In Specialty Surfaces International, Inc. v. Continental Casualty Co., the Third Circuit

explained that under Pennsylvania law, “[i]n order for a claim to trigger coverage, there must be

a causal nexus between the property damage and an ‘occurrence,’ i.e., a fortuitous event. Faulty

workmanship, even when cast as a negligence claim, does not constitute such an event; nor do

natural and foreseeable events like rainfall.” 609 F.3d at 232; see Quality Stone Veneer, Inc.,

229 F. Supp. 3d at 361 (holding that the insurer had no duty to defend its insured because “all of

the allegations [in the underlying complaint] are based upon [the insured’s] alleged failure to

build the homes as required by [the insured’s] private contractual arrangements, building codes,

and zoning laws” and “merely allege faulty workmanship, which cannot constitute an occurrence

under the CGL policy” and noting that “the fact that the underlying complaint included the word

‘negligence’” did “not change the result”); Zurich Am. Ins. Co. v. R.M. Shoemaker Co., Civil

Action No. 12-873, 2012 WL 895451, at *6 (E.D. Pa. Mar. 16, 2012) (“The defendants contend

that an occurrence took place because the underlying complaint is based on claims of negligence

in addition to breach of contract claims. Artful pleading will not change the result . . .

Monmouth alleges in its underlying complaint that the faulty workmanship of RMS led to

‘leakage and other water infiltrations’ which in turn harmed [systems within the facility]. Water

damage is a foreseeable result of faulty workmanship. This type of damage simply lacks the

degree of fortuity for an occurrence to have taken place, even if couched in terms of

negligence.”); see also Zurich Am. Ins. Co. v. Century Steel Erectors Co., Civil Action No. 19-

998, 2020 WL 2065465, at *9 (W.D. Pa. Apr. 14, 2020) (“Century Steel is alleged to have

improperly installed structural and architectural components of the parking garage . . . Simply

put, Century Steel’s workmanship is alleged to have been faulty and in breach of the subcontract.

Thus, even under a liberal reading of the Complaint . . . , the factual allegations do not represent

a fortuitous event, even when cast as negligence.”).

In Specialty Surfaces, a school district hired a general contractor to install synthetic turf

football fields and all-weather tracks at four of its schools. 609 F.3d at 227. The general

contractor then hired Empire as a subcontractor to provide and install the fields and install

drainage systems in the fields. Id. Empire was a subsidiary of Specialty Surfaces; together, the

two did business as Sprinturf. Id. After the project was completed, the district filed suit,

asserting breach of warranty and negligence claims, alleging that

the synthetic turf systems installed . . . began to exhibit defects in materials and

workmanship . . . All the fields have experienced failures of the subdrain system

under the synthetic turf . . . As a direct result, water has leaked from the subdrain

system into the subgrade, dirt has washed from the subgrade into the subdrain

system, and the subgrade has settled and the soil stabilizer has remulsified.

Consequently, the fields have developed depressions and unstable playing surfaces,

and the fields fail to drain properly under the synthetic turf.

Id. at 227–28.

On appeal, the Third Circuit considered whether the insurer, Continental, owed Sprinturf

a duty to defend it. Id. at 227. The Third Circuit concluded that it did not because the

allegations in the underlying complaint—namely, that Empire “was negligent in designing,

manufacturing and installing a suitable and compatible subdrain system and impermeable liner in

compliance to the contract documents”—did “not support a determination that any damage was

caused by an ‘occurrence.’” Id. at 238. The Third Circuit explained: “Any damages to

Empire’s own work product based on Empire’s alleged negligence are claims of damage based

on faulty workmanship. Because they are not caused by an accident . . . they are not a covered

‘occurrence’ under the insurance policy.” Id.

In addition, the Third Circuit rejected Sprinturf’s argument that the damage to the

subgrade—which was prepared by the general contractor and therefore was not Sprinturf’s own

work product—was accidental and, as such, amounted to a covered occurrence. Id. at 238–39.

The court noted that the school district alleged that Empire installed the subdrain system, the

impermeable liner, and the synthetic turf and that “as a direct result of the problems with the

subdrain system,” water leaked into the subgrade, among other things. Id. at 239. “Thus, the

amended complaint alleges that the damage to the subgrade was caused by water leaks that

resulted from faulty workmanship.” Id. The Third Circuit held the damage to the subgrade did

not constitute an occurrence, reasoning that “[w]ater damage to the subgrade is an entirely

foreseeable, if not predictable, result of the failure to supply a ‘suitable’ impermeable liner or

properly install the drainage system.” Id.; see also Lenick Constr., Inc. v. Selective Way Ins. Co.,

737 F. App’x 92, 95 (3d Cir. 2018) (rejecting the insured’s argument that there was a covered

occurrence because the “various complaints identify leaks, water infiltration, and cracked

drywall, which were unrelated to [the insured’s] work” and emphasizing that “damages that are a

reasonably foreseeable result of the faulty workmanship are not covered, even when such

damage occurs to areas outside the work provided by the insured” (cleaned up) (emphasis

added)); Berkley Specialty Ins. Co. v. Masterforce Constr. Corp., 515. F. Supp. 3d 285, 296–97

(M.D. Pa. 2021) (“[T]his matter falls squarely within the category of damages that are not

covered by insurance contracts . . . . Similar to Specialty Surfaces, . . . here water leakage that

damaged wood below the roof [i.e., damage to third-party property] was an entirely foreseeable

result of the failure to properly cover or install the roof.”); Zurich, 2020 WL 2065465, at *10

(holding that there was no “occurrence” under the policy because “[i]t is reasonably foreseeable

that faulty workmanship on structural concrete could result in a partial collapse of the [parking]

garage”).

Likewise, in this case, a close review of Budman’s allegations shows that he is essentially

asserting claims for Basement, Inc.’s faulty workmanship. (See, e.g., Budman Compl. at ¶ 21

(“[T]here was extensive fracturing and bowing on the front wall that defendant represented it

reinforced and repaired.”); ¶ 26 (“As a result of the actions and inactions of defendant, the

Property has a non-functioning drainage system, increased water problems, resulting in structural

issues including fracturing and bowing of the front wall.”).) The allegations in the underlying

complaint—namely, that Basement, Inc. was negligent in its assessment of what type of work

needed to be completed and in installing the French drain system, repairing the crack in the wall,

and reinforcing the wall—do “not support a determination that any damage was caused by an

‘occurrence.’” Specialty Surfaces, 609 F.3d at 238. “Any damages to [Basement, Inc.’s] own

work product based on [Basement, Inc.’s] alleged negligence are claims of damage based on

faulty workmanship.” Id. Thus, they were not caused by an “accident” and are foreclosed from

constituting an “occurrence” under Basement, Inc.’s insurance policy with Atain.

In its response brief, Basement, Inc. argues that this case is distinguishable from Specialty

Surfaces and other faulty workmanship cases because the damages went beyond the work that

Basement, Inc. completed. (See, e.g., Doc. No. 12 at p. 4 (“According to the Complaint, the next

morning there was structural damage to all four walls in the basement, including three walls

which Basement Waterproofing Specialists never touched and had no interaction with . . . The

Complaint attempts to paint this as a workmanship issue, but the damages which occurred had

nothing to do with the work Defendant completed.”); id. at p. 6 (“[Specialty Surfaces] stands in

stark contrast to the instant case, where the work done did not involve the property now claimed

to have been damaged[.]”).) Basement, Inc. thus attempts to isolate or partition off the pieces of

property it touched (i.e., its own work product) from the remainder of the property affected. But

in so arguing, Basement, Inc. glosses over the teachings of Specialty Surfaces and Kvaerner—it

is of no moment whether the damage occurred to the insured’s own work product or to other

property; what matters is whether the damage to the other property was a foreseeable result of its

work.

Here, Budman alleges that Basement, Inc. assessed the property and determined that

installing a French drain system, repairing the crack in one of the front walls, and reinforcing that

wall would alleviate the water issues. (Doc. No. 1-5 at ¶¶ 10–13.) Budman also alleges that the

work would affect the property’s foundation. (Id. at ¶ 12.) Further, Budman alleges that as a

result of Basement, Inc.’s “inactions and actions,” the property has a nonfunctioning draining

system and increased water problems, resulting in structural issues to the property, including the

fracturing and bowing of the front wall. (Id. at ¶ 26.) A foreseeable consequence2 of failure to

properly install the French drain system and repair and reinforce the wall is increased water

issues, and a foreseeable consequence of increased water issues is structural damage to the

property.3 Accordingly, Count II is not a covered occurrence under the policy.

Next, in Counts III and IV, Budman asserts statutory and common law fraud claims.

(Budman Compl. at pp. 7–10.) Because fraud is an intentional act, these claims are also not

covered occurrences. See Tower Ins. Co., 834 F. Supp. 2d at 263 (“These counts state causes of

action involving fraudulent conduct . . . Intentional acts, in contrast to accidents, are not covered

‘occurrences’ under a general liability policy. Thus, these claims, which are based upon

2 Budman also alleged that the engineer Basement, Inc. sent to the property after the rainstorm advised

him that “a French drain system would not be sufficient to prevent the water issues affecting the Property,

and that the work should have been performed on the outside of the Property.” (Budman Compl. at ¶ 24.)

However, this goes to Basement, Inc.’s failure to properly assess the property or consult with an engineer

before it began work and the flooding and other issues that arose are a foreseeable consequence of that

failure. (See id. at ¶¶ 10, 12 (“Defendant’s representative, George Sowers, inspected the Property on

March 24, 2020 . . . Though the structural foundation of the Property would be affected during this

construction, Mr. Sowers stated that the defendant did not need to consult with an engineer.”).)

3 Basement, Inc. cites a 2019 Pennsylvania Superior Court decision, Pennsylvania Manufacturers

Indemnity Co. v. Pottstown Industrial Complex LP, to support its position that the incident at issue is a

covered occurrence under the policy. This Court is not persuaded.

First, Pennsylvania Manufacturers is distinguishable. There, a commercial landlord was obligated under

the terms of the lease to keep the roof “in serviceable condition and repair,” and after a storm, the roof

leaked and the floods ruined the tenant’s merchandise. 215 A.3d 1010, 1012 (Pa. 2019). The

Pennsylvania Superior Court held that the trial court erred in extending Kvaerner’s faulty workmanship

analysis to the tenant’s claims against the landlord. Id. at 1014. The court explained, “[T]he Underlying

Action alleges damage to other property, [the tenant’s] inventory stored on the premises, caused by a

distinct event, flooding, and seeks damages for destruction of that property, not for the cost of repairing or

replacing the defective item that Insured supplied, the inadequate roof.” Id. at 1017. This is not what

happened here.

Second, even if Pennsylvania Manufacturers was factually analogous, this Court is not bound by the

decisions of the Pennsylvania Superior Court and finds other Pennsylvania and Third Circuit precedent

more availing. See Berkley, 515 F. Supp. 3d at 294.

intentional rather than accidental acts, are not covered by the insurance policy.”); Bituminous

Cas. Corp. v. John W. Gleim, Jr., Inc., Civil Action No. 1:07-CV-2287, 2009 WL 473034, at *4

(M.D. Pa. Feb. 24, 2009) (holding that intentional acts, including fraud, were not covered by the

policy and noting that “both Pennsylvania state courts and federal courts applying Pennsylvania

law have held that intentional acts, including intentional misrepresentations, are not covered as

‘occurrences’ under a general liability insurance policy”); USAA Cas. Ins. Co. v. Bateman, Civil

Action No. 2:07-cv-3700, 2008 WL 4761718, at *1, *7 (E.D. Pa. Oct. 30, 2008) (holding that the

insurer had no duty to defend or indemnify the insured in underlying action where the plaintiff

sued the insured for fraudulent and/or intentional misrepresentation, among other things, and

noting that “[w]hile the Underlying Plaintiffs have alleged both intentional acts and a negligent

misrepresentation, courts have repeatedly held that these acts are outside the scope of an

‘accident’”); State Farm Fire & Cas. Co. v. Czop, No. Civ.A. 02-1048, 2004 WL 632724, at *7

(E.D. Pa. Feb. 11, 2004) (“[The underlying plaintiff’s] allegations of [the insured’s] fraudulent

behavior . . . could not constitute an accident or occurrence under the policy such that coverage

would be triggered. Accusing [the insured] of fraudulent behavior correspondingly imports a

requirement of intentional action into the claim . . . [T]he policies at issue reserve coverage only

for occurrences or accidents, thus foreclosing any recovery for intentional actions.”).

Last, Budman’s breach of the covenant of good faith and fair dealing claim (Count V) is

based on Basement, Inc.’s breach of its contract with Budman and therefore is not covered for

the same reasons discussed above.4 (See Doc. No. 1-5 at ¶¶ 54–57.)

4 Under Pennsylvania law, breach of the implied covenant of good faith and fair dealing is not an

independent cause of action from breach of contract. See Kantor v. Hiko Energy, LLC, 100 F. Supp. 3d

421, 430 (E.D. Pa. 2015) (“[The duty of good faith and fair dealing] does not give rise to a separate cause

of action separate and apart from a breach of contract cause of action. Thus, in Pennsylvania, a claim

predicated on a breach of the covenant of good faith is ‘subsumed in a breach of contract claim.’”).

For these reasons, the Court holds that none of the allegations in the underlying

complaint trigger coverage under the insurance policy and Atain does not owe Basement, Inc. a

defense. And because we find that there is no duty to defend, there necessarily can be no duty to

indemnify. See Quality Stone Veneer, Inc., 229 F. Supp. 3d at 355 n.5 (“Because the duty to

defend is broader than the duty to indemnify, there is no duty to indemnify if there is no duty to

defend.” (cleaned up)).

Because we find that Budman’s allegations do not amount to an “occurrence,” we need

not consider Atain’s arguments that even if there was an occurrence, several different policy

exclusions bar coverage.

IV. Conclusion

For the foregoing reasons, the Court grants Atain’s motion for judgment on the pleadings

and holds that Atain does not owe Basement, Inc. a duty to defend or a duty of indemnification.

The Court denies Basement, Inc.’s cross-motion.

An appropriate order follows.