Jalapenos LLC v. GRC General Contractor, Inc.
2007 PA Super 391
December 19, 2007

The Pennsylvania Superior Court Upholds A Summary Judgment Order In Favor Of Defendant Based On The Language Of A Commonly Used, But Rarely Analyzed, AIA Construction Contract Provision.

Background:  Plaintiff filed a complaint alleging that Defendant GRC was liable, under theories of breach of contract and negligence, for a fire that occurred on premises being rented and remodeled by Plaintiff for use as a restaurant. Plaintiff hired GRC to perform construction and remodeling work and alleged that GRC caused the fire.

Both parties signed an AIA contract providing that Plaintiff was to maintain property insurance written on an “all-risk” policy, which was to include the peril of fire. If Plaintiff did not maintain the insurance, Plaintiff was to inform Defendant GRC in writing. The AIA contract also provided that if Plaintiff was damaged by its failure to maintain the insurance, Plaintiff would bear all reasonable costs attributable to that failure and the parties waived all rights of subrogation. Plaintiff failed to maintain the required insurance at the time of the fire.

Holding:  The Superior Court held that Plaintiff’s claims were barred by the AIA contract provisions given Plaintiff’s failure to maintain the required insurance. Acknowledging that cases interpreting this section of the AIA contract do not abound, the court reasoned that the AIA contract creates a scheme by which first-party property damage is covered by insurance purchased by the owner of the project, and, if the owner fails to purchase the insurance, the owner bears the risk of loss. The court dismissed the Plaintiff’s arguments that the contract terms required Plaintiff, essentially, to indemnify the Defendant for the Defendant’s own negligence and that the terms were against public policy. The court explained that the AIA contract terms were to protect both parties from the consequences of litigation, which would disrupt performance under the contract.

Scott D. McCarroll wrote the Superior Court brief on behalf of GRC and argued the case before the Superior Court. Any questions regarding this case can be directed to him at 717-237-7131 or smccarroll@tthlaw.com

Millers Capital Ins. Co. v.
Gambone Bros. Development Co., Inc. et al.
2007 Pa. Super. 403
December 28, 2007

The Pennsylvania Superior Court Follows Kvaerner And Holds That When Faulty Workmanship Allows Water Leaks Into Home Interiors, Such Damage Is Foreseeable And There Is No “Occurrence.” The Court Concludes That There Is No Duty To Defend Or Indemnify The Insured Who Planned, Developed And Built The Homes.

Background:  Gambone developed and built two housing developments. Homeowners in the first development had sale agreements with Gambone and alleged water leaks as the result of “construction defects and product failures” in vapor barriers, windows, roofs, and stucco exteriors. Suit was filed for breach of contract, breach of warranty, negligence, strict liability, fraud and misrepresentation, and violations of the Unfair Trade Practice and Consumer Protection Law (UTPCPL). The negligence claims were dismissed, and arbitration resulted in an award against Gambone in excess of 1.1 million dollars. Homeowners in the second development alleged that defective stucco resulted in “delamination, peeling, disfigurement, compromise of structural integrity, infiltration by the elements, mold, cracking of the exterior cladding, and moisture penetration and entrapment.” Poor workmanship was alleged during initial construction, including improper or faulty design, implementation, workmanship, and supervision. Suit was filed for breach of implied warranty, fraudulent nondisclosure, negligent misrepresentation, and violations of the UTPCPL. Only the breach of implied warranty claims survived preliminary objections. Millers issued to Gambone a primary package policy, an excess policy, and a commercial general liability policy. Millers filed suit for declaratory judgment on its duty to defend and indemnify Gambone. The trial court found no coverage.

Holding:  On appeal, the Superior Court holds that Millers has no duty to defend or indemnify. The Pennsylvania Supreme Court decision in Kvaerner stands for the principle that an insurance claim under an “occurrence” policy (an accident) cannot be premised on a claim of faulty workmanship. Gambone argued that the claims against it not only involved claims for faulty workmanship that led to the failure of the stucco exteriors but also involved additional accidental damage caused by resulting water leaks to non-defective work inside the home interiors. Even if the damage to the faulty stucco exteriors was not covered, Gambone asserted that the resulting water damage to the homes’ interiors was covered. The Superior Court holds that all of the damage resulted from faulty workmanship that was intended to prevent the very damage claimed by the homeowners. The court states that such damage is not fortuitous. Natural and foreseeable acts, such as rainfall, which tend to exacerbate damage or consequences caused initially by faulty workmanship cannot be considered sufficiently fortuitous to constitute an “occurrence.” Even when the damage was continuous, or was caused by repeated exposure to conditions, does not make it fortuitous. The court also rejects arguments that its holding would render policy exclusions as mere surplusage or that Gambone’s reasonable expectations should afford coverage.

Any questions regarding this case can be directed to David Schwalm at 717-255-7643 (dschwalm@tthlaw.com) or Paul Walker at 717-441-7061 (pwalker@tthlaw.com).

Excavation Technologies, Inc. v.
Columbia Gas Company of Pennsylvania
2007 Pa. Super. 327
Nov. 7, 2007

Economic Loss Doctrine Precludes Excavator’s Claim For Negligent Misrepresentation Under The One Call Act.

Facts: This case concerned a Plaintiff who allegedly incurred certain “down time” claims while performing excavation work for a water line project. Prior to beginning its work, the Plaintiff requested that the Defendant, a utility company, mark any gas lines in the vicinity, in accord with the provision of the One Call Act. According to the Plaintiff, the Defendant marked several of its lines improperly and some were not marked at all. The Plaintiff alleged that it struck the Defendant’s lines on several occasions and had to search for the Defendant’s gas lines in other instances. This extra work allegedly cost Plaintiff approximately $75,000 for down time of personnel and equipment.

The Plaintiff filed suit against the Defendant, asserting a claim for negligent misrepresentation, and the Defendant filed Preliminary Objections raising the Economic Loss Doctrine, which provides that “‘no cause of action exists for negligence that results solely in economic damages unaccompanied by physical injury or property damage.’” The trial court sustained the Preliminary Objections and the Plaintiff appealed to the Superior Court.

On appeal, the Plaintiff cited existing Pennsylvania authority and argued that the Economic Loss Doctrine did not preclude its claim for negligent misrepresentation because said claim was brought under Restatement (Second) of Torts § 552, which creates an exception to the Economic Loss Doctrine. The Plaintiff relied upon subsection 1 of Restatement Section 552, which governs negligent misrepresentation claims against those who provide information “in the course of [their] business, profession or employment, or in any other transaction in which [they have] a pecuniary interest[,]” and upon subsection 3 of Restatement Section 552, which governs negligent misrepresentation against those who are under a public duty to provide information where the failure to properly do so causes harm to someone within the class of persons meant to be protected by that duty.

The Superior Court agreed with the defense and affirmed the trial court, finding that the Economic Loss Doctrine does apply to bar claims by excavators for negligent misrepresentation brought against those who supply information under the One Call Act. The Superior Court found that Plaintiff’s claim was not brought pursuant to Restatement Section 552. It found subsection 1 of said section inapplicable because, in marking the location of its lines pursuant to the One Call Act, the Defendant did not provide information for pecuniary gain or as part of a commercial transaction. It then found subsection 3 of said section inapplicable because, while the Defendant may be one who is under a public duty to provide information by virtue of the One Call Act, the Plaintiff is not within the class of persons meant to be protected by the One Call Act. Accordingly, because the excavator’s negligent misrepresentation claim was not brought pursuant to Restatement Section 552, the Economic Loss Doctrine did apply and barred the claim.

A dissent filed by Judge Klein, who would have found that a viable negligent misrepresentation claim had been stated under Restatement Section 552(3).

Any questions regarding this case can be directed to Bernard T. Kwitowski at (610) 332-7018 or bkwitowski@tthlaw.com and/or Joseph A. Holko at (610) 332-7005 or jholko@tthlaw.com

Schwartz v. Rockey
2007 Pa. Lexis 2177, 932 A2d 885
October 17, 2007

The Pennsylvania Supreme Court holds, in a concealment of water intrusion suit by buyers of a residence, that delay prevents the ability to seek rescission, and that to award treble damages under the Unfair Trade Practices and Consumer Protection Law (UTPCPL) does not require a higher standard of willful and malicious conduct governing punitive damages.

Background: The buyers sued the sellers for common-law fraud and violations of the UTPCPL. Later, the buyers were allowed to amend to seek rescission. The trial court awarded compensatory damages, representing diminution in value, but not rescission, restitution, treble damages or attorneys’ fees. The trial court held that the buyers could either affirm the contract and collect damages at law, or repudiate the contract and rescind. Once the remedy is selected, the party is bound by that selection. Rescission must also be done promptly, and here the buyers lived in the house for six years. Although the sellers’ conduct was fraudulent, the trial court determined it did not rise to the level of outrageous conduct for treble damages under the UTPCPL. On appeal, the Superior Court found that the buyers properly had been allowed to amend their complaint to assert rescission and ruled that treble damages were appropriate.

Holding: The Pennsylvania Supreme Court held that a complaint for contract-based damages does not foreclose a subsequent amendment for an inconsistent equitable remedy (rescission), at least where it is alleged that the plaintiffs lacked knowledge of material facts, and there is no demonstrable detrimental reliance by the opposing party. However, the Court declined to reverse the trial court holding that rescission was unavailable due to the plaintiffs not acting promptly in seeking rescission. The court also held that the standard of awarding treble damages under the UTPCPL is not governed by the common-law requirements for awarding punitive damages, which require conduct which is malicious, wanton, willful and oppressive.

Any questions regarding this case can be directed to Paul Walker at 717-441-7061 or pwalker@tthlaw.com)

Ocean Spray Cranberries, Inc. v.
Refrigerated Food Distributors, Inc.
2007 PA Super 311
October 15, 2007

The Pennsylvania Superior Court overturns Court of Common Pleas decision and holds that Perry/Ruzzi rule applies to both personal injury and property damage claims.

Background: A general contractor contracted with a refrigeration company to install certain freezer equipment for a warehouse project. The freezer equipment manufacturer had an agreement with the refrigeration company, which included a clause that provided that, "[the refrigeration company] assumes and agrees to indemnify, defend and hold [the equipment manufacturer] harmless from and against any and all liability and obligation (including reasonable attorney's fees and other costs and expenses of litigation) with respect to claim for bodily injury, or death, or property damage...which are based in whole or in part upon any act or omission on the part of [the equipment manufacturer]...." After the equipment was installed, a fan broke free from the freezer equipment, fell, and severed an ammonia pipe line. Over 10,000 pounds of liquid ammonia escaped and spoiled food products in the warehouse. The equipment manufacturer sought indemnification from the refrigeration company for the equipment manufacturer's own negligence. The trial court held that the Perry/Ruzzi rule, which prohibits indemnification for an indemnitee's own negligence unless such intent is expressed in unequivocal terms in the contact, did not apply to property damage claims and held that the equipment manufacturer was entitled to indemnification for its own negligence from the refrigeration company.

Holding: The Superior Court reversed. The Superior Court held that it found no support for the proposition that the Perry/Ruzzi rule applied only in personal injury cases. After examining the language of the indemnity clause, the court explained that the agreement between the manufacturer and the refrigeration company that installed the equipment did not 'clearly express' an intent by [the refrigeration company] to indemnify [the equipment manufacturer] for its own negligence under the circumstances...."

Any questions regarding this case can be directed to Scott McCarroll at (717) 237-7131 or smccarroll@tthlaw.com and/or Daniel Grill at (717) 237-7155 or dgrill@tthlaw.com

Merlini v. Gallitzin Water Authority
2007 Pa Super 274
August 29, 2007

Background: This case involves the distinction between “ordinary” and “professional” negligence as it concerns the duty to provide a Certificate of Merit to pursue the lawsuit. The defendant at issue was presumed by the court to be a licensed professional for purposes of Pa R.C.P. 1042.3. Therefore, the only issue in the case was whether the plaintiff was asserting a professional liability claim, which the court couched as an allegation that the defendant deviated from an acceptable professional standard. The plaintiff contended that the defendant committed a simple trespass. The defendant, in contrast, asserted that the case involved engineering and design professional issues, namely whether it properly designed the placement of the waterline within the existing right-of-way and whether the professional correctly directed the contractor where to install the waterline with reference to the plans designed by the defendant. Despite the factual finding that the defendant’s actions occurred during its performance of professional services, the court held that the duty allegedly owed the plaintiff was not professional in nature and was simply a question of trespass on personal property. The court went on to state that the alleged duty did not require professional judgment but only required an understanding of the location of the plaintiff’s property lines, the location of easements or right-of-ways, and how those easements or right-of-ways intersect with the installed waterline. The court found that the plaintiff’s claim raised no question of professional judgment. Therefore, despite the fact that the plaintiff filed no timely Certificate of Merit against the defendant consulting engineers, the case survived.

Any questions regarding this case can be directed to Daniel Grill at (717) 237-7115 or dgrill@tthlaw.com

Integrated Project Services v. HMS Interiors
2007 PA Super 246
August 16, 2007

The Pennsylvania Superior Court holds that a pass-through indemnification clause does not clearly and unequivocally demonstrate that a subcontractor intended to indemnify a general contractor for injuries to the subcontractor’s employee caused by the general contractor’s own negligence.

Background: The general contractor’s superintendent directed the subcontractor’s employee to clean debris off of a roof at a construction project. The employee slipped on ice and fell. Barred under workers’ compensation from suing his employer (the subcontractor), the employee sued the owner and the general contractor. The employee was ultimately found 10% negligent. The trial judge concluded the owner was 20% negligent for the verdict and the general contractor was 80% negligent. It allowed the owner contractual indemnity from the general contractor under the prime contract’s indemnification provisions. The general contractor sued the subcontractor for declaratory judgment, arguing that the subcontract incorporated the prime contract between the general contractor and the owner, requiring the subcontractor to indemnify the general contractor for its own negligence and liability. After initially concluding that the pass-through clause was sufficiently clear and that the subcontractor was required to indemnify the general contractor based on the prime contract’s indemnification clause, the trial court reversed its decision. This reversal came after the Pennsylvania Supreme Court decided Bernotas v. Super Fresh Food Markets, Inc., 863 A.2d 478 (Pa. 2004), in which the Pennsylvania Supreme Court held that a pass-through clause must clearly and unequivocally show the intent to indemnify for a general contractor’s own negligence. General contractor appealed.

Holding: The general contractor argued that the pass-through clause’s use of the phrase “shall be bound” was clear and unequivocal under the Bernotas standard. The Superior Court disagreed. The Superior Court also held that the there was not a sufficient waiver in the contract by the subcontractor of its workers’ compensation immunity.

Any questions regarding this case can be directed to Paul Walker at (717) 441-7061 or pwalker@tthlaw.com

Universal Underwriters Ins. Co. v. A. Richard Kacin, Inc.
2007 Pa Super 13
January 11, 2007

The waiver of subrogation clause contained in a standard American Institute of Architects (AIA) agreement precludes negligence and breach of contracts claims. After the insurer paid its insured car dealership for damage resulting from the collapse of a wall, the insured brought a subrogation action against the general contractor and subcontractor, alleging negligent construction. The insurer argued that the waiver of subrogation clause could not be enforced against it because it was not a party to the agreement and did not receive notice or give its consent. In ruling on this issue of first impression, the Superior Court rejected the insurer’s contention that notice or consent was required to enforce the provision, stating that in Pennsylvania, a subrogee essentially “stands in the shoes” of its subrogor.

The Superior Court also rejected the insurer’s arguments that the waiver of subrogation provision conflicted with other contract provisions, including the warranty that the work would be of good quality and free from defect. The court stated those other provisions could be read as providing a contractual remedy only where alleged damages were not covered by the property insurance obtained pursuant to the contract. The court further rejected the argument that the waiver of subrogation provision operated to transfer liability for negligence away from the general contractor or subcontractor. The court explained that through the waiver of subrogation clause, the owner and contractors agreed to share the burden of either party’s negligence by requiring the purchase of property insurance covering the construction work and by agreeing not to sue each other for damages covered by that insurance.

Any questions regarding this case can be directed to Corey Adamson at (717) 255-7639 or cadamson@tthlaw.com