In, Foglia v. Metropolitan Property and Casualty Insurance Company, the Eastern District of Pennsylvania recently ruled that an insurer did not act in bad faith or breach of contract when it refused to defend and indemnify a policyholder in an underlying lawsuit in which the policyholder was accused of concealing water damage. The Court determined that there was no “property damage” to trigger the insurer’s duty to defend.
Initially, a lawsuit was brought by Jason and Emily Konn (“Konn”) who had previously purchased a house from Merle Foglia (“Foglia”). Foglia signed a seller’s disclosure that indicated that there was no water leakage, accumulation, dampness, or infiltration within the house or other structures. At no point did Foglia indicate that the home had a history of water infiltration or damage. After a few months, Konn discovered significant water damage within the lower level of the house. As a result, Konn sued Folgia for fraud and intentional concealments, intentional misrepresentation, negligence, and consumer protection violations.
After Foglia was served, she sought defense and indemnification from her homeowner’s insurance policy from Metropolitan Property and Casualty Insurance Company (“Metropolitan”). Within the policy, Metropolitan would pay “all sums for bodily injury, property damage and personal injury to others for which the law holds you responsible because of an occurrence to which this coverage applies.” Metropolitan later denied coverage because an “occurrence” had not taken place and that, even if it had, policy exclusions, such as a “failure to disclose” exclusion, were in place that precluded coverage.
As a result of the coverage denial, Foglia sued Metropolitan under claims of breach of contract and bad faith. In response, Metropolitan countersued for declaratory judgment absolving it of any coverage obligations. The Court granted summary judgment in favor of Metropolitan as it determined that the Konn complaint did not allege an “occurrence” or the type of “property damage” that required Metropolitan to provide coverage. The Court found that Metropolitan had no duty to defend Foglia against the Konn lawsuit.
Although the Pennsylvania Supreme Court had not ruled on the issue, the 3rd Circuit has repeatedly held that negligent omissions in home sales does not constitute property damage. Specifically, in a similar case, the 3rd Circuit stated that the “acts at issue in the underlying lawsuit amounted to a misrepresentation of the status of the home, whether it be intentional or negligent. At no point did [the insured’s] acts ever inflict damage on the home that was not already in existence prior to the acts in question. See USAA Cas. Ins. Co. v. Bateman, 2008 WL 4761718, at *1 (E.D. Pa. Oct. 30, 2008). Additionally, the Court determined that the Konn lawsuit did not allege an “occurrence” as the policy defines an occurrence as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions during the term of the policy.”
Thanks to Zhanna Dubinsky for her contribution to this post. Please write to Tony Pinto for more information.