The court granted summary judgment to the insurer, finding there was no duty to defend or indemnify a tenant/insured's contract-related claims. Erie Ins. Exch. v. Little Ducklings Daycare Associates, LP, 2017 Phila. Ct. Com. Pl. LEXIS 22 (Pa. D. Jan. 25, 2017).
Little Ducklings Daycare Preschool ("tenant") leased from the Estate of Carmen Neri ("landlord") premises to run a day care center for five years. The lease identified two of tenant's members, Maryanne L. Hatzold and Thomas Hatzold, as guarantors for the lease. The Hatzolds ("Guarantors") delivered to the landlord a written lease guaranty agreement. The guarantee assured the full payment and satisfaction of the rent owed under the lease.
Tenant defaulted under the lease. The tenant, landlord, and Guarantors entered into a Forbearance Agreement in which the landlord agreed to forbear from exercising its rights and remedies under the lease and guaranty. In return, Michael Deluca, a master carpenter, would perform certain home improvements at the residence of Mary T. Neri, until the rent arrearages were paid in full. The landlord advanced the sum of $7,100.00 to Michael DeLuca to purchase construction materials for the home improvements.
However, the tenant, the guarantors and DeLuca breached the Forbearance Agreement by failing to order proper windows for the residence, account for the $7,100 advanced to Michael DeLuca, perform any work at the residence, and finish the improvements begun by Michael DeLuca.
The landlord sued the tenant for breach of the lease agreement and sued the guarantors for breach of the guarantee agreement. The landlord sued the tenant, the guarantors and Michael De Luca for breach of the Forbearance Agreement and negligence for failing to perform the home improvements as contemplated by the Forbearance Agreement.
The tenant was insured by Erie. Erie defended the tenant subject to a reservation of rights. Erie filed a declaratory judgment action seeking a declaration that it did not owe the tenant a duty to defend or indemnify. Erie moved for summary judgment.
The court determined Erie had no duty to defend or to indemnify. The underlying complaint did not allege an accident for which the policy applied. Rather, the underlying action alleged facts seeking redress for defendants' breaches of the lease agreement, the guaranty agreement, and Forbearance Agreement. Pennsylvania law did not recognize the applicability of a general liability policy to breach of contract claims.
The underlying complaint also asserted a negligence count for Michael DeLuca's work. But the allegations concerned property damage arising from DeLuca's poor workmanship to the work product itself. Although the Erie policy would provide coverage where the alleged faulty workmanship caused bodily injury or damage to another property, the policy did not provide coverage where faulty workmanship damaged the work product alone.