Pennsylvania “property damage” caused by an “occurrence”

In Specialty Surfaces International, Inc. v. Continental Cas. Co., No. 09-2773 (3^rd Cir. June 8, 2010), Shasta hired Trent to act as general contractor for the construction of outdoor athletic facilities.   Trent in turn subcontracted with Empire to provide and install synthetic turf fields, manufactured by Specialty Services, and drainage systems, provided by Airfield Systems.   Trent prepared the base of the fields and Empire then installed the drainage systems, which included an impermeable membrane, followed by the synthetic turf. After completion, Shasta filed suit against Specialty and Airfield for breach of warranty, alleging defects in the synthetic turf and drainage systems resulting in physical injury to the impermeable membrane and the field base.  Shasta sought damages for the costs to replace the synthetic turf and drainage systems.  Specialty’s CGL insurer, Continental, denied a defense.   Shasta then filed an amended complaint, adding Trent and Empire as defendants, and a negligence cause of action against Empire, Trent, and Airfield.   Continental then agreed to defend Specialty, as well as Empire which, as a wholly-owned subsidiary of Specialty, was also a named insured on the Continental policy.   After Continental refused to reimburse Specialty for its defense costs for the original complaint, Specialty and Empire filed suit against Continental.    The federal district trial court entered summary judgment for Continental on the duty to defend  Specialty and Empire, holding that, under Pennsylvania law, neither the original nor the amended complaint sought damages for “property damage” caused by an “occurrence.”  On appeal, the Court of Appeals for the Third Circuit affirmed.    As to the original complaint against Specialty, the court held that a breach of contract cannot constitute an “occurrence.”  As to the amended complaint, the court rejected the insureds’ argument that the physical injury to the field base prepared by Trent constituted “property damage” caused by an “occurrence” because, even though it was to property beyond the insured’s work, it was “entirely foreseeable, if not predictable” and thus not an “occurrence.”