Pennsylvania “occurrence” and contractual liability exclusion

In Schuylkill Stone Corp. v. State Auto. Mut. Ins. Co., No. 09-5812 (D. N.J. August 17, 2010), several homeowners sued Quaker as the designer and builder of their homes alleging construction defects resulting in moisture penetration causing property damage to the homes and mold-related bodily injury.  Quaker in turn filed a third-party complaint against Schuylkill, Quaker’s subcontractor for the homes’ stone veneer, for contribution and indemnity.  Schuylkill tendered its defense to its CGL insurer, State Auto.   State Auto denied a defense and Schuylkill filed suit seeking a declaratory judgment on State Auto’s duty to defend.  On cross-motions for summary judgment, the federal district trial court, applying Pennsylvania law, held that, because the plaintiffs, which were not in contractual privity with Schuylkill, alleged that Quaker and thus Schuylkill was negligent, as opposed to having breached a contractual obligation as in Kvaerner,  the underlying complaint alleged an “occurrence.”  The court added that the bodily injury claims provided “further support [to] the fortuitous nature” of the claims.  The court then held that, because of the tort claims, the contractual liability exclusion did not eliminate a duty to defend.