Pennsylvania Appellate Court Rules That Misrepresentations, Even If Made Negligently, Are Not Covered By General Liability Insurance

March 8, 2024

By: Carl L. Engel

The Pennsylvania Superior Court, in the case Country Pools & Spas, Inc. v. Erie Insurance Exchange, declined to extend insurance coverage to claims arising from negligent misrepresentations. A home-owning couple had alleged that they were induced to build a retaining wall and to destroy playground equipment by a contractor, who negligently had misrepresented that permits were not required to install a swimming pool and that the homeowners’ actions were necessary to prepare for the installation. The contractor submitted the claim to its insurance carrier, which denied coverage on the grounds that the misrepresentations were not an “accident” for which there was coverage under the insurance policy. The contractor sued the carrier for breach of the insurance policy, and a trial court ordered the carrier to cover the homeowners’ claim. The Superior Court reversed, however, finding that misrepresentations, even if made negligently, require at least some specific intent on the part of the speaker, such that insurance coverage for “accidents” cannot apply.

In July 2016, Ty and Carissa Schott sought a quote from Country Pools & Spas, Inc. (“Country Pools”), for the installation of a swimming pool in their back yard. The Schotts selected the model and size of the pool that they wanted, and Country Pools represented that they could and would install it. The price quoted was $53,160. The Schotts signed a contract and paid a deposit of $26,580.

In connection with the installation, Country Pools instructed the Schotts to engage another contractor to install a retaining wall. The Schotts also built a fence and removed their children’s playground equipment in preparation for the installation.

Before commencing the retaining-wall project, the Schotts had asked Country Pools whether permits were required from their municipality. Country Pools responded that “no permits would be necessary until installation of the swimming pool.”

After the retaining wall was completed, the Schotts sought permits for the pool and discovered that the local zoning regulations would not permit its construction. The Schotts then applied for a zoning variance, but were denied. Country Pools refunded the Schotts $20,429 of their deposit.

On April 5, 2017, the Schotts filed a lawsuit against Country Pools seeking the unreturned portion of the deposit, as well as $26,000 for losses related to the retaining wall and destroyed playground equipment. In their complaint, the Schotts brought claims for unjust enrichment, violations of the Pennsylvania Home Improvement Consumer Protection Act, and the Pennsylvania Unfair Trade Practices and Consumer Protection Law.

Country Pools sought a defense and indemnification in the Schotts’ lawsuit from its insurance carrier, Erie Insurance Exchange (“Erie”), pursuant to a policy for general commercial liability insurance. Erie denied coverage, however, asserting that the Schotts’ complaint alleged neither an “occurrence” nor “property damage” for which there was coverage under Country Pools’s insurance policy. Country Pools filed a lawsuit against Erie for breach of the insurance policy.

On February 24, 2023, the trial court denied a motion for summary judgment filed by Erie, and entered an order compelling it to defend and indemnify Country Pools in the Schotts’ lawsuit. The trial court reasoned that “property damage includes injury to property and/or loss of use of that property that result from representations made by Country Pools.” The trial court found also that “the representation by Country Pools that led the Schotts to alter their realty, discard personal property, and spend money” constituted an “occurrence” under the policy. Erie appealed.

The Superior Court reversed the trial court, finding that the Schotts’ complaint did not allege an “occurrence,” which was defined in the policy as an “accident.” The court observed that “the purpose and intent of an insurance policy is to protect the insured from liability for essentially accidental injury to the person or property of another rather than coverage for disputes between parties to a contractual undertaking.” Country Pools’s refusal to return the security deposit cannot constitute an “occurrence,” because “it is not accidental and is contractual in nature.”

Further, with respect to the damages arising from Country Pools’s alleged misrepresentations regarding installation (i.e., the retaining wall, the fence, and the destroyed playground), the Superior Court found that misrepresentations, even if made negligently, “contain an element of specific intent which takes the claim outside the realm of the unintentional.” Therefore, claims based on negligent misrepresentations are not “accidents” or “occurrences” covered under a policy of liability insurance.

As a result of the Superior Court’s decision, Country Pools will have to pay for its own defense against the Schotts’ claims, and will have to pay any judgment awarded to them. This case illustrates the limits of coverage in cases concerning alleged misrepresentations. As the court explained, even where the representation consists of a negligently made statement, the making of a statement at all is an intentional act that removes the lawsuit from the realm of coverage. Therefore, plaintiffs who desire to trigger a defendant’s insurance coverage cannot rely solely on allegations of negligent misrepresentations, but must instead include allegations of negligence itself.