Thereafter, the restaurant owners sued East Coast for breach of contract, negligence, unjust enrichment, and negligent misrepresentation.

Atain Insurance Company, which had issued a commercial general liability insurance policy to East Coast, asked the U.S. District Court for the Eastern District of Pennsylvania to declare that it had no duty to defend or indemnify East Coast.

Atain moved for judgment on the pleadings. It argued that it had no obligation to defend or to indemnify East Coast because the restaurant owner's action was for breach of contract, which was not an "occurrence" as defined in the policy.

East Coast countered that there also was a claim for negligence, which was covered.

The Atain Policy

The policy provided that Atain:

will pay those sums that the insured becomes legally obligated to pay as damages 

resulting from a claim or suit brought against an insured:

because of "bodily injury" or "property damage" 

caused by an:

"occurrence" 

, defined as an:

accident, including continuous or repeated exposure to substantially the same general harmful conditions. 

The district court granted Atain's motion.

In its decision, the district court explained that an "accident" was an "unexpected and undesirable event" that implied "a degree of fortuity" that was "not present in a claim for faulty workmanship."

The district court added that claims for faulty workmanship were not covered by insurance because they did not qualify as an occurrence. Thus, the district court said, a commercial general liability policy did not cover claims in an underlying lawsuit that arose out of or that related to the contract between the parties.

The district court ruled that the allegations in Count I of the complaint against East Coast, asserting a cause of action for breach of contract, arose out of East Coast's contractual obligations and were not a covered "occurrence."

Moreover, the district court continued, the remaining claims against East Coast for negligence, unjust enrichment, and negligent misrepresentation also were not covered by the Atain policy because they, too, did "not arise from an occurrence." According to the district court, although East Coast couched the claims as arising from negligence, the claims were "essentially breach of contract claims."

The district court pointed out that in the negligence claim against East Coast, the restaurant owners alleged that East Coast failed to properly install, inspect, service, and maintain the fire suppression system and smoke detectors – work they had "entered into a contract" to perform. The restaurant owners also contended that East Coast had relied on "unskilled employees, agents and/or contractors to perform its contracts." These allegations for faulty workmanship, the district court decided, were "grounded in contract."

The district court similarly rejected East Coast's contention that there was coverage for the unjust enrichment claim brought by the restaurant owners, explaining that their contention that East Coast had failed to perform was an allegation that it had "breached the contract," not that it had been "unjustly enriched."

Finally, the district court ruled, the negligent misrepresentation claim against East Coast was a claim for breach of warranties – that is, that East Coast had not honored its guarantee – and not for negligence.

The district court concluded that the restaurant owner's claims against East Coast were for faulty workmanship and breach of contract, based on East Coast's alleged failure to perform work it had contracted to do, and that they did not qualify as an "occurrence" under the Atain policy and were not covered under by the policy.

Atain Ins. Co. v. East Coast Business Fire, Inc., No. 17-2545 (E.D. Pa. Jan. 31, 2018).