Summary
finding identical water exclusion to be ambiguous for different reasons
Summary of this case from M M Holdings v. State Auto Property Casualty Ins. Co.Opinion
Civil Action No. 03-6507.
February 14, 2005
MEMORANDUM
Presently before the Court are the parties' Cross-Motions for Summary Judgment on certain issues involved in this insurance case. The Court heard oral argument on the Cross-Motions on February 8, 2005, and the matter has been fully briefed by the parties. For the reasons that follow, Defendant's Motion is granted and Plaintiff's Motion is granted in part and denied in part. The Court also vacates its March 23, 2004 Order-Memorandum denying Defendant's Motion for Partial Summary Judgment to the extent that it is inconsistent with the instant Memorandum.
I. BACKGROUND
The following facts are essentially undisputed. Plaintiff, Employers Mutual Casualty Company, issued a commercial policy (no. 1A2-34-43-03) to Defendant, Penn Township, with a policy period running from April 5, 2002 through April 5, 2003 ("the Policy"). (Pl.'s Ex. A.) The Policy generally insured Defendant against direct physical loss or damage to various properties and equipment, including two 55,000-gallon in-ground tanks known as "sequence batch reactors" ("SBRs"), which were located on Defendant's property at 1101 Baltimore Pike, Rear, West Grove, Pennsylvania. (Id.) The SBRs were used by Defendant to biologically treat wastewater. (Pl.'s Ex. C.) On or about February 23, 2003, the SBRs were damaged. (Pl.'s Ex. B.) On or about November 12, 2003, Defendant submitted a Proof of Loss to Plaintiff that calculated the "partial" loss to the SBRs as $1,186,026. (Id.) The Proof of Loss stated that the cause and origin of the loss was "unknown to the insured." (Id.)
The Policy originally provided $250,000 in coverage for the SBRs. (Pl.'s Ex. A at EMC-0002.) On March 6, 2003, however, the Policy was retroactively amended to provide $650,000 in coverage for the SBRs. (Pl.'s Ex. A at EMC-0033.)
Plaintiff thereafter filed the instant declaratory judgment action. In Count One of the Complaint, Plaintiff seeks a declaration that it is not obligated to pay Defendant for the claimed damages to the SBRs because the damages resulted from a cause of loss excluded under Exclusion B.1.f(4) (hereinafter, "Section (4) of the Water Exclusion") and/or Exclusion B.3.c. (hereinafter, "the Faulty Construction Exclusion") of the Policy's Municipality Property Coverage Special Causes of Loss form. Section (4) of the Water Exclusion provides as follows:
Neither party has moved for summary judgment on the remaining counts in Plaintiff's Complaint.
Neither party has moved for summary judgment with respect to the applicability of the Faulty Construction Exclusion.
B. EXCLUSIONS
1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
. . . .
f. Water
. . . .
(4) Water under the ground surface pressing on, or flowing or seeping through:
(a) Foundations, walls, floors or paved surfaces;
(b) Basements, whether paved or not; or
(c) Doors, windows or other openings.
But if Water . . . results in fire, explosion or sprinkler leakage, we will pay for the loss or damage caused by that fire, explosion or sprinkler leakage.
(Pl.'s Ex. A at EMC-0013-0014). Defendant thereafter filed a counterclaim for bad faith against Plaintiff.
On February 17, 2004, Defendant filed a Motion for Partial Summary Judgment with respect to the applicability of Section (4) of the Water Exclusion to the SBRs. By Order-Memorandum filed on March 23, 2004, the Court denied Defendant's Motion. On December 28, 2004, Plaintiff filed the instant Motion for Summary Judgment. In its Motion, Plaintiff seeks entry of judgment in its favor with respect to Count One of Complaint, based solely on Section (4) of the Water Exclusion. Plaintiff also seeks entry of judgment in its favor with respect to Defendant's bad faith claim. Defendant thereafter filed a Cross-Motion for Summary Judgment, in which Defendant essentially asks the Court to reconsider its previous decision denying Defendant's Motion for Partial Summary Judgment with respect to the applicability of Section (4) of the Water Exclusion to the SBRs. Defendant has not moved for summary judgment with respect to its bad faith claim.
II. LEGAL STANDARD
Summary Judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c) ("Rule 56(c)"). An issue is "genuine" if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is "material" if it might affect the outcome of the case under governing law. Id.
A party seeking summary judgment always bears the initial responsibility for informing the district court of the basis for its motion and identifying those portions of the record that it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Where the non-moving party bears the burden of proof on a particular issue at trial, the movant's initial Celotex burden can be met simply by "pointing out to the district court that there is an absence of evidence to support the non-moving party's case."Id. at 325. After the moving party has met its initial burden, "the adverse party's response, by affidavits or otherwise as provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). That is, summary judgment is appropriate if the non-moving party fails to rebut by making a factual showing "sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial."Celotex, 477 U.S. at 322. Under Rule 56, the Court must view the evidence presented on the motion in the light most favorable to the opposing party. Anderson, 477 U.S. at 255. "If the opponent [of summary judgment] has exceeded the `mere scintilla' [of evidence] threshold and has offered a genuine issue of material fact, then the court cannot credit the movant's version of events against the opponent, even if the quantity of the movant's evidence far outweighs that of its opponent. Big Apple BMW, Inc. v. BMW of North America, Inc., 974 F.2d 1358, 1363 (3d Cir. 1992).
Where, as here, cross-motions for summary judgment have been presented, the Court must consider each party's motion individually. Each side bears the burden of establishing a lack of genuine issues of material fact. Reinert v. Giorgio Foods, Inc., 15 F. Supp. 2d 589, 593-94 (E.D. Pa. 1998).
III. DISCUSSION
This Court has diversity jurisdiction over this action pursuant 28 U.S.C. § 1332. In diversity actions, the Court must apply the choice of law rules of the forum state. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). Under Pennsylvania's choice of law principles, an action arising on an insurance policy is governed by the law of the state in which the policy was delivered. CAT Internet Servs., Inc. v. Internet Supply, Inc., 333 F.3d 138, 141 (3d Cir. 2003). The parties do not dispute that Pennsylvania law applies to this action because the Policy was delivered to Defendant's business office in Pennsylvania.
A. Plaintiff's Declaratory Judgment Claim
Plaintiff contends that judgment should be entered in its favor with respect to Count One of the Complaint because the claimed damage to both SBRs resulted from a cause of loss that is excluded under Section (4) of the Water Exclusion. In response, Defendant contends that the Policy is ambiguous as to whether Section (4) of the Water Exclusion applies to the SBRs, and that this ambiguity should be construed in favor of Defendant.
Under Pennsylvania law, interpretation of a policy exclusion is a question of law for the court, Allstate Ins. Co. v. Davis, 977 F. Supp. 705, 711 (E.D. Pa. 1997), and "the goal . . . is to ascertain the intent of the parties as manifested by the language of the written instrument." Standard Venetian Blind Co. v. Am. Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983). A court is required to give effect to a policy exclusion if the exclusion is clearly worded and conspicuously displayed in the policy. Giangreco v. United States Life Ins. Co., 168 F. Supp. 2d 417, 421 (E.D. Pa. 2001). However, ambiguous policy exclusions are "always strictly construed against the insurer and in favor of the insured."Nationwide Mut. Ins. Co. v. Cosenza, 258 F.3d 197, 206-07 (3d Cir. 2001) (citing Selko v. Home Ins. Co., 139 F.3d 146, 152 n. 3 (3d Cir. 1998)). A policy exclusion is ambiguous if "reasonably intelligent [persons] on considering it in the context of the entire policy would honestly differ as to its meaning, and if more precise language could have eliminated the ambiguity."Coregis Ins. Co. v. Larocca, 80 F. Supp. 2d 452, 455 (E.D. Pa. 1999) (internal citations omitted). The insurer bears the burden of establishing the applicability of an exclusion under an insurance policy. Cosenza, 258 F.3d at 206.
Although the insured bears the initial burden of establishing coverage under an insurance policy, Cosenza, 258 F.3d at 206, there is no dispute that Defendant's claimed loss is covered under the all-risk provision in Section A of the Policy's Municipality Property Coverage Special Causes of Loss form.
Plaintiff argues that the Water Exclusion, as well as every other exclusion set forth in Section B of the Policy's Municipality Property Coverage Special Causes of Loss form, broadly applies to all property insured under the Policy. Plaintiff notes that the Policy provides that Plaintiff "will pay for direct physical loss of or damage to Covered Property caused by or resulting from any Covered Cause of Loss." (Pl.'s Ex. A. at EMC-0019.) Plaintiff also notes that the Policy, in turn, defines "Covered Cause of Loss," without any qualification based on the type of covered property, as "RISKS OF DIRECT PHYSICAL LOSS, unless the loss is: 1. Excluded in Section B., Exclusions. . . ." (Pl.'s Ex. A at EMC-0013) (emphasis added in italics). Plaintiff further argues that "walls," as the term is used in Section (4) of the Water Exclusion, should be given its plain, ordinary meaning in interpreting the Policy. Plaintiff notes that the Merriam-Webster Dictionary broadly defines "wall" as "a structure that serves to hold back pressure (as of water or sliding earth)" and "a material layer enclosing space." Merriam-Webster Online Dictionary, at http://www.m-w.com/cgi-bin/dictionary?book=Dictionaryva=wall. Plaintiff concludes, therefore, that SBRs have "walls," as the term is used in Section (4) of the Water Exclusion.
Even assuming that Plaintiff's interpretation of Section (4) the Water Exclusion is reasonable, the Court finds that Section (4) of the Water Exclusion may also be reasonably interpreted not to apply to the SBRs. The Court notes that the Merriam-Webster Dictionary also defines "wall" more restrictively as "one of the sides of a room or building connecting floor and ceiling or foundation and roof." Id. (emphasis added). The application of this definition of "walls" to Section (4) of the Water Exclusion is supported by the structure and format of the Water Exclusion. The Water Exclusion provides, in its entirety, as follows:
B. EXCLUSIONS
1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
. . . .
f. Water
(1) Flood, surface water, waves, tides, tidal waves, overflow of any body of water, or their spray, all whether driven by wind or not;
(2) Mudslide or mudflow;
(3) Water that backs up or overflows from a sewer, drain or sump, except as provided in the Coverage Extensions; or
(4) Water under the ground surface pressing on, or flowing or seeping through:
(a) Foundations, walls, floors or paved surfaces;
(b) Basements, whether paved or not; or
(c) Doors, windows or other openings.
But if Water, as described in g. [sic] (1) through (4) above, results in fire, explosion or sprinkler leakage, we will pay for the loss or damage caused by that fire, explosion or sprinkler leakage.
(Pl.'s Ex. A. at EMC-0013-0014.) In contrast to Sections (1), (2) and (3) of the Water Exclusion, the applicability of Section (4) of Water Exclusion is qualified by the restrictions and limitations set forth in subsections (a), (b), and (c). Thus, whereas Sections (1), (2), (3) of the Water Exclusion are generally applicable to all covered property, the parties affirmatively intended to limit the scope of Section (4) to covered property that has foundations, walls, floors, paved surfaces, basements, doors, or windows or other openings. Considering the Water Exclusion as a whole, the Court concludes that Section (4) of the Water Exclusion may be fairly read to apply only to rooms and buildings. It is undisputed that SBRs are neither rooms nor buildings, as those terms are commonly defined and understood. If Plaintiff intended for Section (4) of the Water Exclusion to apply to SBRs, it could have drafted Section (4) to exclude coverage for, inter alia, "water under the ground surface pressing on, or flowing or seeping through in-ground tanks or containers." See also Pavuk v. State Automobile Ins. Co. of Columbus, Oh., Civ. A. No. 96-8459, 1997 WL 431014, at *2 (E.D. Pa. July 15, 1997) (broadly defining underground water exclusion to include "water which exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or other structure."). As the ambiguous scope of Section (4) of the Water Exclusion must be strictly construed against Plaintiff and in favor of Defendant, the Court concludes, as a matter of law, that Section (4) of the Water Exclusion does not apply to the SBRs. Accordingly, Plaintiff's Motion is denied in this respect and Defendant's Motion is granted in this respect.
The Court notes that the Policy's Municipal Property Coverage Form identifies three independent "types" of property covered under the Policy: (1) "Building[s]"; (2) "Your Business Personal Property"; and (3) "Personal Property of Others." (Pl.'s Ex. A at EMC-0019-0020.) Section A(1)(a)(3) of the Municipal Property Coverage Form expansively defines the term "building" to include even "permanently installed machinery and equipment," (id.), such as SBRs. Plaintiff does not suggest that the Policy's unconventional definition of the term "building" has any bearing on the interpretation of Section (4) of the Water Exclusion. To the contrary, Plaintiff admits in its brief that "[a]ccording to the Municipality Property Coverage Form (EMC-0019), the reason that property is separated into categories ("Building," "Business Personal Property" and "Personal Property of Others") is so that separate limits of insurance [coverage] may be applied to them" in the Declarations. (Pl.'s Rebuttal at 3.)
In its March 23, 2004 Order-Memorandum, the Court denied Defendant's Motion for Partial Summary Judgment with respect to the applicability of Section (4) of the Water Exclusion to the SBRs. The Court decided Defendant's previous Motion for Partial Summary Judgment based on the arguments made by the parties in connection with that Motion. Based on new arguments made in connection with the instant Motions, the Court has elected to reconsider its previous decision. See Cabirac v. C.I.R., Civ. A. No. 02-8057, 2003 WL 21790356, at *1 n. 1 (E.D. Pa. June 23, 2003) (noting that court "has inherent power to reconsider and modify an interlocutory order any time prior to the entry of judgment") (citations omitted). Thus, to the extent that this Court's March 23, 2004 Order-Memorandum is inconsistent with the instant Memorandum, the Court hereby vacates the March 23, 2004 Order-Memorandum.
Even if the Court determined that Section (4) of the Water Exclusion did apply to the SBRs for losses covered under the allrisk provision of the Policy, the Court would still decline to grant Plaintiff's Motion. There are genuine issues of material fact with respect to, inter alia, whether the "additional" Collapse Coverage set forth in Section D of the Policy's Municipality Property Coverage Special Causes of Loss form provides coverage for the damage to the SBRs in this case. Although the Policy expressly states that the all-risk coverage provided in Section A of the form is subject to the Exclusions set forth in Section B, the Policy is silent as to whether any of the Section B Exclusions, including the Water Exclusion, also apply to the Collapse Coverage in Section D. If Plaintiff intended for the Water Exclusion — and the concurrent/sequential cause of loss provision contained therein — to apply to the Collapse Coverage, it could have simply reprinted or cross-referenced the Water Exclusion in Section D. See, e.g., Simmons v. Allstate Ins. Co., Civ. A. No. 96-5112, 1997 WL 214848, at *8-*9 (E.D. Pa. Apr. 28, 1997) (water exclusion set forth in both all-risk coverage section and "additional" collapse coverage section of policy). Strictly construing the Policy in favor of Defendant and against Plaintiff, the Court concludes that the Collapse Coverage in Section D of the Policy's Municipality Property Coverage Special Causes of Loss form is not subject to the Water Exclusion.
B. Defendant's Bad Faith Counterclaim
Plaintiff has also moved for summary judgment on Defendant's counterclaim for bad faith. To establish a claim for bad faith against an insurer under Pennsylvania law, the insured must prove by clear and convincing evidence that: (1) the insurer lacked a reasonable basis for denying benefits; and (2) the insurer knew or recklessly disregarded its lack of reasonable basis for denying benefits. J.C. Penney Life Ins. Co. v. Pilosi, 393 F.3d 356, 367 (3d Cir. 2004). Pennsylvania courts define "bad faith" as "any frivolous or unfounded refusal to pay proceeds of a policy." Terletsky v. Prudential Prop. Cas. Ins. Co., 649 A.2d 680, 688 (Pa.Super.Ct. 1994). The clear and convincing standard requires that the insured show that "the evidence is so clear, direct, weighty and convincing as to enable a clear conviction, without hesitation, about whether or not [the insurer] acted in bad faith." Pilosi, 393 F.3d at 367 (citation omitted). "Thus, the [insured's] burden in opposing a summary judgment motion is commensurately high in light of the substantive evidentiary burden at trial." Id. (citation omitted).
Defendant has failed to identify any evidence in the record that supports its bad faith claim. Instead, Defendant maintains that it has requested, but not yet received, information from Plaintiff that is relevant to the bad faith claim. In response, Plaintiff asserts that Defendant never issued any written discovery requests or scheduled any depositions in this action. Plaintiff further contends that it has complied with the disclosure requirements of Federal Rule of Civil Procedure 26. The Court notes that the deadline for completion of discovery was December 20, 2004, and a jury trial is scheduled in this case for February 22, 2005. The Court has already extended the discovery deadlines in this case on three separate occasions. Under these circumstances, the Court concludes that Plaintiff's Motion for Summary Judgment is ripe for decision with respect to Defendant's bad faith claim. As the record is devoid of evidence that supports Defendant's bad faith claim, Plaintiff's Motion is granted in this respect.
IV. CONCLUSION
For the foregoing reasons, Defendant's Motion is granted and Plaintiff's Motion is granted in part and denied in part.
An appropriate Order follows.
ORDER
AND NOW, this 14th day of February, 2005, upon consideration of Plaintiff's Motion for Summary Judgment (Doc. No. 23), Defendant's Cross-Motion for Summary Judgment (Doc. Nos. 26-27), the argument conducted in open court on February 8, 2005, and all attendant and responsive briefing, IT IS HEREBY ORDERED as follows:
1. Defendant's Cross-Motion for Summary Judgment (Doc. Nos. 26-27) is GRANTED. Count One of Plaintiff's Complaint is DISMISSED to the extent that Plaintiff seeks a declaration that it is not obligated to pay Defendant for the claimed damages to the SBRs because the damages resulted from a cause of loss excluded under Exclusion B.1.f(4) of the Policy's Municipality Property Coverage Special Causes of Loss form.
2. Plaintiff's Motion for Summary Judgment (Doc. No. 23) is GRANTED IN PART and DENIED IN PART as follows:
a. Plaintiff's Motion is GRANTED with respect to Defendant's Counterclaim. Judgment is entered in favor of Plaintiff and against Defendant with respect to Defendant's Counterclaim.
b. Plaintiff's Motion is DENIED in all other respects.
3. The Court's March 23, 2004 Order-Memorandum denying Defendant's Motion for Partial Summary Judgment (Doc. No. 12) is VACATED to the extent that it is inconsistent with this Memorandum and Order.