Three Rivers Hydroponics, LLC v. Florists' Mut. Ins. Co.

THREE RIVERS HYDROPONICS, LLC, Plaintiff, v. FLORISTS' MUTUAL INSURANCE COMPANY, Defendant.

No. 2:15-cv-00809

United States District Court, W.D. Pennsylvania

December 29, 2021

OPINION

MARK R. HORNAK CHIEF UNITED STATES DISTRICT JUDGE

This is an insurance case focused on claims related to the business of growing organic basil. Now before the Court are cross Motions for Summary Judgment arising from a dispute related to Plaintiff Three Rivers Hydroponics' (“TRH”) first-party insurance coverage claim under an insurance policy (“Policy”) issued by Defendant Florists Mutual Insurance Company (“Florists”).

This case arose out of a June 2014 explosion and fire involving a “ozone system” used to hydroponically grow crops at Plaintiff's commercial greenhouse. Plaintiff now contends that its organic basil crop failed not as a result of that explosion/fire but as a result of the ozone system's mechanical failure before that incident. After an extensive claims investigation process, Defendant denied Plaintiff's claim for crop loss damages. Plaintiff contends that Defendant breached the Policy terms by denying its claim for crop loss damages and also argues that Defendant acted in bad faith in investigating and then denying that claim. Finally, Plaintiff argues that it is entitled to consequential damages attributable to Florist's alleged breach of the insurance contract including damages related to the loss of its business. (Am. Compl., ECF No. 158, ¶¶ 130-140, 151 [hereinafter Am. Compl.].)

Plaintiff's First Amended Complaint made three claims against Florists Breach of Contract; Bad Faith; and Civil Conspiracy. (Am Compl.) The Complaint also made three separate claims against Florists' agent, the Hartford Steam Boiler Inspection and Insurance Company (“HSB”). (Id.) By prior Opinion and Order, the Court granted Defendant HSB's Motion to Dismiss all claims against it; the Court also granted Florists' Motion to Dismiss and Strike Portions of Plaintiff's Amended Complaint in part, dismissing Count IV (a claim for Civil Conspiracy) against Florists. (ECF Nos. 194, 195.) Remaining in the Amended Complaint are Counts I and III, respectively alleging breach of contract and bad faith against Florists. (ECF No. 195.)

Plaintiff filed a motion for partial summary judgment on both the breach of contract and bad faith claims, reserving only the question of consequential damages. (ECF No. 274.) Defendant responded with a cross motion for summary judgment on both claims, including by moving in the alternative for summary judgment on the question of consequential damages. (ECF No. 279.) Both motions are fully briefed and ripe for disposition. For the reasons explained below, the Court DENIES Plaintiff's Motion for Summary Judgment in full and GRANTS Defendant's Motion for Summary Judgment in full.

I. BACKGROUND

Plaintiff was a business that hydroponically grew and distributed produce to Pittsburgh-area consumers through contracts with large distributors. Plaintiff used an ozone system to treat and disinfect the water it used for crop production. Plaintiff first contacted Defendant when, on June 30, 2014, a component of that ozone system-specifically, the ozone generator-caught fire.

Plaintiff's crop failed after that incident and Plaintiff asserts that it was unable to profitably grow another crop. Plaintiff claims that it lost all of its clients by January 2015, causing it to default on bank loans and ultimately resulting in the loss of its business.

Plaintiff was insured at all relevant times by a “business package” insurance policy issued by Defendant. (Am. Compl. ¶¶ 20-22.) Plaintiff submitted equipment breakdown and crop loss claims to Defendant. On August 6, 2014, Defendant tendered $7, 341.85 to Plaintiff to cover the cost of the ozone generator. (Id. ¶ 80.) Following a series of evaluations by various consultants retained by the parties over the course of a year and a half, Defendant denied the balance of Plaintiff's claims in December 2015.

A. Policy Provisions at Issue

The parties dispute whether Plaintiff's claims are covered under two particular Policy provisions: (1) the Business Personal Property provision; and (2) the Equipment Breakdown Boiler and Machinery Coverage Endorsement.

The Business Personal Property provision includes coverage for crop loss with seasonal coverage limits of $26, 000 per occurrence in the month of June, subject to a $500 deductible. (Def.'s SMF, ECF No. 281, ¶ 12 [hereinafter Def.'s SMF].) But that Business Personal Property provision excludes from coverage damage resulting from “[m]echanical breakdown, including rupture or bursting caused by centrifugal force.” (Id. ¶ 14.) This provision is therefore only applicable to the claims for damage from the fire and does not apply to Plaintiff's claims for loss resulting from the mechanical breakdown of system components.^[1]

Second, the Policy contains an optional Equipment Breakdown Boiler and Machinery Coverage endorsement, which provides Equipment Breakdown coverage subject to a limit of $300, 000 and optional coverage for perishable goods with an occurrence limit of $26, 000 for the month of June. (Def.'s SMF ¶ 15.) That Endorsement provides that Defendant agrees to pay for loss caused by or resulting from any “Accident” to “covered equipment.” (Pl.'s SMF, ECF No. 287 ¶ 8 [hereinafter Pl.'s SMF].) The policy defined an “Accident” as “direct physical loss” including “[m]echanical breakdown, including rupture or bursting by centrifugal force.” (Id. ¶ 9.) This endorsement is therefore the only Policy provision under which Plaintiff could recover for a claim that the ozone system components suffered a “mechanical breakdown.”

B. The June 30, 2014 Fire

On July 7, 2014, Plaintiff reported an equipment breakdown and crop loss claim to Defendant describing a June 30, 2014 incident in which “something failed and caused a small explosion/fire in the equipment.” (Pl.'s SMF ¶¶ 28-31; Def.'s SMF ¶¶ 23-25.) Defendant accordingly opened a claim and assigned Senior Claim Representative Eric Jones to handle it. (Def.'s SMF ¶ 26.) Jones spoke with Plaintiff co-owner Dave McCullough, who advised that he had heard an “explosion and saw flames shooting out of the equipment.” (Id. ¶ 27; Pl.'s SMF ¶ 30.) McCullough reported that he turned the equipment off to avoid further damage. (Def.'s SMF ¶ 27.) McCullough also advised Jones that Plaintiff had been losing plants to disease before the explosion-a crop loss cause which Jones advised Plaintiff that the Policy does not cover. (Id.)

Days later, however, McCullough reported to Defendant that the ORP controller (or “ORP transmitter”)^[2] showed a “check sensor” reading, which he believed suggested that the ORP transmitter was having trouble communicating with the ORP sensor. (Pl.'s SMF ¶ 35.) McCullough then reported his belief that the ORP controller broke down, failed to communicate with the sensor, and caused the system to release enough ozone to “over-steriliz[e]” the crops and cause them to fail. (Id. ¶¶ 34-35.) Plaintiff also sent Defendant a report from Penn State Plant Disease Clinic Coordinator Sara R. May, finding that basil samples collected before and after the explosion incident displayed no disease pathogens and suggesting that an “abiotic, ” or non-disease factor caused the crop failure symptoms. (Id. ¶ 36; Def.'s SMF ¶ 32; ECF No. 288 ¶ 34.)

In July 2014, Plaintiff submitted an estimate of $41, 553.50 for a full replacement of the entire Ozone system. (Am. Compl. ¶ 45.) After that claim submission, a series of claim and damage evaluations ensued.

C. Claim Investigations

1. The Donan Evaluation

The day of Plaintiff's claim report (July 7, 2014), Defendant retained Donan Engineering (“Donan”), a national engineering firm that Defendant had used in the past, to investigate the cause and extent of the damage to the ozone system and crops. (Def.'s SMF ¶¶ 28-29.) Sam Landis, one of Donan's fire and explosion investigators, visited the TRH greenhouse the next day. (Id. ¶ 30.) Landis evaluated the ozone system, confirmed that a small fire had occurred, and recommended that an electrical engineer evaluate the equipment. (Id. ¶¶ 30-31.)

Ten days later, on July 18, 2014, Donan sent electrical engineer James R. Graf to visit the TRH site, where he conducted a study of the ozone system to determine the damage's cause. (Id. ¶ 35.) Graf is a professional engineer and certified fire and explosion investigator with experience evaluating failures in electrical systems and machines. (Id. ¶ 36.) But Graf had no experience evaluating ozone systems-which he acknowledged, telling Plaintiff's representatives that theirs was the first ozone system he had evaluated and that he had “Google[d]” the system to learn how it worked. (Am. Compl. ¶ 49.) Graf took photos of the generator on that day, photos that Defendant contends show that the fire damage was minimal and confined to the generator. (Def.'s SMF ¶¶ 37-38.) Graf's inspection, however, was limited to “visual observations and an interview of the company representative” and he did not test the ORP controller or other system components. (Pl.'s SMF ¶ 41.)

In a report issued August 1, 2014, 25 days after the claim was submitted, Graf concluded that only the ozone generator had sustained damage as a result of the fire, and that a complete replacement of the system was unnecessary. (Def.'s SMF ¶ 37.) Graf also concluded that the high concentration of ozone in the system was likely attributable to factors such as operator error or incorrectly sized or defective equipment and that any high concentration of ozone occurred before the generator's failure. (Id.) Plaintiff expressed its disagreement with Graf's findings and conclusions in an August 5, 2014 email to ...