Tower Ins. Co. v. Dockside Assocs. Pier 30 LP

834 F.Supp.2d 257

TOWER INSURANCE COMPANY, of New York, et al.

v.DOCKSIDE ASSOCIATES PIER 30 LP, et al.

Civil Action No. 10–1886.

United States District Court, E.D. Pennsylvania.

July 7, 2011.

Debra A. Clifford, Gibbons PC, Newark, NJ, Steven D. Johnson, Thomas Klemm, Gibbons, Del Deo, Dolan, Griffinger & Vecchione, Philadelphia, PA, for Plaintiffs.

Kenneth M. Portner, Weber Gallagher Simpson Stapleton & Newby LLP, Fred Warren Jacoby, Cozen O'Connor, Philadelphia, PA, for Defendants.

MEMORANDUM OPINION

SAVAGE, District Judge.

Moving for summary judgment, Tower Insurance Company of New York (“Tower”) and Everest National Insurance Company (“Everest”) seek a declaration that they have no duty to defend or indemnify Dockside Associates Pier 30, LP (“Dockside”) and DePaul Management Company (“DePaul”) in an action pending in Pennsylvania state court.¹ They contend that the claims against Dockside and DePaul in the underlying action are not covered under the commercial general liability insurance policies issued by them because the claims arise out of a contract. In the alternative, they argue that coverage is barred by mold exclusions in the policies and the “known loss” doctrine; the insureds failed to give Tower proper notice of the loss; and the loss occurred prior to the effective date of the policies.

Dockside and DePaul contend that the claims are covered because the complaint in the underlying action asserts claims other than for breach of contract. They also contest that policy exclusions bar coverage, the “known loss” doctrine applies, or they failed to provide proper notice of loss.

After reviewing the policies and the plaintiffs' complaint in the underlying action, we conclude that Tower and Everest have no duty to defend and indemnify Dockside and DePaul. Accordingly, Tower and Everest's motion for declaratory judgment will be granted.

The Underlying Action

In their amended complaint filed in the Philadelphia County Court of Common Pleas, Raymond Forceno and Cheryl Ann Ryan assert causes of action arising out of their purchase of a condominium unit from Dockside. They allege that as a result of faulty construction, water “intruded” into their unit causing water damage and mold. Compl., at 20. They seek damages for “the cost of repairing the condominium unit, permanent diminished value of the condominium unit, personal injuries, economic damages resulting from moving from the condominium unit and costs associated with relocation.” Compl., at 16. They sued Dockside, the seller; DePaul and Camco Management Company (“Camco”), the managers of the property at various times; Keating Building Company (“Keating”), the builder of the condominium; and Dockside Condominium Association (“Condominium Association”), owner of the common areas.

The state court complaint contains seven counts. Five counts are brought against Dockside,² one against DePaul,³ and one against Keating. The causes of action against Dockside are for breach of contract, breach of implied warranty, unjust enrichment, fraud, and deceptive and fraudulent business practices under the “state consumer protection statute.” The count against DePaul is for negligently failing to maintain and repair the condominium unit.

Our task is to decide whether Tower and Everest, at this time, have a duty to defend and indemnify Dockside or DePaul against any applicable claims. In other words, we must determine whether any of the applicable claims are potentially covered by the policies issued to Dockside and DePaul.

Legal Standard

The interpretation of an insurance contract is a question of law. J.C. Penney Life Ins. Co. v. Pilosi, 393 F.3d 356, 360 (3d Cir.2004) (citing Med. Protective Co. v. Watkins, 198 F.3d 100, 103 (3d Cir.1999)). “Whether a particular loss is within the coverage of an insurance policy is such a question of law and may be decided on a motion for summary judgment in a declaratory judgment action.” State Farm Mut. Auto. Ins. Co. v. Universal Underwriters Ins. Co., 441 Pa.Super. 446, 657 A.2d 1252, 1255 (1995), rev'd on other grounds,549 Pa. 518, 701 A.2d 1330 (1997).

A court must give effect to the plain language of the insurance contract read in its entirety. Lexington Ins. Co. v. W. Pa. Hosp., 423 F.3d 318, 324 (3d Cir.2005) (quoting Reliance Ins. Co. v. Moessner, 121 F.3d 895, 901 (3d Cir.1997)). When the policy language is ambiguous, the provision must be construed in favor of the insured. Reliance, 121 F.3d at 900–01 (citing Standard Venetian Blind v. Am. Empire Ins. Co., 503 Pa. 300, 469 A.2d 563, 566 (1983)). Contract language is ambiguous if it is reasonably susceptible to more than one construction and meaning. Bowersox v. Progressive Cas. Ins. Co., 781 A.2d 1236, 1239 (Pa.Super.Ct.2001) (citing Hutchison v. Sunbeam Coal Corp., 513 Pa. 192, 519 A.2d 385, 390 (1986)). However, policy language may not be stretched beyond its plain meaning to create an ambiguity. Trizechahn Gateway LLC v. Titus, 601 Pa. 637, 976 A.2d 474, 483 (2008).

The insured has the initial burden of establishing coverage under the policy. Butterfield v. Giuntoli, 448 Pa.Super. 1, 670 A.2d 646, 651–52 (Pa.Super.Ct.1995). Conversely, when the insurer relies on a policy exclusion as the basis for denying coverage, it has the burden of proving, by uncontradicted facts, that the exclusion applies. Mistick, Inc. v. Northwestern Nat. Cas. Co., 806 A.2d 39, 42 (Pa.Super.Ct.2002); Butterfield, 670 A.2d at 651–52. Policy exclusions are strictly construed against the insurer. Nationwide Mut. Ins. Co. v. Cosenza, 258 F.3d 197, 206 (3d Cir.2001) (citing Selko v. Home Ins. Co., 139 F.3d 146, 152 n. 3 (3d Cir.1998)).

Duty to Defend

An insurance carrier's duty to defend is distinct from its duty to provide coverage. It is interpreted more broadly than the duty to indemnify. Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 589 Pa. 317, 908 A.2d 888, 896 n. 7 (2006). An insurer may have a duty to defend even though it has no duty to indemnify. Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 746 (3d Cir.1999). A duty to indemnify does not arise until the insured is found liable for a covered claim. Id.

Because the duty to defend is broader than the duty to indemnify, the complaint in the underlying action must be construed liberally, the factual allegations must be accepted as true, and all doubts as to coverage resolved in favor of the insured. Roman Mosaic & Tile Co. v. Aetna Cas. & Sur. Co., 704 A.2d 665, 669 (Pa.Super.1997). To prevent artful pleading designed to avoid policy exclusions, it is necessary to look at the factual allegations in the complaint, not how the underlying plaintiff frames the request for relief. Kvaerner Metals, 908 A.2d at 893;Mut. Benefit Ins. Co. v. Haver, 555 Pa. 534, 725 A.2d 743, 745 (1999). In other words, the focus of the coverage inquiry is on the substance, not the form, of the allegations.

An insurer is obligated to defend the insured against any suit arising under the policy “ ‘even if the suit is groundless, false, or fraudulent.’ ” Britamco Underwriters, Inc. v. Weiner, 431 Pa.Super. 276, 636 A.2d 649, 651 (Pa.Super.Ct.1994) (quoting Gedeon v. State Farm Mut. Auto. Ins. Co., 410 Pa. 55, 188 A.2d 320, 321 (1963)). Consequently, whenever the complaint sets forth facts raising claims that could possibly come within the policy's coverage, the insurer's duty to defend is triggered. Erie Ins. Exch. v. Muff, 851 A.2d 919, 931 (Pa.Super.Ct.2004); Belser v. Rockwood Cas. Ins. Co., 791 A.2d 1216, 1219, 1222 (Pa.Super.Ct.2002). If a single claim in a multiple claim complaint is potentially covered, the duty to defend attaches until the underlying plaintiff can no longer recover on a covered claim. Frog, Switch & Mfg. Co., 193 F.3d at 746;Am. Contract Bridge League v. Nationwide Mut. Fire Ins. Co., 752 F.2d 71, 75 (3d Cir.1985).

Applying these principles to this case, we examine the insurance policies and the allegations in the state court complaint. What the complaint in the state action alleges Dockside and DePaul did and the language of the insurance policies are not in dispute. Thus, we must decide whether Tower and Everest have a duty to defend under the policies as a matter of law.

Discussion

The commercial general liability policy issued by Tower to Dockside and DePaul assures that Tower “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” ⁴ It further provides that it “will have the right and duty to defend the insured against any ‘suit’ seeking those damages.” ⁵

The Tower policy applies only where “ ‘bodily injury’ or ‘property damage’ is caused by an ‘occurrence,’ ” ⁶ which is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” ⁷ The policy specifically excludes coverage for “damages by reason of the assumption of liability in a contract or agreement.” ⁸

The commercial liability policy issued by Everest covers the excess of the underlying limits of the Tower policy. Because the Everest policy is an excess liability policy and “[f]ollows the terms, definitions, conditions and exclusions that are contained in the [Tower policy],” ⁹ it does not provide broader coverage than the Tower policy.¹⁰ Consequently, if there is no coverage under the Tower policy, there can be none under the Everest policy. Conversely, if the Tower policy covers the loss, so does the Everest policy.

Tower and Everest contend that they have no obligation to defend or indemnify Dockside or DePaul because the underlying action is for breach of contract, which is not an “occurrence” as defined in the policies. The insureds counter that the claims against Dockside are covered because there are no allegations that it intentionally breached its contract and the amended complaint requests consequential damages. They also argue that because the claim...