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PHILADELPHIA FACILITIES MGMT. CORP. v. ST. PAUL FI

June 17, 1974

PHILADELPHIA FACILITIES MANAGEMENT CORPORATION, Successor in interest to UGI Corporation, Philadelphia Gas Works Division and RELIANCE INSURANCE COMPANIES, Plaintiffs
v.
THE SAINT PAUL FIRE AND MARINE INSURANCE COMPANY and J. F. PRITCHARD & COMPANY, INC. Defendants v. STEWART WARNER CORPORATION Third Party Defendant


Fogel, J.


The opinion of the court was delivered by: FOGEL

A fire which occurred on October 24, 1969, causing extensive damage to a Philadelphia Gas Works liquefied natural gas plant in Philadelphia (hereinafter referred to as LNG) is the genesis of this action which plaintiffs Philadelphia Facilities Management Corporation, successor in interest to UGI Corporation, Philadelphia Gas Works Division (hereinafter referred to as PGW) and Reliance Insurance Companies (hereinafter referred to as Reliance) have brought against defendants St. Paul Fire and Marine Insurance Company, Inc. (hereinafter referred to as St. Paul) and J. F. Pritchard & Company, Inc. (hereinafter referred to as Pritchard). Before us at this stage of the proceedings are motions for summary judgment filed by plaintiffs and by Pritchard.

 Those facts which are not subject to dispute may be summarized as follows: At some time prior to May of 1966, PGW decided to build an LNG plant at its facility located at 3100 East Venango Street, Philadelphia. Bids were invited, and Pritchard was selected as the general contractor. Among the provisions of the construction contract was a requirement that Pritchard procure installation floater insurance coverage, naming PGW as an insured. *fn1" Pritchard had carried such insurance with St. Paul continuously since 1954; the policy provided for inclusion of new construction projects such as the PGW LNG plant within its coverage, subject only to Pritchard reporting the costs of the improvements it had contracted to make to St. Paul for purposes of premium computation. Construction of the plant began, and by the summer of 1969 had progressed to the stage at which the pressure and mechanical tests mandated by the contract could be conducted. The date of initial operation was August 13, 1969. On October 24, 1969, prior to the commencement of the performance tests called for by the contract, a fire occurred in the LNG plant, causing a loss alleged to total $ 428,002.55.

 PGW notified St. Paul of the loss; St. Paul, however, refused payment, asserting that the coverage under the installation floater policy issued to Pritchard had terminated prior to the occurrence of the fire. PGW subsequently filed a claim with Reliance under an excess policy of insurance issued to PGW, and the claim was paid, less the $ 100,000.00 deductible in the policy. PGW and Reliance thereafter instituted the present action in this Court against St. Paul and Pritchard, averring that St. Paul wrongfully denied coverage under the installation floater policy, and should have responded to the full extent of the loss, or, in the alternative, that Pritchard was in breach of its contractual obligation to procure such insurance coverage, and was therefore liable for the entire loss, if in fact the St. Paul policy was not in force at the time of the fire.

 After a pretrial conference attended by the parties, the Court issued an Order dated July 24, 1973, directing that they embark upon an initial round of discovery limited to the sole issue of the insurance coverage, if any, which existed at the time of the fire. *fn2" At the conclusion of this phase of discovery plaintiffs filed their motions for summary judgment against St. Paul on the issue of the coverage of the installation floater policy and against Pritchard on the issue of breach of its contractual obligation to procure such insurance. Pritchard joined in the motion against St. Paul.

 Oral argument was heard, and extensive memoranda, depositions, and exhibits were filed. After consideration of all of these materials, we have concluded that the legal principles which govern the grant or denial of summary judgment dictate refusal of the motion at this stage of the litigation because of the existence of material factual disputes.

 Our threshold examination focuses upon the pertinent provisions of the installation floater policy which Pritchard secured from St. Paul as of May 1, 1954, (Policy No. AT10-4040), as modified by the specific endorsement to cover the LNG plant and to include PGW as an additional named insured. Paragraphs 5 and 7 thereof, dealing with insurable interest and period of coverage on location, provide as follows:

 
5. INTEREST
 
COVERING ON ALL MATERIALS, EQUIPMENT, MACHINERY AND APPURTENANCES AND OTHER PROPERTY OF ANY NATURE WHATSOEVER, SHIPPED BY OR FOR THE ASSURED OR FOR WHICH THE ASSURED MAY HAVE AN INTEREST OR RESPONSIBILITY ON WHICH THE ASSURED MAY BE LIABLE OR ASSUMES LIABILITY PRIOR TO LOSS OR DAMAGE INCLUDING THE VALUE OF LABOR PERFORMED IN ERECTION OR INSTALLATION.
 
* * *
 
7. COVERAGE ON LOCATION
 
THIS INSURANCE COVERS FROM THE TIME PROPERTY PASSES OUT OF CUSTODY OF CARRIERS (AS SPECIFIED IN PARAGRAPH 6) AT PLACE OF ERECTION OR INSTALLATION AND CONTINUOUSLY THEREAFTER WHILE BEING ERECTED OR INSTALLED, UNTIL ERECTION OR INSTALLATION AS CONTRACTED OR AGREED BY THE ASSURED HAS BEEN COMPLETED OR TESTED AND ACCEPTED BY THE PURCHASER.

 The crucial clause of the policy in connection with the issue now before us is found in para. 7, which calls for coverage "until erection or installation as contracted or agreed by the assured has been completed or tested and accepted by the purchaser." Resolution of the dispute among the parties turns upon a determination of the fact of completion of the plant as that term is defined under para. 7 of the policy at the time of the fire on October 24, 1969. *fn3"

 St. Paul raises a preliminary question pertaining to the choice of law governing the interpretation of the installation floater policy. It asserts that the law of Missouri, the state in which the original 1954 policy was delivered, differs in significant particulars from the law of Pennsylvania, principally with respect to judicial interpretation of the term "completion".

 It is axiomatic that a federal court in a diversity case must apply the choice of law rule of the forum state. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941). Under the traditional Pennsylvania rule, the construction of an insurance contract is governed by the law of the state in which delivery takes place, if delivery is the last act legally necessary to bring the contract into force. Ruhlin v. New York Life Insurance Company, 106 F.2d 921 (3d Cir. 1939). In 1964, however, the Supreme Court of Pennsylvania in Griffith v. United Air Lines, 416 Pa. 1, 203 A.2d 796 (1964), adopted its current rule which provides that the law of the state controls which has the most significant contacts with and interest in both the occurrence and the parties. The Griffith rule has been applied to contract cases as well as in tort litigation, the first type of action in which the concept was enunciated by the Supreme Court of Pennsylvania; see Neville Chemical Company v. Union Carbide Corporation, 422 F.2d 1205 (3d Cir. 1970); Readmond v. Matsushita Electric Corp. of America, 355 F. Supp. 1073 (E.D. Pa. 1973). The traditional delivery rule, however, seems to persist in cases involving insurance contracts; First Pennsylvania Banking and Trust Company v. United States Life Insurance Company in the City of New York, 421 F.2d 959 (3d Cir. 1969); Crawford v. Manhattan Life Insurance Co. of N.Y., 208 Pa. Super. 150, 221 A.2d 877 (1966); Eastcoast Equipment Co. v. Maryland Casualty Company, 207 Pa. Super. 383, 218 A.2d 91 (1966).

 In the instant case, it appears that while the original 1954 policy was delivered in Missouri, the endorsement naming PGW as an additional insured was delivered in Pennsylvania. Even applying the traditional delivery rule, therefore, it is not at all clear that Missouri law would necessarily apply in the construction of the policy. See generally 8 Vill. L. Rev. 408 (1961).

 While the choice of law may become relevant at a later stage in the litigation, it is unnecessary to choose between Missouri and Pennsylvania law at this juncture.

 St. Paul asserts that the Court must look to Missouri law to determine and apply a purported legal standard of "completion" with respect to the installation floater policy at issue in the instant case. We have carefully examined the Missouri case cited by St. Paul, Property Owners' Materials Co. v. Byrne, 176 S.W. 2d 650 (Mo. App. 1944), and two cases from the United States Court of Appeals for the Tenth Circuit, Fireman's Fund Ins. Co. v. Millers' Mutual Ins. Ass'n, 451 F.2d 1140 (10th Cir. 1971), and Hendrix v. New Amsterdam Casualty Company, 390 F.2d 299 (10th Cir. 1968), which apply the standard of "completion" enunciated by the Court in Property Owners ', supra. These cases stand for the proposition that "the work of merely repairing defects or remedying inferior workmanship [does] not preclude a determination that [a] building [has] been completed for the purposes of [a builder's risk insurance] policy." Hendrix, supra, at 304.

 While this proposition may become pertinent at a future stage of the proceedings, it is clearly not relevant to a decision upon plaintiffs' motion for summary judgment against St. Paul, which seeks to have us decide now that as a matter of law the LNG plant had not been completed. *fn4"

 Moreover, we do not consider the cited cases, and the purported "objective" standard of completion which they are said to embody, as relevant to the determination of coverage in the context of the present motion for summary judgment, because the term, "completion", as used in a policy of installation floater insurance, can only be defined within the context of the construction project which it was intended to insure. "Completion", in reference to a construction project, means whatever the parties to that particular construction contract have intended the term to mean, pursuant to the provisions of the construction contract itself.

 The installation floater policy issued by St. Paul to Pritchard recognizes the necessity of incorporation by reference, at least in part, of the construction contract into the insurance policy. Paragraph 7 of the policy provides that coverage extends during erection or installation on location until "erection or installation as contracted or agreed by the assured [Pritchard] has been completed or tested and accepted by the purchaser". (emphasis supplied).

 We therefore turn to an examination of the pertinent provisions of the construction contract between Pritchard and PGW to determine whether the LNG plant "as contracted or agreed" between these parties was "completed".

 The construction contract between Pritchard and PGW is quite specific in its definition of testing and completion of construction. Article 9.0 provides as follows:

 
Article 9.0 -- Acceptance Tests and Completion
 
Subject to General Provisions, Section XIII, the following tests shall be performed:
 
9.01 Pressure and Mechanical Tests for Liquefaction and Vaporization Facilities
 
Pressure and Mechnical Tests for Liquefaction and Vaporization Facilities as described in General Provisions.
 
9.02 Performance Tests for Liquefaction and Vaporization Facilities
 
After all pressure and mechanical tests are satisfactorily completed on the Liquefaction and Vaporization Facilities and defects, if any, are remedied, Contractor shall notify the Purchaser that the Work is ready for Performance Test, and the Purchaser shall arrange to make a Performance Test within the applicable period specified in Article 4.02. Continuous operation for a period of twenty-four (24) hours in accordance with guarantees (with suitable allowances for deviations to be mutually agreed upon) shall constitute successful completion of Performance Test.
 
9.03 Completion of Liquefaction and Vaporization Facilities
 
Upon successful completion of Performance Tests or if, for any reason except for Force Majeure, the Purchaser is unable to make a Performance Test on the Vaporization Facilities within the applicable period specified in Article 4.02 following notification by the Contractor or, in the case of the Liquefaction Facilities, is unable to make Performance Test within 6 months from the date of completion of the Pressure and Mechanical Tests, such Section of the Work shall be considered satisfactorily completed. No action founded upon the performance guarantees will lie against the Contractor unless the Contractor receives notice in writing within seven (7) days after the results of the Performance Tests are ascertained, setting forth the fact that the plant or equipment is not satisfactory. Particulars to follow in due course. (emphasis added)
 
* * *

 Article 4.02 of the construction contract, which is referred to in Articles 9.02 and 9.03, originally provided as follows:

 
Article 4.0 -- Terms of ...

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