the parties, meet the definition of "occurrence" within the policy.
c. Property Damage
The second argument made by Federal is that the claims made by General are not for "property damage." The policy defines that term to encompass two categories: 1) "physical destruction of tangible property . . . including the loss of use thereof at any time resulting therefrom," and 2) "loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence . . . ."
Federal asserts that the first three items of damages sought by PSC (i.e. the cost of the original cones, the cost of installing the original cones, and the replacement cost for the new cones) are potentially covered under category 1 of the definition of "property damage," but Exclusion (n) excludes them as damages to the insured's own product. The fourth item of damages sought by PSC is lost generation of power during the period of replacement which falls within category 2 of the definition of "property damage." Since the court has already concluded an "occurrence" has taken place, the only way that Federal can disclaim for loss of use is if that claim falls within Exclusion (m). Finally, Federal argues that PAR's claim for lost profits by virtue of the shutdown of the Cherokee plant is not cognizable, because PSC was able to shift its load demand to its other power generating stations and therefore, any increased use of fuel was offset by the fuel savings at the Cherokee plant. The court does not agree. See Exhibit A to General's response to Federal's motion for summary judgment; Baldt, Inc. v. American Universal Ins. Co., 599 F. Supp. 955 (E.D. Pa. 1985).
d. Exclusions (a), (m), (n), and (p)
Where an insurer seeks to disclaim coverage under an insurance policy by invoking an exclusionary provision, it is the insurer which bears the burden of proving that the exclusion is applicable to the particular case. Daburlos v. Commercial Ins. Co., 521 F.2d 18 (3d Cir. 1975).
General points to Exclusion (a) coupled with the affirmative statement of coverage in support of its position that coverage is owed to it under the policy. Federal asserts that Exclusions (m), (n) and (p) preclude coverage. Pennsylvania law states that not only must insurance policies be construed in favor of the insured, but "policies must be construed 'in a manner which is more favorable to coverage.'" Imperial Casualty and Indemnity Co. v. High Concrete Structures, Inc., 858 F.2d 128, 132 n.4 (3d Cir. 1988) citing Houghton v. American Guar. Life Ins. Co., 692 F.2d 289, 291 (3d Cir. 1982).
General's initial argument is that there is an inconsistency between Exclusions (m), (n) and (p) which General relies on in denying coverage and the exception to Exclusion (a) which affords coverage for property damage resulting from a breach of warranty of fitness or quality of the named insured's products. This issue has not been specifically addressed by the Pennsylvania state courts, and the various courts throughout the United States which have spoken to it have arrived at irreconcilable conclusions.
Courts which have afforded coverage to the insured after considering the issue have followed a similar line of reasoning. Exclusion (a) does not apply to a "warranty of fitness or quality of the named insured's products . . .," thus, coverage is clearly afforded to the insured. The exclusions subsequent to Exclusion (a) do not unambiguously exclude coverage resulting from a breach of the warranty of fitness or quality of the named insured's products. The courts have reasoned that any subsequent exclusion that attempts to limit or contradict the coverage afforded the insured in Exclusion (a) either creates an ambiguity which must be construed in favor of coverage, or that must be reconciled with Exclusion (a).
Exclusion (n) of Federal's insurance policy does not apply to "property damage to the named insured's products arising out of such products or any part of such products." This means that there is no coverage for property damage to an insured's own product or work. This exclusion precludes claims for repair or replacement to the insured's own products. However, claims for loss of use or lost profits are not barred by this language. Pittsburgh Bridge and Iron Works v. Liberty Mutual Ins. Co., 444 F.2d 1286 (3d Cir. 1971); Honeycomb, supra; Beckwith Machinery Company v. Travelers Indemnity Company, 638 F. Supp. 1179 (1986).
Exclusion (a) of Federal's policy to General affords coverage to General for damages it has become legally obligated to pay because of property damage claims that go to a warranty of fitness or quality of General's products. Although this exception to Exclusion (a) creates a double negative, by doing so it appears that there is affirmative coverage to the insured. Exclusion (n) (commonly referred to as the work product exclusion) then states that the policy does not apply to "property damage to the named insured's products arising out of such products or any part of such products." The court is persuaded by the courts' reasoning in the cases discussed in General's memorandum of law in support of its motion for summary judgment and concludes that the exclusions in Federal's policy to General are irreconcilable and ambiguous. If Federal wanted to exclude this type of damage from coverage, it should have done so clearly and in a straightforward manner in the policy. Accordingly, the court will construe the policy in favor of coverage to General.
Alternatively, the court finds that in light of the diversity of opinion in the United States regarding this issue, the court will construe this difference of interpretation in favor of the insured. Myrtil v. Hartford Fire Ins. Co., 510 F. Supp. 1198 (E.D. Pa. 1981); Cohen v. Erie Indemnity Co., 288 Pa. Super. 445, 432 A.2d 596 (1981); Armon v. Aetna Casualty & Surety Co., 369 Pa. 465, 87 A.2d 302 (1952).
Based upon the foregoing discussion, summary judgment will be entered in favor of General and against Federal.
An appropriate Order will follow.
AND NOW, TO WIT, this 16th day of November, 1988, upon consideration of the cross motions for summary of judgment and the memoranda submitted in support and in opposition thereto, IT IS ORDERED that summary judgment is granted in favor of defendant General Machine Corporation and against plaintiff Federal Insurance Company.