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UNITED STATES FID. & GUAR. CO. v. BARRON INDUS.

December 18, 1992

UNITED STATES FIDELITY & GUARANTY COMPANY, Plaintiff
v.
BARRON INDUSTRIES, INC., THE NEW YORK BLOWER COMPANY, MECHANOVENT CORP., DRAVO CORP., AND CONTINENTAL ENERGY ASSOCIATES Defendants



The opinion of the court was delivered by: RICHARD P. CONABOY

 Plaintiff, United States Fidelity & Guaranty Company (hereinafter USF & G) brings this diversity based declaratory judgment action against its insureds, Barron Industries, Inc., New York Blower Company, and Mechanovent Corporation (hereinafter collectively referred to as Barron) to determine whether an insurance policy issued by USF & G to Barron affords coverage for certain property damage claims asserted against Barron. This coverage dispute arises directly out of an underlying action in the Luzerne County Court of Common Pleas wherein Continental Cogeneration Corporation (hereinafter CCC), Continental Energy Associates (hereinafter CEA) and Dravo Corporation are adverse parties to Barron.

 Currently, there are two motions pending before the Court: *fn1"

 (1) Plaintiff's motion for summary judgment; and (2) Barron's motion for a Protective Order and to strike. (Doc.Nos. 16 and 32, respectively). The Court will review and analyze both motions in the present Memorandum and Order.

 BACKGROUND

 In order to fully understand the present action, it is necessary first to describe the events leading up to and involved in the pending state court litigation.

 On March 19, 1987, CEA and Dravo entered into a "Turnkey Construction Contract" *fn2" whereby Dravo agreed to design and construct by April 10, 1989, a Gasification Facility for CEA's cogeneration plant in Hazleton, Pennsylvania. Thereafter, on December 27, 1987, Dravo entered into a Purchase Order Agreement with Defendant insureds (Barron, New York Blower Co., and Mechanovent Corp.). In accordance with the terms of the Purchase Order Barron was to:

 Provide all necessary labor, material, supervision, inspection, equipment and supplies to fabricate, assemble, clean, prime and paint, test and load for shipment to the Humboldt Gasification Facility in Hazelton, Pennsylvania two (2) Process Gas Fans in strict compliance with Dravo Wellman Specification W4412-E-12341 General Revision dated October 14, 1987, General Mechanical Specification W4412 dated September 24, 1986, and the Technical Classifications and Exceptions.

 (Doc.No. 30, Exh. E, p. 3).

 Dravo then began construction of the Gasification Facility. By the Fall of 1989, however, problems allegedly related to the design and installation of the Barron Process fans began surfacing at the job site. In particular, the shaft/seal system caused an explosion on November 15, 1989, *fn3" which bent and damaged an I-beam support. (Doc.No. 30, Exh. D, P. 6). In addition, on December 10, 1989, a fire was detected in the seal duct cavity of one of the Barron Process fans resulting in damage to the seal duct and the seal duct insulation and wiring, all of which were supplied and installed by Dravo. (Doc.No. 30, Exh. D, p. 16).

 As a result of these problems, CEA served upon Dravo a Notice of Contract Events of Default. Dravo was then given a period of time to cure the alleged events of default, but was unable to do so. Accordingly, CEA, by letter dated February 16, 1990, terminated the contract and commenced suit against Dravo in the Luzerne County Court of Common Pleas. (Doc.No. 30, Exh. E, p. 9). Dravo in turn joined Barron as a third-party Defendant.

 Dravo's third-party complaint reiterates many of the allegations contained in CEA's complaint. In particular, Dravo cites the following Problems related to the alleged deficiencies in the Barron Process Fans:

 8. On or about December 10, 1989, a fire was detected in the seal duct cavity of one of the Barron Process fans installed at the coal gasification facility.

 9. As a result of the fire, the seal duct and the seal duct insulation, both supplied and installed by Dravo, were damaged.

 10. Further, upon inspection of the Process Gas Fans after the fire, cracks were detected in one of the Process Gas Fans supplied by Barron.

 (Doc.No. 30, Exh. E, pp. 3-4).

 As a result of the third-party suit against Barron, USF & G, as Baron's insurer, filed the present action in District Court seeking a declaration that it has no obligation to defend Barron in the underlying state court action.

 DISCUSSION

 A. SUMMARY JUDGMENT

 On June 1, 1992, USF & G filed a motion for summary judgment contending that it is not obligated to defend Barron because "no coverage is conceivably possible for Dravo's claims against Barron." (Doc.Nos. 16 and 17, p. 18, respectively). In support of this contention USF & G posits that: (1) Barron cannot establish compensable "property damage" as defined in the policy; (2) Barron cannot establish an "occurrence" or "incident" within the meaning of its policies; (3) even if there is an "occurrence", it happened after the policy period; (4) even assuming "property damage" caused by an occurrence within the policy period, certain policy exclusions preclude coverage; and (5) Barron's notice was untimely thereby precluding coverage. (Doc.No. 17).

 When reviewing motions for summary judgment, Federal Rule of Civil Procedure 56(c) requires that we render summary judgment" . . . forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the 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." "This standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-8, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986) (emphasis in original).

 A fact is "material" if proof of its existence or nonexistence would effect the outcome of the lawsuit under the law applicable to the case. Anderson, 477 U.S. at 248; Levendos v. Stern Entertainment Inc., 860 F.2d 1227, 1233 (3d Cir. 1988). An issue of material fact is "genuine" if the evidence is such that a reasonable jury might return a verdict for the non-moving party. *fn4" Anderson, 477 U.S. at 257; Hankins v. Temple University, 829 F.2d 437, 440 (3d Cir. 1987); Equimark Commercial Finance Co. v. C.I.T. Financial Services Corp., 812 F.2d 141, 144 (3d Cir. 1987).

 In determining whether an issue of material fact does exist, all inferences must be drawn against the moving party. White v. Westinghouse Electric Company, 862 F.2d 56, 59 (3d Cir. 1988); 6 J. Moore, Moore's Federal Practice P 56.04[2]. In order to stave off a summary judgment motion, however, the non-moving party may not rest on the bare allegations contained in his or her pleadings. Once the moving party has satisfied its burden of identifying evidence which demonstrates an absence of a genuine issue of material fact, see Childers v. Joseph, 842 F.2d 689, 694 (3d Cir. 1988), the nonmoving party is required by Federal Rule of Civil Procedure 56(e) *fn5" to go beyond the pleadings by way of affidavits, depositions, answers to interrogatories or the like in order to demonstrate specific material facts which give rise to a genuine issue. Celotex Corporation v. Catrett, 477 U.S. 317, 324, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). When Rule 56(e) shifts the burden of proof to the nonmoving party, that party must produce evidence to show the existence of every element essential to its case which it bears the burden of proving at trial. Equimark, supra at 144. If, however, "the evidentiary matter in support of the motion does not establish the absence of a genuine issue, summary judgment must be denied even if no opposing evidentiary matter is presented." Advisory Committee Notes to Fed.R.Civ.P. 56(e) (1963 Amend.).

 Pennsylvania law governs this Court's interpretation of the insurance policy's coverage. *fn6" Pennsylvania's principles of law governing interpretation of insurance policies are well-settled. The goal is to ascertain the intent of the parties as demonstrated by the language utilized in the insurance contract. Federal Insurance Company v. General Machine Corporation, 699 F. Supp. 490 (E.D. Pa. 1988).

 Where the language of the policy is clear and unambiguous, a court is required, as with any contract, to enforce that language. If possible a court should interpret the policy so as to avoid ambiguities and give effect to all of its provisions.

 Id. at 494 (citations omitted).

 The Court will utilize the above standards when reviewing USF & G's pending motion for summary judgment.

 1. Property Damage as Defined in the Policies

 USF & G's first argument is that Barron cannot establish compensable property damage as defined in the policy. Pursuant to the terms ...


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