damage" to which this insurance applies. . . . This insurance applies only to "bodily injury" and "property damage" which occurs during the policy period. The "bodily injury" or "property damage" must be caused by an "occurrence." The "occurrence must take place in the "coverage territory." (Doc.No. 30, Exh. A, p. 1).
The policy defined property damage as "physical injury to tangible property, including all resulting loss to use of that property, or loss of use of tangible property that is not physically injured." (Doc.No. 30, Exh. A, p. 9).
USF & G maintains that the intent of the policy is to protect the insured against tort liability for physical injury and property damage to others. Thus, USF & G asserts, such policies do not provide coverage for the "contractual liability of the insured for economic loss because the completed work is not that for which the damaged person bargained." (Doc.No. 17, p. 9). USF & G likens the allegations contained in the underlying complaints to that of economic loss, claiming CEA is seeking to recover only substantial delay and completion damages against Dravo as a result of Dravo and Barron's failure to provide CEA that for which it bargained, an operational gasification facility. (Doc.No. 17, p. 10). Based on this summarization, USF & G concludes there is no property damage, i.e. "physical injury to tangible property . . . or loss of use of tangible property that is not physically injured," but only the economic loss resulting from Barron's defective contract performance (Doc.No. 17, p. 10).
Barron and Dravo respond by arguing that the underlying lawsuit is more than a suit for completion damages and delay damages. Rather, Barron and Dravo assert, there are specific claims for the physical injury to the I-beam support, wiring, insulation, duct work and loss of use of the facility, all of which constitute property damage potentially covered by USF & G's insurance policies and thus, prevent an award of summary judgment. (Doc.No. 29, p. 3). We agree with Barron.
It is undisputed that the clause obligating the insurer to pay all "damages because of . . . property damage" the insured is legally liable to pay, principally governs coverage for property damage liability. Despite its facially simple language, this clause yields several perplexing issues concerning the coverage it grants. For example, coverage under this language should not be confused with that granted by property and other casualty insurance. Liability insurance does not provide compensation for the property damage, but only protects the insured against legal liability incurred because of the damage. Note, Liability Coverage for "Damages Because of Property Damage" Under the Comprehensive general Liability Policy, 68 MINN.L.REV. 795, 799 (1984).
Moreover, the term "property damage" is qualified by the term "tangible". Thus, the definition contemplates only property damage which is physical, capable of being touched and objectively perceivable and not intangible property, such as property that represents value but has no intrinsic marketable value of its own, (i.e stock, investments, copyrights, promissory notes), property regarded as intangible rights (i.e. goodwill and reputation), and economic interests (i.e. overhead, profits, investment value and productivity). Id. at 801 (citations omitted).
The boundaries of the "property damage" definition can be visuilzed by considering a third party's factory which collapses through an insured's negligence. The factory is tangible property and the "property damage" definition is satisfied. The lost profits suffered by the third party as a result of the factory's collapse, however, are economic losses which are intangible and thus, outside the "property damage" definition. Thus, the collapse of the factory may constitute "property damage" while injuries flowing from it do not. Id.
Although USF & G attempts to argue that the only damages alleged by CEA are that of substantial delay and completion damages, which clearly represent economic interests not covered by the policy, USF & G has completely overlooked the fact that CEA has also specifically alleged physical injury to the I-beam support, wiring, insulation, and duct work, all of which come within the confines of the "property damage" definition. See Beckwith Machinery Co. v. Travelers Indem. Co., 638 F. Supp. 1179, 1185 (W.D. Pa. 1986); St. Paul Fire and Marine Insurance Co. v. Sears, Roebuck & Co., 603 F.2d 780, 784 (9th Cir. 1979) (where there is some damage to property other than that which consists of the insured's product, there is covered property damage.
Also overlooked by USF & G is CEA's claims for loss of the facility. Loss of use of tangible property occurs when the insured's product is incorporated into a larger tangible entity and the incorporated product causes the entire entity to fail. Note, Liability Coverage for "Damages Because of Property Damage" Under the Comprehensive general Liability Policy, 68 MINN.L.REV. 795, 804 (1984). For example, a motor supplied by the insured is incorporated into an engine. The motor fails, but no physical harm occurs to the rest of the engine. The motor's failure, however, may decrease or eliminate use of the entire engine, thereby triggering coverage. Like the example used above, Barron supplied Process Fans which were incorporated into CEA's Gasification Facility. The fans allegedly failed, causing CEA to suffer a loss of use of the facility. Similarly, CEA's claim for loss of use of the facility in the present case amounts to "property damage" contemplated by the terms of the policy.
Accordingly, we find that CEA has alleged "property damage" as defined in the policy.
2. An "Occurrence" or "Incident" as Defined in the Policies
USF & G next maintains that Barron cannot establish an "occurrence" or "incident" within the meaning of the policy. The policy defines an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (Doc.No. 30, Exh. A, p. 9). USF & G contends that according to Barron's notice of claim and follow-up report, Dravo's breach of contract claim against Barron is the purported "occurrence" or "incident" for which Barron seeks coverage under its policies. (Doc.No. 17, p. 10).
Barron contends that there were two occurrences alleged by CCC/CEA and Dravo. (1) the November 15, 1989 explosion and the December 10, 1989 fire; and (2) the cracking of the fan blades. (Doc.No. 29, p. 23).
A plain reading of the underlying complaints, as well as the insurance policy lends credence to Barron's position. Both CEA's complaint against Dravo and Dravo's third party complaint against Barron specifically cite the November 15, 1989 explosion and the December 10, 1989 fire as incidents causing damage to the physical property of the facility. Thus, the explosion and the fire are the occurrences and not the actual filing of the third-party complaint.
3. The Timing of the Event For Coverage Purposes
The next theory presented by USF & G is that the subject claims fall outside the policy period which ended on January 15, 1990. (Doc.No. 17, p. 12). Again USF & G reaches this conclusion by asserting that Barron's claims arise from CEA's termination of the primary contract with Dravo and CEA's subsequent action against Dravo. As such, USF & G contends the termination of the contract, which occurred on February 23, 1990, fixed the time of the alleged occurrence or incident under the policies.
As discussed above, the occurrence in the present action is the November 15, 1989 explosion and the December 10, 1989 fire, and not the filing of the third party complaint. Accordingly, the claims clearly fall within the policy period.
4. Policy Exclusions
USF & G also contends that even assuming "property damage" caused by an occurrence within the policy period, certain exclusions, specifically, (a), (j), (k), (l),
(m), and (n) preclude coverage.
Although USF & G relies on several exclusions, it does not present its position clearly, completely failing to present any meaningful discussion of the exclusions and their applicability to the present case. In addition, USF & G has failed to cite a single case where a Court held either directly or by analogy that a similar or identical exclusion precluded coverage in a similar factual contest. As the Honorable Sylvia Rambo, Judge for the Middle District of Pennsylvania, noted of this type of conduct, "the net effect of this approach is to put the Court in the position of doing the parties' work for them. This Court has a full docket and plenty of work of its own without having to do lawyers' jobs for them." Gossman v. Jimenez, et al. Civil No. 91-0423 at p. 5 (M.D. Pa. April 17, 1992) (Rambo, J.). Judge Rambo went on to state that "a litigant who fails to press a point by supporting it with pertinent authority or by showing why it is a good point despite a lack of authority . . . forfeits the point. We will not do the research for him." Id. (quoting United States v. Giovannetti, 919 F.2d 1223, 1230 (7th Cir. 1990)).
Notwithstanding this fact, the Court has reviewed the exclusions cited by USF & G and find they are not applicable to the present case and thus would not preclude coverage.
4. Required Notice Under the Policies
Lastly, USF & G contends that Barron's notice was untimely, thereby relieving USF & G of any obligation to defend Barron in the underlying suit.
The policy required Barron to notify USF & G "promptly of an "occurrence" which may result in a claim." (Doc.No. 30, Exh. A, p. 6). The policy further required that "if a claim or "suit" is brought against any insured, you must see to it that we receive prompt written notice of the claim or "suit." (Doc.No. 30, Exh. A, p. 6). USF & G asserts that Barron was aware of the problems with its seals as early as Spring, 1988, when design defects forced Barron to search out alternative designs. (Doc.No. 17, p. 16). Moreover, USF & G claims that potential liability should have been apparent by Fall, 1988, from the "many problems that were surfacing at the job site." (Doc.No. 17, p. 16) (emphasis in original). Barron, however, did not provide USF & G with notice until May 1990, almost two months after Dravo's notice of termination of the contract.
Barron contends that it viewed the alleged problems with the fan/seal systems as only a minor aspect of a much larger dispute between CEA and Dravo concerning the overall design and construction of the plant. (Doc.No. 29, p. 15). Barron asserts that it had no serious concern that it would be sued until it received a letter from Dravo on February 23, 1990. (Doc.No. 29, p. 15).
Clearly, the disparity in the record as to notice reveals there exists genuine factual disputes, thereby preventing an award of summary judgment on this issue.
In addition, the Court notes that late notice will only release an insurance company from its obligations under a policy if the insurer can prove actual prejudice. Trustees of University of Pa. v. Lexington Ins. Co., 815 F.2d 890, 896 (3d Cir. 1987); Brakeman v. Potomac Ins., Co., 472 Pa. 66, 371 A. 2d 193 (1977). This requirement of actual prejudice is due to the fact that most insurance contracts are not negotiated agreements but rather are dictated by the insurance company in all matters but price. Brakeman, 371 A. 2d at 196. In Brakeman, the Court reasoned:
The purpose of a policy provision requiring notice of an accident or loss to be given within a certain time is to give the insurer an opportunity to acquire, through an adequate investigation, full information about the circumstances of the case, on the basis of which, it can proceed to disposition, either through settlement or defense of the claim.
Thus, a reasonable notice clause is designed to protect the insurance company from being placed in a substantially less favorable position than it would have been if timely notice had been provided, e.g., being forced to pay a claim against which it has not had an opportunity to defend effectively. Where, [however], the insurance company's interests have not been harmed by a late notice the reason behind the notice condition in the policy is lacking, and it follows neither logic nor fairness to relieve the insurance company of its obligation under the policy in such a situation.
Although, USF & G claims that by the time it received notice from Barron, USF & G was powerless to investigate the underlying defect in Barron's performance, or for that matter, to protect its rights in any way, USF & G has completely failed to support or substantiate this contention. (Doc.No. 17, pp. 16-17). The purpose of the prejudice requirement is to allow an insurer to refuse payment only if its procedural handicap has led to disadvantageous, substantive results--in other words, if the insured's violation of its contract has proximately caused its insurer damages. Thus, USF & G's conclusory allegation that it was unable to investigate Barron's defects or protect its rights, is too amorphus and unsupported to allow the Court to grant summary judgment.
B. MOTION FOR A PROTECTIVE ORDER AND TO STRIKE
On June 30, 1992, Barron filed a Motion for a Protective Order and To Strike Exhibits 2C and 2D to USF & G's Statement of Undisputed Facts. (Doc.No. 32). In addition, because Barron claims it cannot trust USF & G to refrain from further disclosure of privileged documents in the future, Barron seeks a protective order that is "prospective in nature and broad enough in scope to cover all of Barron's privileged documents." (Doc.No. 33, p. 10).
Barron contends Exhibit 2D, the May 2, 1990 notice letter from James McGrath
to USF & G's agent, Hargrave, Boston & Taylor, is protected by the attorney work product doctrine and attorney-client privilege, claiming that the notice letter contained the mental impressions, opinions, and conclusions of Barron's in house lawyer. (Doc.No. 33, p. 5). Barron likewise asserts that Exhibit 2C, Mr. McGrath's follow-up letter dated May 15, 1990, is equally replete with Mr. McGrath's mental impressions and conclusions concerning the underlying lawsuit and thus also protected by the attorney work product doctrine and attorney-client privilege. (Doc.No. 33, p. 6).
1. Attorney-Client Privilege
In Pennsylvania, the attorney-client privilege has been codified since 1887. Act of May 23, 1887, P.L. 158, S 5(d), 1887 Pa. Laws 159. The present codification provides:
In a civil matter counsel shall not be competent or permitted to testify to confidential communications made to him by his client, nor shall the client be compelled to disclose the same, unless in either case this privilege is waived upon trial by the client.
42 Pa.Cons.Stat.Ann. § 5928 (Purdon 1982).
It is often stated that the purpose of the attorney-client privilege is to encourage "full and frank communications between attorney's and their clients." See Upjohn Co. v. United States, 449 U.S. 383, 389, 66 L. Ed. 2d 584, 101 S. Ct. 677 (1981). Full and frank communication is not an end in itself, however, but merely a means to achieve the ultimate purpose of the privilege: "promoting broader public interests in the observance of law and administration of justice." Westinghouse v. Republic of the Philippines, 951 F.2d 1414, 1423 (3d cir. 1991) (quoting Upjohn Co. v. United States, 449 U.S. 383, 389, 66 L. Ed. 2d 584, 101 S. Ct. 677 (1981)). The Supreme Court recognized this underlying rationale for the privilege long ago, when it stated:
[The attorney-client privilege] is founded upon the necessity, in the interest and administration of justice, of the aid of persons having knowledge of the law and skilled in its practice, which assistance can only be safely and readily availed of when free from the consequences or apprehension of disclosure.
Hunt v. Blackburn, 128 U.S. 464, 470, 32 L. Ed. 488, 9 S. Ct. 125 (1888) (quoted in Upjohn, 449 U.S. at 389).
Thus, when confronting the issue of whether the attorney-client privilege applies, Courts must look not only to the privilege itself, but also to the well-established rationale behind the privilege. After doing this, the Court would find it difficult to conclude that privilege applies to the factual situation demonstrated in the present case.
First, the Court notes that it is questionable whether Mr. McGrath was acting as Barron's attorney at the time the letters were written. The privilege does not exist just because one party to the communication has the title of "attorney".
In addition, the privilege does not extend to every written or oral communication by an attorney. Rather, the privilege applies only to discussions where the individual is acting as an advisor, i.e., presenting opinions and setting forth defense tactics as to the procedures to be utilized for an effective defense. The privilege simply does not attach to a discussion of the facts, no matter how extensive or involved the discussion may become.
A review of the letters at issue, reveals they contain only a discussion of the facts and do not in any way discuss unique legal theories or anticipated defenses. Accordingly, we find that the attorney-client privilege does not exist as to either Exhibit 2C or 2D.
1. Attorney Work Product Doctrine
As to the attorney work product doctrine, that claim is equally meritless. Fed.R.Civ.P. 26(b)(3),
provides in pertinent part,
a party may obtain discovery of documents prepared in anticipation of litigation . . . by or for another party [and] the court shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney . . . concerning the litigation.
Thus, the work product doctrine is designed to:
protect the written records of an attorney's efforts, including statements, memoranda, correspondences, briefs, and mental impressions, obtained with an eye toward litigation. Courts have held work product immunity applicable to preliminary drafts of legal documents, license agreements and/or assignments, opinion letters and background memoranda with respect to scope and validity of patents and patent applications, and an attorney's analysis or assignments of a party's position with respect to other parties in an ongoing interference.
Macario v. Pratt & Whitney Canada, Inc., 1991 Westlaw 6124, *4 (E.D. Pa. 1991).
We find that like the attorney-client privilege, the work product doctrine does not protect the McGrath letters because they are factual in nature, not analytical. Furthermore, the letters do not contain confidential information, and do not appear to have been prepared in the context of a possible defense or presentation of a unique legal theory.
Accordingly, we find that Barron is not entitled to a Protective Order and likewise deny Barron's Motion to Strike.
For the reasons stated above, USF & G's Motion for Summary Judgment is denied and Barron's Motion for a Protective Order and To Strike is denied.
An appropriate Order is attached.
Richard P. Conaboy
United States District Judge
EDITOR'S NOTE: The following court-provided text does not appear at this cite in 809 F. Supp. 355.
AND NOW, THIS 18th DAY OF DECEMBER 1992, IT IS HEREBY ORDERED AS FOLLOWS:
1. USF & G's Motion for Summary Judgment is DENIED. (Doc.No. 16).
2. Barron's Motion For a Protective Order and To Strike is DENIED. (Doc.No. 32).
3. Barron's Cross-Motion for Summary Judgment is dismissed as untimely. (Doc.No. 43).
4. This Memorandum and Order disposes of Documents numbered 16, 32, and 43. The Clerk of the Court is directed to reflect this disposition on the Docket Sheet.
Richard P. Conaboy
United States District Judge