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LUCKER MFG. v. HOME INS. CO.

April 5, 1993

LUCKER MANUFACTURING, A UNIT OF AMCLYDE ENGINEERED PRODUCTS, INC.
v.
THE HOME INSURANCE COMPANY



The opinion of the court was delivered by: JOHN R. PADOVA

 Padova, J.

 This case involves a dispute over the extent of coverage provided by a comprehensive general liability ("CGL") insurance policy and asks the Court to construe what is known as a "loss of use" clause within such a policy. Cross-motions for summary judgment under Fed. R. Civ. P. 56(c) have been filed, oral argument on these motions has been heard, and the issues have been fully briefed. *fn1" For the following reasons, I will enter summary judgment in favor of defendant The Home and against plaintiff Lucker Manufacturing, A Unit of Amclyde Engineered Products, Inc. ("Lucker").

 The CGL coverage question involved here arises from a previous lawsuit filed in this Court by Lucker against Milwaukee Steel Foundry, A Division of Grede Foundries, Inc. ("Grede"), C. A. No. 91-2258. *fn2" To fully comprehend the issues in the instant matter, the circumstances underlying and surrounding this previous lawsuit must be explained.

 In late 1989, Lucker entered into an agreement with Shell Oil Company ("Shell") to produce a Lateral Mooring System ("LMS") for Shell's use. See Complaint, Lucker Mfg. v. Milwaukee Steel Foundry, A Div. of Grede Foundries, Inc., No. 91-2258 (E.D. Pa.)("Grede Complaint") at PP 5-6, 14, 17. A LMS is a device fixed to the ocean floor which holds in place vessels floating on the surface. See id at PP 6-8. Among its components are three "Grip Body and Grip Lid Castings" and twelve "Foot Mount Castings" (collectively, the "castings"). See id. In October 1989, Lucker arranged to have Grede produce the castings pursuant to Lucker's designs and specifications. See id. at PP 8-9. Grede subsequently produced the castings and delivered them to Lucker in March 1990. See id. at P 10.

 In April 1990, Lucker invited Shell to witness an "equipment load test" of the castings at Lehigh University. Id. at P 11. During this test, "a catastrophic failure of one of the Grip Lid Castings occurred." Id. As a result of this failure, Shell imposed higher standards and requirements upon Lucker with regard to the production and testing of steel for the castings and the LMS. Id. at PP 14-17, 46. Lucker apparently complied with Shell's heightened standards and subsequently initiated the underlying suit against Grede in April 1991 to recover, inter alia, the increased costs of meeting these standards. *fn3" See id. Lucker based its suit upon theories of strict products liability, breach of contract, breach of express and implied warranties, and negligence.

 At the time of these events, The Home insured Grede pursuant to a CGL policy ("the policy") covering the period from December 1, 1989 to December 1, 1990. See Defendant The Home's Memorandum of Law in Opposition to Lucker's Motion for Summary Judgment ("The Home's Memorandum in Opposition") at 2; Lucker's Memorandum of Law in Support of Motion for Summary Judgment ("Lucker's Memorandum in Support") at 2. Grede made a claim for defense and indemnification under the policy as to Lucker's lawsuit, which The Home conditionally honored on April 26, 1991 by tendering a defense to Grede pursuant to a reservation of rights letter. See The Home's Memorandum in Opposition at 5-6 and Exhibit F attached thereto. The case then proceeded through a series of pretrial motions, one of which resulted in a Memorandum and Order by Judge Newcomer dismissing with prejudice Lucker's tort claims against Grede. *fn4" Shortly thereafter, The Home reassessed its obligations under the policy, withdrew its defense of Grede, and disclaimed all liability under the policy. See The Home's Memorandum in Opposition at 6 and Exhibit G attached thereto.

 With Grede now responsible for its own defense, the case moved to trial on the remaining contract claims. On December 12, 1991, a jury returned a verdict in favor of Lucker in the amount of $ 484,278. *fn5" Notwithstanding this jury verdict, Lucker and Grede entered into an agreement in April 1992 in settlement of all of Lucker's claims except Lucker's loss of business reputation claim then pending before the Third Circuit. See Exhibit E attached to Lucker's Memorandum in Support. Pursuant to this agreement, Grede paid Lucker $ 600,000 and assigned to Lucker all of its rights against The Home to recover defense costs and indemnification under the policy, subject to an agreement to share in ten percent of the proceeds of any recovery Lucker might receive. See id.

 Grede's policy rights in hand, Lucker initiated the instant lawsuit against The Home to vindicate those rights, asserting this Court's jurisdiction under 28 U.S.C. § 1332 to hear cases between diverse parties. *fn6" Lucker seeks recovery from The Home under theories of breach of duties to defend and indemnify and for insurer bad faith under 42 Pa. Cons. Stat. Ann. § 8371 (Purdon's Supp. 1992). *fn7" The parties agree that there are no factual disputes and that this case should be summarily decided on the present record. The questions presented are whether the policy obligated The Home to defend and indemnify Grede and, if so, whether The Home breached its obligations in bad faith.

 I.

 I note at the outset that in resolving the coverage questions presented, the parties have agreed that I may apply interchangeably both the substantive law of Pennsylvania, where the failure of the castings occurred, and of Wisconsin, where the policy was purchased, Grede is located, and the castings were produced. *fn8" See Hearing Transcript at 7-9. The parties agree that the respective bodies of case law in these states concerning both an insurer's duty to defend and policy interpretation questions are, for purposes of this case, effectively identical. The only choice of law issue outstanding is whether Pennsylvania's insurer bad faith statute applies. As will be seen shortly, however, I need not reach this issue.

 In determining an insurer's duty to defend, I note that

 
"under Pennsylvania law, an insurance company is obligated to defend an insured whenever the complaint filed by the injured party may potentially come within the policy's coverage . . . . The obligation to defend is determined solely by the allegations of the complaint in the action . . . . The duty to defend remains with the insurer until the insurer can confine the claim to a recovery that is not within the scope of the policy."

 Imperial Casualty & Indem. Co. v. High Concrete Structures, Inc., 858 F.2d 128, 131-32 (3d Cir. 1988)(quoting Pacific Indem. Co. v. Linn, 766 F.2d 754, 760 (3d Cir. 1985))(citations in Linn omitted)(emphasis in Linn). See also Sola Basic Indus., Inc. v. United States Fidelity & Guar. Co., 90 Wis. 2d 641, 280 N.W.2d 211, 213-14 (1979)("It is necessary to determine whether the complaint alleges facts which, if proven, would give rise to liability covered under the terms and conditions of the policy.").

 The CGL policy in this case provides that The Home

 
will pay those sums that the insured [Grede] becomes legally obligated to pay as damages because of "bodily injury" or "property 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" . . . .

 See Comprehensive General Liability Coverage Form ("the policy"), attached as Exhibit B to The Home's Memorandum in Opposition. The policy also contains a listing, which need not be set forth here, of several circumstances in which coverage is specifically excluded.

 To determine whether The Home was obligated under the terms of the policy to defend Grede in the underlying proceeding, I must first consider whether the complaint in the underlying proceeding potentially sought damages from Grede for "bodily injury" or "property damage." *fn9" As there has been no allegation of bodily injury in the underlying ...


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