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MARINE OFFICE OF AMERICA CORP. v. QUARRY ASSOCS.

May 12, 1997

MARINE OFFICE OF AMERICA CORPORATION, as Attorneys in Fact for CONTINENTAL INSURANCE COMPANY
v.
QUARRY ASSOCIATES, INC.



The opinion of the court was delivered by: BRODERICK

 Broderick, J.

 May 12, 1997

 Presently before the Court in this declaratory judgment action are motions by both parties for summary judgment. Plaintiff Marine Office of America Corporation ("Marine") issued a comprehensive general liability policy on behalf of Continental Insurance Company to building contractor J.E. Brenneman Company ("Brenneman"). Marine seeks a declaration that the insurance policy does not cover damages which may be awarded to Quarry Associates, Inc. ("Quarry") in an action currently pending in the Delaware County Court of Common Pleas, captioned Quarry Associates v. J.E. Brenneman Company (Civil Action No. 88-13409). In that action, Quarry claims that Brenneman breached their contract and negligently installed foundation piles for Quarry's building, causing the building's foundation to settle four inches.

 Marine, as attorneys in fact for Continental Insurance Company, instituted this declaratory judgment action against Quarry on April 19, 1995. The Court has diversity jurisdiction pursuant to 28 U.S.C. § 1332 (1993). On June 11, 1996, the Court denied Quarry's motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(7) for failure to join Brenneman as a necessary party. Marine Office of Am. Corp. v. Quarry Assocs., Inc., 1996 U.S. Dist. LEXIS 8014, No. 95-2309, 1996 WL 325114 (E.D. Pa. June 11, 1996). At a subsequent pretrial conference, the parties indicated that there were few, if any, issues of material fact in dispute. Accordingly, the Court directed the parties to conduct discovery and submit a stipulation of facts and motions for summary judgment concerning the construction of the insurance policy.

 The insurance policy at issue is a standard comprehensive general liability ("CGL") policy covering "occurrences" as defined by the policy. The cross-motions for summary judgment raise the following two issues: (1) did an "occurrence" take place while the policy was in force providing coverage for Quarry's claims against Brenneman?; and (2) do any policy exclusions limit coverage?

 I. FACTS

 The parties have stipulated to the following material facts: Quarry Associates, Inc. owns property located at 740 South Chester Road in Swarthmore, Pennsylvania. Until the mid-1960's, the property had been the site of a stone quarry. After the mid-1960's, the property was used for uncontrolled filling and dumping of miscellaneous material such as dirt, concrete, steel, wood, and trash. The depth of the fill ranged from approximately 6.4 feet in the front of the property to more than sixty-seven feet at the rear of the property.

 In or about 1984, Quarry embarked on a project to construct a medical facility on top of the former quarry. Quarry planned a two-story steel frame structure of approximately 16,000 square feet. Because of the uncontrolled fill at the site, Quarry's architects concluded that the foundation of the building required support from steel piles driven approximately seventy-five feet below the surface of the fill into the rock below. J.E. Brenneman Company, a subcontractor, entered into a contract with Quarry on October 3, 1985, to install the foundation piles in accordance with Quarry's designs. Before beginning construction, Brenneman obtained a CGL policy from Continental Insurance Company through its underwriting agent, Marine. The policy, number L2927679, was effective from September 1, 1985 through September 1, 1986.

 Brenneman drove the piles from October 11, 1985 through October 15, 1985. Brenneman's records indicate that the piles were driven in a manner which would support forty tons per pile, as specified by the contract. However, some of the piles were not driven deep enough to encounter subsurface rock underneath the uncontrolled fill. These piles encountered metal, concrete, or other materials which had been dumped in the quarry and consequently "hung up" in the fill.

 Quarry's contractors poured concrete grade beams and pile caps over the piles in November, 1985 to complete the foundation system. Following installation of the foundation, Quarry halted construction for more than a year because of environmental problems at the site. When construction resumed in December, 1986 -- after Brenneman's insurance policy had expired -- a mason discovered that the foundation in the rear portion of the building had settled four inches below the rest of the building. Despite these problems, the building was completed in the summer of 1987.

 Shortly after construction had finished in 1987, Quarry discovered structural cracks in the building's concrete floor and masonry walls. An investigation revealed that several of the piles driven by Brenneman in 1985 had failed to reach the subsurface rock underneath the quarry by twenty to thirty feet. Because the piles were seated in uncontrolled fill rather than the underlying rock, the foundation system settled approximately four inches from the time the foundation was poured in November, 1985 to December, 1986.

 Marine and Quarry have stipulated that the building's foundation settled during the period of November, 1985 through September 1, 1986, while Brenneman's insurance policy was in force. The stipulation of fact states that "the foundation system and piles in the rear of the building settled during the period November, 1985 through September 1, 1986 while the subject insurance policy was in effect." See Stipulation P 33. The parties also agree that the foundation's settling was caused by Brenneman's drilling of the piles into uncontrolled fill instead of subsurface rock. This defect made the rear wing of the building unstable and unsafe, requiring Quarry to demolish that portion of the building.

 On September 24, 1991, Quarry and Brenneman entered into a stipulation approved by the bankruptcy court to modify the stay. The stipulation permitted Quarry to proceed against Brenneman, providing that "any recovery of any kind or nature shall be limited only to proceeds of available insurance coverage of Brenneman under . . . policies covering Brenneman in 1985." Thus, the bankruptcy court permitted Quarry to proceed against Brenneman for the sole purpose of establishing Quarry's right to recover under Brenneman's insurance policies and limited its recovery to the terms of those policies.

 On September 18, 1992, Marine issued Brenneman a reservation of rights and agreed to defend Brenneman in Quarry's state court action. The parties agreed, with the approval of the state court judge, to continue the state court trial pending disposition of this declaratory judgment action.

 II. STANDARD OF REVIEW

 Because the material facts in this case are not in dispute, the issues before the Court rest on the meaning of the relevant sections of the insurance policy issued to Brenneman. Former Chief Justice Roberts of the Pennsylvania Supreme Court has articulated the general principles for interpreting insurance policies under Pennsylvania law:

 
The principles governing our interpretation of a contract of insurance are familiar and well settled. The task of interpreting a contract is generally performed by a court rather than by a jury. The goal of that task is, of course, to ascertain the intent of the parties as manifested by the language of the written instrument. Where a provision of a policy is ambiguous, the policy provision is to be construed in favor of the insured and against the insurer, the drafter of the agreement. Where, however, the language of the contract is clear and unambiguous, a court is required to give effect to that language.

 Standard Venetian Blind Co. v. American Empire Ins. Co., 503 Pa. 300, 469 A.2d 563, 566 (Pa. 1983) (internal citations omitted). If possible, courts should read insurance policies to avoid ambiguities. "An ambiguity exists only when a policy provision is reasonably susceptible of more than one meaning," and not "by the mere fact that the parties do not agree upon the proper construction." Ryan Homes, Inc. v. Home Indem. Co., 436 Pa. Super. 342, 647 A.2d 939, 941 (Pa. Super. 1994) (citations omitted).

 Under Pennsylvania law, "the insured bears the burden of proving facts that bring its claim within the policy's affirmative grant of coverage." Koppers Co., Inc. v. Aetna Cas. & Sur. Co., 98 F.3d 1440, 1446 (3d Cir. 1996) (citation omitted). "By contrast, the insurer bears the burden of proving the applicability of any exclusions or limitations on coverage . . . ." Id. (citations omitted).

 III. DISCUSSION

 Marine seeks a declaration that Continental Insurance Company is not liable for the damages claimed against its insured, Brenneman, in an underlying state court action brought by Quarry. An insurer's duty to provide coverage is a separate and distinct obligation from its duty to defend, which is not at issue in this declaratory judgment action since Marine has agreed to defend Brenneman. Erie Ins. Exchange v. Transamerica Ins. Co., 516 Pa. 574, 533 A.2d 1363, 1368 (Pa. 1987). "The question of whether a duty to indemnify arises depends upon the type of claim in issue." Creed v. Allstate Ins. Co., 365 Pa. Super. 136, 529 A.2d 10, 12 (Pa. Super. 1987).

 A. Existence of an "Occurrence" During the Policy Period

 The insurance policy issued to Brenneman is an "occurrence" policy covering property damage caused by an occurrence while the policy is in force. "An 'occurrence' policy protects the policy holder from liability for any act done while the policy is in effect, whereas a 'claims made' policy protects the holder only against claims made during the policy period." St. Paul ...


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