The opinion of the court was delivered by: William W. Caldwell United States District Judge
Plaintiff, St. Mary's Area Water Authority, filed this suit for breach of contract, alleging that defendant, St. Paul Fire & Marine Insurance Co., improperly refused to provide coverage for property losses the Authority sustained after chlorine gas escaped from a "pigtail pipe" at Plaintiff's water treatment facility.
We are considering the parties' cross-motions for summary judgment. The plaintiff Authority argues it is entitled to reimbursement for the losses under an endorsement in Defendant's policy providing coverage for "mechanical breakdown." Conversely, Defendant maintains there was no mechanical breakdown in the pigtail pipe within the meaning of the policy and that in any event coverage is not available because of five exclusions in the policy for contamination, pollution, latent defect (in the pigtail), defects or errors (in the manufacture of the pigtail), and corrosion. In turn, the Authority argues that the exclusions for pollution, corrosion and defects (either latent or in the manufacture of the pigtail) do not apply because of an exception in those exclusions for an explosion, maintaining that the escape of the gas was an explosion. The Authority also argues that the mechanical breakdown coverage would be illusory if Defendant was allowed to invoke the exclusions for corrosion and defects (as well as for wear and tear, another exclusion in the policy) and in those circumstances Pennsylvania courts would require Defendant to provide coverage for mechanical breakdown regardless of the exclusions.
We apply the well-established standard to the parties' cross motions. "Summary judgment can only be granted '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.'" Cetel v. Kirwan Financial Group, Inc., 460 F.3d 494, 506 (3d Cir. 2006)(quoting Fed. R. Civ. P. 56(c)).
A. The Water Treatment Facility and the Escape of Chlorine Gas
For this section of the background, we borrow in a quoting fashion from both parties' statements of material facts submitted in connection with their summary-judgment motions where the statements are undisputed.
The Authority is a municipal authority in Elk County, Pennsylvania. It operates a water treatment plant, reservoir, and distribution system that supplies drinking water to the city of St. Mary's and the adjacent Fox Township. The facility is a conventional water treatment system. Drawing water from the reservoir, it performs sedimentation, clarification, filtration, and disinfection functions. The Laurel Run Water Treatment Plant (the "Plant") is the central monitoring and treatment location for the facility, and it controls the facility's system of remote pumping stations and water storage tanks.
The Plant has a chlorinator which injects the water with chlorine. At regulated intervals, the chlorinator draws chlorine from one of two one-ton cylinders, transports the chlorine through a system of pipes, and injects the chlorine, in precise amounts, into the water. Between each one-ton cylinder and the rigid piping that flows into the water supply is a short, flexible pipe known, due to its appearance, as a "pigtail pipe." The chlorine in the cylinders and pigtails is under pressure.
When Larry Ginther, the Authority's production foreman, arrived on the morning of July 9, 2003, he saw and smelled chlorine gas from approximately "half a mile up the road" from the Plant. Ginther quickly surveyed the Plant and then contacted the fire department. Dwight Hoare, the Authority's manager, observed a greenish haze from two to three football fields away from the Plant. (Doc. 56, part 2, Pl.'s Ex. C, Hoare Dep., pp. 68-69). Bob Bauer arrived as part of the Elk County HAZMAT team. He received instructions from Ginther regarding the location of the chlorine room, and he and other members of the team then proceeded to shut off the valve at the chlorine cylinder to stop the discharge of chlorine.
It was determined that between 10:00 p.m. on July 8, 2003, and 6:00 a.m. on July 9, 2003, there had been an uncontrolled release of approximately 140 pounds of chlorine gas from the pressurized chlorinator system. The location of the uncontrolled release of chlorine gas was in the pigtail pipe attached to the one-ton cylinder that was away from the interior wall of the chlorine room. Bauer heard the whistling noise of chlorine escaping from the pigtail before shutting off the valve.
The chlorine gas was in a pressurized state while contained within the pigtail. As the chlorine released through the rupture, the gas pressure decreased from tank pressure to atmospheric pressure. The rapid volumetric expansion of the chlorine gas from a pressurized gaseous state to atmospheric pressure as it escaped from the ruptured tube created the whistling noise. The release point or rupture in the pigtail was at the coupling nearest to the tank adjacent to the braze joint where the copper tubing enters the coupling. The initial break in the pigtail as observed on the morning of July 9, 2003, was approximately 1/8 inch. It was also described as a pinhole.
When dry chlorine gas mixes with moisture, it becomes corrosive. Reaction of moisture and dry chlorine gas forms hydrochloric and hypochlorous acids. Hydrochloric acid corrodes and etches metal. The cloud of hydrochloric and hypochlorous acids resulting from the escape of the chlorine expanded throughout the plant, settled on equipment in the facility, and caused damage. (Doc. 77, Def.'s Statement of Material Facts, ¶¶ 6-8, 11). It was specifically described as having a corrosive effect on the equipment with which it came in contact. (Doc. 76, part 17, Def.'s Ex. O at p. 1-1). One of Plaintiff's experts, Joseph Crosson, P.E., testified that any mixture of chlorine gas and moisture in the atmosphere would be a contaminant. (Doc. 76, part 11, Def.'s Ex. I, Crosson Dep., pp. 160-61).
Crosson and Plaintiff's other expert, Dr. Richard Roberts, opined "that the sudden chlorine release at the St. Mary's Area Water Authorities Laurel Run Water Treatment Plant was a mechanical failure due to a defect [in the pigtail pipe] in the vicinity of the point at which the copper tubing enters the bronze coupling." (Doc. 56, part 4, Pl.'s Ex. H., experts' report, p. 5)(brackets added). They further stated: "The defect could have been in the copper tubing itself or in the brazed joint. Over time, the effects of gas pressure, temperature and the specific nature of the defect reached a point where the pigtail could no longer contain the chlorine pressure and a sudden release of chlorine occurred." (Id., pp. 4-5). When deposed, Roberts testified that "it would be difficult to know" that such a defect was present. (Doc. 76, part 12, Pl.'s Ex. J, Roberts Dep., p. 368). Crosson testified that in his opinion, this was a "latent defect." (Doc. 76, part 11, Pl.'s Ex. I, Crosson Dep., p. 239).
Additionally, Crosson testified that external corrosion could have led to the hole in the pigtail, but only as a result of "a defective brazed joint." (Id., pp. 233-34). Under this theory, if the joint was defective by having a tiny gap in the flux that created a seal with the copper pigtail pipe, chlorine gas could have escaped from this hole and over time, combining with moisture in the air, corroded the pipe from the outside. (Id., pp. 232-33). He also testified there was evidence of this imperfect sealing, (id., pp. 234-35), and that this theory was as likely as any other defect in the pipe at that point and nowhere else. (Id., p. 235).
In the opinion of Defendant's expert, David Bizzak, "the proximate cause of the chlorine leak . . . was a failure of the flexible copper pigtail that occurred as a result of internal corrosion precipitated by contamination. Contamination, in the form of moist air that entered the pigtail during change over of the chlorine cylinder, led to the formation of corrosive acids that attacked the inner wall of the pigtail, thinning the wall over time to such an extent that the weakened wall failed, allowing an uncontrolled release of chlorine." (Doc. 76, part 16, Pl.'s Ex. N, p. 8).
George Dickover, St. Paul's Regional General Adjuster, testified that a mechanical breakdown or a mechanical failure required the presence of a moving part. (Doc. 76, part 20, Def.'s Ex. R, Dickover Dep., p. 60). Similarly, Bizzak testified that, based on his experience in evaluating piping systems, he did not consider the failure of a pigtail pipe to be a "mechanical failure," (doc. 76, part 21, Def.'s Ex. S, Bizzak Dep., p. 66), that he considered a mechanical part to be "mechanisms [like] valves, pumps, check valves," not "a piece of piping." (Doc. 76, part 21, Def.'s Ex. T, Bizzak Dep., p. 85).
The policy is an all-risk policy, "protect[ing] covered property against risks of direct physical loss or damage except as indicated in the Exclusions." (Doc. 56, part 2, St. Paul's insurance policy, record at 60a). The policy originally excluded coverage for mechanical breakdown, but the Authority later purchased an endorsement for equipment breakdown which extended coverage to mechanical breakdown. The endorsement provides:
Equipment Breakdown Coverage
We'll cover direct physical loss or damage that results from an accident to covered equipment.
Accident means direct physical loss or damage that results from:
* mechanical breakdown or failure;
* derangement of mechanical parts;
* rupture caused by centrifugal force; . . . .
* loss to a steam boiler, steam pipe, steam turbine or steam engine when the loss is caused by any condition or event within such equipment; . . . .
Covered equipment is that portion of your covered property which:
* is built to operate under vacuum or pressure, other than weight of contents; or
* generates, transmits or utilizes energy. (Id., record at 45a).
The equipment breakdown endorsement also provides: Pollution Cleanup and Removal We'll pay for additional expenses you incur for:
* repair or replacement; or
* disposal of covered property which is damaged, contaminated or polluted by pollutants as defined in your property protection. . . . .
But we won't pay any more than the limit for pollution cleanup and removal shown in the Equipment Breakdown Coverage Summary. (Id., record at 46a). The limit for pollution cleanup and removal shown in the Equipment Breakdown Coverage Summary is $250,000. (Id., record at 44a).
The Equipment Breakdown Endorsement provides that the policy exclusions still apply except for four of them:
Exclusions -- Losses We Won't Cover
All of the exclusions in your Property Protection, Business Income, Blanket Earnings And Expenses or other identified time element coverage forms apply to the Equipment Breakdown Coverage provided by this endorsement except:
* Electrical equipment; and
* Mechanical breakdown. (Id., record at 47a).
The relevant policy exclusions are found under the heading "Exclusions - Losses We Won't Cover" and the exclusion section specifies that the word "loss" in an exclusion also means "damage." (Id., record at 68a). The exclusions are as follows.
We won't cover loss caused by or resulting from any kind of contamination of your covered ...