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St. Mary's Area Water Authority v. St. Paul Fire & Marine Insurance Co.

February 2, 2007

ST. MARYS AREA WATER AUTHORITY, PLAINTIFF
v.
ST. PAUL FIRE & MARINE INSURANCE COMPANY, DEFENDANT



The opinion of the court was delivered by: William W. Caldwell United States District Judge

MEMORANDUM

I. Introduction

We are considering the motion of defendant, St. Paul Fire & Marine Insurance Co., for reconsideration of our order of October 27, 2006, granting summary judgment for plaintiff, St. Mary's Area Water Authority. The order imposed liability on the defendant insurance company for property losses the Authority sustained after chlorine gas escaped from a pinhole leak in a pigtail pipe at its water-treatment facility.

The Authority had an all-risk policy with St. Paul and filed this suit for breach of contract, alleging that St. Paul was obligated to pay for the loss under the policy's coverage for mechanical breakdown. St. Paul resisted payment by denying that the loss came within its mechanical-breakdown coverage and by arguing that, in any event, certain exclusions precluded coverage.

On cross-motions for summary judgment on the issue of coverage alone,*fn1 we decided that the defendant insurance company was obligated to provide coverage. St. Mary's Area Water Auth. v. St. Paul Fire & Marine Ins. Co., F. Supp. 2d , 2006 WL 3087704, 2006 U.S. Dist. LEXIS 78757 (M.D. Pa. 2006). On its motion for reconsideration, St. Paul contests both parts of our analysis leading to that ruling. In the first part, we decided that because of exclusions for wear and tear, defect and corrosion, coverage for mechanical breakdown would be illusory if we did not allow coverage in the circumstances here. In the second part, we decided there was an ambiguity favoring coverage when the pollution and contamination exclusions were considered together because the contamination exclusion did not bar coverage while the pollution exclusion did, the result of an anticoncurrent-cause clause in the pollution exclusion absent from the contamination exclusion.

II. Standard of Review

Because we ruled on liability alone without deciding damages, our order was interlocutory. We therefore have extremely broad discretion to consider the arguments raised in the reconsideration motion, for a court may revise an interlocutory order "when consonant with justice to do so." See United States v. Jerry, 487 F.2d 600, 605 (3d Cir. 1973); Gridley v. Cleveland Pneumatic Co., 127 F.R.D. 102, 103 (M.D. Pa. 1989) (quoting Jerry); Philadelphia Reserve Supply Co. v. Nowalk & Assocs., Inc., 864 F. Supp. 1456, 1460-61 (E.D. Pa. 1994); see also Jairett v. First Montauk Sec. Corp., 153 F. Supp. 2d 562, 579-80 (E.D. Pa. 2001).*fn2

III. Discussion

A. Coverage For Mechanical Breakdown Is Not Illusory

Our discussion will assume familiarity with our summary-judgment memorandum. St. Mary's Area Water Auth., supra, F. Supp. 2d , 2006 WL 3087704, 2006 U.S. Dist. LEXIS 78757. We provide only enough information here to discuss the arguments on reconsideration.

Plaintiff's experts traced the leak in the pipe to a defect either in the copper tubing of the pipe or in how a joint was brazed. In our memorandum, relying on 401 Fourth Street, Inc. v. Investors Ins. Group, 583 Pa. 445, 460 n.3, 879 A.2d 166, 174 n.3 (2005), we decided that the Authority was entitled to coverage under the mechanical breakdown endorsement because that coverage would otherwise be illusory in light of the exclusions for wear and tear, defect (either inherent or in the manufacture or design of the pigtail pipe) and corrosion. We accepted Plaintiff's argument that there was no reasonably expected set of circumstances where the mechanical breakdown coverage would apply if there was no corrosion or defect as defect was defined in the policy's exclusions. See F. Supp. 2d at , 2006 WL 3087704, at *13-15, 2006 U.S. Dist. LEXIS 78757, at *31-43.*fn3

In doing so, we rejected the defendant insurer's argument that coverage was not illusory, which argued the following as specific examples of coverage for mechanical breakdown when there was no defect or corrosion: a fire; an explosion that damages a neighboring machine; an object being introduced into a mechanical system, thereby causing it to fail; or the misuse of a machine. We agreed with Plaintiff that all of these events would have as their proximate cause perils already covered under the policy and were examples of those covered risks, not of coverage for mechanical breakdown. Id. at , 2006 WL 3087704, at *14, 2006 U.S. Dist. LEXIS 78757, at *40-43.*fn4 We did, however, state that if there was coverage for at least one risk, the mechanical breakdown endorsement would not be illusory. Id. at , 2006 WL 3087704, at *14, 2006 U.S. Dist. LEXIS 78757, at *39.

In its motion for reconsideration, Defendant argues we clearly erred in concluding that mechanical breakdown could not occur in the absence of a defect or corrosion. In support, it submits the affidavit of George Dickover, an adjuster for the Travelers Indemnity Company. For the first time in this litigation, the affidavit sets forth four examples of coverage under the mechanical breakdown endorsement which do not involve defect or corrosion.*fn5 Representing claims St. Paul actually paid in Pennsylvania from 2002 to 2004, the examples are:

(1) a mechanical breakdown of a pump caused by sand ingestion due to a shallow well; (2) mechanical breakdown of a pump caused by an overheated bearing that caused a pump to seize; (3) mechanical breakdown of a steel shaft of a rotostrainer due to rocks and debris; and (4) mechanical breakdown of a diesel engine block caused by overheating. (Doc. ...


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