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Easy Sportswear, Inc. v. American Economy Insurance Co.

November 21, 2007

EASY SPORTSWEAR, INC., PLAINTIFF,
v.
AMERICAN ECONOMY INSURANCE COMPANY, A CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Nora Barry Fischer United States District Judge

MEMORANDUM OPINION

This case stems from damage to Plaintiff's property located at 819 Liberty Avenue, Pittsburgh, Pennsylvania, allegedly caused by "Hurricane Ivan" on or about September 17, 2004. For the reasons set forth below, this Court finds that genuine issues of material fact remain as to coverage of Plaintiff's insurance claim but that no genuine issues of material fact remain as to the issue of bad faith. As such, Plaintiff's Partial Motion for Summary Judgment [DE 30] is denied and Defendant's Motion for Summary Judgment [DE 32] is granted in part and denied in part.

PROCEDURAL BACKGROUND

On July 14, 2005, Plaintiff Easy Sportswear, Inc. instituted this action against its insurer Defendant American Economy Insurance Company in the Court of Common Pleas of Allegheny County, alleging common law breach of an insurance contract and bad faith under Pennsylvania statutory law.*fn1 On August 18, 2005, this case was removed to this Court. (Docket No. 1). On September 1, 2006, Plaintiff filed a Motion for Partial Summary Judgment as to coverage and Defendant filed Defendant's Motion for Summary Judgment as to coverage as well as Plaintiff's bad faith claim. On September 28, 2006, Defendant filed a Brief in Opposition to Plaintiff's Motion for Partial Summary Judgment. At that time, Plaintiff did not file a response to Defendant's motion for summary judgment.

On April 27, 2007, the instant case was reassigned to the undersigned Judge. On May 18, 2007, this Court set this matter for a status/settlement conference for June 19, 2007, at which the Court discussed the status of the case and inquired as to whether pending dispositive motions were ripe for disposition or whether the parties required additional discovery. The Court instructed counsel for the Plaintiff to notify the Court by June 20, 2007, as to whether he required further discovery. Based on the Court's discussion of the case with the parties, the Court did not engage in settlement negotiations. (See Docket No. 40).

On July 17, 2007, Plaintiff filed a Motion Regarding Discovery, in which Plaintiff requested leave to take the deposition of Morris Gabbay, principal of Plaintiff Easy Sportswear. On July 18, 2007, the Court granted Plaintiff's motion allowing it leave to take the deposition of its principal, given his residence in Israel. On September 10, 2007, Plaintiff deposed Mr. Gabbay.

On October 3, 2007, Plaintiff filed a Concise Statement of Material Facts, attaching the deposition of transcript of Mr. Gabbay. (Docket No. 45). On October 4, 2007, Defendant filed its Concise Statement of Material Facts in Support of Defendant's Motion for Summary Judgment as well as an Appendix thereto. (Docket No. 46). On October 5, 2007, Defendant filed Response of Defendant American Economy to the Concise Statement of Material Facts. (Docket No. 48). On October 8, 2007, Plaintiff filed another Concise Statement of Material Facts, in which it noted a minor typographical error in its previous Statement. (Docket No. 49). Finally, on October 23, 2007, the Court noted (via minute entry) that counsel for the Plaintiff represented to the Court that he does not intend to file an errata sheet as to Mr. Gabbay's deposition nor file any additional briefs.

Accordingly, the Court finds that the instant motions are now ripe for disposition.

FACTS

Plaintiff, at all times relevant to this action, was a Pennsylvania corporation operating retail clothing stores in Pittsburgh. The sole stockholder of the corporation, Morris Gabbay, also owned other corporations operating retail clothing stores in Pittsburgh, including Gabbay Company, which operated a store located at 819 Liberty Avenue in Pittsburgh. (Docket No. 45, Exh. 1, at 31). Gabbay personally purchased the building located there in 2000. (Docket No. 45, Exh. 1, at 32, 43). Several of the upper floors of the building were used as a warehouse for Gabbay's other businesses, including Plaintiff. In particular, Gabbay used the fifth and sixth floors of the building as a storage area for inventory owned by Plaintiff. (Docket No. 45, Exh. 1, at 38). This inventory included urban style clothing, shoes, and coats from various designer manufacturers. (Docket No. 45, Exh. 1, at 38-39).

In November 1999, Plaintiff purchased a business owners insurance policy, at policy number BP 00 03 07 02, from Defendant through one of Defendant's local agents, which Plaintiff renewed on a yearly basis (Docket No. 1, at ¶ 3). The policy (the terms of which are discussed in detail below) was in effect from November 1, 2003 through November 1, 2004. (Id., at ¶ 4).

On Friday, September 17, 2004, tropical storm "Hurricane Ivan" caused serious weather conditions in Allegheny County, including "severe storms, heavy rains, high winds and flooding". (Docket No. 30, Exh. B). On that date, Governor Edward G. Rendell declared a state of disaster emergency for Allegheny, Armstrong, Butler and Washington Counties in Western Pennsylvania. (Id.). Total rainfall in the city of Pittsburgh on that day ranged from a total of 5.5 to 6.0 inches. (Docket No. 34, Exh. C., at 2). Plaintiff alleges that, on September 17, 2004, Plaintiff's employee noticed rain coming through the roof of the building at 819 Liberty Avenue, causing Plaintiff's inventory located on the sixth floor of the building to be damaged by water. (Docket No. 45, Exh. 1, at 14). Approximately four months thereafter, Plaintiff reported the loss of the damaged inventory to Defendant, seeking coverage for business personal property under the business owners insurance policy. Defendant responded with a prompt reservation of rights letter dated January 19, 2005, providing the following: "There is a question whether coverage under the policy applies to this loss." (Docket No. 32, Exh. B, at 1). Specifically, Defendant relies on the following provisions of the policy as a potential basis for the denial of coverage: the definition of coverage, exclusions as to cause of loss, and property loss conditions including duties of the insured in the event of loss or damage and legal action against the insurer. (See Docket No. 32, Exh. B, at 1-2). Furthermore, the letter provides that "[t]here may be other reasons why coverage is in question. We do not waive our right to deny coverage for any other valid reason that may arise." (Docket No. 32, Exh. B, at 3).

Thereafter, Defendant hired Castle Claims Service, Inc., an adjusting firm, to investigate Plaintiff's claim. On January 24, 2005, Joe McAndrews, an adjuster from Castle Claims, inspected the roof of the 819 Liberty Avenue building. (Docket No. 46, at ¶ 7). Defendant subsequently hired a roofing consultant, Norman Olszewski of H.D. Independent Restoration, to inspect the roof. (Id., at ¶ 9). By letter dated February 28, 2005, Defendant denied coverage of the damaged inventory, finding that, based upon the opinions of the insurance adjuster and roofing inspector, the loss of the inventory was not due to storm related damage and therefore not covered under the policy. (See Docket No. 32, Exh. E) ("[The roofing consultant] determined that rain water came in through the roof due to the fact the roof is worn out and deteriorated. Neither the [roofing] consultant nor the Independent Adjuster could find any storm related damage that would have caused the roof to leak").

STANDARD

Summary judgment under Federal Rule of Civil Procedure 56(c) is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with 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." Woodside v. School Dist. Of Philadelphia Bd. Of Educ., 248 F.3d 129, 130 (3d Cir. 2001) (quoting Foehl v. United States, 238 F.3d 474, 477 (3d Cir. 2001) (citations omitted)). In deciding a summary judgment motion, the court must "view the evidence...through the prism of the substantive evidentiary burden" to determine "whether a jury could reasonably find either that the plaintiff proved his case by the quality and quantity of the evidence required by the governing law or that he did not." Anderson v. Consolidated Rail Corp., 297 F.3d 242,247 (3d Cir. 2002) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254 (1986)).

When the non-moving party will bear the burden of proof at trial, the moving party's burden can be "discharged by 'showing'-that is, pointing out to the District Court-that there is an absence of evidence to support the non-moving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). If the moving party has carried this burden, the burden shifts to the non-moving party who cannot rest on the allegations of the pleadings and must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986); Petruzzi's IGA Supermarkets, Inc. v. Darling-Delaware Co., 998 F.2d 1224, 1230 (3d Cir. 1993). Thus, the non-moving party cannot rest on the pleadings, but instead must go beyond the pleadings and present "specific facts showing that there is a genuine issue for trial," Fed.R.Civ.P. 56(e), and cannot rely on unsupported assertions, conclusory allegations, or mere suspicions in attempting to survive a motion for summary judgment, Williams v. Borough of W. Chester, 891 F.2d 458, 460 (3d Cir. 1989) (citing Celotex, 477 U.S. at 325 (1986)). The non-moving party must respond "by pointing to sufficient cognizable evidence to create material issues of fact concerning every element as to which the non-moving party will bear the burden of proof at trial." Simpson v. Kay Jewelers, Div. of Sterling, Inc., 142 F.3d 639, 643 n.3 (3d Cir. 1998) (quoting Fuentes v. Perskie, 32 F.3d 759, 762 n.1 (3d Cir. 1994)).

"In considering a motion for summary judgment, a district court may not make credibility determinations or engage in any weighing of the evidence; instead, the non-moving party's evidence 'is to be believed and all justifiable inferences are to be drawn in his favor.'" Marino v. Industrial Crating Co., 358 F.3d 241, 247 (3d Cir. 2004) (quoting Anderson, 477 U.S. at 255 (1986)); see also Doe v. County of Centre, PA, 242 F.3d 437, 446 (3d Cir. 2001) (providing that "a court must take the facts in the light most favorable to the nonmoving party, the [plaintiffs], and draw all reasonable inferences in their favor") (citation omitted)).

ARGUMENTS PRESENTED

In its motion for partial summary judgment, Plaintiff asserts that its claimed property constitutes "covered property" as defined in the policy and that the limitations and exclusions asserted by the Defendant do not apply here. Thus, Plaintiff requests that the Court enter partial summary judgment in its favor on the issue of "liability for the damage to Plaintiff's business personal property, if any, that occurred on September 17, 2004, but reserving all damage issues for trial." (Docket No. 30, at 5).

In its motion for summary judgment, Defendant offers the following arguments:

(1) the definition of 'water damage' in the coverage form does not afford insurance for the claims plead in the Complaint;

(2) the policy limitation requiring structural storm damage has not been satisfied;

(3) the alleged claim is expressly excluded as resulting from risks of 'wear and tear', 'decay', 'deterioration', and 'settling [and] cracking';

(4) Plaintiff's failure to uphold [its] duties in the contract for insurance is a basis to deny Plaintiff's claim for coverage and constitute a waiver of Plaintiff's right to institute legal action against Defendant; [and]

(5) the Defendant did not deny the Plaintiff benefits in bad faith because it had a reasonable basis to deny such benefits. (Docket No. 33, at 5).

The Court will address the parties' dispositive motions in the following manner: (1) coverage and (2) bad faith.

ANALYSIS

As a preliminary matter, the Court notes that jurisdiction in this case rests on the diversity of the parties. 28 U.S.C. § 1332(a)(1). A federal court sitting in diversity must apply the substantive law of the state in which it sits, Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938), including its choice of law rules, Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Hammersmith v. TIG Ins. Co., 480 F.3d 220 (3d Cir. 2007) ("A federal court exercising diversity jurisdiction must apply the choice of law rule of the forum state"). While Plaintiff raises choice of law in its motion asserting that Pennsylvania law applies here, (see Docket No. 31, at 2), Defendant does not address choice of law but exclusively cites and relies upon Pennsylvania law in its brief. As there does not appear to be any dispute that Pennsylvania law applies to this case and the insurance policy in question is silent as to the applicable state law, (see Docket No. 1, Exh. A), the Court declines to engage in a choice of law analysis. Rochez Bros., Inc. v. North American Salt Co., Inc., Civ. A. No. 94-1131, 1994 WL 735932, at *6 n.8 (W.D. Pa. 1994) (citing Schiavone Construction Co. v. Time, Inc., 735 F.2d 94, 96 (3d Cir. 1984)) ("Because the parties appear to implicitly agree on the applicable choice of law, this Court will not challenge their decision"); see also McMahon v. State Farm Fire and Cas. Co., Civil Action No. 06-3408, 2007 WL 1377670, at *3 (E.D. Pa. May 8, 2007) (noting that "[t]he [choice-of-law] question is irrelevant in this action as the parties have relied primarily on the laws of the Commonwealth in their pleadings, and have not raised an objection to the application of Pennsylvania law. Therefore, I will consider the parties to have waived any objections to the application of Pennsylvania substantive law) (citation omitted).

The Court now turns to the substantive issues in the pending motions, i.e., coverage and bad faith.

I. Coverage

Under Pennsylvania law, interpretation of an insurance contract is a question of law that is properly decided by the court. Reliance Ins. Co. v. Moessner, 121 F.3d 895 (3d Cir. 1997); Liberty Mut. Ins. Co. v. Treesdale, Inc., 418 F.3d 330 (3d Cir. 2005). In interpreting the insurance contract, if the terms of the policy are clear and unambiguous, the general rule is to give effect to the plain language of the agreement. Reliance Inc. Co., 121 F.3d at 900; Bensalem Twp. v. International Surplus Lines Ins. Co., 38 F.3d 1303 (3d Cir. 1994). An ambiguity exists where there is more than one possible interpretation or if the contract is susceptible to more than one possible construction. Medical Protective Co. v. Watkins, 198 F.3d 100 (3d Cir. 1999); McMillan v. State Mut. Life Assur. Co. of America, 922 F.3d 1073 (3d Cir. 1990). When an ambiguity exists in a provision of an insurance policy, the provision must be construed in favor of the insured against the ...


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