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Prime Medica Associates v. Valley Forge Insurance Co.

March 5, 2009

PRIME MEDICA ASSOCIATES, APPELLEE
v.
VALLEY FORGE INSURANCE COMPANY, T/A D/B/A AND/OR A/K/A CONTINENTAL CASUALTY COMPANY AND/OR CNA, APPELLANT
PRIME MEDICA ASSOCIATES, APPELLANT
v.
VALLEY FORGE INSURANCE COMPANY, T/A D/B/A AND/OR A/K/A CONTINENTAL CASUALTY COMPANY AND/OR CNA, APPELLEE



Appeal from the Judgment entered December 27, 2006 In the Court of Common Pleas of Philadelphia County Civil, November Term, 2004, No. 000621.

The opinion of the court was delivered by: Gantman, J.

BEFORE: KLEIN, GANTMAN, AND KELLY, JJ.

OPINION

¶ 1 The parties, Valley Forge Insurance Company, t/a d/b/a and/or a/k/a Continental Casualty Company and/or CNA ("Insurer") and Prime Medica Associates*fn1 ("Insured"), appeal and cross-appeal from the judgment entered in the Philadelphia County Court of Common Pleas in favor of Insured in this breach of contract action. We reverse and remand with instructions.

¶ 2 The trial court opinion sets forth the relevant facts of this appeal as follows:

[Insured] purchased an office building at 207 North Broad Street in Philadelphia in 1974. In September 1984, [Insured] entered into a lease agreement with Medic. Medic occupied four and a half floors of the building and used the space as a diagnostic imaging center. Medic made significant structural changes to the office space in order to accommodate its imagining equipment, which included a CT scanner and an MRI unit. The MRI unit was surrounded by three-inch thick steel walls, and there were lead-lined walls surrounding the CT scanner. [Doctor Lorenzo] testified that he spent $1.4 million to renovate the office building to accommodate this equipment. Upon termination of the lease with [Insured], Medic had the option of either leaving the equipment in operating order, or replacing it with like kind. Alternatively, if Medic chose to remove the equipment, it had to restore the space to its original condition. In November 1998, Tenet Healthcare Systems took over the lease from Medic.

In 1999, [Insured] became insured by [Insurer]. In November 2000, Tenet notified [Insured] that they intended to terminate the lease on March 30, 2001. On March 15, 2001, Doctor Lorenzo.testified that he went into the space occupied by Tenet and discovered that Tenet had abandoned the property. Tenet had removed some of the medical equipment but failed to remove the MRI unit and the CT scanner. [Doctor Lorenzo] testified that the space was left in shambles. On April 16, 2001 [Insured's] building was vandalized and additional medical equipment was taken. [Insured] was told by Joel Fagerstrom, chief operating officer of Hahnemann University Hospital, that Tenet's service company, Biomagnetics, was responsible for removing this equipment. [Insured] did not report this incident to the police.

Tenet ceased paying rent on April 1, 2001. [Insured] was unsuccessful in his attempts to re-lease the space vacated by Tenet. [Insured] filed suit against Tenet on September 15, 2001 for damages arising from the removal of the medical equipment, the subsequent vandalism of the property, and for interruption of rentability. In the meantime, [Insured] had become unable to maintain [its] mortgage payments for the building. The property was foreclosed upon and went to sheriff's sale on November 12, 2002 where it sold for $1.8 million. During the foreclosure proceedings, [Insured] was represented by George Milner. Milner formally advised [Insurer] of the claim for damages on May 22, 2002, a little more than one year from the date of [Insured's] loss.

On May 30, 2003, the jury in the Tenet litigation awarded [Insured] damages for business interruption and for cleanup and removal of the medical imagining equipment. However, the amount awarded by that jury was well short of the amount necessary to cover [Insured's] losses. As a result, [Insured] instituted the instant litigation.[2]

[2] In addition to the damage resulting from the removal of the medical equipment, [Insured] became aware of water damage to the building. On April 27, 2001, [Insured] filed a notice of property loss with his insurance broker, and was subsequently contacted by James White, an insurance adjustor. Mr. White met [Insured] on May 8, 2001, and toured and photographed the space vacated by Tenet. Ultimately, there were three water damage claims filed with the insurance company due to a water main break, a leak from the parking lot, and a leak from the roof of the building. The damages claims for the water main break and for the leak from the parking lot were denied.

As noted, [Insured] submitted the claims for damages through Mr. Milner. The claims were investigated and ultimately, [Insurer] denied coverage on November 5, 2003. (Trial Court Opinion, entered April 26, 2007, at 2-3).

¶ 3 On November 4, 2004, Insured filed a praecipe to issue a writ of summons. Insured filed a praecipe to reissue the writ of summons on January 27, 2005. On March 17, 2005, Insurer filed a praecipe and rule upon Insured to file a complaint within twenty days. Insured filed the instant complaint on April 4, 2005. Insured claimed Insurer had breached the policy by failing to cover the casualty losses stemming from Tenet's departure and the April 16, 2001 acts of vandalism. Insured further complained Insurer had acted in bad faith by denying Insured's claim. Insured summarized its unreimbursed losses as follows:

a) The unreimbursed loss of the use, enjoyment and rental value from [its] building;

b) The unreimbursed loss of the value of the equipment attached to the building in an amount in excess of $2,000,000.00;

c) The unreimbursed loss of the value of [its] building at 207 N. Broad Street, Philadelphia, PA in an amount in excess of $2,000,000.00. (Complaint, filed 4/4/05, at 4). Insured demanded judgment in its favor in an amount in excess of $50,000.00 for breach of contract, consequential, and bad faith damages.*fn2

¶ 4 On September 9, 2005, Insurer filed an answer with new matter.*fn3 In its new matter, Insurer argued "some or all of the property for which [Insured] seeks coverage is not Covered Property under the policy." (Answer with New Matter, filed 9/9/05, at 7). Further, Insurer claimed: 1) Insured failed to give Insurer prompt notice of the loss; 2) Insured did not take all reasonable steps to protect the property from further damage; and 3) Insured commenced its action more than two years after the last direct physical loss, in contravention of the policy's "suit limitation" clause. On September 13, 2005, Insured filed its reply to Insurer's new matter, raising the defenses of waiver and estoppel.

¶ 5 On July 10, 2006, Insurer filed a motion in limine to preclude Insured from offering Mr. Daniel Connell as an expert in the valuation of medical imaging equipment. The court subsequently denied this motion. On July 12, 2006, Insurer filed a motion in limine to preclude Insured from offering Mr. Anthony Falcone as an expert in real estate valuation. The court granted this motion in part, limiting Mr. Falcone's testimony to the relevant time frame. On July 14, 2006, Insurer filed a motion in limine to preclude any evidence of bad faith from reaching the jury, which the court granted. Also on July 14, 2006, Insurer filed a motion in limine to preclude Insured from offering Attorney Milner as an expert on the issue of bad faith. The court granted this motion in part, ordering as follows:

Mr. Miller may testify to the issue of coverage. He may not testify as to alleged bad faith. This is to be determined in a bench trial after coverage is found by the jury. If the jury does not find coverage there will be no bad ...


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