The opinion of the court was delivered by: Thomas I. Vanaskie United States District Judge
Plaintiff, Transportation Insurance Company ("TIC"), instituted the present action seeking a declaration that it is not obligated to defend or indemnify Defendant C.F. Bordo, Inc. in an underlying state court action brought against C.F. Bordo by Frank Rasieleski, who is also named by TIC as a Defendant in this action. In addition to naming as Defendants its insured (C.F. Bordo) and the party who has sued its insured (Rasieleski), TIC has joined Pennsylvania Manufacturers Association Insurance Group ("PMA") as a Defendant, contending that PMA may owe a duty to defend and indemnify C.F. Bordo in the underlying case. TIC and PMA have both moved for summary judgment. (Dkt. 52 & 57.)*fn1 At issue on the summary judgment motions are (a) whether TIC is estopped from denying coverage by its delay in notifying C.F. Bordo of its reservation of rights, and (b) whether the claims asserted in the Rasieleski case fall within the definition of "occurrence" found in the TIC and PMA policies. As to the first issue, there are genuine disputes of material fact that compel denial of TIC's motion. As to the latter issue, it is clear that Rasieleski's claims do not fall within the definition of "occurrence," compelling entry of judgment in favor of PMA.
Frank Rasieleski, a residential homeowner, hired C.F. Bordo to perform repair work and re-coat the exterior of his home. (C.F. Bordo's Statement of Material Facts ("BSMF"), Dkt. 62, at ¶ 3.) The work began on April 27, 1994, and was completed on October 12, 1994. (Jan. 24, 2000 Letter, Dkt. 70-5, at 2.)*fn2 The repair and re-coating of the outside of the residence included the installation of expansion joints, repair of cracks and bulges, removal of loose finish, cleaning of the surfaces, re-coating of the surfaces with Genesis material, re-finishing of the Genesis material, and placement of Dryflex coating over the Genesis material for extended protection. (Estimates, Dkt. 70-5, at 5-6, 8.) Rasieleski had his builder, Myron Krenitsky, oversee the work. (Jan. 24, 2000 Letter, Dkt. 70-5, at 3.) Caesar F. Bordo, then President of C.F. Bordo, stated that some of the original exterior finish system, plywood, and insulation had to be replaced due to moisture and termite presence, and that it was clear that the walls of the residence already had existing moisture and termite problems before he began work. (Id.) Portions of the exterior system, plywood, and insulation were replaced before C.F. Bordo completed the job. After the work was complete, Rasieleski requested "minor touch ups," which totaled two hundred and fifty two (252) man hours. (Id.)
Soon after C.F. Bordo completed the job, Rasieleski became dissatisfied with the work. Rasieleski alleges that damages were discovered and photographed in June 1996. (PMA Statement of Material Facts ("PMASMF"), Dkt. 53, at ¶ 7.) In March of 1999, the Genesis material used on the residence began to disintegrate and pull away from the surface of the home whenever it rained, causing rain water to penetrate the seal coat of the Genesis product and infiltrate the styrofoam backing and wood construction of the residence. (Underlying Complaint, Dkt. 57-6, at ¶¶ 6-7; see James Bordo Deposition, Dkt. 61-4, at 7-8; Caesar Bordo Deposition, Dkt. 61-3, at 11; TIC Statement of Material Facts ("TICSMF"), Dkt. 59, at ¶ 7.) Although extensive damage to the outside of the home was alleged, no interior damage to the home was ever observed. (James Bordo Deposition, Dkt. 61-4, at 9; Caesar Bordo Deposition, Dkt. 61-3, at 14.) Rasieleski gave notice of the damage to C.F. Bordo and made a demand for reimbursement. C.F. Bordo refused to provide any form of reimbursement. (Underlying Complaint, Dkt. 57-6, at ¶ 14.)
Between May 17, 1995, and May 17, 1997, TIC insured C.F. Bordo ("TIC Policies"). (TICSMF, Dkt. 59, at ¶ 10.) PMA provided general liability insurance to C.F. Bordo for two policy periods beginning on May 17, 1997, and ending on May 17, 1999 ("PMA Policies"). (PMASMF, Dkt. 53, at ¶ 8.) The pertinent terms of the TIC Policies and PMA Policies (collectively "the Policies") are the same. The Policies include language which provide that the "insurance applies to 'bodily injury' and 'property damage' only if: (1) The 'bodily injury' or 'property damage' is caused by an 'occurrence' that takes place in the 'coverage territory.'" (PMASMF, Dkt. 53, at ¶ 10; BSMF, Dkt. 62, at ¶ 10; 1995 Policy, Dkt. 57-7, at 9; 1996 Policy, Dkt. 57-8, at 15; 1997 Policy, Dkt. 57-9, at 16.) The Policies define "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." (PMA Policy, Dkt. 61-2, at 19; 1995 Policy, Dkt. 57-7, at 18; 1996 Policy, Dkt. 57-8, at 22; 1997 Policy, Dkt. 57-9, at 24.) None of the Policies, however, define "accident."
On June 18, 1999, Rasieleski filed an action against C.F. Bordo in the Court of Common Pleas for Lackawanna County, Pennsylvania, under the caption, Rasieleski v. C.F. Bordo, 99-CV-3019 (the "underlying litigation"). (PMASMF, Dkt. 53, at ¶¶ 1-2; State Docket, Dkt. 54-10, at 2.) The underlying litigation included claims for breach of an implied warranty of merchantability, breach of a warranty of fitness, breach of contract, and entitlement to attorney fees under the Magnuson-Moss Act. (PMASMF, Dkt. 53, at ¶ 5.) Rasieleski's alleged damages related to the cost of removal and replacement of the defective Exterior Insulation Finishing System ("EIFS") installed by C.F. Bordo. (Id. at ¶ 6.)
Rasieleski also alleged that C.F. Bordo sold and installed defective EIFS cladding and specifically that the EIFS "chipped, cracked, and buckled," which forced him to remove the EIFS and re-insulate and refinish the entire exterior of his home. (Id. at ¶ 4; TICSMF, Dkt. 59, at ¶¶ 2-3.)
On October 15, 1999, C.F. Bordo made a claim for insurance coverage to TIC for the underlying litigation. (Fax, Dkt 61-5, at 2-3; TICSMF, Dkt. 69, at ¶ 22.) On December 23, 1999, a default judgment was entered against C.F. Bordo in the underlying action. (TICSMF, Dkt. 69 at ¶ 22.) On that same day, TIC hired the law firm of Marshall, Dennehey, Warner, Coleman & Goggins ("Marshall Dennehey"), to represent C.F. Bordo's interests in the underlying litigation. (Dec. 23, 1999 Letter, Dkt. 61-7, at 2.) On January 3, 2000, Marshall Dennehey petitioned to open and/or strike the default judgment and on March 16, 2000, the default judgment was opened. (Id.; Mar. 17, 2000 Letter, Dkt. 61-8,at 2.) C.F. Bordo sent TIC a letter on January 24, 2000, which provided a synopsis of the work it had performed at the Rasieleski residence and its opinion that there was water and termite damage present before the work began. (Jan. 24, 2000 Letter, Dkt. 70-5, at 2.)
Based on a conflict of interest, Marshall Dennehey stepped down as counsel on November 14, 2000, and Irwin Schneider & Associates was retained as counsel. Irwin Schneider represented C.F. Bordo, under TIC direction, for approximately five years, between November 2000 and December 2005. (TIC Response to Statement of Material Fact ("TICRTSMF"), Dkt. 56-2, at ¶ 20.)
In a September 18, 2001 letter from Irwin Schneider to Rosemarie Winegarner at TIC, Schneider stated that Rasieleski was "extremely vague" in his interrogatory answers, and he thus planned on filing a motion for more specific answers. (Sept. 18, 2001 Letter, Dkt. 56-6, at 2.) Moreover, Schneider requested permission to conduct an on-site inspection of the residence and schedule depositions of Rasieleski, Jack Martin (a witness), and Myron Krenitsky (Rasieleski's representative in charge of the job).*fn3 (Id.) Although no written permission to perform these acts has been provided to the Court, TIC's File Activity Report Notes for October 1, 2001, state that Schneider would set up an on-site inspection and depose the listed people. (File Activity Report, Dkt. 56-7, at 2.) Schneider testified that TIC failed to authorize requested discovery procedures, including discovery to determine whether third parties should be joined to the litigation, and that TIC failed to permit him to retain an expert, despite his opinion that an expert was necessary to maintain a proper defense. (Dkt. 54-12, at 5, 6, 9-10, 12.)
Two and a half years after the underlying litigation was filed, TIC sent a reservation of rights letter, dated April 24, 2002, to C.F. Bordo. (Dkt. 74-6, at 2.) The letter discussed the "potential policy conditions, restrictions, definitions, and exclusions that might affect indemnity coverage" in the underlying litigation. (Id.) It went on to state that "[o]nce the damages have been identified and verified, [TIC] will be in a position to evaluate what allegations the policy covers."*fn4
On August 1, 2002, Schneider sent a letter to Rasieleski's counsel regarding the commencement of repairs and requesting the scheduling of depositions for Myron Krenitsky, Rasieleski, and Jack Martin. (Aug. 1, 2002 Letter, Dkt. 56-9, at 2.) On February 18, 2004, Schneider sent a letter to TIC in response to a February 12, 2004 request for a status update. (Dkt. 63, at 2.) The letter stated that Rasieleski's counsel had not been moving the underlying litigation along and thus Schneider was waiting for Rasieleski to move the matter forward before proceeding. (Id.) TIC's File Report reveals that Schneider was advised to continue to monitor the case, file regular status reports, and advise TIC if there were any changes. (Id.) The File Report also indicates that on June 24, 2004, the file was transferred to a different claims consultant who requested an update from Schneider and made an inquiry regarding whether PMA, as well as St. Paul (another subsequent carrier), were participating in the defense of C.F. Bordo. (Activity Report, Dkt. 63, at 2.) On August 9, 2004, a separate File Report shows that Schneider's request to retain an expert was authorized, and that the claims consultant made another request for information regarding whether PMA and St. Paul were participating in the defense. (Dkt. 56-10, at 2.)
Schneider's representation ceased in December of 2005, due to untimely payment of bills by TIC, and the law firm of Kent & McBride was retained to represent C.F. Bordo. (TICSMF, Dkt. 56-2, at ¶ 20; July 11, 2005 Letter, Dkt. 56-12, at 2; Aug. 17, 2005 Letter, Dkt. 56-13, at 2.) On November 11, 2006, Kent & McBride unsuccessfully moved for leave to join Myron Krenitsky as a defendant. (Docket Sheet, Dkt. 54-10, at 3.) The motion was denied on November 30, 2006. (Order, Dkt. 54-13, at 2.) In a status letter from Kent & McBride, TIC was notified that discovery would be completed by December 9, 2006, and that the parties were still working to schedule the deposition of Myron Krenitsky, which was the last deposition to be taken in the matter. (Nov. 28, 2006 Letter, Dkt. 61-9, at 2.) TIC commenced this declaratory judgment action on December 12, 2006, more than seven (7) years after it accepted the defense of C.F. Bordo and more than four (4) years after it sent a reservation of rights notice to C.F. Bordo.
On February 9, 2007, TIC was notified that discovery in the underlying litigation had been completed, was provided with a copy of the expert's finalized report, and advised that as of February 24, 2007, either party could certify the case for trial. (Feb. 9, 2007 Letter, Dkt. 61-10, at 2-3.) The letter went on to state that although the motion to join Krenitsky had been denied, an ...