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McMillen Engineering, Inc. v. Travelers Indemnity Co.

September 30, 2010

MCMILLEN ENGINEERING, INC., PLAINTIFF,
v.
THE TRAVELERS INDEMNITY COMPANY, AS SUCCESSOR IN INTEREST TO GULF INSURANCE COMPANY, AND NAVIGATORS INSURANCE COMPANY DEFENDANTS.



The opinion of the court was delivered by: David Stewart Cercone United States District Judge

Electronic Filing

OPINION

McMillen Engineering, Inc., ("plaintiff") commenced this action seeking a determination as to which of the two defendants, Travelers Indemnity Company ("Travelers") or Navigators Insurance Company ("Navigators") has an obligation to provide coverage for a demand for payment arising from a slippage of lateral ground support on a site where plaintiff provided engineering services. Presently before the court are defendants' motions for summary judgment. For the reasons set forth below, the motions will be granted.

Federal Rule of Civil Procedure 56(c) provides that summary judgment may be granted if, drawing all inferences in favor of the non-moving party, "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Summary judgment may be granted against a party who fails to adduce facts sufficient to establish the existence of any element essential to that party's claim, and upon which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317 (1986). The moving party bears the initial burden of identifying evidence which demonstrates the absence of a genuine issue of material fact. When the movant does not bear the burden of proof on the claim, the movant's initial burden may be met by demonstrating the lack of record evidence to support the opponent's claim. National State Bank v. National Reserve Bank, 979 F.2d 1579, 1582 (3d Cir. 1992). Once that burden has been met, the non-moving party must set forth "specific facts showing that there is a genuine issue for trial," or the factual record will be taken as presented by the moving party and judgment will be entered as a matter of law. Matsushita Electric Industrial Corp. v. Zenith Radio Corp., 475 U.S. 574 (1986) (quoting Fed.R.Civ.P. 56 (a), (e)) (emphasis in Matsushita). An issue is genuine only if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986).

In meeting its burden of proof, the "opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586. The non-moving party "must present affirmative evidence in order to defeat a properly supported motion" and cannot "simply reassert factually unsupported allegations." Williams v. Borough of West Chester, 891 F.2d 458, 460 (3d Cir. 1989). Nor can the opponent "merely rely upon conclusory allegations in [its] pleadings or in memoranda and briefs." Harter v. GAF Corp., 967 F.2d 846 (3d Cir. 1992). Likewise, mere conjecture or speculation by the party resisting summary judgment will not provide a basis upon which to deny the motion. Robertson v. Allied Signal, Inc., 914 F.2d 360, 382-83 n.12 (3d Cir. 1990). If the non-moving party's evidence merely is colorable or lacks sufficient probative force summary judgment must be granted. Anderson, 477 U.S. at 249-50; see also Big Apple BMW, Inc. v. BMW of North America, 974 F.2d 1358, 1362 (3d Cir. 1992), cert. denied, 113 S.Ct. 1262 (1993) (although the court is not permitted to weigh facts or competing inferences, it is no longer required to "turn a blind eye" to the weight of the evidence).

The record as read in the light most favorable to plaintiff establishes the background set forth below. On June 21, 2001, plaintiff entered into a contract for professional services with the Redevelopment Authority of the County of Fayette ("RACF") to provide general engineering services for a multi-phased construction project to be conducted on property owned by RACF. Under Phase I, plaintiff was to prepare storm water retention plans and specifications, complete and document a geotechnical investigation, and prepare specifications for earth fill or removal. Plaintiff entered into a contract on February 3, 2003 to provide all necessary engineering services for Phase II of the project. Plaintiff was responsible for preparing final designs and specifications, including grading and excavation plans and details. Plaintiff's storm water retention plans required grading of a slope on the property. The slope is located downhill from and south of State Route 40, a public thoroughfare owned and maintained by the Pennsylvania Department of Transportation ("PennDOT").

The 2001 and 2003 contracts required plaintiff to provide geotechnical services for both phases of the project. Plaintiff subcontracted with Benatec Associates, Inc. ("Benatec") to perform the geotechnical services portion of the contract. In September of 2001, Scott Bush, a Benatec employee, prepared and submitted a subsurface geotechnical investigation report. The report stated the subsurface material on the RACF property was suitable to establish the storm water detention basin and the other infrastructure to be installed. Penn Development was hired to perform the excavation.

Prior to preparing the excavation plans for the slope, plaintiff followed the Pennsylvania One Call Procedure.*fn1 Verizon failed to notify plaintiff of its easement on the property in which underground lines were located. Penn Development also followed the Pennsylvania One Call Procedure prior to beginning any excavation work and Verizon failed to notify it of the easement as well. Unaware of the Verizon easement, plaintiff completed its grading and excavation plans.

The existence of Verizon's easement was discovered when Penn Development cleared the slope in preparation to begin its excavation work. Due to the location of the easement, plaintiff had to modify its original excavation plans. Penn Development then performed and completed the excavation work on the slope.

On December 30, 2003, plaintiff was notified of a failure on the slope (the "Slide"). Plaintiff immediately authorized Penn Development to perform emergency work on the slope and notified RACF about the Slide on December 31, 2003.

On February 5, 2004, PennDOT met with plaintiff, RACF, and Penn Development regarding the Slide. At the meeting, PennDOT expressed concerns about safety conditions at the site. Specifically, PennDOT was concerned that the excavation work had jeopardized the horizontal and lateral support of Route 40. PennDOT's position was that RACF, as the adjacent landowner, should pay for the required repair work. RACF did not take a position as to what caused the Slide, other than emphasizing to PennDOT that it was not responsible for the Slide or any resulting damage to Route 40. It did not agree to absorb any remediation costs. Following the February 5, 2004 meeting and pursuant to RACF's request, plaintiff worked with a PennDOT engineer to develop restoration plans.

On February 11, 2004, PennDOT sent a letter to RACF regarding the Slide. It essentially explained the recourse available to PennDOT under 36 P.S. § 670-419, a Pennsylvania statute which imposes a duty on adjacent landowners to provide vertical and lateral support to state highways. The letter put RACF, plaintiff and Penn Development on notice that PennDOT considered all three entities responsible for the Slide. It directed RACF to perform promptly any work necessary to stabilize and maintain the Slide, monitor it and develop plans for permanent restoration. It further informed RACF that if it failed to comply with these directives, PennDOT would have an outside contractor perform the work and bill RACF for it. RACF, plaintiff and Penn Development were advised that failure to comply with these directives could result in their actions being deemed a public nuisance. The letter concluded by alerting RACF that it could be exposed to liability should any accident occur on Route 40. It is undisputed that the February 11, 2004 PennDOT letter did not contain any allegations of negligence on the part of any entity involved, including plaintiff.

RACF forwarded the February 11, 2004 letter to plaintiff and directed it to perform the stabilization work and monitoring demanded by PennDOT. RACF requested that plaintiff conduct an investigation into what caused the Slide, design plans for permanent restoration and determine the cost of that remediation. There was no discussion at that time regarding compensation for the restoration work. After plaintiff developed the remediation plans it submitted an invoice to RACF for its work. Payment was not approved because there had been no prior agreement about payment for plaintiff's work in developing the remediation plans. There was, however, a discussion regarding the possibility of future payment for the unpaid invoice.

By March of 2004, general discussions had taken place between plaintiff and RACF as to what caused the Slide. Several theories had been proposed regarding possible causes, including "Verizon, PennDOT, God." Deposition of RACF's Executive Director Andrew French (Doc. No. 67-7) at 43.*fn2 Throughout this period of time there was no allegation that plaintiff's negligence caused the Slide.

On July 22, 2004, plaintiff submitted an application for insurance with Travelers. It did not disclose any information concerning the Slide. Travelers subsequently issued a claims-made architects and engineers professional liability insurance policy, with a policy period effective from September 22, 2004 to September 22, 2005.

In November of 2004, RACF received a letter from Verizon alleging that RACF was liable for the cost of repairs to Verizon's underground lines, which Verizon asserted had been damaged by the Slide. During the time that plaintiff applied for and obtained the Travelers policy, it continued to perform the services requested by RACF. Plaintiff did not perform any remediation work other than to design the restoration plans and determine the cost of repair.

On January 28, 2005, plaintiff provided RACF with an overview of its investigation into the cause of the Slide. Water had infiltrated Verizon's existing utility trench on the site due to poor compaction of the trench. The Verizon trench functioned as a migration pathway for surface water runoff, which in turn caused the saturation of the slope. The saturation weakened the soil to the point where it became unstable, resulting in the Slide. Plaintiff's January 28, 2005 Letter (Doc. No. 67-5). Verizon had adjusted the height of a manhole cover on the slope and failed to re-pack the soil properly. This led to the trench acting as a migration pathway and the manhole cover at the end of the trench acting as a plug, which in combination caused the saturation.*fn3 RACF did not question plaintiff's determination in January of 2005 and has never had any reason to question plaintiff's ultimate determination as to the cause of the Slide. Testimony of Raymond Polaski (Doc. No. 77-2) at 20.

Plaintiff submitted three proposals to RACF that it had received from contractors interested in performing the remediation. RACF received the proposals in February of 2005 and declined to enter into a contract with any of the contractors.

On April 13, 2005, at a meeting between PennDOT, RACF, and plaintiff, RACF informed PennDOT of its decision not to contract for the repair work. RACF again took no position as to what caused the Slide other than to state that it was not responsible for any damage to Route 40. PennDOT reiterated its position that if RACF, as the adjacent landowner, did not perform the work, PennDOT would have the remediation work performed and submit a bill to RACF. Neither PennDOT nor RACF indicated they would seek reimbursement from plaintiff for these costs.

On April 21, 2005, plaintiff received written notice from PennDOT that it had hired a contractor to perform the remediation work at an estimated cost of $290,000.00. PennDOT's contractor completed the work in June of 2005.

On July 7, 2005, plaintiff was advised by its insurance agent that Travelers would not continue to provide coverage after its policy expired on September 22, 2005. Consequently, on July 25, 2005, plaintiff submitted an application for insurance for a claims-made architects and engineers professional liability insurance policy with Navigators. The Navigators policy was to take effect on September 22, 2005 and expire on September 22, 2006. Plaintiff subsequently revised its application on September 19, 2005.

On September 20, 2005, two days before the Travelers policy was set to expire, plaintiff was served with a complaint filed by Verizon. The Verizon complaint alleged that both plaintiff and Penn Development were responsible for the cost of repairing Verizon's underground lines, which Verizon asserted were damaged as a result of the Slide. It further alleged that the damage to the lines had been caused by, inter alia, plaintiff's negligence and carelessness. It is undisputed that the Verizon complaint was the first time an allegation of negligence had been made against plaintiff. The next day, plaintiff revised its application with Navigators for the second time. It did not disclose any information about the Verizon complaint. On September 22, 2005, the Travelers policy expired and the Navigators policy took effect.

PennDOT sent a letter to RACF dated August 18, 2005 requesting reimbursement for the cost it incurred in repairing the damage caused to Route 40. Enclosed was an invoice for $304, 964.94. On October 3, 2005, RACF forwarded PennDOT's August 18, 2005 letter and invoice to plaintiff along with a letter which reiterated RACF's position that it was not responsible for the Slide. RACF's letter announced that the costs associated with the repairs should be the responsibility of either plaintiff or its sub-contractors. Despite seeking payment from plaintiff, the letter did not allege that plaintiff caused the Slide or was negligent in any way.

Upon receiving RACF's letter, plaintiff notified both defendants of RACF's demand. Both defendants denied coverage and plaintiff filed this declaratory judgment action in the Court of Common Pleas of Fayette County, which defendants removed. It remains undisputed that neither PennDOT nor RACF have made any allegations of negligence against plaintiff to date.

Travelers contends it is entitled to summary judgment because no claim was made against plaintiff during the period of coverage provided by its policy. To the extent a demand for services or payment by PennDOT or RACF is construed to constitute a claim, such a demand originated in February of 2004, would be part of a single claim under the policy, and thus was first made prior to the period of coverage. Finally, plaintiff knew of the demand in February of 2004, and cannot satisfy the grant of coverage requirement of proving that on the application date of July 22, 2004 it did not know and could not reasonably expect that a claim would be made against it.

Navigators contends it is entitled to summary judgment because the Slide and PennDOT/RACF's demands for services were known to plaintiff on the date its policy became effective and therefore those demands are outside the grant of coverage. Plaintiff failed to disclose the circumstances surrounding the Slide and the Verizon suit on its revised application and any claim arising out of the same circumstances is excluded under its policy. Finally, the October 3, 2005 demand for payment by PennDOT/RACF arises from the same series of acts or omissions as the Verizon complaint and thus constitutes part of a single claim that was first made before its policy took effect.

Plaintiff contends that the October 3, 2005 demand for payment constitutes the first claim made against it and therefore coverage is available under the Navigators policy. Alternatively, the Verizon suit provided the first notice of a potential claim. That potential claim ripened into an actual claim upon receipt of the October 3, 2005 demand. Coverage is therefore provided under the Travelers policy because the first notice of the claim occurred during its policy period. Plaintiff further asserts that at the very least, there are material issues of fact as to whether any communication received prior to October 3, 2005 constituted a claim under either policy.

The applicable law and undisputed facts demonstrate as a matter of law that no claim has ever been made by PennDOT or RACF as defined by either policy. Consequently, defendants are entitled to a declaration that they are not obligated to provide coverage for the PennDOT/RACF demands as an actual claim.

Pennsylvania's rules of insurance contract interpretation are well established. 401 Fourth Street, Inc. v. Investors Insurance Group, 879 A.2d 166, 171 (Pa. 2005). Interpretation of an insurance contract generally is a task to be performed by the court rather than a jury. Id. (citing Madison Construction Co. v. Harleysville Mutual Ins. Co., 735 A.2d 100, 106 (Pa. 1990) and Standard Venetian Blind Co. v. American Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983)). This general rule is derived from the approach followed in all areas of contract law. See Gonzalez v. U.S. Steel Corp., 398 A.2d 1378, 1385 (Pa. 1979) ("For a variety of reasons the common law has long thought it best to leave to the court than rather to the jury the essential factual question of what the contracting parties intended.") (quoting Community College of Beaver County v. Society of the Faculty, 375 A.2d 1267, 1275 (Pa. 1977)). Adherence to this approach "contributes to the stability and predictability of contractual relations and provides a method of assuring that like cases will be decided alike." Id. (quoting Restatement (Second) of Contracts ยง 283, Comment d). In contrast, "a question of interpretation of an integrated agreement is to be determined by a ...


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