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United States Fire Insurance Company v. Kelman Bottles

April 5, 2012

UNITED STATES FIRE INSURANCE COMPANY,
PLAINTIFF,
v.
KELMAN BOTTLES, KELMAN GLASS, LLC, DEFENDANTS/THIRD-PARTY PLAINTIFFS,
v.
CONTINENTAL CASUALTY COMPANY, THIRD-PARTY DEFENDANT.



The opinion of the court was delivered by: Arthur J. Schwab United States District Judge

ELECTRONICALLY FILED

MEMORANDUM AND OPINION

This is a declaratory judgment action brought by Plaintiff, United States Fire Insurance Company ("U.S. Fire"), seeking a declaration that it does not have to provide insurance coverage to the Defendants, Kelman Bottles and Kelman Glass, LLC ("Kelman"). See doc. no. 1. Kelman filed counterclaims against U.S. Fire seeking damages for breach of contract and for bad faith. See doc. no. 10. Kelman also sued third-party Defendant Continental Casualty Company ("Continental") for breach of contract. See doc. no 29.

Presently before the Court are the parties' Cross-Motions for Summary Judgment. Continental filed a Motion for Summary Judgment against Kelman. See doc no. 91. U.S. Fire also filed a Motion for Summary Judgment against Kelman. See doc. no. 93. Kelman filed a Partial Motion for Summary Judgment against Continental (see doc. no. 98) and a Partial Motion for Summary Judgment against U.S. Fire. See doc. no. 103.

Each party filed a Response to the Motion(s) for Summary Judgment that was/were filed against each of them. See doc. nos. 107, 110, 114-115, and 116-117.

U.S. Fire also filed a Cross-Motion for Summary Judgment (doc. no. 112) and brief in support. Doc. no. 113. Although Kelman filed a Motion seeking time to respond to U.S. Fire's Cross-Motion (doc. no. 122) and this Court granted Kelman's Motion (doc. no. 123), no response was filed. However, Kelman filed a Reply Brief re Motion for Partial Summary Judgment Against U.S. Fire (doc. no. 131) and U.S. Fire filed a Reply Brief in support of its Original Motion for Summary Judgment (doc. no. 93). Doc. no. 127.

The Court has carefully considered all of the aforementioned submissions as well as the Statements of Material Facts (and Responses thereto) and finds that these Motions are now ripe for disposition. For the reasons that follow, this Court will grant U.S. Fire's Motion for Summary Judgment, will grant Continental's Motion for Summary Judgment, will deny Kelman's Motion for Partial Summary Judgment against U.S. Fire, and will deny Kelman's Motion for Partial Summary Judgment against Continental. Finally, the Court will deny U.S. Fire's Cross-Motion for Summary Judgment (doc. no. 122) as moot.

I. FACTUAL AND PROCEDURAL BACKGROUND

The following facts are undisputed and material.

A. The Incident and the Furnace

Kelman operates a glass manufacturing facility in Glenshaw, Pennsylvania, where it produces glass containers for the food industry. Doc. nos. 1 and 10 at ¶¶ 8-9. The facility contains several furnaces for melting glass. Doc. nos. 1 and 10 at ¶ 11. From 2007 to March 15, 2011, Kelman operated only one furnace at the facility. Doc. no. 121 at ¶ 6.

On March 15, 2011, molten glass escaped from "furnace no. 2" or "kiln #2" (hereinafter "the furnace") which resulted in physical damage to the furnace and other property. Doc. nos. 1 and 21 at ¶ 21 and doc. nos. 29 and 44 at ¶ 1.

The following is a summary of the relevant history of the furnace. The furnace had undergone "a rebuild" from December of 2003 through January of 2004. Doc. no. 108 at ¶ 18. A rebuild occurred approximately every nine years. Id. Between January of 2007 and March 15, 2011, the furnace leaked molten glass. Doc. No. 1 at ¶ 19. Specifically in April of 2009, the furnace leaked molten glass. Doc. no. 116 at ¶ 15. On June 4, 2010 the furnace leaked again. Doc. no. 116 at ¶ 29.

Following the April of 2009 leak, Doug Hilliard (Kelman's Furnace Manager) sent an email dated April 15, 2009 to William Kelman stating, in pertinent part, as follows:

As per your question on how long [the furnace] will last . Well as I told you no one can tell you that answer with any certainty. I am in here this morning at 12:30 am because of a leak on the Northside of the melter. We have it stopped but it is in a very serious spot in the furnace. It is about halfway down the block meaning there is a lot of pressure pushing the glass out. I have water and compressed air on it as of now but will have to chip it back and see what we have in the morning. If it were not for the quick thinking and action of my crew this could have gotten out of hand very easily and we could have lost well over half of the glass in the furnace into the basement. . ..

Doc. no. 97-7.

After the April 2009 leak, Glass Furnace Management, LLC ("GFM") conducted a "Hot Repair Scope Evaluation" at Kelman. Doc. no. 97-8. Under the "Repairs Needed" section of its written report, GFM indicated that Kelman needed to make the following repairs:

(1) replace the Left Front Checker; (2) "[o]vercoat 5 Sidewall Blocks 100% on Left Side of Furnace[;]" (3) "[o]vercoat the entire front wall metal line[;]" (4) "[o]vercoat 1 [e]lectrode block on the left side of ther furnace 100%[;]" (5) "[o]vercoat three sidewall blocks along metal line of [r]ight side of furnace." Id.

Under the "Repair Options" section of GFM's written report, GFM indicated that the "[o]vercoat work [items 2 though 5 immediately above] should be completed conventionally. . . . [L]owest risk option is to replace 100% of the checker pack including both settings including the rider arches, rider tiles, and transition course with HPC setting as previously installed." Id.

Under the "Recommendations" section of its report, GFM stated that if Kelman "desires to run the furnace longer than 2 years, then I would propose 100% replacement of the checker pack and rider arches in both settings." Id.

In early May of 2009, GFM sent several quotes to Doug Hilliard at Kelman for the recommended work. See doc. nos. 97-9, 97-10, 97-11. On May 15, 2009, Doug Hilliard sent an email to William Kelman (and others) regarding the cost of the work proposed by GFM. In the body of the email he wrote (in pertinent part) as follows:

At this time the known fact is the north regenerator front two zones have collapsed. This is causing a blockage of the combustion air coming in and the exhaust going out in these two ports. This in turn limits the daily tonnage . . . . cutting deeply in to the potential profit . . . .

The furnace inspection also showed that we are in direr [sic] need of overcoat block on mainly the north side of the melter. There is a great potential for us to get a dangerous glass leak that may or may not be stopped in this area.

My recommendation is that we replace the whole north checker pack and overcoat the side walls at the same time. This will be the most cost effective, least amount of down time and reliable way to do this repair. We do run a risk of the south failing under this extreme thermal shock of firing them continually during the repair, but I feel that is a risk we must take at this time. . . .

What I need is some guidance on which way to proceed with this. The most economical and fastest way of doing it would be to only replace the front part that has collapsed. . . . I do not recommend this type of repair but if it is all we can afford at this time then that is what we will have to deal with. . . .

Doc. no. 97-12.

Although Kelman ultimately replaced the checker pack in the north regenerator of the furnace sometime between December of 2009 and February of 2010, it only repaired the south side checker pack and regenerator during this same time frame. See doc. no. 101-3 at pp. 35-38. Kelman stated that it overcoated the entire metal line, not just portions of it, but admitted that it did not do some of the "other work" GFM recommended. Doc. no. 121 at ¶ 24. Kelman explained that it did not do some of the "other work" recommended by GFM because "it was not done in the industry, had never been done at the [f]acility and it could cause the block to wear out faster than it would without the work." Id.

Following the June 4, 2010 leak (which appears to have been two leaks, close in time on the same date), on June 4, 2010, Doug Hilliard wrote an email to Eleni Sotiriou (a Kelman employee), which stated in pertinent part:

The furnace is ok right now. We did have another leak, a fairly bad one, after I had talked to Bill. I was already here and was able to stop it fairly quickly. We are now in the process of cleaning both areas where the leaks occurred up and getting more air to them.

Doc. no. 97-17. On February 2, 2011, Doug Hilliard wrote the following in an email to Eleni Sotiriou:

As for how worried we should be, I think we should be extremely worried. In my opinion if this block falls into the throat and causes a blockage, we will have no other option than shutting the furnace down, draining it and do a full repair on the whole melting end. I do not feel that this furnace will take a drain, cool down, minor repair and restart.

Doc. no. 97-18. On February 6, 2011 Doug Hilliard again emailed Eleni Sotiriou, stating:

We have had some movement in the blocks on the front wall overnight. The block to the left, or to the north side of the wall, has remained stable, but the block on the right, or the south side has shown some additional slippage. The crack in the bridge-wall above this area seems to have become more prominent.

. . . Although we have had some slight movement I am confident we will be ok until tomorrows [sic] repair. I have my tank attendants watching it closely on reversals and they are to contact me as soon as they see any change. Doc. no. 97-20.

On March 15, 2011, molten glass leaked from one, if not two, locations on the north wall. Doc. no. 116 at ¶ 24.

Kelman had a written procedure in place to manage potential leaks from the furnace. Doc. no. 121 at ¶ 14. U.S. Fire's and Continental's expert conceded that glass plants typically have contingency plans in place to manage furnace leaks. Id. and doc. no. 108 at ¶ 23.

B. The Insurance Policies

U.S. Fire issued a commercial property insurance policy to "Kelman Bottles LLC" (the named insured set forth on the declarations page of the policy), and listed "Kelman Glass LLC" as an additional named insured pursuant to an endorsement. Doc. nos. 1 and 10 at ¶ 7, doc. no. 1-4, and doc. no. 121 ¶ 37. The policy declarations page indicates that the policy period ran from March 10, 2011 to March 10, 2012. Doc. no. 1-4.

Continental also issued an insurance policy to Kelman Glass LLC. Doc. no 97-1 at bates no. 02776. The declarations page of the policy indicates that the policy period ran from March 14, 2011 to March 14, 2012. Id. Continental's policy provides coverage for "equipment breakdown" as that term is defined by the policy. Id.

No party contests that Kelman provided timely notice of the March 15, 2011 event to its two insurers.

On June 14, 2011, Continental denied Kelman coverage for the claim arising out of the March 15, 2011 event indicating that no "breakdown" (as the policy defines that term) occurred. Doc. no. 29-1, ex. "B." On June 30, 2011, U.S. Fire denied Kelman coverage for the claim arising out of March 15, 2011 event based on the policy's: (1) inherent vice exclusion, (2) wear and tear exclusion, and (3) design defect exclusion. Doc. no. 121 at ¶ 60.

C. Procedural History

On July 6, 2011, U.S. Fire filed the instant declaratory judgment action seeking a judgment declaring that "the furnace is not 'Covered Property'" as defined by the U.S. Fire policy. Doc. no. 1.

On August 23, 2011, in response to U.S. Fire's Complaint, Kelman filed an Answer and Counterclaims asserting claims for breach of contract and bad faith. Doc. no. 10. U.S. Fire moved to dismiss Kelman's Counterclaims, which this Court denied. Doc. no. 23 and text order dated September 13, 2011. U.S. Fire filed an Answer to Kelman's Counterclaims on September 26, 2011.

On October 10, 2011, Kelman filed a Joinder Complaint against Continental asserting a claim for breach of contract. Doc. no. 29. After Continental was joined, U.S. Fire amended its Answer to Kelman's Counterclaims to assert an additional affirmative defense. Doc. no. 43. The additional affirmative defense referenced the portion of its own policy which excluded coverage for any property covered by another insurance policy, except for any excess amount due (whether collectible or not) from the other insurance policy. Id.

On November 30, 2011, Continental filed an Answer to Kelman's Joinder Complaint. Doc. no. 44.

Following the close of discovery, Kelman sought to amend its Third Party Complaint against Continental to assert a claim for bad faith. Doc. no 77. On March 1, 2012, the Court denied Kelman's Motion to amend its Third Party Complaint. Doc. no. 90.

As noted above, Continental filed a Motion for Summary Judgment against Kelman. See doc no. 91. U.S. Fire also filed a Motion for Summary Judgment against Kelman. See doc. no. 93. Kelman filed Partial Motions for Summary Judgment against Continental (see doc. no. 98) and U.S. Fire. See doc. no. 103.

In addition to filing Cross-Motions, the parties also filed Responsive Briefs to one another's Motions. Continental filed a Response to Kelman's Motion for Partial Summary Judgment (doc. no. 107), and U.S. Fire filed a Response to Kelman's Motion for Partial Judgment. Doc. no. 110. Kelman filed a Response to Continental's Motion for Summary Judgment (doc. nos. 114-115), and it also filed a Response to U.S. Fire's Motion for Summary Judgment (doc. nos. 116-117).

In addition, U.S. Fire filed (with the Court's permission) a Reply to Kelman's Response to U.S. Fire's Motion for Summary Judgment. Doc. no. 127.

Finally, Kelman filed a "Cross-Motion for Summary Judgment" and a Brief in Support of same. See doc. nos. 112-113. Kelman filed a Response to the same. Doc. no. 131.

Thus, the procedural posture is one of Cross-Motions for Summary Judgment in which there appears to be no dispute as to any material fact. Thus, as discussed below, the only issues before the Court are purely legal ones which may be decided upon Motion.

II. STANDARD OF REVIEW

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." Fed.R.Civ.P. 56(c)(2).

When a motion for summary judgment is properly made and supported, an opposing party may not rely merely on allegations or denials in its own pleading; rather, its response must -- by affidavits or as otherwise provided in this rule -- set out specific facts showing a genuine issue for trial. If the opposing party does not so respond, summary judgment should, if appropriate, be entered against that party. Fed. R. Civ. P. 56(e)(2).

To demonstrate entitlement to summary judgment, the defendant, as the moving party, is not required to refute the essential elements of the plaintiff's cause of action. The defendant needs only point out the absence or insufficiency of the plaintiff's evidence offered in support of those essential elements. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). Once that burden has been met, the plaintiff must identify affirmative evidence of record that supports each essential element of his cause of action. If ...


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