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Neshaminy Constructors, Inc. v. Federal Insurance Company and the Chubb Corporation

June 21, 2012

NESHAMINY CONSTRUCTORS, INC.
v.
FEDERAL INSURANCE COMPANY AND THE CHUBB CORPORATION



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

MEMORANDUM OPINION

In this insurance coverage dispute, the parties have filed cross motions for summary judgment. The plaintiff, Neshaminy Constructors, Inc., ("Neshaminy") contends that the defendant, Federal Insurance Company ("Federal"), breached its insurance contract and denied Neshaminy's claim under the insurance policy in bad faith. It argues that the undisputed facts demonstrate that the claim was covered by the policy. Federal counters that the loss was not covered and was specifically excluded by the policy language.

The threshold question is whether the loss was covered. If it was, then the issue is whether Federal acted in bad faith in denying the claim. On the other hand, if the loss was excluded, Federal did not breach the contract and could not have acted in bad faith.

The facts are undisputed. The parties disagree what the policy language means. Neshaminy contracted with the New Jersey Department of Transportation to reconstruct the transit bridge on Tuckahoe Road, Route 557, in Estell Manor, New Jersey. As a result of defective concrete forms, the bridge's beams constructed by Neshaminy were damaged, requiring repairs which resulted in cost overruns and delays. The defective concrete forms were designed and supplied by EFCO Corporation, Neshaminy's sub-contractor.

Neshaminy submitted a claim under the inland marine insurance policy, which Federal had issued. Relying on two policy exclusions, Federal denied the claim. Neshaminy brought this action for breach of the insurance contract and for bad faith.

For the purpose of determining whether there was coverage, the material facts are undisputed. The project caused damage to the bridge's beams. The losses were caused by the concrete forms defectively designed by Neshaminy's subcontractor. Neshaminy was covered by an inland marine insurance policy issued by Federal during the relevant period. The policy included exclusions for claims arising out of a design defect, and those arising out of faulty or defective workmanship, materials, maintenance or construction. Absent these exclusions, the losses are otherwise covered. Thus, we must determine whether the exclusions apply.

Legal Standard

The interpretation of an insurance contract is a question of law. Am. Auto. Ins. Co. v. Murray, 658 F.3d 311, 320 (3d Cir. 2011) (citations omitted). The issue of whether a claim is within a policy's coverage or barred by an exclusion may be decided on a motion for summary judgment. Bishops, Inc. v. Penn Nat'l Ins., 984 A.2d 982, 989 (Pa. Super. Ct. 2009) (quoting Nationwide Mut. Ins. Co. v. Nixon, 682 A.2d 1310, 1313 (Pa. Super. Ct. 1996)).

A court must give effect to the plain language of the insurance contract read in its entirety. Am. Auto Ins. Co., 658 F.3d at 320 (citation omitted). When the policy language is ambiguous, the provision must be construed in favor of the insured. Id. (quoting Med. Protective Co. v. Watkins, 198 F.3d 100, 104 (3d Cir. 1999)); 401 Fourth St., Inc. v. Investors Ins. Grp., 879 A.2d 166, 174 (Pa. 2005) (citing Mohn v. Am. Cas. Co. of Reading, 326 A.2d 346, 352 (Pa. 1974)). Contract language is ambiguous if it is reasonably susceptible to more than one construction and meaning. 401 Fourth St., Inc., 879 A.2d at 171 (quoting Madison Constr. Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100, 106 (1999)). However, policy language may not be stretched beyond its plain meaning to create an ambiguity. Trizechahn Gateway LLC v. Titus, 976 A.2d 474, 483 (Pa. 2008).

The insured has the initial burden of establishing coverage under the policy. State Farm Fire & Cas. Co. v. Estate of Mehlman, 589 F.3d 105, 111 (3d Cir. 2009). Conversely, when the insurer relies on a policy exclusion as the basis for denying coverage, it has the burden of proving, by uncontradicted facts, that the exclusion applies. Id.; Mistick, Inc. v. Nw. Nat. Cas. Co., 806 A.2d 39, 42 (Pa. Super. Ct. 2002). Policy exclusions are strictly construed against the insurer. Nationwide Mut. Ins. Co. v. Cosenza, 258 F.3d 197, 207 (3d Cir. 2001)(citing Selko v. Home Ins. Co., 139 F.3d 146, 152 n.3 (3d Cir. 1998)).

Discussion

Federal issued Inland Marine Insurance Policy No. 0663-68-53, effective November 1, 2009 through November 1, 2010. The Open Installation Floater provides coverage for physical loss or damage to "project works." It provides:

We will pay for direct physical loss or damage to project works caused by or resulting from a peril not otherwise excluded, not to exceed the applicable Limit Of Insurance for Project Works shown in the Declarations.*fn1 The policy defines "project works" as "materials, supplies, machinery and equipment which you own, or which are owned by others and for which you are legally liable, to be used in and become a permanent part of the construction, reconstruction, erection, expansion, fabrication, renovation or repair of an insured installation project."*fn2

The policy excluded coverage for certain claims. Among the exclusions are the workmanship and materials exclusion and the defect-in-design exclusion. The workmanship and materials exclusion states: "This insurance does not apply to loss or damage (including the cost of correcting or making good) caused by or resulting from faulty or defective workmanship, materials, maintenance or construction."*fn3 The design exclusion reads: "This insurance does not apply to loss ...


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