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Toll Bros. Inc. v. Century Surety Co.

United States District Court, Third Circuit

June 19, 2013

TOLL BROS. INC., Plaintiff,
v.
CENTURY SURETY COMPANY et al, Defendants.

MEMORANDUM OPINION

Tucker, J.

Presently before the Court are cross-motions for summary judgment: Plaintiff’s Motion for Partial Summary Judgment (Doc. 61), Defendant Essex Insurance Company’s Response in Opposition thereto (Doc. 65), Defendant Essex Insurance Company’s Motion for Summary Judgment (Doc. 62), and Plaintiff’s Response in Opposition thereto (Doc. 66). Upon consideration of the parties’ motions with briefs and exhibits, and for the reasons set forth below, Plaintiff’s motion will be granted and Defendant’s motion will be granted in part and denied in part.

I. FACTUAL BACKGROUND

Plaintiff Toll Brothers, Inc. (“Toll”) is a luxury homebuilder that builds new home communities throughout Pennsylvania. Certain communities in Pennsylvania are governed by local ordinances requiring the installation of fire suppression systems. Accordingly, homes in Toll communities that are subject to these local ordinances contain fire suppression systems, including sprinklers.

On or about April 22, 1999, Toll hired H.A.S. Protection, Inc. (“H.A.S.”) as a subcontractor to provide and install fire suppression systems in a number of residential communities in the greater Philadelphia area (“Construction Agreement”). Article 3 of the Construction Agreement between Toll and H.A.S. required H.A.S. to indemnify and defend Toll for any claim or demand arising out of or relating to H.A.S.’s performance of work under the Construction Agreement. Article 4 of the Construction Agreement required H.A.S. to name Toll as an additional insured under its insurance policy and to procure and maintain for the term of the Construction Agreement general liability insurance of $1, 000, 000. To comply with Article 4, H.A.S. contracted with Defendant Essex Insurance Company (“Essex”) for a commercial general liability policy of insurance. This policy, No. 3CK6280, was effective June 26, 2003 to June 26, 2004. H.A.S. renewed the policy, under No. 3CK6533, for the period of June 26, 2004 to June 26, 2005 (collectively, the “Policies”). The Policies covered property damage. H.A.S. supplied a certificate of insurance to Toll identifying Toll as an additional insured under the original policy, No. 3CK6280. However, Essex denies that Toll was an additional insured under the renewed policy, No. 3CK6533. Toll maintains that it was an additional insured under both Policies.

Shortly after H.A.S. completed the installation of its fire suppression systems, Toll began receiving warranty and reimbursement claims for damage caused by allegedly malfunctioning fire suppression systems. Homeowner claims began in or about June 16, 2003 and continued for years thereafter. These claims included, but were not limited to, claims asserted by homeowners Ron and MaryEllen Ort and homeowner Sridhar Iyer. Toll and its general liability carrier, Liberty Mutual, investigated the Ort claim and determined that the alleged loses resulted from faulty installation of sprinkler protection equipment installed by H.A.S. Accordingly, in June 2005, Toll tendered the claim to Essex for handling, in accordance with Toll’s status as an additional insured under the Policies. During this time, Essex was providing H.A.S.’s defense in multiple litigations involving H.A.S’s installation of fire suppression systems. Toll was not involved in these other lawsuits. However, despite being advised of the Ort claim, and despite the fact that Essex was already defending H.A.S. in other lawsuits, Essex did not respond to Toll’s tender correspondence, did not issue a reservation of rights or coverage determination letter to Toll, and/or did not provide a defense to Toll in relation to the Ort claim.

On July 18, 2005, Ron and MaryEllen Ort and Sridhar Iyer commenced an action pertaining to their respective claims in the Court of Common Pleas of Chester County, Pennsylvania. See Ronald and MaryEllen Ort et al v. Harvel Plastics et al, Chester County C.C.P., No. 05-5604 (“Ort/Iyer lawsuit”). Toll and H.A.S., among other entities, were named as defendants in this suit. In addition to the Ort/Iyer lawsuit, other legal proceedings were also filed against Toll and H.A.S. in the Court of Common Pleas of Chester County.[1] The causes of action asserted against Toll and H.A.S. in the Ort/Iyer lawsuit were identical. Further, the Ort/Iyer lawsuit alleged that Iyer claim occurred on January 11, 2004 and the Ort claim occurred on August 31, 2004.[2]

Essex provided a defense for H.A.S. in relation to the Ort/Iyer lawsuit, but refused to do the same for Toll despite Toll’s repeated requests that it do so. As a result, Toll retained, at its own cost, counsel to defend it in the Ort/Iyer lawsuit. It was determined that the cause of the losses in the Ort/Iyer lawsuit was the negligent introduction of contaminants into sprinkler systems by H.A.S. during the sprinkler system testing process. Ultimately, Toll incurred defense costs of $99, 784.53 and also paid settlement amounts.

II.PROCEDURAL HISTORY

A. Essex’s Declaratory Judgment Action

On November 16, 2006, Essex initiated a declaratory judgment action against H.A.S. in the United States District Court for the Eastern District of Pennsylvania. See Essex Ins. Co. v. H.A.S. Protection, Inc., No. 06-5076 (E.D. Pa. filed Nov. 16, 2006). Essex was seeking, in a part, a declaration from the Court that the insurance policies issued by Essex to H.A.S were rescinded, null and void, and that Essex did not have a duty to defend and indemnify H.A.S. H.A.S. never appeared in Essex Ins. Co. v. H.A.S. Protection, Inc. As a result, Essex requested and received a default against H.A.S. on January 19, 2007. On March 29, 2007, Essex filed a motion for summary judgment seeking a declaration of equitable rescission of the Policies, as well as a declaration that the Policies were null and void. On May 7, 2007, Toll filed a motion to intervene and stay the pending motion for summary judgment filed by Essex. The Court granted Essex’s motion for summary judgment as unopposed on May 9, 2007. Toll’s motion to intervene was denied as moot on May 11, 2007.

B. Toll’s Breach of Contract Action Meanwhile, on February 15, 2007, Toll filed the instant suit against Essex in the Court of Common Pleas of Chester County as a result of Essex’s failure to defend and indemnify Toll in the Ort/Iyer lawsuit. At that time, Toll was apparently unaware of the pendency of the Essex Ins. Co. v. H.A.S. Protection, Inc. matter in the Eastern District of Pennsylvania. On March 30, 2007, the suit was removed to this Court based on diversity of citizenship. Toll has asserted claims for the following against Essex: (1) breach of contract (Count VI); (2) defense and indemnification (Count VII); (3) declaratory judgment (Count VIII); (4) breach of good faith and fair dealing (Count IX); (5) third party beneficiary (Count X).[3]

On November 8, 2007, Essex moved for summary judgment on several grounds. Essex argued, inter alia, that although Toll was provided with an Additional Insured Endorsement for the period of October 30, 2003 to June 26, 2004, that Endorsement only provided the potential additional insured with coverage to the extent provided to the named insured. However, because the Policies had been rescinded and declared null and void in Essex Ins. Co. v. H.A.S. Protection, Inc., Essex asserted that Toll was not entitled to any coverage because the Policies no longer exist. Additionally, Essex argued that Toll allowed the Court’s May 7, 2007 Order (granting rescission and declaring the Policies at issue null and void) and the May 11, 2007 Order (denying Toll’s motion to intervene in the declaratory matter) to become final. Essex further argued the motion to intervene had been untimely. Therefore, Essex asserted, re-litigation of the issues regarding the rescission of the Policies was precluded pursuant to the doctrines of res judicata and collateral estoppel.

Toll opposed the motion for summary judgment. Following oral arguments, on March 7, 2008, this Court granted Essex’s motion for summary judgment. Toll Bros. Inc. v. Century Sur. Co., CIV.A. 07-1296, 2008 WL 638232 (E.D. Pa. Mar. 6, 2008) rev'd, 318 F.App'x 107 (3d Cir. 2009). The Court granted summary judgment on two grounds. First, because Essex Ins. Co. v. H.A.S. Protection, Inc. and this lawsuit involved the same cause of action, and a final judgment on the merits was issued in Essex Ins. Co. v. H.A.S. Protection, Inc., an action which involved H.A.S. (Toll’s privy), res judicata barred Toll’s claims in this litigation. Second, the Court found that no coverage existed for Toll under the Policies pursuant to the terms of the Additional Insured Endorsement, which states that an additional insured was entitled to no greater coverage than the primary insured, because the insurance policy between Essex and H.A.S. was rescinded. Thereafter, on April 1, 2008, Toll filed a timely notice of appeal.

C. Third Circuit Reversal

On March 24, 2009, the United States Court of Appeals for the Third Circuit issued an Opinion reversing and remanding this Court’s grant of summary judgment in favor of Essex. Toll Bros., Inc. v. Century Sur. Co., 318 F.App'x 107 (3d Cir. 2009). The Third Circuit held that there was no privity between Toll and H.A.S. because their interests in Essex Ins. Co. v. H.A.S. Protection, Inc. conflicted. Specifically, the Third Circuit reasoned that “[b]y its default in Essex v. H.A.S. Protection[, ] H.A.S. was clearly indifferent to a decision rescinding its Essex insurance policy. Toll, however, had a strong interest in opposing the rescission of the Essex insurance policy.” Id. at 112. Accordingly, in the absence of such privity, Essex could not argue that res judicata applied.

Further, the Third Circuit specifically noted that its decision permits Toll to contest whether H.A.S. in fact perpetrated a fraud entitling Essex to void its H.A.S. policy. Id. at 113. Additionally, the Third Circuit also reversed the grant of summary judgment on the issue of whether “the policy might permit coverage for an additional insured notwithstanding a rescission of H.A.S.’s coverage.” Id. Subsequently, as a result of the Third Circuit’s decision, this matter was relisted on the district court’s docket on November 17, 2009.

D. Remand

Once relisted, the parties conducted discovery and participated in various settlement conferences. On January 31, 2011, the parties filed cross-motions for summary judgment. On June 24, 2011, the Court denied both motions for summary judgment on the grounds that (1) discovery had not concluded, and (2) a question remained as to whether or not H.A.S. misrepresented material facts during the insurance application and/or renewal process, thereby perpetuating a fraud. Since the Court’s denial of the motions, additional discovery has been conducted. The parties have now, once again, file cross-motions for summary judgment.

I. STANDARD OF REVIEW

Summary judgment is appropriate where the moving party establishes that “there is no genuine issue as to any material fact and that [it] is entitled to a judgment as a matter of law.” Fed R. Civ P. 56(a); see also Levy v. Sterling Holding Co., LLC, 544 F.3d 493, 501 (3d Cir. 2008). A factual dispute between the parties will not defeat a motion for summary judgment unless it is both genuine and material. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Dee v. Borough of Dunmore, 549 F.3d 225, 229 (3d Cir. 2008). A factual dispute is genuine if a reasonable jury could return a verdict for the non-movant, and it is material if, under the substantive law, it would affect the outcome of the suit. See Anderson, 477 U.S. at 248; Fakete v. Aetna, Inc., 308 F.3d 335, 337 (3d Cir. 2002).

The moving party must show that if the evidentiary material of record were reduced to admissible evidence in court, it would be insufficient to permit the non-moving party to carry its burden of proof. See Celotex v. Catrett, 477 U.S. 317, 327 (1986). Once the moving party has carried its burden under Rule 56, “its’ opponent must do more than simply show that there is some metaphysical doubt as to the material facts.” Scott v. Harris, 550 U.S. 372, 380 (2007). Under Fed.R.Civ.P. 56(e), the opposing party must set forth specific facts showing a ...


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