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Certain Underwriters at Lloyd's London Subscribing To Policy No. Smp3791 v. Creagh

United States District Court, Third Circuit

June 25, 2013



JAN E. DuBOIS, District Judge.


This is an insurance case. Plaintiff, Certain Underwriters at Lloyd's London ("Lloyds" or plaintiff) seeks declaratory judgment that a claim for damage to an apartment owned by defendant, William Creagh, is not covered under the insurance policy issued by plaintiff to defendants William Creagh, 22nd Street, LLC, Gary Creagh, Jr. and Gary Creagh, Sr. (collectively "Creagh" or defendants). The claim arises out of the decomposition of a dead body in an apartment owned by defendants. Defendants filed counterclaims alleging that (1) the damages were covered under the policy, (2) that plaintiff acted in bad faith, and (3) plaintiff committed unfair trade practices under state law. Presently before the Court are cross motions for summary judgment. For the reasons that follow, the Court grants plaintiff's motions for summary judgment and denies defendants' motions for summary judgment. Judgment is entered in favor of Lloyd's and against defendants.


This case arose when the owner of an apartment building, defendant William Creagh, discovered the dead body of one of his tenants, Arthur Doud. In August of 2011, Doud's body was found collapsed over a toilet in his second floor apartment bathroom. He had been dead for possibly as much as two weeks. Bodily fluids had seeped into the bathroom floor and had contaminated the first floor bathroom directly below. Biological material was also found in the kitchen and bedroom of Doud's apartment, and a powerful foul odor pervaded the unit.

Following the discovery of the dead body, Creagh called police to the apartment. Creagh testified that, upon arriving and investigating the scene, the police instructed him to clean up the apartment as soon as possible. He concluded that, with that instruction, he had no choice but to proceed with clean-up of the apartment. Creagh immediately retained a company, Aftermath, Inc., to sanitize and otherwise remediate the building. Creagh also engaged Evans Services, LLC to reconstruct areas of the building that were removed or damaged in the clean-up.

Defendants submitted an insurance claim to Lloyd's for the cost of remediation and reconstruction charged by Aftermath and Evans Services, eventually totaling approximately $180, 000. A few days after submitting the claim, Creagh spoke by phone with Robert Thompson, the insurance adjuster employed by plaintiff to adjust defendants' claim. Creagh testified at his deposition that during the phone call Thompson told Creagh to submit the final bill for the remediation of the apartment and Thompson would take care of it. Creagh stated that he got the impression his claim was covered under the policy because of the overall positive tone of the conversation, and the lack of statements by Thompson that the policy might not cover the damage at issue.

Plaintiff now seeks declaratory judgment, arguing that under the policy it is not required to indemnify defendants for property damage resulting from the decomposed body. Defendants counterclaimed to recover that damage. Defendants' counterclaims have three components: (1) a claim for compensatory damages, (2) a bad faith claim, and (3) a claim that plaintiff violated Pennsylvania's Unfair Trade Practices and Consumer Protection Law.

There are two sets of summary judgment motions pending. Each party has submitted a motion and cross-motion for summary judgment in each set. Between all of the motions and cross-motions, each party has filed a motion for summary judgment on the declaratory judgment claim and the counterclaims.

Pursuant to the Scheduling Order dated May 2, 2012 and the letter of agreement from the parties dated May 16, 2012, the Court may decide genuine issues of material fact in resolving the declaratory judgment action by cross-motions. This agreement is subject to the proviso that, if the Court concludes there are any genuine issues of material fact, the Court must identify them and allow the parties to supplement the record with documentation or testimony. The Court identified one such possible issue of material fact in its Order dated February 19, 2013: whether bacteria were present in Arthur Doud's bodily fluids. The parties each submitted supplemental memoranda on this issue.

First the Court addresses the arguments relating to plaintiff's declaratory judgment claim. The Court then turns to the arguments relating to defendants' counterclaims.


In considering motions for summary judgment, "the court is required to examine the evidence of record in the light most favorable to the party opposing summary judgment, and resolve all reasonable inferences in that party's favor." Wishkin v. Potter , 476 F.3d 180, 184 (3d Cir. 2007). The party opposing the motion, however, cannot "rely merely upon bare assertions, conclusory allegations or suspicions" to support its claim. Fireman's Ins. Co. v. DuFresne , 676 F.2d 965, 969 (3d Cir. 1982). After examining the evidence of record, a court should grant a motion for summary judgment if the moving party "shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); accord Celotex Corp. v. Catrett , 477 U.S. 317, 322-23 (1986).

A factual dispute is material when it "might affect the outcome of the suit under the governing law, " and genuine when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248 (1986). "Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587 (1986) (citation omitted).


"The task of interpreting [an insurance] contract is generally performed by a court rather than by a jury. The goal of that task is, of course, to ascertain the intent of the parties as manifested by the language of the written instrument. Where a provision of a policy is ambiguous, the policy provision is to be construed in favor of the insured and against the insurer, the drafter of the agreement. Where, however, the language of the contract is clear and unambiguous, a court is required to give effect to that language." Canal Ins. Co. v. Underwriters at Lloyd's London , 435 F.3d 431, 435-36 (3d Cir. 2006).

The insurance contract at issue in this case is an "all risks" policy, which covers all losses except for those resulting from causes specifically excluded. "In claims for breach of contract to indemnify under an all risks' policy, Pennsylvania places the initial burden on the insured to show that a loss within the policy's scope has occurred.... The burden then shifts to the insurer to defend by showing that the loss falls within a specific policy exclusion." Cozza ex rel. Cozza v. State Farm Fire & Cas. Co., 440 F.Appx. 73, 75 (3d Cir. 2011).

"The pertinent inquiry is not... whether [an exclusion's wording] is so broad that virtually any substance, including many useful and necessary products, could be said to come within its ambit. Rather, guided by the principle that ambiguity (or the lack thereof) is to be determined by reference to a particular set of facts, we focus on the specific product at issue." Madison Const. Co. v. Harleysville Mut. Ins. Co. , 557 Pa. 595, 606-07 (1999).

The parties do not contest whether a loss occurred within the scope of the policy. Rather, plaintiff asserts that three separate policy exclusions preclude coverage in this case: (1) the microorganism exclusion, (2) the seepage exclusion, and (3) the pollutants exclusion. These exclusions are evaluated in turn.

1. Microorganism Exclusion

Plaintiff first argues that the policy's "Microorganism Exclusion" precludes coverage for the claimed damages in this case. This provision of the contract states in pertinent part that: "This Policy does not insure any loss, damage, claim, cost, expense or other sum directly or indirectly arising out of or relating to: mold, mildew, fungus, spores or other microorganism of any type, nature, or description...." (Exhibit D-1, at 39.)

Plaintiff claims that the damages which required remediation in this case resulted from contamination with Doud's bodily fluids, which in turn contained bacteria and other microorganisms. Accordingly, plaintiff argues that the Microorganism Exclusion applies and precludes coverage for such damages. Defendants, in response, argue that there is no direct evidence that there were ...

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