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High Associates, Limited v. Zurich American Insurance Co.

United States District Court, Third Circuit

October 16, 2013

HIGH ASSOCIATES, LIMITED, MCS-LANCASTER DE HOLDING, L.P., HIGH FAMILY PARTNERSHIP I, L.P., HIGH FAMILY GENERAL CORPORATION, HIGH-MCS, G.P., LLC, and HIGH REAL ESTATE GROUP, LLC, Plaintiffs,
v.
ZURICH AMERICAN INSURANCE COMPANY, Defendant.

MEMORANDUM OPINION

JEFFREY L. SCHMEHL, Judge.

I. INTRODUCTION

Plaintiffs, High Associates, Limited, MCS-Lancaster DE Holding, L.P., High Family Partnership I, L.P., High Family General Corporation, High-MCS, G.P., LLC, and High Real Estate Group, LLC, ("Plaintiffs"), brought the instant action, contending that Defendant, Zurich American Insurance Company ("Defendant" or "Zurich"), breached its insurance contract in denying Plaintiffs' claims. Defendant contends that the costs the Plaintiffs are seeking to be reimbursed for are expressly excluded from coverage under its insurance policy, and therefore it is entitled to an entry of judgment as to Plaintiffs' breach of contract claims. Before the Court are the parties' cross-motions for summary judgment. For the following reasons, summary judgment is granted in favor of Plaintiffs on their claim for reimbursement for redesign costs, and summary judgment is denied to Plaintiffs on their claim for the costs associated with the filling of sinkholes. Further, summary judgment is granted in favor of Defendant on its claim that the policy in question does not require it to reimburse Plaintiffs for the costs associated with the filling of sinkholes, and summary judgment is denied to Defendant on its claim that redesign costs are excluded under the policy.

II. LEGAL STANDARD

Summary judgment should be granted if the record, including pleadings, depositions, affidavits, and answers to interrogatories demonstrates "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. Proc. 56(c). In making that determination, the "evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The question is whether "the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id. at 251-52. See also Sommer v. The Vanguard Group , 461 F.3d 397, 403-04 (3d Cir. 2006).

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. 2009)(quoting Nationwide Mut. Ins. Co. v. Nixon , 453 Pa.Super. 70, 682 A.2d 1310, 1313 (Pa.Super. 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., 583 Pa. 445, 789 A.2d 166, 174 (Pa. 2005) (citing Mohn v. Am. Cas. Co. of Reading , 458 Pa. 576, 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. , 557 Pa. 595, 735 A.2d 100, 106 (1999)

III. FACTUAL BACKGROUND

The material facts of this case are not in dispute. Plaintiffs are the owners and developers of a large shopping center located in East Lampeter Township, Lancaster County, Pennsylvania known as Mill Creek Square. (Stip. of Facts and Exhibits, ¶¶ 1, 3.) A Storm Water Management Agreement and Declaration of Easement between East Lampeter Township and Plaintiff MCS-Lancaster DE Holding, L.P., requires Plaintiff MCS-Lancaster DE Holding, L.P. to comply with the East Lampeter Township Storm Water Management Ordinance. (Stip. of Facts and Exhibits, ¶ 5.) The Mill Creek Square property included three stormwater detention basins, known as Basins A, B, and C, that managed stormwater flowing from buildings, parking lots, and other impervious surfaces. (Stip. of Facts and Exhibits, ¶ 6.) These stormwater basins were designed to retain stormwater runoff from the impervious areas of the development and were unlined so the stormwater could infiltrate the groundwater in the areas under the basins. (Stip. of Facts and Exhibits, ¶ 7.) Therefore, these basins served to increase the volume of water flowing through the ground underneath them from that which passed through the ground prior to the development of Mill Creek Square. (Stip. of Facts and Exhibits, ¶ 8.)

On September 30, 2012, the Mill Creek Square area received substantial rainfall over a twenty-four hour period, including periods of 1.2 inches of rain per hour. (Stip. of Facts and Exhibits, ¶ 9.) The increased flow of stormwater into the ground below the basins caused substantial sinkholes to form in the areas of Basins A and B. (Stip. of Facts and Exhibits, ¶ 10.) After the storm, Plantiffs stabilized and repaired the basins and filled in the sinkholes. (Stip. of Facts and Exhibits, ¶ 11.) Plans for the repair and stabilization of the sinkholes around Basins A and B were developed with the involvement of RGS Associates, ARM Group, Inc., Plaintiffs, the Pennsylvania Department of Environmental Protection, Lancaster County Conservation District, East Lampeter Township and others, and included consideration of applicable erosion and sediment control and stormwater management requirements, as well as other factors. (Stip. of Facts and Exhibits, ¶ 12.) State, county and municipal authorities would not allow Plaintiffs to repair the basins using the same design that they were originally constructed with; rather, Plaintiffs were required to redesign the basins to include clay liners to retain stormwater runoff at the site and to prevent the infiltration of stormwater into the underlying karst formation[1]. (Stip. of Facts and Exhibits, ¶¶ 13, 14.)

Plaintiffs timely reported the loss to Zurich, their insurance carrier at the time of the loss, who had issued a Commercial Inland Marine policy to certain of the Plaintiffs. (Stip. of Facts and Exhibits, ¶ 15.) This policy provided builder's risk coverage for the development of Mill Creek Square, effective January 1, 2010 to January 1, 2011. (Stip. of Facts and Exhibits, ¶ 20.) Zurich reimbursed Plaintiffs for the estimated cost of rebuilding the basins as originally designed and installed, and the costs associated with emergency stabilization of the sinkholes. (Stip. of Facts and Exhibits, ¶ 18.) Zurich has declined to reimburse Plaintiffs for the costs associated with the redesign and construction of the stormwater basins to conform with state and local regulations, and the costs associated with the filling in of the sinkholes, on the grounds that these costs are expressly excluded from coverage under its policy. (Stip. of Facts and Exhibits, ¶ 19.)

IV. THE POLICY AT ISSUE

Zurich issued Commercial Inland Marine policy number IM XXXXXXX-XX to certain of Plaintiffs, providing builder's risk coverage for the project at Mill Creek Square from January 1, 2010 to January 1, 2011. (Stip. of Facts and Exhibits, Ex. 1.) This policy provides "all risk" coverage to covered property unless damage to the property is excluded pursuant to the policy.

The Zurich policy states, inter alia :

PERILS COVERED
"We" cover risks of direct physical loss unless the loss is limited or caused by a peril that is excluded.
PERILS EXCLUDED
1. "We" do not pay for loss or damage caused directly or indirectly by one or more of the following excluded causes or events. Such loss or damage is excluded regardless of other causes or events that contribute to or aggravate the loss, whether such causes or events act to produce the loss before, at the same time as, or after the excluded causes or events.
b. Earth movement or volcanic eruption
-"We" do not pay for loss caused by any "earth movement" (other than sinkhole collapse) or caused by eruption, explosion or effusion of a volcano.

The policy in question also contained an endorsement, which states, in pertinent part:

MANUSCRIPT - ORDINANCE OR LAW COVERAGE ENDORSEMENT SUPPLEMENTAL COVERAGES
...
2. Increased Costs to Repair and Cost to Demolish/Clear Site
A. Increased Costs to Repair - When a covered peril occurs to a covered building or ...

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