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Honesdale Volunteer Ambulance Corp. Inc. v. American Alternative Insurance Corporation

United States District Court, M.D. Pennsylvania

March 24, 2014



MALACHY E. MANNION, District Judge.

Pending before the court is defendant's motion for summary judgment, (Doc. 27), on plaintiff's claims for breach of contract and bad faith pursuant to 42 Pa. C. S. ยง 8371. (Doc. 1). For the following reasons, the motion will be GRANTED IN PART and DENIED IN PART.


This lawsuit arises from defendant American Alternative Insurance Corporation's ("AAIC") denial of an insurance claim for damage to plaintiff Honesdale Volunteer Ambulance Corporation's ("Honesdale EMS") property at 364 12th Street, Honesdale, PA, which allegedly resulted from a magnitude 5 earthquake which occurred in Val-des-Bois, Quebec on June 23, 2010. At the time of the earthquake, Honesdale EMS had an insurance policy with AAIC. The insurance policy excluded coverage for "earth movement, " but covered earthquake damage and had an "earthquake deductible" of $57, 910.00. (Doc. 28-7). Plaintiff argues that the earthquake caused damage to the building, and that the insurance policy in question covered the damage. Defendant contends that damage to the building preexisted the earthquake, was caused by erosion and settlement, and accordingly was not covered by plaintiff's policy. Defendant also argues that the losses were caused by neglect, and thus not covered.

The building is an old 2-3 story unreinforced masonry factory building. It sits near the Lackawaxen River, and some of its lateral support was taken when the river bed was widened by the Army Corps of Engineers in the 1950s. In 2005, Honesdale EMS identified structural concerns with the building, and Stephen Knash, P.E. did an engineering evaluation of the building. He particularly inspected settling and cracking in the floor of the basement, cracking in the west gable wall, and separation of the concrete floor in the building's ambulance garage. He noted that erosion was occurring, causing the settlement of the floor slab. He noted cracks in the west gable wall, which he concluded were caused by erosion and associated movement of the building. (Doc. 28-19).

Defendant engaged Gary Capri, an independent safety inspector and risk surveyor, to examine the building in 2002, 2005, and 2008. (Doc. 35-5). He testified that the focus of his investigations was reviewing the operations of the ambulance company and medical malpractice risks. Although the focus of his investigations was not the state of the property, the forms he filled out did include space to complete information about the building. He testified that he does not do building replacement cost evaluations as part of his job, although he does fill out building evaluation forms. In 2005, he noted that the building was in "average" condition, and that housekeeping was "above average." He also took pictures of the exterior of the building. In 2008, after a "review of operations and a physical tour through the Ambulance Station, " he did not recommend any changes to operations or the facility. (Doc. 35-11). Also in 2008, AAIC, using information from a risk control representative, determined that the replacement cost of the building had nearly doubled and strongly recommended that plaintiff increase the limit on its policy. Id.

On the day of the earthquake, workers at the Honesdale EMS building reported feeling it shaking and hearing squeaking noises from the walls. They evacuated the building, and, once outside, found issues with the building that plaintiff contends were not preexisting. This damage included cracks in the masonry, loose bricks on window arches, and the window at the top of the west gable wall being dislodged and appearing to be falling into the building. The building was condemned on that day after a preliminary inspection by Wayne Earley, the town code enforcer, and Arnie Bertsche, an engineer.

The day after the earthquake, Honesdale EMS reported its claim to AAIC through its insurance agent AM Skier. An outside adjustment company, Gerald Williams Adjustment Service ("Gerald Williams"), was engaged by AAIC to assist in investigating the claim. Jack McDermott, an adjuster from Gerald Williams, inspected the property on June 24. He opined that the earthquake had not damaged the building. The testimony of Jennifer Fountain, (Doc. 35-8), and Alan Cooper, Esq., (Doc. 35-7), AM Skier employees, indicates that they felt Mr. McDermott was more of an advocate for non-payment of the claim than a factfinder, that he was abrasive and unprofessional, and that he used foul language, calling the claim "bogus" or "bullshit." Mr. McDermott and defendant dispute this contention. (Doc. 28-9).

Ms. Fountain also testified that she felt that Gregory Joy, another Gerald Williams adjuster, was also determined not to pay the claim. (Doc. 35-8, at 64-66). She noted that during a telephone conversation, Mr. Joy referenced anonymous blog posts critical of Sharon Gumpper, the executive director of Honesdale EMS, and newspaper articles indicating that EMS had been attempting to relocate from its current building for some time. Id. at 24-26. Ms. Fountain thought that he was using those posts and items as justifications for not paying the claim. Another AM Skier employee, Kim Latsch, testified to a similar phone call with Mr. Joy. (Doc. 35-6, at 33).

In 2008 and 2009, Ms. Gumpper had requested grant funding from elected officials, describing the building as "deteriorating rapidly" and indicating that it was a race against time before the building became unfit for occupation. Plaintiff admits this, but contends that the part of the building that was inadequate was the ambulance garage, and not the office space which plaintiff alleges was harmed by the earthquake.

Michael. H. Queen, P.E., an engineer engaged by AAIC, also did an initial inspection of the building on June 25, 2010. Queen opined that his investigation of the building and discussions with Arnie Bertsche and Sharon Gumpper led him to conclude that the building had not been damaged as a result of the earthquake. The claim was denied on July 9, 2010.

Honesdale EMS requested additional consideration of the claim following the July 9 denial. Plaintiff submitted a report by Arnie Bertsche in support of the request for reconsideration. His report concluded that the building had significant structural issues that made it "more than plausible" that the building could suffer damage from the earthquake. AAIC agreed to consider the claim further, and re-inspected the building on July 23, 2010. Mr. Queen, Mr. Bertsche, Mr. McDermott, and Alan Cooper, an AM Skier representative, were present for the second inspection. Mr. Queen submitted a supplemental report addressing Mr. Bertsche's report and the re-inspection, and again concluded that the building was not damaged as a result of the earthquake. AAIC maintained its prior denial of the claim on August 10, 2010.

Following the second denial of the claim, Honesdale EMS filed the instant suit alleging breach of contract and bad faith. (Doc. 1).


Summary judgment is appropriate if the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett , 477 U.S. 317, 322-23 (1986); Turner v. Schering-Plough Corp. , 901 F.2d 335, 340 (3d Cir. 1990). A factual dispute is genuine if a reasonable jury could find for the non-moving party, and is material if it will affect the outcome of the trial under governing substantive law. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248 (1986); Aetna Casualty & Sur. Co. v. Ericksen , 903 F.Supp. 836, 838 (M.D. Pa. 1995). At the summary judgment stage, "the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson , 477 U.S. at 249; see also Marino v. Indus. Crating Co. , 358 F.3d 241, 247 (3d Cir. 2004) (a court may not weigh the evidence or make credibility determinations). Rather, the court must consider all evidence and inferences drawn therefrom in the light most favorable to the non-moving party. Andreoli v. Gates , 482 F.3d 641, 647 (3d Cir. 2007).

To prevail on summary judgment, the moving party must affirmatively identify those portions of the record which demonstrate the absence of a genuine issue of material fact. Celotex , 477 U.S. at 323-24. The moving party can discharge the burden by showing that "on all the essential elements of its case on which it bears the burden of proof at trial, no reasonable jury could find for the non-moving party." In re Bressman , 327 F.3d 229, 238 (3d Cir. 2003); see also Celotex , 477 U.S. at 325. If the moving party meets this initial burden, the non-moving party "must do more than simply show that there is some metaphysical doubt as to material facts, " but must show sufficient evidence to support a jury verdict in its favor. Boyle v. County of Allegheny , 139 F.3d 386, 393 (3d Cir. 1998) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio , 475 U.S. 574, 586 (1986)). However, if the non-moving party "fails to make a showing sufficient to establish the existence of an element essential to [the non-movant's] case, and on which [the non-movant] will bear the burden of proof at trial, " Rule 56 mandates the entry of summary judgment because such a failure "necessarily renders all other facts immaterial." Celotex Corp. , 477 U.S. at 322-23; Jakimas v. Hoffman La Roche, Inc. , 485 F.3d 770, 777 (3d Cir. 2007).


A. Breach of Contract Claim

The parties dispute whether the damage caused to the Honesdale EMS building was caused by the Val-des-Bois earthquake, and therefore covered under plaintiff's insurance policy with AAIC. Defendant argues that plaintiff has failed to establish that it suffered a "direct physical loss" as a result of the earthquake, and that the evidence instead shows that any damage to the building was ...

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