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Berenato v. Seneca Specialty Insurance Co.

United States District Court, E.D. Pennsylvania

March 1, 2017

PAUL BERENATO, SR., Plaintiff,


         This case, which is before the Court on the Motions for Summary Judgment of Defendants Seneca Specialty Insurance Co., Gallagher Bollinger, and All Risks, Ltd., presents a thicket of tort, contract, and insurance issues: Plaintiff's vacant warehouse burned in a fire after he turned off its sprinkler system, and he now seeks to recover for that loss through an insurance policy that was not sent to him. Defendants respond that the unambiguous language of the policy bars coverage, and that Plaintiff is responsible for the loss because he disabled the sprinkler system. As explained below, Defendants' motions will be granted.

         I. BACKGROUND

         The material facts are undisputed. Plaintiff Paul Berenato, Sr., owned a vacant building in Philadelphia for which he needed insurance.[1] He began shopping for a policy in late 2014, and purchased one from Seneca in early 2015.[2] The policy contained a “protective safeguards endorsement” stating that as a condition of his coverage, Mr. Berenato was required to maintain certain “protective devices or services” on the property, including an “automatic sprinkler system.”[3] The policy also stated:

         We will not pay for loss or damage caused by or resulting from fire if, prior to the fire, you:

1. Knew of any suspension or impairment in any protective safeguard listed in the Schedule above and failed to notify us of that fact; or
2. Failed to maintain any protective safeguard . . . over which you had control in complete working order.
If part of an Automatic Sprinkler System . . . is shut off due to breakage, leakage, freezing conditions or opening of sprinkler heads, notification to us will not be necessary if you can restore the full protection within 48 hours.[4]

         The property's sprinkler system suffered leaks on at least three occasions between January and March 2015.[5] While the system was successfully repaired after the first two incidents, Mr. Berenato decided to turn it off after the third, reasoning that the leaks were caused by cold weather and that the system could be turned on again once the temperature rose.[6] No one notified Seneca of the shutdown, which occurred between February 20 and early March 2015.[7] On March 28, 2015, while the system was inactive, the property was damaged in a fire.[8]Seneca refused to cover the loss on the ground that Plaintiff had violated the protective safeguards endorsement by disabling the sprinkler system.[9]

         This case also involves Bollinger and All Risks, both of which assisted Plaintiff in procuring insurance from Seneca. Bollinger acted as Plaintiff's broker.[10] Because Bollinger was unable to obtain insurance from a carrier licensed in Pennsylvania, it turned to “surplus lines” insurers, which are not licensed in Pennsylvania but may conduct business through a “surplus lines licensee, ” which is allowed to do business in the state.[11] Here, All Risks acted as the surplus lines licensee, and identified an insurance policy from Seneca, which Plaintiff ultimately purchased through Bollinger.[12]

         All parties were under the impression that Plaintiff had a working sprinkler system when he applied for insurance. When Plaintiff completed an insurance application with Matthew Jakubowski, a Bollinger employee, he informed Mr. Jakubowski that there was a “wet sprinkler system throughout the building.”[13] The insurance proposal that Bollinger obtained from Seneca (through All Risks) outlined the scope of coverage and the relevant exclusions, including the protective safeguards endorsement and its automatic sprinkler system requirement.[14] Plaintiff admits he accepted that proposal.[15]

         Seneca then issued the policy, but Plaintiff never received it due to a transmission error.[16]Seneca sent the policy to All Risks on February 3, 2015, and All Risks attempted to forward the policy to Bollinger, but All Risks sent the policy to a defunct email address, so neither Bollinger nor Plaintiff received it.[17] No one realized this until after the fire, at which point Plaintiff sought to recover under the policy.[18]

         After Seneca denied coverage, Plaintiff commenced suit in state court, asserting a claim for breach of contract against Seneca, claims for breach of contract and negligence against Bollinger, and a claim for negligence against All Risks. Bollinger then removed the case to this Court on the basis of diversity jurisdiction.[19] Defendants now move for summary judgment on all claims against them.


         “The underlying purpose of summary judgment is to avoid a pointless trial in cases where it is unnecessary and would only cause delay and expense.”[20] A court will award summary judgment on a claim or part of a claim where there is “no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”[21] A fact is “material” if resolving the dispute over the fact “might affect the outcome of the suit under the governing [substantive] law.”[22] A dispute is “genuine” if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.”[23]

         In evaluating a summary judgment motion, a court “must view the facts in the light most favorable to the non-moving party, ” and make every reasonable inference in that party's favor.[24]

         Further, “a court may not weigh the evidence or make credibility determinations.”[25]Nevertheless, the party opposing summary judgment must support each essential element of the opposition with concrete evidence in the record.[26] “If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted.”[27] Therefore, if, after making all reasonable inferences in favor of the non-moving party, the court determines that there is no genuine dispute as to any material fact, summary judgment is appropriate.[28] “In a diversity case, when faced with a motion for summary judgment, the federal courts follow federal law on issues of procedure but apply the substantive rule of decision from state law, ” which the parties here agree is Pennsylvania law.[29]


         A. Seneca's Motion

         Seneca moves for summary judgment on Plaintiff's breach-of-contract claim, arguing that the protective safeguards endorsement bars coverage. Plaintiff responds that the protective safeguards endorsement is ambiguous, and that Seneca cannot invoke it because Plaintiff never received the policy.

         1. The Protective Safeguards Endorsement Is Unambiguous

         Seneca argues that the protective safeguards endorsement is unambiguous because it states that Seneca “will not pay for loss or damage caused by or resulting from fire” in the event that Plaintiff “failed to maintain any protective safeguard . . . over which [he] had control in complete working order, ” and that Plaintiff violated this requirement when he turned off the sprinkler system.[30] The Court agrees.

         “Under Pennsylvania law, the interpretation of an insurance contract is a matter of law for the court, ”[31] and “[a] court must give effect to unambiguous language in an insurance contract.”[32] “Ambiguous language in an insurance contract must be construed against the insurer.”[33] “However, the Third Circuit Court of Appeals and the Pennsylvania Supreme Court have repeatedly warned courts against straining to find ambiguity in insurance contract language.”[34] “Indeed, policy language should be read to avoid creating or finding ambiguity wherever possible.”[35] Nonetheless, while Plaintiff “has the burden of demonstrating coverage under an insurance policy, ” Seneca “has the burden of demonstrating the applicability of any policy exclusions, ” such as the protective safeguards endorsement.[36] “A court must construe policy exclusions against the insurer, enforcing them only if plainly displayed and clearly applicable.”[37]

         Here, the protective safeguards endorsement set an unambiguous baseline requirement that Plaintiff keep his sprinkler system on. To “maintain” a system in “complete working order” necessarily means that the system is operational, not merely that it exists. While reasonable minds could perhaps differ about the scope of the “complete working order” requirement in the abstract, there can be no doubt that it prevented Plaintiff from intentionally disabling the system, as he did here. In other cases where a policyholder either did not have a working sprinkler system in place or turned off the system, courts have found that similar protective safeguards endorsements bar coverage, and the Court reaches the same conclusion here.[38]

         Plaintiff's attempts to create ambiguity in this language are unavailing. First, Plaintiff argues that the protective safeguards endorsement is ambiguous because it contains a provision to the effect that Plaintiff was not required to notify Seneca of a shutoff in the sprinkler system if he was able to “restore the full protection within 48 hours.”[39] However, that language only excuses Plaintiff from his obligation to notify Seneca of problems in the event that he could quickly restore “full protection, ” and does not override Plaintiff's obligation to maintain a sprinkler system in “complete working order.” In fact, the language anticipates a situation where the system malfunctions and is repaired promptly (within 48 hours). But Plaintiff indisputably did not restore protection within 48 hours, as the system had been inactive for at least several days when the fire occurred, so to the extent this language is ambiguous, it does not aid Plaintiff.[40]

         Second, Plaintiff argues that the “maintain in complete working order” requirement is inapplicable because it extended only to safeguards over which he had “control, ” and the problems with his sprinkler system were caused by cold weather, which he could do nothing about. This interpretation is not supported by the word “control, ” which means “to exercise power or influence over.”[41] Here, there is no dispute that Plaintiff exercised power over the sprinkler system, as he owned the property, had access to the system, and was able to shut it off at will-that the weather may have interfered with the function of the sprinkler system in no way diminishes plaintiff's “control” over it.[42] And even accepting Plaintiff's interpretation of “control, ” it is undisputed that Plaintiff had the sprinkler system repaired twice before he turned it off, meaning Plaintiff was able to “control” the system notwithstanding the weather. The protective safeguards endorsement therefore bars coverage.

         2. Seneca Is Not Barred from Asserting the Protective Safeguards Endorsement

         Plaintiff next argues that Seneca cannot assert the protective safeguards endorsement because he never received the insurance policy. This argument fails because Seneca, as a surplus lines insurer, had no duty under Pennsylvania law to deliver the policy, and Plaintiff cannot establish that he had a reasonable expectation of coverage for fire-related losses in the absence of a working sprinkler system.

         Seneca was not required to deliver the policy because Pennsylvania law places that duty on All Risks, the surplus lines licensee.[43] Pennsylvania's surplus lines statute provides that “[u]pon placing surplus lines insurance, the surplus lines licensee shall deliver to the insured or the writing producer the contract of insurance.”[44] This is consistent with the statute's stated purpose of “[p]rotecting persons seeking insurance” by requiring non-admitted insurers such as Seneca to issue policies through regulated surplus lines licensees, rather than interacting directly with customers.[45] As a result, surplus lines insurers are “not permitted to have direct contact with the insured, ” and must instead “rely upon intermediaries to deliver the policy to the insured.”[46] Thus, Seneca was only required to deliver the policy to All Risks, which it did. It would be All Risks, rather than Seneca, which would bear the consequences of this failure, and its potential liability will be discussed in connection with its motion below.

         Plaintiff also suggests that Seneca's failure to ensure that the policy was delivered caused his loss of coverage because if he had received the policy, “he would have sat down with Mr. Jakubowski to go over the requirements, and not allowed the system to remain off even for a limited period.”[47] But the only evidence Plaintiff offers in support of this argument is his own declaration, which is not sufficient to ward off summary judgment.[48] That is particularly true because there is evidence that Plaintiff would not have read the policy, including his own deposition testimony that upon receiving an insurance policy, his standard practice was to “file it away” rather than going “through it page by page.”[49]

         Finally, Plaintiff argues that Seneca cannot invoke the protective safeguards endorsement because, having never received the policy, he had no reason to believe that a working sprinkler system was a precondition to coverage.[50] In support of this argument, Plaintiff invokes the “reasonable expectations” doctrine, which holds that “the proper focus for determining issues of insurance coverage is the reasonable expectations of the insured.”[51] Thus, in certain cases, “even the most clearly written exclusion will not bind the insured where the insurer or its agent has created in the insured a reasonable expectation of coverage.”[52] “However, this aspect of the doctrine is only applied in very limited circumstances to protect non-commercial insureds from policy terms not readily apparent and from insurer deception.”[53] “[A]bsent sufficient justification . . . an insured may not complain that his or her reasonable expectations were frustrated by policy limitations that are clear and unambiguous.”[54]

         The reasonable expectations doctrine is inapplicable here because undisputed evidence shows Plaintiff was aware that he needed to maintain a working sprinkler system. Plaintiff informed Mr. Jakubowksi when applying for insurance that his property had “100%” sprinkler coverage[55] and a “[w]et sprinkler system throughout the building.”[56] Seneca's quote also stated that the policy would be subject to a “protective safeguards endorsement” including an “automatic sprinkler system.”[57] And Plaintiff wrote to “Edward's Fire Protection” on February 18, 2015, that he “only ha[d] the sprinklers on because of insurance reasons.”[58] Indeed, Plaintiff's own liability expert opines that Plaintiff “believed that he could not shut the sprinkler system down as the Seneca insurance policy required it.”[59] Thus, there is no genuine factual dispute that Plaintiff was aware that he could not turn his sprinkler system off without risking a loss of insurance coverage.

         There is also no evidence that Seneca led Plaintiff to believe that it would cover a fire-related loss in the absence of a working sprinkler system. Plaintiff claims that because Seneca sent an inspector to his property, but did not advise him of the sprinkler system requirement during the inspection, he had a reasonable expectation of coverage notwithstanding his deactivation of the system.[60] Plaintiff's sole evidentiary support for this position is a January 12, 2015 report by “UIA Inspections” (allegedly Seneca's agent), which expressly states that the building was “equipped with a wet sprinkler system providing 100% coverage, ” so it is inconceivable that a reasonable factfinder would view this as evidence that Plaintiff believed he was not required to maintain a working sprinkler system.[61] And to the extent that the inspection did lead Plaintiff to reach the dubious conclusion that he was free to turn off his sprinkler system, such an unreasonable expectation cannot control over the plain language of the policy.[62]

         Because Plaintiff failed to maintain the sprinkler system in working order, as the Policy required, and Plaintiff had no reasonable expectation of coverage with the system shut off, summary judgment will be entered in favor of Seneca.

         B. Bollinger's Motion

         Bollinger, the broker, moves for summary judgment on Plaintiff's breach-of-contract and negligence claims. Bollinger argues that both claims fail because Plaintiff has presented no evidence that any breach of contract or negligence by Bollinger caused his loss of insurance coverage.[63] Bollinger also argues that Plaintiff's contract claim fails because Bollinger's only obligation was to help Plaintiff purchase insurance, which it did, and that Plaintiff's negligence claim is barred by Plaintiff's own negligence in disabling the sprinkler system.[64]

         1. Plaintiff's Breach-of-Contract Claim

         Plaintiff claims that Bollinger breached an agreement by failing to ensure that he was properly represented when he purchased insurance. A breach-of-contract claim requires: “(1) the existence of a contract, including its essential terms, (2) a breach of a duty imposed by the contract and (3) resultant damages.”[65] Here, there is no evidence of a written agreement between Plaintiff and Bollinger, or of any oral agreement defining Bollinger's duties. Instead, Plaintiff alleges an implied-in-fact contract existed that obligated Bollinger to explain the terms of the policy to him, including the protective safeguards endorsement, and that Bollinger failed to do so.

         Plaintiff's claim fails for two reasons. First, there is no evidence that Bollinger agreed to do anything other than procure insurance for Plaintiff, which it did, satisfying any contractual obligations. An implied-in-fact contract “arises when the intention of the parties is not expressed, but an agreement in fact creating an obligation is implied or presumed from their acts.”[66] Here, Plaintiff identifies no evidence that Bollinger impliedly agreed to engage in a fulsome representation that included explaining the terms of the Seneca policy in detail, and thus he cannot show that Bollinger breached an implied-in-fact contract.[67]

         Second, there is no evidence that Bollinger's alleged breach caused Plaintiff's damages. “In order to recover damages for a contractual breach, a plaintiff must also establish a causal relationship between the breach and the loss.”[68] Causation is usually a question of fact left for the jury.[69] Here, however, Plaintiff has identified no evidence that Bollinger's failure to explain the Seneca policy caused his loss, aside from his own statements at his deposition and in his affidavit that he would have maintained the sprinkler system if Bollinger had told him to do so.[70]As discussed, the undisputed evidence shows that Plaintiff was aware that he needed to keep his sprinkler system on for insurance purposes and turned it off regardless. Against this, Plaintiff's self-serving assertion that he would have kept the sprinklers on if Bollinger had been more vocal about the requirement is not sufficient to create a genuine factual dispute as to causation.[71]

         2. Plaintiff's Negligence Claim

         Plaintiff also alleges that Bollinger was negligent because it failed to explain the policy or ensure that it was delivered to Plaintiff.[72] Under Pennsylvania law, “[a] plaintiff acquires a cause of action against his broker or agent where the broker neglects to procure insurance, or does not follow instructions, or if the policy is void or materially defective through the agent's fault.”[73] Similar to a traditional negligence claim, insurance brokers face liability if “they fail to exercise the care that a reasonably prudent businessman in the brokerage field would exercise under similar circumstances and if the broker fails to exercise such care and if such care is the direct cause of loss to his customer.”[74]

         Plaintiff's negligence claim fails for the same reason as his breach-of-contract claim: there is no evidence that Plaintiff would have maintained a working sprinkler system if Bollinger had acted differently, meaning Plaintiff cannot show that Bollinger's alleged negligence was either the but-for or proximate cause of his loss.[75] Causation in negligence cases is typically left to the jury, but summary judgment is ...

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