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Inc. v. International Insurance Company of Hannover Ltd.

United States District Court, M.D. Pennsylvania

September 18, 2017

HELLER'S GAS, INC., Plaintiff,


          Matthew W. Brann United States District Judge

         Before the Court for disposition is Defendants International Insurance Company of Hannover Ltd. and International Insurance Company of Hannover SE's Motion for Summary Judgment. For the reasons discussed below, this Motion will be granted.


         Plaintiff Heller's Gas, Inc. (“Plaintiff”) commenced this action on July 9, 2015 against Defendants International Insurance Company of Hannover Ltd. and International Insurance Company of Hannover SE (“Defendants”). In its Complaint, Plaintiff alleged claims for: (1) breach of contract, and (2) statutory bad faith pursuant to 48 Pa.C.S.A. § 8371.[1] Defendants filed an Answer on October 13, 2015, [2] and the parties thereafter commenced factual discovery.[3] Following the completion of discovery, Defendants filed a Motion for Summary Judgment seeking the entry of final judgment in their favor on both claims.[4] Parties then briefed this Motion, and, following an unsuccessful attempt at mediation during which time this Motion was stayed, [5] the matter is again ripe for my determination.[6]


         A. Plaintiff Heller's Gas, Inc. Constructs a Bulk Propane Storage Facility in Carlisle, PA.

         Plaintiff Heller's Gas, Inc. owns and operates a property located at 1560 Holly Pike in Carlisle, Pennsylvania.[7] In the summer and fall of 2011, Plaintiff began developing this property as a bulk liquid storage facility.[8] The “Project Narrative” for this endeavor within Brehm-Lebo Engineering, Inc.'s (“Brehm-Lebo”) Post Construction Management Plan includes the following description:

Heller's Gas is proposing to operate a propane gas distribution center with retail store at 1560 Holly Pike (S.R. 0034), in South Middleton Township, Cumberland County. Proposed improvements will include expanding the existing service garage area with retail space, constructing a free standing storage garage for service vehicles, and the outdoor storage of bulk propane.[9]

         Brehm-Lebo submitted these project plans to the LeTort Regional Authority Project Review Committee for approval.[10] In a letter dated September 24, 2011, the LeTort Regional Authority wrote the following concerning drainage on the property:

2. The existing conditions drawings show what appears to be a random stone-lined swale along the southern lot line leading to an enclosed depression, a sinkhole within the unlined portion of the swale at the enclosed depression, and a possible sinkhole within the stone lined portion of the swale. Recommend:
a. That the plans clearly state that the existing sinkhole is to be repaired and that the suspected sinkhole is to be investigated and repaired if necessary.
b. Relocating SWM Basin #1 to avoid concentrated infiltration of stormwater in the existing enclosed depression and sinkhole area to preclude the probable formation of a new sinkhole or the reopening of the existing sinkhole. The proposed location of Basin #1 is adequate for a detention basin provided that it is properly lined to preclude seepage.[11]

         The Carlisle facility was completed and thereafter opened by Plaintiff in May 2013.[12] By October 11, 2013, the facility contained six large liquid propane storage tanks.[13] In a Status Report compiled by Adjuster Brad Powers, the location of these tanks is described as follows:

The location manager mentioned that the parking lot slops (sic) towards the tanks, so all drainage from the parking lot goes to the tank storage area.[14]

         B. Defendants International Insurance Company of Hannover Ltd. and International Insurance Company of Hannover SE Issues an Insurance Policy to Plaintiff Covering this Carlisle Location.

         This new bulk propane storage facility was insured by Defendants for a policy period of May 28, 2013 through May 28, 2014.[15] This Policy covers “direct physical loss to covered property at a ‘covered location' caused by a covered peril.”[16] Concerning the ambit of “covered property, ” and pertinent to the instant action, the Policy contains the following provision:

         10. Land, Water, and Growing Crops - “We” do not cover:

a. land, including but not limited to land on which the covered property is located;
b. underground or surface water; or

         c. growing crops.[17]

         The Policy, furthermore, excludes coverage for a loss caused by an excluded peril. This exclusion is encapsulated by the following language:

“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.[18]

         The list of excluded perils includes both earth movement and flood exclusions.[19]

         The Flood exclusion specifically states the following:

“We” do not pay for loss caused by “flood.” However, “we” do cover the resulting loss if fire, explosion, or sprinkler leakage results.[20]

         Within the Definitions portion of the Policy, the term “flood” is defined as including “surface water.”[21]

         The Policy nevertheless offers coverage for (1) sinkhole collapse, (2) emergency removal expenses, and (3) income coverage loss as follows. First, the Policy covers sinkhole collapse to covered property through the following language:

Collapse -“We” pay for loss caused by direct physical loss involving collapse as described in a., b., and c. below.
a. Collapse of a building or structure, any part of a building or structure, or personal property inside a building or structure, if the collapse is caused by one or more of the following:
. . .
c. Collapse means a sudden and unexpected falling in or caving in of a building or structure or any portion of a building or structure with the result that the building or portion of the building cannot be occupied for its intended purpose.
d. The following are not considered to be in a state of collapse:
1) a building or structure that is standing or any portion of a building that is standing even if it displays evidence of bending, bulging, cracking, expansion, leaning, sagging, settling, or shrinkage;
2) a building or structure or any portion of a building structure in danger of falling in or caving; and
3) a portion of a building or structure that is standing even if it has separated from another portion of the building or structure.[22]

         Second, the Policy offers under the “Emergency Removal Expenses” provision “up to $5, 000 for “your” expenses to move or store covered property to prevent a loss caused by a covered peril.”[23] Third and finally, the Income Coverage Part of the Policy provides coverage “when ‘your' ‘business' is necessarily wholly or partially interrupted by a direct physical loss of or damage to property at a ‘covered location.' ”[24] This coverage, however, is subject to the following condition:

“We” pay no more than the Income Coverage “limit” indicated on the “schedule of coverages” for any one loss. Payments for earnings, extra expense, and “rents” combined does not exceed the “limit.”[25]

         The “Location Schedule in the instant policy, while including two entries for 1560 Holly Pike in Carlisle, Pennsylvania, contains no limit for either entry under the column titled “BI/EE.”[26]

         C. On October 11, 2013, Plaintiff Notices Several Sinkholes Developing at the Base of the Propane Tanks.

         Plaintiff first noticed sinkholes at the base of the propane tanks at the Carlisle property on October 11, 2013, and filed a corresponding Property Loss Notice on October 18, 2013.[27] Plaintiff thereafter retained an engineering firm- Navarro and Wright-to perform a site inspection on October 15, 2013.[28] A subsequently prepared report (“Navarro & Wright Report”) relayed that “[t]he sinkhole was reported to have opened sometime during or after the significant rainfall event ending on Friday 10-11-13, ” and was the result of “[a] combination of the natural geologic conditions, pour (sic) surface drainage, and ground disturbances associated with the new construction.”[29] The Navarro & Wright Report further detailed an Action Plan which included the following pertinent steps:

Temporary measures, such as plastic sheeting and diversion dikes should be installed to limit, to the greatest extent as reasonably achievable, the volume of surface water that might enter and accumulate on and around the tank farm pad and the adjacent concrete apron.[30]
Heller's should consult with B-L regarding potential alterations to the current site stormwater drainage, especially as it is related to the tank farm. Ideally, water should flow freely off of the tank farm pad and should not accumulate in, or around, the pad. Consideration should be given to regrading of the pad and to the use of impermeable geosynthetic lining systems or pavements. N&W will remain available to explain the risks associated with the project as it evolves.[31]

         The Report finally recommended that Plaintiff remove the liquid propane from the tanks and relocate said tanks to prevent further damage.[32] A copy of this Report was forwarded to Defendants on October 18, 2013.[33]

         D. Defendants Received Notice of the Reported Loss and, After Conducting An Investigation, Formally Denied Coverage on October 28, 2013.

         Upon receipt of both the Property Loss Notice and the Navarro and Wright Report, Defendants began investigating the reported loss with the assistance of its agent/broker Energi Insurance Services and its authorized claim representative, York Risk Services Group, Inc.[34] On October 21, 2013, Stephen E. Toli, a Property Claims Examiner for York Risk Services Group, Inc., sent Plaintiff a Letter which expressed that, because coverage for the claim is “questionable” under the Policy, Defendants would be investigating “under a full reservation of all its rights.”[35] The letter also stated the following:

International Insurance Company of Hannover Limited's coverage position is based on the information currently available to us. If you have any information that would alter our coverage position concerning this matter, please forward it to us for further evaluation. This letter is not, and should not be construed as, a waiver of any terms, conditions, exclusions or other provisions of the policy, or any other policies of insurance issued by International Insurance Company of Hannover Limited or any of its affiliates. International Insurance Company of Hannover Limited expressly reserves all of its rights under the policy, including the right to amend the above reservation of rights to include any additional grounds for disclaimer of coverage, including but not limited to those set forth above, if subsequent information indicates that such action is warranted.
. . .
Please realize that the International Insurance Company of Hannover Limited is not denying coverage at this time. If following our investigation, there continues to exist certain questions of coverage, you will be advised at that time.[36]

         York Risk Services Group, Inc. thereafter conducted an investigation led by Brad Powers of Energi Insurance Services, Inc., and drafted a Letter dated October 28, 2013.[37] In this missive, Mr. Toli expressed that coverage would be denied based on the “Cost of Excavation, ” “Land, Water, and Growing Crops, ” and “Earth Movement Exclusions.”[38] This letter again invited Plaintiff to forward additional information which would alter this position, and repeated that Defendants reserved the right to assert additional grounds for disclaimer of coverage.[39]

         Plaintiff continued contesting this coverage determination, and on June 25, 2014, Energi representative Paul Nestor requested that the claim be reopened for purposes of allowing an “Emergency Removal Expense” under the policy.[40]Plaintiff was thereafter provided with a “Sworn Statement in Proof of Loss” form to sign on July 14, 2014.[41] This completed form for Emergency Removal Expenses was returned as dated September 8, 2014, and with recognition of the $ 5, 000 policy limit under this provision.[42]

         E. Plaintiff Unsuccessfully Seeks Reconsideration of the Coverage Denial, And Brings A Legal Action Against Defendants.

         On August 5, 2014, Derek Zambino, insurance broker for Plaintiff, sent an email to Molly Ferrante of Energi Insurance Services, Inc. requesting that she clarify the applicability of certain provisions of the Policy.[43] Mr. Zambino specifically wrote:

I have been working with Paul Nestor with this and we both are in agreement with how we are handling this claim but the client is asking around for other opinions and it is causing confusion for them.
I am looking for a legal interpretation on the policy language that I can use to help explain our decision.[44]

         Ms. Ferrante thereafter responded addressing the inapplicability of each of the seven provisions cited within Mr. Zambino's email.[45]

         Eric Quinlan, Esquire, claims counsel for Energi Insurance Services, Inc., sent an email on February 12, 2015 to Mr. Zambino.[46] In this email, Mr. Quinlan expressed that, while Energi had “made a decision to forfeit the $ 5, 000.00 we have put up in an effort to get Heller's the largest recovery, ” Energi would not be abandoning their case, but rather would work with Plaintiff's newly retained counsel to secure a recovery against the engineering firm responsible for the faulty design of the tank farm.[47] Mr. Quinlan thereafter facilitated contact between Plaintiff's counsel and Mr. Zambino.[48]

         On April 15, 2015, Plaintiff's counsel sent a Letter to Mr. Quinlan requesting a formal coverage opinion concerning coverage for the extent of loss previously detailed in the Sworn Statement in Proof of Loss.[49] Counsel for Defendants thereafter responded on May 22, 2015 in an eight page letter discrediting Plaintiff's argument for coverage through both the operation of the anti-concurrent clause and exclusions, and the inapplicability of numerous coverage extensions.[50] Like previous denials, this Letter concluded with the following pertinent language:

Hannover reserves all rights to assert, and shall not be estopped from asserting, any and all defenses under the policy and/or law. This correspondence is therefore not intended as a waiver, modification, or alteration of any of the terms, conditions, limitations, endorsements or exclusions of the subject policy.[51]

         Unhappy with this affirmation of prior coverage determinations, Plaintiff filed suit against Defendants on July 9, 2015.[52]

         III. LAW

         “One of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses, and we think it should be interpreted in a way that allows it to accomplish this purpose.”[53] Summary judgment is appropriate where “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”[54]“Facts that could alter the outcome are ‘material facts, ' and disputes are ‘genuine' if evidence exists from which a rational person could conclude that the position of the person with the burden of proof on the disputed issue is correct.”[55]

         “A defendant meets this standard when there is an absence of evidence that rationally supports the plaintiff's case.”[56] “A plaintiff, on the other hand, must point to admissible evidence that would be sufficient to show all elements of a prima facie case under applicable substantive law.”[57] The letter further requested

          “[T]he inquiry involved in a ruling on a motion for summary judgment or for a directed verdict necessarily implicates the substantive evidentiary standard of proof that would apply at the trial on the merits.”[58] Thus, “[i]f the defendant in a run-of-the-mill civil case moves for summary judgment or for a directed verdict based on the lack of proof of a material fact, the judge must ask himself not whether he thinks the evidence unmistakably favors one side or the other but whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented.”[59] “The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff.”[60] “The judge's inquiry, therefore, unavoidably asks . . . ‘whether there is [evidence] upon which a jury can properly proceed to find a verdict for the party producing it, upon whom the onus of proof is imposed.'”[61] Summary judgment therefore is “where the rubber meets the road” for a plaintiff, as the evidentiary record at trial, by rule, will typically never surpass that which was compiled during the course of discovery.

         “[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.”[62] “[R]egardless of whether the moving party accompanies its summary judgment motion with affidavits, the motion may, and should, be granted so long as whatever is before the district court demonstrates that the standard for the entry of summary judgment, as set forth in Rule 56(c), is satisfied.”[63]

         Where the movant properly supports his motion, the nonmoving party, to avoid summary judgment, must answer by setting forth “genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party.”[64] For movants and nonmovants alike, the assertion “that a fact cannot be or is genuinely disputed” must be supported by: (i) “citing to particular parts of materials in the record” that go beyond “mere allegations”; (ii) “showing that the materials cited do not establish the absence or presence of a genuine dispute”; or (iii) “showing . . . that an adverse party cannot produce admissible evidence to support the fact.”[65]

         “When opposing summary judgment, the non-movant may not rest upon mere allegations, but rather must ‘identify those facts of record which would contradict the facts identified by the movant.'”[66] Moreover, “[i]f a party fails to properly support an assertion of fact or fails to properly address another party's assertion of fact as required by Rule 56(c), the court may . . . consider the fact undisputed for purposes of the motion.”[67] On motion for summary judgment, “[t]he court need consider only the cited materials, but it may consider other materials in the record.”[68]

         “[A]t 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.”[69] “[T]here is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party.”[70] “If the evidence is merely colorable . . . or is not significantly probative, summary judgment may be granted.”[71]

         IV. ANALYSIS

         In their Motion for Summary Judgment, Defendants seek the entry of summary judgment on Plaintiff's breach of contract and statutory bad faith claims. Having reviewed the factual record of this case in conjunction with applicable Pennsylvania contract interpretation principles, I find that no genuine dispute of material fact precludes this result. My reasoning is as follows.

         A. Breach of Contract Claim

         To sustain a cause of action for breach of contract, a plaintiff must establish: (1) the existence of a contract, including its essential terms; (2) a breach of a duty imposed by that contract; and (3) resultant damages.[72] In the context of insurance contracts, the United States Court of Appeals for the Third Circuit has stated the following:

[t]he 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.[73]

         “A court should read policy provisions to avoid ambiguities, if possible, and not torture the language to create them.”[74] As a practical matter, the initial burden of establishing coverage under an insurance policy rests with the insured; however, the insurer then bears the burden of establishing the applicability of an exclusion under an insurance policy.[75]

         1. Direct Physical Loss

         In their Motion and its accompanying papers, Defendants first argue that summary judgment is appropriate here because Plaintiff did not suffer “direct physical loss” to covered property-in this case, the propane storage tanks.[76]Defendants specifically advance that, while the damage to the land upon which the tanks sat is undeniable, such damage is not covered and the costs of filling/backfilling would be allowable only to the extent necessary to repair underground covered property.[77] Damage to the tanks themselves-property covered by the Policy-was limited to a single, above ground pipe whose value was soundly within the policy deductible.[78] The mere “leaning, sagging, or settling” of the tanks, Defendants argue, does not constitute “collapse” within the “Other Coverages” section, or trigger Policy coverage.[79]

         Plaintiff, of course, resists the issuance of summary judgment on this ground by arguing that the covered property- here the propane tanks-either suffered a direct physical loss triggering coverage, or was nevertheless “at risk” for a greater physical loss due to the state of the tanks after October 11, 2013, but prior to remediation.[80] Specifically, Plaintiff avers that uncontroverted evidence of “sinking tanks, sinking tank supports, bent pipes, and damaged pylons” constitutes “direct physical loss” triggering coverage under the following Policy provision:

         13. Underground Pipes, Pilings, Bridges, and Roadways - “We” cover direct physical loss caused by a covered peril to:

a. pilings, piers, wharves, docks, or retaining walls;
b. underground pipes, flues, or drains; and
c. bridges, walkways, roadways, and other paved surfaces.
The most “we” pay under this Supplemental Coverage in any one occurrence or at any one “covered location” is $250, 000.[81]

         Having established direct physical loss to a component of the storage tanks, Plaintiff next cites the following provision to mandate coverage to the full extent of damages suffered:

“We” do not cover the cost of excavations, grading, filling, of backfilling. However, if a covered loss occurs to covered property below the surface of the ground, “we” cover costs that are a necessary part of the repairing, rebuilding, or replacement of the property.[82]

         Finally, Plaintiff avers that coverage is itself recognized by Defendants who paid $5, 000 under the “Emergency Removal Expenses” coverage extension.[83]

         In the alternative, Plaintiff argues that “direct physical loss” to the covered property occurred because the sinkhole opening rendered the tanks unusable.[84] To support this “loss of use” argument, Plaintiff cites the Third Circuit cases of Port Authority of New York and New Jersey v. Affiliated FM Ins. Co., 311 F.3d 226 (3d Cir. 2005) and its progeny, Motorists Mutual Ins. Co. v. Hardinger, 131 F.App'x. 823 (3d Cir. 2005). In Port Authority, the Third Circuit held that the plaintiff could recover for losses stemming from asbestos contamination of a building only if the cause of the harm “ ‘has resulted in contamination of the property such that its function is nearly eliminated or destroyed or the structure is made useless or uninhabitable . . . ' ”[85] While the Third Circuit found that such “loss of use” was not present in Port Authority, the Court later held, in Motorists Mutual Ins. Co., that the bacteria contamination of a home's water supply constituted a “direct physical loss” under Pennsylvania law when it rendered the home uninhabitable.[86]

         I find Plaintiff's arguments concerning the presence of “direct physical loss” to covered property in this instance unavailing. Here, as previously noted, the Policy covers “direct physical loss to covered property at a ‘covered location' caused by a covered peril.”[87] In order to trigger coverage, Plaintiff has the burden of establishing that its covered property was damaged.[88] This burden has not been met for two reasons. First, I find coverage under the “Underground Pipes, Pilings, Bridges, and Roadways” provision for the extent of damage sustained is not triggered based solely on damage to a single pipe. I specifically agree with Defendants that, despite the averments of Plaintiff, there is no evidence within the factual record which demonstrates damage to such ...

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