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Sapa Extrusions, Inc. v. Liberty Mutual Insurance Co.

United States District Court, M.D. Pennsylvania

May 1, 2018

SAPA EXTRUSIONS, INC. Plaintiff
v.
LIBERTY MUTUAL INSURANCE COMPANY, Defendants

          MEMORANDUM

          MALACHY E. MANNION United States District Judge

         Presently before the court are seven cross-motions for summary judgment. These pending motions include (1) a motion for partial summary judgment, (Doc. 181), filed by plaintiff Sapa Extrusions, Inc. (“Sapa”);[1] (2) a motion for summary judgment, (Doc. 150), filed by defendant Gerling-Konzern Allgemeine Versicherungs-AG (“Gerling”); (3) a motion for summary judgment, (Doc. 178), filed by defendant Liberty Mutual Insurance Company (“Liberty”); (4) a motion for summary judgment, (Doc. 185), filed by defendant Great American Assurance Company (“Great American”); (5) a motion for summary judgment, (Doc. 187), filed by defendant Arch Specialty Insurance Company (“Arch”); (6) a motion for summary judgment, (Doc. 191), filed jointly by defendants National Union Fire Insurance Company of Pittsburgh, Pa. (“National Union”) and Insurance Company of the State of Pennsylvania (“ICSOP”); and (7) a motion for summary judgment, (Doc. 197), filed jointly by defendants Pacific Employers Insurance Company (“Pacific”) and ACE American Insurance Company (“ACE American”). The arguments advanced in favor of summary judgment by these nine defendants (collectively, the “Defendant Insurers”) often overlap and at times are virtually indistinguishable, so the court will consider those arguments in this single memorandum and corresponding order. Based upon the court's review of these pending motions and their related materials, Sapa's motion will be DENIED, and the Defendant Insurers' motions will be GRANTED.

         I. BACKGROUND

         The following are the undisputed facts material to resolving the pending motions for summary judgment.[2] Sapa manufactures and sells aluminum window extrusions, which are custom-cut metal window fittings made from aluminum alloys and coated with primer and topcoat. (Doc. 182). Marvin Lumber & Cedar Company and Marvin Windows of Tennessee, Inc. (collectively, “Marvin”) were longtime purchasers of Sapa's extrusions. (Id.). Marvin incorporated Sapa's extrusions into the aluminum-clad windows and doors that it manufactures. (Id.). Between 2000 and 2010, Sapa sold Marvin approximately 28 million extrusions, which constituted roughly 87% of all extrusions purchased by Marvin during that time period. (Doc. 183). From these aluminum extrusions, Marvin produced approximately 8.5 million aluminum-clad windows and doors. (Doc. 200).

         Over time, the paint on the aluminum-clad portions of many of Marvin's windows and doors began “oxidizing” (bubbling and cracking), which caused Marvin to undertake extensive (and expensive) repairs. (Doc. 183). In an attempt to address the concerns of Marvin's customers, Marvin initially hired a third party to refinish the specific areas damaged by oxidation. (Id.). Eventually, however, Marvin transitioned toward replacing the affected portions of its aluminum-clad windows and doors altogether due to the continued recurrence of oxidation issues. (Id.). As a result, Marvin ultimately sued Sapa in Marvin Lumber & Cedar Co. v. Sapa Extrusions, Inc., 964 F.Supp.2d 993, 997 (D. Minn. 2013) (the “Underlying Action”), to recoup its repair costs for approximately 25, 000 aluminum-clad units. (Doc. 183).

         On September 9, 2010, Marvin filed its complaint in the Underlying Action, asserting claims for breach of contract, breach of express warranty, breach of implied warranty, fraud, fraudulent concealment, negligent misrepresentation, and unlawful trade practices. (Doc. 1, Exh. A). Primarily, Marvin alleged that while Sapa entered into an agreement on August 1, 1996 to supply Marvin with extrusions that met or exceeded the specifications set forth by the American Architectural Manufacturers Association (“AAMA”), Sapa nevertheless altered its manufacturing techniques for its extrusions in 2003 without informing Marvin and continued to represent to Marvin that it was still utilizing the previously agreed-to techniques. (Id.). Specifically, Marvin claimed that “[s]ome of the . . . extru[sions] . . . purchased by Marvin from Sapa did not perform as intended, represented, and agreed” when they “prematurely failed in coastal locations in the field at an abnormal rate” by “peeling, losing adhesion, or otherwise degrading.” (Id.). Marvin alleged that, upon further inspection, Sapa's products did not consistently meet the AAMA's requirements, even though Sapa had agreed by contract to ensure that those requirements were satisfied. (Id.). When even more aluminum-clad windows and doors made with Sapa's extrusions began to fail, Marvin secured an alternative supplier. (Id.).

         As damages in the Underlying Action, Marvin claimed that it had suffered economic losses stemming from “investigating and responding to” consumer complaints, “identifying and qualifying alternative” extrusion suppliers, “repairing” and “replacing” the failed extrusions, rebuilding its “valuable reputation, ” and experiencing lost “sales and profits.” (Id.). The Defendant Insurers characterize the damages demanded in Underlying Action as limited to the cost of replacing the extrusions themselves, but Sapa contends that Marvin also sought compensation for the cost of repairing damage to additional areas of customers' homes that surrounded the aluminum-clad windows and doors incorporating Sapa's products. (Doc. 335; Doc. 343). Sapa's expert witness testified that some surrounding property inside customers' homes was indirectly damaged through the subsequent process of installing new extrusions to replace the failed ones. (Doc. 253; Doc. 335; Doc. 343). According to this testimony, these so-called “interior refinish” repairs were undertaken because many of the homes in which the extrusions failed had “intricate plaster work and woodwork around the windows” that needed to be fixed and refinished after the failed extrusions were ripped out and replaced with new ones. (Doc. 214). The evidence of record, however, does not support the conclusion that the failure of Sapa's extrusions directly caused damage to external property by, for instance, allowing rainwater to invade customers' homes. (Doc. 214; Doc. 253). Sapa ultimately concedes that Marvin's complaint in the Underlying Action never set forth a specific category of damages called “interior refinish.” (Doc. 253; Doc. 343).

         The parties to this case dispute portions of the relevant timeline, including the specific date on which Marvin began receiving complaints related to oxidation issues from its customers and the specific date on which Sapa eventually learned of these issues. The Defendant Insurers maintain that the complaints began (and that Sapa knew of these issues) as early as 1996 and 1997, when Marvin met with representatives from Sapa to discuss problems related to paint corrosion. (Doc. 214; Doc. 253). In the Underlying Action, however, Marvin specifically distinguished the problems addressed during those discussions from the problems supplying the basis for its claims against Sapa. (Doc. 214; Doc. 253). Specifically, Marvin argued that the “corrosion” problems observed in 1996 were excluded from the “oxidation” problems observed after Sapa had allegedly breached its contract by altering its pretreatment process. (Doc. 253).

         According to expert testimony from the Underlying Action, customers did not begin complaining of oxidation issues until 2000. (Doc. 183; Doc. 222). Testimony from a Sapa sales representative in the Underlying Action notes that “Marvin advised Sapa . . . of paint failure” problems in April 2000, indicating that Sapa was at least made aware of problems similar to those at issue in the Underlying Action by this date. (Doc. 335; Doc. 343). Sapa maintains, however, that it did not learn of the specific “oxidation” problems at issue in the Underlying Action until May 2007. (Doc. 253). It remains largely unclear when Marvin began receiving consumer complaints about the “oxidation” problems at issue in the Underlying Action, as opposed to complaints about other types of corrosion and deterioration. Disputes of fact also remain regarding the precise date when Sapa caught wind of the fact that oxidation issues had arisen.

         On August 2, 2013, the United States District Court for the District of Minnesota in the Underlying Action held that (1) issues of material fact precluded summary judgment on the question of whether Sapa provided Marvin with an express warranty, noting further that any warranty found to exist by a jury would be enforceable; (2) issues of material fact precluded summary judgment on the question of whether Sapa breached its contract with Marvin because it was factually unclear whether Marvin's revocation of its acceptance of Sapa's nonconforming goods occurred within a reasonable amount of time; (3) issues of material fact precluded summary judgment on the question of whether the parties had an indemnity agreement for Sapa to reimburse Marvin for any expenses incurred due to malfunctions in products that incorporated Sapa's extrusions; (4) Marvin's decision to provide Sapa with manufacturing specifications (the AAMA standards) precluded it from asserting breach of implied warranty claims; and (5) Sapa owed Marvin no independent, extra-contractual duty of care to sustain Marvin's tort-based claims for fraud, fraudulent concealment, negligent misrepresentation, and unlawful trade practices. See Marvin Lumber & Cedar Co., 964 F.Supp.2d at 1010. “Under Minnesota law, ” the District of Minnesota held, “a breach of contract, even if done in bad faith, is not a tort.” Id. at 1006. Since Sapa had contracted to comply with agreed-upon manufacturing standards, its duty to Marvin for failing to comply with those standards was contractual in nature. See Id. Following this decision, the parties to the Underlying Action, Marvin and Sapa, entered into a confidential settlement agreement.

         Between 1998 and 2011, Sapa purchased a total of twenty-seven separate insurance policies from the Defendant Insurers (collectively, the “Policies at Issue”) with varying degrees of general, umbrella, and excess commercial liability coverage. (Doc. 60). On November 19, 2013, Sapa initiated the above-captioned lawsuit, claiming that the Defendant Insurers breached their respective insurance contracts by “refusing” to reimburse Sapa for its costs expended litigating and ultimately settling the Underlying Action. (Doc. 1). Sapa's amended complaint asserts twenty-seven separate counts for breach of contract-one for each of the Policies at Issue-against the Defendant Insurers. (Doc. 60). In count twenty-eight, Sapa further requests a declaratory judgment setting forth the Defendant Insurers' respective coverage obligations under the Policies at Issue. (Id.). The Defendant Insurers have each denied coverage obligations under the Policies at Issue. (Id.).

         The Policies at Issue include the following: (1) a commercial general liability policy issued by Liberty in 1998 as “Policy No. RG1-681-004072-017” (the “1998 Liberty Policy”) that provides coverage from April 1, 1998 through July 1, 2000, (Doc. 1, Exh. C); (2) a commercial umbrella policy issued by National in 1998 as “Policy No. BE 3577478” (the “1998 National Umbrella Policy”) that provides coverage from July 1, 1998 through July 1, 1999 (Doc. 1, Exh. D); (3) a commercial umbrella policy issued by National in 1999 as “Policy No. BE 7016246” (the “1999 National Umbrella Policy”) that provides coverage from July 1, 1999 through July 1, 2002, (Doc. 1, Exh. E); (4) a commercial umbrella policy issued by National in 2002 as “Policy No. BE 2131282” (the “2002 National Umbrella Policy”) that provides coverage from July 1, 2002 through July 1, 2003, (Doc. 1, Exh. F); (5) a commercial umbrella policy issued by National in 2003 as “Policy No. BE 2860270” (the “2003 National Umbrella Policy”) that provides coverage from July 1, 2003 through July 1, 2004, (Doc. 1, Exh. G); (6) an excess liability policy issued by Gerling in 1999 as “Policy No. 509/DL286399” (the “1999 Gerling Excess Policy”) that provides coverage from July 1, 1999 through July 1, 2002, (Doc. 1, Exh. H); (7) an excess liability policy issued by Gerling in 2002 as “Policy No. 509/DL376002” (the “2002 Gerling Excess Policy”) that provides coverage from July 1, 2002 through July 1, 2003, (Doc. 1, Exh. I); (8) a commercial general liability policy issued by Pacific in 2001 as “Policy No. HDO G20577071” (the “2001 Pacific Policy”) that provides coverage from July 1, 2001 through July 1, 2002, (Doc. 1, Exh. J); (9) a commercial general liability policy issued by ACE in 2002 as “Policy No. HDO G20586023” (the “2002 ACE Policy”) that provides coverage from July 1, 2002 through July 1, 2003, (Doc. 60); (10) a commercial general liability policy issued by ACE in 2003 as “Policy No. HDO G21738335” (the “2003 ACE Policy”) that provides coverage from July 1, 2003 through July 1, 2004, (Doc. 60); (11) a commercial general liability policy issued by ACE in 2004 as “Policy No. HDO G21707466” (the “2004 ACE Policy”) that provides coverage from July 1, 2004 through July 1, 2005, (Doc. 60); (12) a commercial general liability policy issued by ACE in 2005 as “Policy No. HDO G2171804A” (the “2005 ACE Policy”) that provides coverage from July 1, 2005 through July 1, 2006, (Doc. 1, Exh. K); (13) a commercial general liability policy issued by ACE in 2006 as “Policy No. HDO G21734548” (the “2006 ACE Policy”) that provides coverage from July 1, 2006 through July 1, 2007, (Doc. 1, Exh. L); (14) a commercial umbrella policy issued by Arch in 2002 as “Policy No. 25RRULP0039100” (the “2002 Arch Umbrella Policy”) that provides coverage from July 1, 2002 through May 15, 2003, (Doc. 1, Exh. M); (15) an excess liability policy issued by Arch in 2003 as “Policy No. 12UFP0039101” (the “2003 Arch Excess Policy”) that provides coverage from July 1, 2003 through July 1, 2004, (Doc. 1, Exh. N); (16) a commercial umbrella policy issued by ACE in 2004 as “Policy No. XOO G21976416” (the “2004 ACE Umbrella Policy”) that provides coverage from July 1, 2004 through July 1, 2005, (Doc. 1, Exh. P); (17) a commercial umbrella policy issued by ACE in 2005 as “Policy No. XOO G22082723” (the “2005 ACE Umbrella Policy”) that provides coverage from July 1, 2005 through July 1, 2006, (Doc. 1, Exh. Q); (18) a commercial umbrella policy issued by ACE in 2006 as “Policy No. XOO G23714632” (the “2006 ACE Umbrella Policy”) that provides coverage from July 1, 2006 through July 1, 2007, (Doc. 60); (19) an excess liability policy issued by Great American in 2004 as “Policy No. EXC 5166048” (the “2004 Great American Excess Policy”) that provides coverage from July 1, 2004 through July 1, 2005, (Doc. 1, Exh. R); (20) an excess liability policy issued by Great American in 2005 as “Policy No. EXC 4718575” (the “2005 Great American Excess Policy”) that provides coverage from July 1, 2005 through July 1, 2006, (Doc. 1, Exh. S); (21) an excess liability policy issued by Great American in 2006 as “Policy No. EXC 9251906” (the “2006 Great American Excess Policy”) that provides coverage from July 1, 2006 through July 1, 2007, (Doc. 1, Exh. T); (22) an excess liability policy issued by Gerling in 2005 as “Policy No. 576/UK7365500” (the “2005 Gerling Excess Policy”) that provides coverage from July 1, 2005 through July 1, 2006, (Doc. 1, Exh. V); (23) an excess liability policy issued by Gerling in 2006 as “Policy No. 576/UL7365500” (the “2006 Gerling Excess Policy”) that provides coverage from July 1, 2006 through July 1, 2007, (Doc. 1, Exh. W); (24) a commercial general liability policy issued by ICSOP in 2008 as “Policy No. GL 721-90-79” (the “2008 ICSOP Policy”) that provides coverage from June 1, 2008 through June 1, 2009, (Doc. 1, Exh. X); (25) a commercial general liability policy issued by ICSOP in 2009 as “Policy No. GL 091-26-40” (the “2009 ICSOP Policy”) that provides coverage from June 1, 2009 through June 1, 2010, (Doc. 1, Exh. Y); (26) a commercial general liability policy issued by ICSOP in 2010 as “Policy No. GL 226-45-02” (the “2010 ICSOP Policy”) that provides coverage from January 1, 2010 through June 1, 2011, (Doc. 1, Exh. Z); and (27) a commercial umbrella policy issued by National in 2010 as “Policy No. 27-471-704” (the “2010 National Umbrella Policy”) that provides coverage from January 1, 2010 through June 1, 2010, (Doc. 1, Exh. AA).

         The Policies at Issue are “occurrence-based” and thus only provide coverage in the event of an “occurrence, ” which is a contractual term. (Doc. 60). The parties fundamentally dispute whether the events at issue in the Underlying Action amount to a covered “occurrence.” (Doc. 151; Doc. 157; Doc. 182; Doc. 192; Doc. 239; Doc. 244; Doc. 245; Doc. 247; Doc. 249; Doc. 251; Doc. 256; Doc. 259; Doc. 260; Doc. 306; Doc. 307).

         Sapa further argues that additional provisions of the Policies at Issue, such as the “Products-Completed Operations Hazard” provisions and the “Insured Contract” provisions, compel a finding that coverage is due. (Doc. 296). The Defendant Insurers deny this assertion. (Doc. 260). Many of the Policies at Issue also contain certain express exclusions from coverage built directly into the policy language, including the so-called “Your Product” exclusions, “Impaired Property” exclusions, “Sistership” exclusions, and “Known Loss” exclusions. (Doc. 211; Doc. 245). The Defendant Insurers assert that even if Sapa has satisfied the “occurrence” requirement such that it triggers coverage, coverage is nonetheless precluded due to the applicability of these express exclusions. (Doc. 151; Doc. 192; Doc. 211; Doc. 306). Finally, the parties dispute the applicability of particular “trigger theories” of insurance coverage, which-in the event of a covered “occurrence”-would determine which of the Policies at Issue were triggered. (Doc. 259; Doc. 306). These issues before the court have been fully briefed and are now ripe for summary judgment.

         II. SUMMARY JUDGMENT STANDARD

         “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and [that] the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A factual dispute is “genuine” if a reasonable jury could return a verdict for the non-moving party, and it is “material” if proof of its existence or nonexistence would affect the outcome of the trial under the governing substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-57 (1986); Gray v. York Newspapers, Inc., 957 F.2d 1070, 1078 (3d Cir. 1992). “[T]his standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson, 477 U.S. at 247-48.

         To determine whether a genuine dispute of material fact exists, the court should consider the “pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any.” Celotex Corp. v. Catrett, 477 U.S. 317 (1986). In doing so, the court must view all the evidence and any inferences drawn therefrom in the light most favorable to the non-moving party. Andreoli v. Gates, 482 F.3d 641, 647 (3d Cir. 2007) (citing Farrell v. Planters Lifesavers Co., 206 F.3d 271, 278 (3d Cir. 2000)). However, the court's function at the summary judgment stage “is not . . . 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) (noting that the court may neither weigh the evidence nor make credibility determinations).

         Parties seeking to establish that a fact is or is not genuinely disputed may not rely on unsubstantiated allegations. Rather, they must support such assertions by “citing to particular parts of materials in the record” to demonstrate that the adverse party's factual assertion either lacks support from cited materials or is unsupported by admissible evidence. Fed.R.Civ.P. 56(c)(1). See also Celotex Corp., 477 U.S. at 324 (requiring evidentiary support for factual assertions made during summary judgment). A party's failure to properly support or contest an assertion of fact may result in that fact being considered undisputed for purposes of the summary judgment motion, although the court may also grant parties an opportunity to properly provide support for an asserted fact. Fed.R.Civ.P. 56(e).

         To prevail on a motion for summary judgment, the moving party must affirmatively identify those portions of the record that demonstrate the absence of a genuine dispute of material fact. Celotex Corp., 477 U.S. at 323-24. The moving party can satisfy this 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 Id. 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” to avoid summary judgment. 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)). Rather, the non-moving party must provide “sufficient evidence” for a jury to return a verdict in its favor. Id. “[I]f the [non-movant's] evidence is merely colorable or not significantly probative, [then] summary judgment should be granted.” Id. (quoting Armbruster v. Unisys Corp., 32 F.3d 768, 777 (3d Cir. 1994)).

         III. DISCUSSION

         As a preliminary matter, the court must “look to the language of the policies themselves to determine in which instances they will provide coverage.” Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 589 Pa. 317, 331 (2006). The court's primary goal in interpreting an insurance policy, as with interpreting any contract, is to ascertain the parties' intent as manifested by the policy's terms. 401 Fourth Street v. Investors Insurance Co., 583 Pa. 445, 454 (2005). “When the language of the policy is clear and unambiguous, [the] court is required to give effect to that language.” Id. at 455. Alternatively, “[w]hen a provision in the policy is ambiguous . . . the policy is to be construed in favor of the insured to further the contract's [main] purpose of indemnification, [bearing in mind that] the insurer [primarily] drafts the policy and controls [its] coverage.” Id.

         The Policies at Issue are “occurrence-based” policies, meaning that coverage is implicated only when there has been an “occurrence, ” which is a contractual term with a meaning that has been refined through case law. See, e.g., Kvaerner, 589 Pa. at 324. Twenty-six out of the twenty-seven Policies at Issue define “occurrence” as “an accident, including continuous or repeated exposure to . . . conditions.” (Doc. 1, Exh. D; Doc. 1, Exh. E; Doc. 1, Exh. F; Doc. 1, Exh. G; Doc. 1, Exh. H; Doc. 1, Exh. I; Doc. 1, Exh. J; Doc. 1, Exh. K; Doc. 1, Exh. L; Doc. 1, Exh. M; Doc. 1, Exh. N; Doc. 1, Exh. P; Doc. 1, Exh. Q; Doc. 1, Exh. R; Doc. 1, Exh. S; Doc. 1, Exh. T; Doc. 1, Exh. V; Doc. 1, Exh. W; Doc. 1, Exh. X; Doc. 1, Exh. Y; Doc. 1, Exh. Z; Doc. 1, Exh. AA). The remaining policy defines “occurrence” as “injurious exposure, including continuous or repeated exposure to conditions.” (Doc. 1, Exh. C). Each of the Policies at Issue links the definition of “occurrence” to “property damage, ” requiring the Defendant Insurers to pay for property damage “that takes place during the Policy Period and [that] is caused by an occurrence.” (Doc. 182). These contractual terms are unambiguous. “An occurrence . . . is an accident.” Kvaerner, 589 Pa. at 332. Underpinning the idea of an “accident” is the concept that it must be “unexpected.” Id. at 333. “It is [therefore] necessary . . . to examine whether the damage that [was] the impetus of [the Underlying Action] was caused by an accident [such that it] constitute[s] an occurrence” under one or more of the Policies at Issue. Id. at 332.

         a. Whether the Underlying Action Was an “Occurrence” Triggering the Defendant Insurers' Duty to Defend Sapa

         The Pennsylvania Supreme Court has reiterated that the question of whether an insurer has undertaken the “duty to defend” (that is, the duty to defend an insured against a lawsuit) depends solely on “whether [the language of] the third party's complaint triggers coverage.” Mut. Benefit Ins. Co. v. Haver, 555 Pa. 534, 538 (1999). The duty to defend is broader than the “duty to indemnify” (that is, the duty to indemnify the insured for liabilities sustained from a lawsuit), as the duty to defend is based upon allegations that, if proved, would trigger an indemnity obligation. See Id. at 539 n.1. “If an insurer does not have a duty to defend, [then] it does not have a duty to indemnify.” Indalex Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 83 A.3d 418, 421 (Pa. Super. ...


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