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Utica Mutual Insurance Co. v. Voegele Mechanical, Inc.

United States District Court, E.D. Pennsylvania

October 15, 2019

UTICA MUTUAL INSURANCE CO., Plaintiff,
v.
VOEGELE MECHANICAL, INC., et al., Defendants.

          OPINION

          CHAD F. KENNEY, J.

         I. Introduction

         This case arises from a demand for arbitration with the American Arbitration Association filed by Pine Run Retirement Community ("Pine Run") against Defendant McDonald Building Company ("McDonald") regarding a remodeling project that Pine Run alleged McDonald defectively performed. McDonald sought to join its subcontractor Voegele Mechanical, Inc. ("Voegele") as a party to the arbitration asserting that McDonald qualified as an additional insured under Voegele's commercial general liability policy with Plaintiff Utica Mutual Insurance Company ("Utica"). Utica subsequently filed this declaratory action seeking a declaration from this Court that it owes no obligation to defend or indemnify its named insured, Voegele[1], or alleged additional insured, McDonald. See ECF No. 1.

         This matter comes before the Court on Utica and McDonald's cross motions for summary judgment (ECF Nos. 30 & 3l).[2] For the following reasons, Utica's Motion for Summary Judgment will be granted, and McDonald's Motion for Summary Judgment will be denied.

         II. Background

         Pine Run contracted with McDonald to complete renovations at its facilities that included the replacement and installation of new packaged terminal air conditioner ("PTAC") units and the integration of new construction and replacement components with existing construction. Under the construction agreement, McDonald assumed the duties of a construction manager. McDonald subsequently subcontracted the replacement and installation of the PTAC units to Voegele. The agreement between McDonald and Voegele (the "subcontract") delimitated the scope of Voegele's work. Pursuant to the subcontract, Voegele was obligated to obtain broad form commercial general liability coverage. Accordingly, Utica insured Voegele under a commercial general liability policy that provided coverage and contained additional insured provisions for contractors' completed operations.

         On May 29, 2018, Pine Run commenced an AAA arbitration action (the "AAA Complaint") against McDonald pursuant to the construction agreement wherein Pine Run alleged, among other things, that McDonald negligently and/or defectively supervised and performed the replacement and installation of the PTAC units at Pine Run resulting in "substantial and widespread water infiltration and mold in patient rooms at the Health Center."

         Specifically, the AAA arbitration statement of claims alleges the following:[3]

         4. On June 28, 2013, Pine Run and McDonald entered into the American Institute of Architect's Agreement Between Owner and Construction Manager as Constructor ALAI Document A133 - 2009 ("the Construction Agreement"), (See Exhibit A)

         10. Under the Construction Agreement, McDonald was required to serve as construction manager and constructor for a project that included extensive renovations to Pine Run's existing five-story Health Center.

         11. As part of the project, McDonald undertook extensive renovations to the facility.

         12. The renovations included:

a. Enclosing the original fourth-floor balconies with facades and roofs;
b. Replacing facade cladding on portions of the fifth-floor exterior walls;
c. Installing new and replacing original window systems;
d. Replacing storefronts and entrances;
e. Installing and replacing all original PTAC2 units and sleeve penetrating the existing and new perimeter walls; and
f. Integrating the new construction and replacement components with the original construction.

         15. McDonald also "warrant[ed] that the Work will conform to the requirements of the Contract Documents and will be free from defects, except for those inherent in the quality of the Work the Contract Documents require or permit. Work, materials, or equipment not conforming to these requirements may be considered defective." (See id, at §3.5; Exhibit A).

         B. An Independent Third Party - TBS - Determined that McDonald's Negligent Installation of the PTAC Units Cause Water Damage to Patient Rooms

         18. After installation of the PTAC units, a Pine Run housekeeper noticed water damage in three patient rooms (Rooms 413, 415, 420).

         19. Pine Run found similar damage in other rooms that have PTAC units installed by McDonald.

         20. In November 2016, the ongoing problem was evidenced by the PTAC unit in Room 531 leaking into Room 426.

         21. Pine Run engaged an independent third party, TBS to investigate and determine the cause of the water damage observed in patient rooms.

         22. TBS determined that McDonald improperly installed the packing, fabricated pans, flashing and related material during the installation of the new PTAC units:

The water testing included testing of the metal PTAC sleeve (Test Location #1) and the exterior louver (Test Location #2). We tested to the metal PTAC sleeve first to determine if the metal sleeve had any deficiencies that may be contributing to the water infiltration noted on the interior. We noted water was able to flow through the metal PTAC sleeve when the weeps were sealed. This water discharged to the exterior, at various points and the space below, through a gap in the floor system. 'There may be water infiltration occurring behind the original louver, We believe that water collected in the pan does not drain continuously to the exterior due to the lack of the 2" end dam at the metal flashing pan and sealant at the leading edge of the metal flashing pan.
We note that the new GE PTAC unit was installed in the rough opening of the previous PTAC unit. We believe that the previous PTAC unit was larger than the new GE PTAC unit. In order to install the new GE PTAC unit, wood blocking, sealant and metal flashing was installed at the exterior wall behind the original louver. However, we are not able to confirm the installation of exterior sheathing and the tie-in of the weather resistive barrier. We were able to observe daylight within the wood blocking assembly. We also were able to note daylight below the PTAC unit from the interior.
We were able to review the GE PTAC unit installation instructions as provided in submittal package 15740-01-01, dated 13 September 2013. We are unaware of any other shop drawings or other submittals for the PTAC installation, The installation instructions recommend providing a metal pan with 2" end dam extending the depth of the flashing pan. The metal PTAC sleeve is to be installed on top of this pan in a bed of sealant. We did not observe the 2" end dam or the bed of sealant at the PTAC sleeve at Test Location #1 and #2 as recommended by the GE installation instructions.
The water test at Location #2 was conducted to test the original louver in an event of a rainstorm. Our nozzle, held at 60 degrees was intended to replicate a rain storm event. Within 10 minutes of testing, we noted 2 quarts of water in a bucket in the space below Room 415, The path of water was similar to the Test Location # 1. We believe that the water is traveling through the gap in the floor at the wood blocking pack out. From our tests we conclude that the wood blocking assembly installed to pack out and seal the reduced rough opening at the new PTAC unit is not water tight.

(See January 19, 2016 TBS Report at pp. 4-5; Exhibit B).

         23. TBS recommended further investigation that included forensic removal of the PTAC and associated components to understand McDonald's installation and to generate project-specific details to remedy the situation. (See Id. at p. 5).

         25. The forensic removal and inspection of McDonald's work further confirmed that McDonald had defectively installed the PTAC unit, resulting in leakage. As TBS observed:

The forensic removal of the existing exterior finishes demonstrated the lack of continuity of the weather resistive barrier and connection to the metal flashing systems. In addition, the lack of properly sealed metal flashing at the right jamb provided areas for the water intrusion observed by Pine Run Retirement Community. Our water testing, conducted on January 5, 2016, showed that water traveled through the gaps at the wood blocking and into the gap/hole at the floor. This water traveled through the gap/hole in the floor and appeared in space below Room 413. The forensic removal uncovered improperly terminated flashings. We noted gaps and a path for water to travel. In addition, there was no connection of the weather resistive barrier into the rough opening or the PTAC unit.
This lack of continuity of the between the weather resistive barrier and the PTAC flashing allows for water intrusion into the wall assembly.

(See TBS March 31, 2016 Report at p. 2; Exhibit B).

         28. On June 29, 2016, TBS returned to Pine Run to visually inspect two additional PTAC locations on the second and third floors of the Health Center.

         29. TBS determined that McDonald engaged in the same negligent workmanship and installation of these PTAC units:

During our visit, we reviewed existing conditions of the PTAC units at Rooms 224 and 322. In our limited visual review of the units in these rooms, we noted similar conditions to those noted in our report dated January 19, 2016. Such conditions include: no sealant noted below the bottom pan flashing, gaps in the perimeter sealant, and noted paths to daylight from the interior. While we understand that no water infiltration issues have been reported, our limited visual inspection of the PTAC units in Rooms 224 and 322 revealed similar issues to those outlined in our previous report dated January 19, 2016 which include: no sealant at the base of the flashing pan, no upturned leg on the metal pan flashing per GE's recommended installation instructions, and a lack of continuity in the weather resistive barrier. We recommend that these issues be addressed in a similar fashion to the remedial work detailed for the PTAC unit at Room 518, We recommend reviewing other PTAC locations throughout the facility to ensure a water tight condition exists at the PTA C units.

(See TBS Report dated August 3, 2016; Exhibit B).

         30. Despite the fact that an independent third party has determined that McDonald defectively installed the PTAC units, McDonald has refused to correct the defects at its cost as required by the Construction Agreement.

         D. Pine Run Continues to Discover Additional Water Penetration at Multiple Other PTAC Locations

         32. Pine Run's continued inspection of the property has revealed water penetration at multiple other PTAC locations.

         33. Functional drainage flashing and weather-resistive barrier seals at the PTAC sleeve are deficient, allowing water and air penetration.

         34. No weather-resistive barrier exists behind the stucco finish on the plywood panel at the fifth floor PTAC units.

         35. The fifth floor PTAC sleeve flashing is deficient, allowing water infiltration at the fourth floor ceiling.

         36. Pine Run believes, and therefore alleges, that the systemic defects in McDonald's installation of the PTACs was so fundamentally deficient that there is water damage at all PTAC locations.

         E. Pine Run Discovers Other Construction Defects

         37. McDonald's defective installation of the PTAC units prompted Pine Run to perform additional inspections of the Health Center to determine if other construction work performed by McDonald was defective.

         38. These inspections revealed multiple, substantial construction defects resulting in extensive damage to the facility, including:

a. Metal base flashing between the third floor brick wall and the fourth floor fiber cement ...

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