C. Raymond Davis & Sons, Inc. v. Liberty Mut. Ins., Civ. A. No. 77-1525.

• Citation: 467 F. Supp. 17
• Decision Date: 16 January 1979
• Docket Number: Civ. A. No. 77-1525.
• Parties: C. RAYMOND DAVIS & SONS, INC. v. LIBERTY MUTUAL INSURANCE COMPANY.
• Court: United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)

467 F. Supp. 17

C. RAYMOND DAVIS & SONS, INC. v. LIBERTY MUTUAL INSURANCE COMPANY.

Civ. A. No. 77-1525.

United States District Court, E. D. Pennsylvania.

January 16, 1979.

David E. Thomas, Philadelphia, Pa., for plaintiff.

Benjamin Zuckerman, Norristown, Pa., for defendant.

MEMORANDUM AND ORDER

NEWCOMER, District Judge.

This is a suit on a Comprehensive General Liability Policy and an Umbrella Excess Liability Policy brought by the plaintiff insured against the defendant insurer for damages allegedly caused by the insurer's failure to defend and pay claims made by a third party against the insured. Jurisdiction of this Court is based on diversity of citizenship. 28 U.S.C. § 1332(a).

The Court has before it cross-motions for summary judgment on the issue of liability. For the reasons set forth below, partial summary judgment is granted in favor of the plaintiff insured, and partial summary judgment is granted in favor of the defendant insurer.

The plaintiff C. Raymond Davis & Sons, Inc. (Davis) is a building contractor. In 1969, the Company constructed a building for National Label Company in Montgomery County, Pennsylvania. Davis built the structure on a sanitary landfill, following plans prepared by an independent architect. After completion of construction, the land under the building began to settle, and the floor and walls began to crack, sink and tilt. National Label, the owner of the building, brought a claim against Davis for damage to the building, and for other consequential damages, including damage to certain of National Label's printing machines, which required an absolutely level floor to operate properly. Relying on the Defense Clause in the insurance policy, Davis called upon Liberty Mutual to defend the claim. Liberty Mutual refused. National Label obtained an arbitrator's award against Davis for $50,000. and the award was elevated to judgment in the Court of Common Pleas of the Commonwealth of Pennsylvania.

DUTY TO DEFEND

The duty to defend provision of a liability insurance contract is an agreement by which the insurer, in consideration of the premium paid by the insured, assumes the obligation to arrange for and pay the expenses of the defense of certain lawsuits brought against the insured. In the policy at issue, the defense clause was written as follows:

"The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

Coverage A. Bodily injury or

Coverage B. Property damage

to which this policy applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless false or fraudulent . . ."

A plausible reading of the clause is that the duty to defend and the duty to indemnify are co-extensive. The insurer agrees to defend suits alleging such bodily injury or property damage; "such" apparently refers to bodily injury or property damage "to which this policy applies."

Courts, however, have not read duty to defend clauses narrowly. The duty to defend has been held to be broader than the duty to indemnify. Gedeon v. State Farm Mutual Automobile Insurance Co., 410 Pa. 55, 58-9, 188 A.2d 320 (1963).

Where the allegations of the complaint against the insured state on their face a claim against the insured to which the policy potentially applies, the insurer must defend the claim. Id.; Zeitz v. Zurich General Accident and Liability Insurance Co., 165 Pa.Super. 295, 67 A.2d 742 (1949). The insurer is obliged to defend the entire claim if some of the allegations in the complaint fall within the terms of coverage and others do not. Cadwallader v. New Amsterdam Casualty Co., 396 Pa. 582, 152 A.2d 484 (1959).

Davis relies principally on Paragraphs 34 and 38 of National Label's complaint to show that Liberty Mutual had a duty to defend the claim:

"34. Plaintiff avers that said new office and plant facility as constructed by contractor is subject to excessive differential settlement, its floors are cracked and sink and tilt, its walls are cracked, doors bend, and plaintiff's machinery is becoming displaced; and in addition, dangerous gases which endanger property and life have accumulated under and leak into said plant.

. . . . .

38. Because of defendant's breaches aforesaid, plaintiff has sustained damages in the amount of $36,933.43, and in addition, will sustain losses in the amount of $1,088,000.00."

These paragraphs allege property damage caused by the insured, and fall squarely within Coverage B, quoted above.¹

The insurer is not required to defend the claim when it is apparent from the face of the complaint that none of the injuries that are alleged fall within the coverage of the policy. However, if coverage (indemnification) depends upon the existence or nonexistence of facts outside of the complaint that have yet to be determined, the insurer must provide a defense until such time as those facts are determined, and the claim is narrowed to one patently outside of coverage. Lee v. Aetna Casualty and Surety Co., 81 F.Supp. 1008 (S.D.N.Y.1949), aff'd, 178 F.2d 750 (2nd Cir. 1949) (L. Hand, J.).

In the instant case the duty to indemnify is still in doubt; it depends on the existence or non-existence of as yet undetermined facts (see infra). Thus, Liberty Mutual breached its contractual duty to defend when it refused to provide a defense to National Label's property damage claim against the insured.

The amount of recovery to which the insured is entitled for breach of the duty to defend is the cost of hiring substitute counsel and other costs of the defense. Gedeon v. State Farm Mutual Automobile Insurance Co., supra, 410 Pa. at 60, 188 A.2d 320.²

DUTY TO INDEMNIFY

The policy in issue sets forth a general duty to indemnify: "the company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of . . . property damage to which this policy applies, caused by an occurrence . . .".

"Occurrence" is defined elsewhere in the policy:

"`Occurrence' means an accident, including injurious exposure to conditions which results, during the policy period in bodily injury or property damage neither expected nor intended from the stand-point of the insured." (emphasis supplied).

The central factual issue to be resolved is whether the insured "expected" the property damage that occurred.³

If possible, the words in an insurance policy are to be given their common, ordinary meaning. Easton v. Washington County Insurance Co., 391 Pa. 28, 137 A.2d 332 (1958). Webster's Third New International Dictionary, 1971, defines "expect" as follows (after listing obsolete, archaic and colloquial uses):

3a. to look for, specifically to anticipate the coming of.

3b. to look forward to, specifically to anticipate the occurrence of.

4a. to consider probable or certain.⁴

Language in an insurance policy is ambiguous if it is reasonably susceptible of at least two different interpretations. Celley v. Mutual Benefit Health and Accident Association, 229 Pa.Super. 475, 324 A.2d 430 (1974). Here, there can be little doubt that reasonable minds could differ about the precise meaning of "expected".

Where language in an insurance policy is ambiguous, the ambiguity must be resolved in favor of the insured. Mohn v. American Casualty Co. of Reading, 458 Pa. 576, 326 A.2d 346 (1974). Resolving the ambiguity in favor of the insured, the Court finds that "expected", in this insurance policy, means "considered more likely than not to occur"; and that coverage exists for property damage which the insured did not consider more likely than not to occur.

Liberty Mutual obviously...