Griggs Rd., L.P. v. Selective Way Ins. Co. of Am., 4:17-CV-00214

• Decision Date: 21 February 2019
• Docket Number: No. 4:17-CV-00214,4:17-CV-00214
• Citation: 368 F.Supp.3d 799
• Parties: GRIGGS ROAD, L.P., et al., Plaintiffs, v. SELECTIVE WAY INSURANCE COMPANY OF AMERICA, Defendant.
• Court: U.S. District Court — Middle District of Pennsylvania

368 F.Supp.3d 799

GRIGGS ROAD, L.P., et al., Plaintiffs,

v.SELECTIVE WAY INSURANCE COMPANY OF AMERICA, Defendant.

No. 4:17-CV-00214

United States District Court, M.D. Pennsylvania.

Filed February 21, 2019

Dean F. Piermattei, Jill N. Weikert, Pillar Aught LLC, Harrisburg, PA, for Plaintiffs.

James A. Doherty, Jr., Scanlon, Howley & Doherty, P.C., Scranton, PA, Michael T. McDonnell, III, Kutak Rock, LLP, Philadelphia, PA, Jennifer M. Blunt, Kutak Rock LLP, Washington, DC, for Defendant.

MEMORANDUM OPINION

Matthew W. Brann, United States District Judge

Plaintiffs Griggs Road, L.P. and Blaise Alexander ("Plaintiffs") and Defendant Selective Way Insurance Company of America ("Selective") filed cross-motions for summary judgment asking this Court to determine whether, under Plaintiffs' all-risk insurance policy, an ensuing loss clause restores coverage to Plaintiffs' claim despite a faulty workmanship exclusion. I conclude that it does, and accordingly, Plaintiffs' motion will be granted and Selective's motion will be denied.

I. BACKGROUND¹

Facts giving rise to the current insurance coverage dispute occurred during construction of Plaintiff Blaise Alexander's home. D'Alessio Inspired Architectural Designs (hereinafter, "stucco subcontractor") was hired to install stucco on the home's exterior walls and affix pre-cast concrete trim pieces to the home's soffits.

During installation, the stucco subcontractor committed certain errors that rendered the stucco installation worthless. The stucco had to be removed and reapplied. Similarly, pieces of pre-cast concrete trim had fallen from the soffits upon which they were affixed. The pre-cast trim pieces also had to be reinstalled.

The stucco subcontractor's installation also damaged the home's walls and soffits. The walls' special insulating properties were compromised and the soffits themselves had to be repaired. Plaintiffs estimate that their remediation expenses totaled approximately $ 750,000.²

Plaintiffs, who were insured by Selective under a builders' risk insurance policy, submitted a claim seeking indemnification for their remediation expenses. Selective denied coverage based on the policy's exclusion for defective workmanship and faulty materials.

Plaintiffs filed a two-count complaint against Selective in the Court of Common Pleas of Lycoming County, Pennsylvania.³ In Count I, Plaintiffs seek a declaration that their claim is covered by the policy. In Count II, Plaintiffs allege that, by failing to indemnify Plaintiffs, Selective breached the insurance contract. Selective removed the case to the United States District Court for the Middle District of Pennsylvania⁴ and filed a counterclaim seeking to clarify its rights under the insurance policy.⁵

Currently pending before the Court are Plaintiffs and Selective's cross-motions for summary judgment.⁶ Plaintiffs seek a declaration that their claim is covered, while Selective seeks a declaration that it is not. Plaintiffs also seek summary judgment as to liability on their breach of contract claim.

II. DISCUSSION

A. Standard of Review

Summary judgment is granted when "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."⁷ A dispute is "genuine if a reasonable trier-of-fact could find in favor of the non-movant," and "material if it could affect the outcome of the case."⁸ To defeat a motion for summary judgment, then, the nonmoving party must point to evidence in the record that would allow a jury to rule in that party's favor.⁹ When deciding whether to grant summary judgment, a court should draw all reasonable inferences in favor of the non-moving party.¹⁰ The same principles apply to cross-motions for summary judgment.¹¹ The court considers each motion independently and is not obligated to grant summary judgment for either party.¹²

B. Whether Plaintiffs' Claim is Covered Under the Insurance Policy

Selective insured Plaintiffs under a builder's "all-risk" policy—a type of policy that covers all perils unless a specific peril is excluded.¹³ The policy broadly provides coverage for "direct physical loss or damage" to covered property unless a cause of loss is excluded.¹⁴ One such exclusion disclaims coverage for faulty workmanship. ¹⁵

But within the faulty workmanship exclusion is an exception, one that courts commonly refer to as an "ensuing loss" provision. The ensuing loss clause restores coverage as follows: "But if loss or damage by a Covered Cause of Loss results, we will pay for the loss or damage caused by the Covered Cause of Loss."¹⁶

Selective advances a narrow interpretation of the policy's ensuing loss clause. Selective denied Plaintiffs coverage under the faulty workmanship exclusion, arguing that the exclusion bars coverage for damages to the Plaintiffs' walls and soffits because those damages were caused by the stucco subcontractor's improper stucco and pre-cast trim installation.¹⁷ According to Selective, Plaintiffs' losses are not ensuing because the "exception does not apply to losses caused by the excluded peril."¹⁸

In contrast, Plaintiffs advance a broad interpretation of the ensuing loss clause. Plaintiffs argue that the faulty workmanship exclusion only excludes coverage for costs associated with correcting the stucco coating or reinstalling the pre-cast trim pieces. Plaintiffs state that because damage to the walls and soffits constitute a direct physical loss or damage—losses covered under the all-risk nature of the policy—the ensuing loss clause restores coverage even though those damages were caused by faulty workmanship.¹⁹

The Pennsylvania Supreme Court has not yet interpreted an ensuing loss clause in an all-risk policy.²⁰ But in predicting how the commonwealth's highest court might rule when confronting this issue, Pennsylvania's canons of insurance contract interpretation favor a broader interpretation of this policy's ensuing loss provision, and a correspondingly narrow interpretation of its faulty workmanship exclusion.²¹

Principles governing this Court's interpretation of the insurance policy are well-settled. Under Pennsylvania law, policy exclusions are narrowly construed in favor of coverage.²² In other words, exclusions are "strictly construed against the insurer and in favor of the insured"²³ while coverage clauses are construed broadly "so as to afford the greatest possible protection to the insured."²⁴ And when the insurer denies coverage based on an exception or exclusion in a policy, the insurer bears the burden to establish its application.²⁵ To determine whether the insurer has met its burden, the court turns to settled principles of insurance contract interpretation.²⁶ When interpreting an insurance policy, the goal is to "ascertain the intent of the parties as manifested by the language of the written instrument."²⁷ A court must read the policy as a whole and discern the policy's intent "from consideration of the entire instrument."²⁸ If the language of the policy is clear, the court gives effect to the language's plain meaning; but if the terms are ambiguous, the terms are construed in favor of the insured "to further the contract's prime purpose of indemnification and against the insurer, as the insurer drafts the policy, and controls coverage."²⁹ Contractual language is ambiguous "if it is reasonably susceptible of different constructions and capable of being understood in more than one sense."³⁰

Here, the policy states in relevant part:

A. COVERAGE

We will pay for direct physical loss or damage to Covered Property from any of the Covered Causes of Loss.

1. COVERED PROPERTY

a. Buildings and structures while in the course of construction, erection or fabrication at the "job site", including foundations of such buildings or structures;

...

3. COVERED CAUSES OF LOSS

Covered Causes of Loss means direct physical loss or damage to Covered Property except those causes of loss or damage listed in SECTION B. EXCLUSIONS.

...

B. EXCLUSIONS.

...

3. We will not pay for loss or damage caused by or resulting from any of the following. But if loss or damage by a Covered Cause of Loss results, we will pay for the loss or damage caused by the Covered Cause of Loss.

...

c. Faulty, inadequate or defective:

...

(2) Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;³¹

Reading the faulty workmanship exclusion and the ensuing loss clause together renders the language "reasonably susceptible of different constructions and capable of being understood in more than one sense" when applied to the facts of this case.³² On the one hand, the phrase "[b]ut if loss or damage by a [non-excluded direct physical loss or damage] results" could mean that the insurer pays for certain losses even though they resulted from the faulty workmanship. This meaning is derived as follows: to avoid rendering the faulty workmanship exclusion meaningless by reading the ensuing loss clause too broadly,³³ the ensuing loss clause must, then, narrow the application of the faulty workmanship exclusion, and the faulty workmanship exclusion only excludes losses intertwined with the faulty workmanship itself. In other words, ensuing losses would therefore be all losses, except those intertwined with faulty workmanship. Applying this reading here, the faulty workmanship exclusion would exclude coverage only for costs incurred to correct faulty workmanship, such as to reapply a new stucco-like finish to the exterior of the home or reaffix pieces of pre-cast trim to the soffits. Damage to the home's walls and soffits are therefore ensuing losses, or in other words, constituted covered causes of loss. This is the interpretation proffered by Plaintiffs as they concede that they are not seeing coverage for costs incurred "to replace stucco structure or precast concrete trim."³⁴

On the other hand, the phrase "we will pay for the loss or damage caused by the [non-excluded direct physical loss or damage]" could mean that the...