Hartford Steam Boiler Inspection v. Int'l Glass Prods., LLC

• Decision Date: 29 September 2016
• Docket Number: 2:08cv1564
• Parties: THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY and HARTFORD CASUALTY INSURANCE COMPANY, Plaintiffs, v. INTERNATIONAL GLASS PRODUCTS, LLC, and FRANCISCO A. FERNANDEZ, Defendants.
• Court: U.S. District Court — Western District of Pennsylvania

THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANYand HARTFORD CASUALTY INSURANCE COMPANY, Plaintiffs, v. INTERNATIONAL GLASS PRODUCTS, LLC, and FRANCISCO A. FERNANDEZ, Defendants.

2:08cv1564

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA

September 29, 2016

Electronic Filing

OPINION

This is a civil declaratory judgment and damages action filed by plaintiffs, The Hartford Steam Boiler Inspection and Insurance Company ("HSB") and Hartford Casualty Insurance Company ("Hartford"), against defendants, International Glass Products, LLC ("IGP") and Francisco A. Fernandez ("Fernandez"). The dispute concerns the parties' respective rights and obligations under a business insurance policy issued by Hartford in favor of IGP. On August 30, 2007 and October 27, 2007, IGP sustained damage to certain business property for which it sought to obtain insurance proceeds under the policy at issue. During the course of the claim adjustment process, plaintiffs concluded that IGP and Fernandez had engaged in fraudulent conduct relative to IGP's claim. Consequently, on July 21, 2008, HSB sent IGP a denial letter indicating its intent to void the subject policy and reserving its right to recover payments previously made. Thereafter, plaintiffs commenced this lawsuit.

Presently pending before the court are the parties' cross-motions for summary judgment pertaining to plaintiffs' claims against IGP and IGP's counter-claims against plaintiffs. For the reasons that follow, IGP's motion for partial summary judgment as against HSB (ECF No. 211) will be granted. IGP's motion for partial summary judgment as against Hartford (ECF No. 213) will be denied. Plaintiffs' motion for summary judgment against IGP (ECF No. 207) will be granted in part and denied in part.

I. Background¹

IGP's Business

At times relevant to this lawsuit, IGP was in the business of manufacturing specialty tempered glass panels for use in ovens, ranges, cook tops, and other large kitchen appliances. (DSMF ¶1.)² It had two main production lines for its products: "Line 1," which manufactured smaller specialty tempered glass panels, and "Line 2," which manufactured larger tempered glass panels. (Id. at ¶3.) As of August 1, 2007, IGP operated out of a facility located in Ambridge, Pennsylvania. (Id. at ¶2.)

The Hartford Policy

Effective August 1, 2007, IGP held an insurance policy with Hartford (hereafter, the "Policy"), which provided first party property loss coverage for IGP's business personal property, including equipment breakdown coverage, as well as business income loss and extra expense coverage. (DSMF ¶¶ 4, 5.)³ The liability limit for business personal property was $2.6 million for any single occurrence; the limit for business income and extra expense losses was $4 million for any single occurrence. (Id. at ¶8.) The Policy expressly identified Hartford as the "Company" providing the insurance coverage to IGP. (Id. at ¶¶ 6-7.)

At issue in this case are various provisions in the Policy that bear on the parties' competing claims. In relevant part, the Policy allowed IGP to collect replacement costs following an equipment breakdown accident if replacement was required. In that event, the insurer would indemnify IGP for the amount actually spent "that is necessary to repair or replace the ... physically damaged property." (Pl.s' Ex. 1 at pp. 20-21, ECF No. 210-1.) The "Loss Payment" provision of the Policy stated that, "In the event of physical loss or physical damage covered by this policy... We will determine the value of Covered Property." (DSMF ¶39.) An endorsement entitled "PENNSYLVANIA CHANGES" added the following superseding language to the Loss Payment provision:

NOTICE OF ACCEPTANCE OR DENIAL OF CLAIM

1. Except as provided in 3. below, we will give you notice, within 15 working days after we receive a properly executed proof of loss, that we:

a. Accept your claim

b. Deny your claim; or

c. Need more time to determine whether your claim should be accepted or denied.

If we deny your claim, such notice will be in writing, and will state any policy provision, condition or exclusion used as a basis for the denial.

If we need more time to determine whether your claim should be accepted or denied, the written notice will state the reason why more time is required.

2. If we have not completed our investigation, we will notify you again in writing, within 30 days after the date of the initial notice as provided in 1.c. above, and thereafter every 45 days. The written notice will state why more time is needed to investigate your claim and when you may expect us to reach a decision on your claim.

3. The notice procedures in 1. and 2. above do not apply if we have a reasonable basis, supported by specific information, to suspect that an insured has fraudulently caused or contributed to the loss by arson or other illegal activity. Under such circumstances, we will notify you of the disposition of your claim within a period of time reasonable to allow full investigation of the claim, after we receive a properly executed proof of loss.

(DSMF ¶38.) An additional, relevant, endorsement entitled "LOSS PAYABLE PROVISIONS" provided, in part:

A. LOSS PAYABLE

For Covered Property in which both you and a Loss Payee shown in the Declarations have an insurable interest[⁴], we will:

1. Adjust losses with you; and

2. Pay any claim for loss or damage jointly to you and the Loss Payee, as interests may appear.

(DSMF ¶40.) The parties agree that, in each of these provisions, the terms "you" and "your" referred to IGP and the terms "we" and "our" referred to Hartford. (Id. at ¶¶ 6, 41.)

Also at issue in this case is a provision set forth in the "Common Policy Conditions" -- specifically, Common Policy Condition (C), which provided:

C. Concealment, Misrepresentation or Fraud

This Policy is void in any case of fraud by you as it relates to this Policy at any time. It is also void if you or any other insured, at any time, intentionally conceal or misrepresent a material fact concerning: ...4. a claim under this policy.

(Pl.s' Ex. 1, ECF No. 210-1 at p. 39 of 180.)

Hartford's Reinsurance Treaty with HSB

Prior to August 1, 2007, Hartford had entered into a separate "treaty agreement" with HSB (hereafter, the "Reinsurance Treaty" or "Treaty"), which remained in effect at all times relevant to this lawsuit. Pursuant to this Treaty, HSB reinsured the "equipment breakdown" liability of Hartford on certain covered businesses, including IGP. (DSMF ¶56.) As it pertains to this case, the Treaty provided that HSB would reimburse Hartford one-hundred percent (100%) for any payments that HSB authorized on equipment breakdown claims. (DSMF ¶64; Pl.s' Ex. 2, Reinsurance Treaty, Art. 1, ECF No. 210-3.) HSB was, in turn, reinsured under a treaty with two other reinsurers, AIG and Hanover Re. (DSMF ¶¶87, 89.) HSB's reinsurance took effect on losses that reach and/or exceed $1 million, such that AIG and Hanover Re would reimburse HSB dollar-for-dollar for loss payments made by HSB over $1million per loss, including in this case. (Id. at ¶¶ 87-89.)

Hartford's Reinsurance Treaty with HSB provided that HSB, at its expense, would "investigate, negotiate and enter into settlement agreements or defend all such claims and losses in accordance with the terms of the coverage subject to this [Treaty]," but Hartford could "participate in any such investigation, negotiation, settlement or defense" at its own expense. (Pl.s' Ex. 2, Reinsurance Treaty, Art. 9(B), ECF No. 210-3.) The Treaty further provided that, in the event that HSB settled a claim or loss arising under coverages that were subject to the Treaty,Hartford would make payment directly to the Insured, under the coverages subject to [the Reinsurance Treaty]." (Id. at Art. 9(C).)

To "facilitate the handling of claims" subject to the Reinsurance Treaty, Hartford and HSB collectively developed "Special Handling Instructions" and claim service guidelines. (Def.'s Ex. 121, ECF No. 229-121.) These guidelines emphasize that the relationship between Hartford and HSB is "one of carrier and reinsurer, with the ultimate responsibility to the customer being retained by the Hartford." (Id.) However, "[t]he expertise of HSB in equipment breakdown losses, ... by agreement, dictates [HSB's] role in the adjustment process." (Id.) The guidelines contemplated that HSB would notify Hartford's claim handler, on a monthly basis, of the amounts to be paid to Hartford's insured under the Hartford policy; however, "[u]nder no circumstances" were HSB adjusters to "engage in discussion of or make statements to the customer or agent as to the applicability of coverage under the policy or the reinsurance agreement." (Id.) Instead, "[a]ll coverage inquiries or issues [were to] be referred to The Hartford's claim handler to address with the insured." (Id.)

The August 30 and October 27, 2007 Incidents

On August 30, 2007, IGP's business sustained a physical loss and damage to its production lines and equipment after a high voltage burst of electricity surged through the circuitry of the plant, including the data highway that connected and controlled the furnaces for Lines 1 and 2. (DSMF ¶13.)

Hartford received notice of the incident the following day. (DSMF ¶12.) On September 11, 2007, Alan Mycek, a national general adjuster for Hartford, advised IGP through IGP's insurance agent, the Gleason Group, Inc., that IGP's claim had been reassigned to the Hartford Property Large Loss unit due to the size and nature of the loss. (Id. at ¶¶10, 14.) Mycek furtheradvised that one of Hartford's "most experienced Property Claim professionals," Chris Correll, would be working with IGP during the claim resolution process. (Id. at ¶14.)

Pursuant to the Reinsurance Treaty, Hartford gave HSB notice of the August 30, 2007 loss. (DSMF ¶74.) Thereafter, Hartford and HSB undertook dual investigations to determine, as between them, which entity would be responsible for IGP's loss and which entity would...