Kvaerner Metals v. Commercial Union Ins.

Decision Date16 April 2003
Citation2003 Pa. Super. 149,825 A.2d 641
PartiesKVAERNER METALS DIVISION OF KVAERNER U.S., INC. f/k/a Kvaerner Davy Division of Kvaerner U.S. Inc. f/k/a Davy International, a Division of Trafalgar House, Inc. and Kvaerner Songer, Inc., f/k/a Kvaerner Davy Songer, Inc. f/k/a Kvaerner Davy Songer, Inc. f/k/a Davy Songer, Inc., Together a Joint Venture; Kvaerner Metals Division of Kvaerner U.S., Inc. f/k/a Kvaerner Davy Division of Kvaerner U.S., Inc. f/k/a Davy International, a Division of Trafalgar House, Inc., Kvaerner Songer, Inc., f/k/a Kvaerner Davy Songer, Inc. f/k/a Davy Songer, Inc.; Kvaerner Public Liability Company f/k/a Trafalgar House Public Liability Company; and Kvaerner ASA, Appellants, v. COMMERCIAL UNION INSURANCE COMPANY; Lexington Insurance Company; National Union Fire Insurance Company of Pittsburgh, PA; Bethlehem Steel Corporation; Thyssen Still Otto Anlagentechnick GMBH, Successor-In-Interest to Still Otto, GMBH, Appellee.
CourtPennsylvania Superior Court

Joseph L. Luciana, Pittsburgh, for appellants.

Michael J. Cawley, Philadelphia, for National Union, appellee.

BEFORE: McEWEN, P.J.E., LALLY-GREEN, and BENDER, JJ.

OPINION BY McEWEN, P.J.E.:

¶ 1 These appeals have been taken by Kvaerner Metals Division of Kvaerner, U.S., Kvaerner Songer, Inc., Kvaerner Public Liability Company and Kvaerner, ASA, and certain related companies (hereinafter "Kvaerner"), from the order which granted summary judgment in favor of appellee National Union Insurance Company of Pittsburgh, PA, (hereinafter "National Union"), in this declaratory judgment action instituted to resolve coverage issues arising out of two commercial general liability insurance policies issued to Kvaerner by National Union. We are constrained to reverse and remand.

¶ 2 Kvaerner filed this declaratory judgment action in the Court of Common Pleas of Northampton County as a result of a claim against Kvaerner made by Bethlehem Steel seeking reimbursement for damages allegedly sustained by a coke battery, known as the Burns Harbor No. 2 Coke Oven Battery, built for Bethlehem Steel by Kvaerner. Commercial Insurance Company, Lexington Insurance Company,1 and National Union Fire Insurance Company of Pittsburgh, PA, had each issued policies to Kvaerner under which Kvaerner sought coverage for the claims asserted against it by Bethlehem Steel.

¶ 3 Bethlehem had filed suit in the Court of Common Pleas of Northampton County against Kvaerner, and its subcontractor, Thyssen Still Otto Anlagentechnick (hereinafter "TSOA"), to recover damages for injuries allegedly sustained by Bethlehem's Burns Harbor No. 2 Coke Oven Battery which had been the subject of a design build contract which Kvaerner had entered into with Bethlehem Steel.2

¶ 4 The parties are in agreement that Kvaerner entered into a subcontract with Thyssen Still Otto Anlagentechnick (hereinafter "TSOA") which provided for TSOA to provide the design and engineering of the battery and to supervise the initial heat-up of the coke oven.

¶ 5 National Union, which had issued two very similar commercial general liability (hereinafter "CGL") insurance policies to Kvaerner covering the time periods and contract at issue, filed a motion for summary judgment arguing that the claims asserted against Kvaerner by Bethlehem Steel were purely contractual claims that were not within the coverages afforded to Kvaerner by the CGL policies. Kvaerner filed a cross-motion for summary judgment claiming it was entitled to both a defense and indemnity in the Bethlehem action. The trial court entered summary judgment in favor of National Union, based upon its conclusion that the claims asserted against Kvaerner by Bethlehem Steel were not within the coverages afforded by the CGL policies because there had been no "occurrence" as required under the policies to invoke coverage, but rather only a failure to perform pursuant to contractual requirements. Thus, the trial court did not reach the issue of the applicability of certain exclusions also relied upon by National Union.

¶ 6 Kvaerner contends the trial court erred when it entered summary judgment in favor of National Union based on the conclusion of the court (1) that the policy requirement of an "occurrence" had not been met, and (2) that Kvaerner was improperly seeking coverage for a dispute arising out of the failure to properly perform according to the terms of its contract with Bethlehem. The trial court relied upon Redevelopment Authority of Cambria County v. International Insurance Co., et al., 454 Pa.Super. 374, 685 A.2d 581 (1996) (en banc)

, appeal denied, 548 Pa. 649, 695 A.2d 787 (1997), in concluding that there had been no occurrence and that Bethlehem's claim arose solely out of a failure to perform according to contractual requirements. As we find that the trial court erred when it concluded as a matter of law that there had been no "occurrence" triggering coverage under the policies, we are constrained to reverse and remand.

¶ 7 We must be mindful as we resolve this coverage dispute that:

The standards to be applied in reviewing coverage questions arising under insurance contracts are well settled. "The proper focus regarding issues of coverage under insurance contracts is the reasonable expectation of the insured. In determining the reasonable expectations of the insured, courts must examine the totality of the insurance transaction involved." Hertz Corporation v. Smith, [441 Pa.Super. 575] at 578, 657 A.2d [1316] at 1317 (1995) (citations omitted). Accord: Britamco Underwriters, Inc. v. Weiner, 431 Pa.Super. 276, 636 A.2d 649 (1994),

allo. [sic] denied, 540 Pa. 575, 655 A.2d 508 (1994); Dibble v. Security of America Life Ins. Co., 404 Pa.Super. 205, 210, 590 A.2d 352, 354 (1991). While a determination as to the reasonable expectations of the insured must be based upon the totality of the insurance transaction involved, an insured may not complain that his or her reasonable expectations were frustrated by policy limitations which are clear and unambiguous. Bateman v. Motorists Mutual Ins. Co., 527 Pa. 241, 244-246, 590 A.2d 281, 283 (1991); St. Paul Mercury Insurance Co. v. Corbett, 428 Pa.Super. 54, 58-60, 630 A.2d 28, 30 (1993). However, where a provision of an insurance policy is ambiguous, the provision is to be construed in favor of the insured and against the insurer. Britamco Underwriters, Inc. v. Weiner, supra; Bateman v. Motorists Mut. Ins. Co., supra at 244-246, 590 A.2d at 283; Madison Construction Co. v. The Harleysville Mutual Insurance Co., [451 Pa.Super.] at 142, 678 A.2d at 805.

Redevelopment Authority of Cambria County v. International Insurance Co., supra, 685 A.2d at 588

.

¶ 8 The policies at issue, National Union's Policy No. RMGLCM XXX-XX-XX with a policy period of September 30, 1995, to September 30, 1996, (hereinafter "1996 CGL policy") and policy No. RMGL143-84-29 RA with a policy period of March 27, 1997, to December 31, 1997 (hereinafter "1997 CGL policy"),3 were issued with specific reference to the Bethlehem project, and will be treated as a single policy for purposes of this appeal. The following citations, however, refer to the 1997 CGL policy.

¶ 9 Coverage A provided liability coverage for bodily injury and property damage caused by an "occurrence" as follows:

COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement.
* * * *
b. This insurance applies to "bodily injury" and "property damage" only if:

(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory;"

An "occurrence" is defined by the policy as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."

¶ 10 This broad coverage was limited by the following exclusions set forth in the policy and specifically relied upon by appellee National Union in its motion for summary judgment:

2. Exclusions

This insurance does not apply to:

* * * *
j. Damage to Property
* * * *

(6) That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.

* * * *

Paragraph (6) of this exclusion does not apply to "property damage" included in the "products-completed operations hazard."
k. Damage to Your Product
"Property damage" to "your product" arising out of it or any part of it.
1. Damage to Your Work
"Property damage" to "your work" arising out of it or any part of it and included in the "products-completed operations hazard." (emphasis supplied)

m. Damage to Impaired Property or Property Not Physically Injured

"Property damage" to "impaired property" or property that has not been physically injured, arising out of:

(1) A defect, deficiency, inadequacy or dangerous condition in "your product" or "your work," or

(2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms.

This exclusion does not apply to the loss of use of other property arising out of sudden and accidental physical injury to "your product" or "your work" after it has been put to its intended use. (emphasis supplied)

¶11 Although not set forth in the body of appellee National Union's motion for summary judgment, the policies issued to Kvaerner further provided:

14. "Products-completed operations hazard"

a. Includes all "bodily injury" and "property damage" occurring away from premises you own or rent and arising out of "your product" or "your work" except

(1) Products that are still in your physical possession; or

(2) Work that has not yet been completed or abandoned. However, "your work" will be deemed completed at the earliest of the following times:

(a) When all of the work called for in your contract has been completed.
(b) When all of the work to be done at the site has been completed if your contract calls for work at more than one site.
(c) When
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