Peerless Ins. Co. v. Brooks Systems Corp.
| Decision Date | 27 March 2008 |
| Docket Number | Civil Action No. 06-CV-03653. |
| Citation | 617 F.Supp.2d 348 |
| Parties | PEERLESS INSURANCE COMPANY, Plaintiff v. BROOKS SYSTEMS CORPORATION, Defendant. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Chester F. Darlington, Philadelphia, PA, for Plaintiff.
Mark S. Sigmon, Bethlehem, PA, for Defendant.
This matter is before the court on Plaintiff Peerless Insurance Company's Motion for Summary Judgment, which motion was filed June 1, 2007. Defendant's Answer in Opposition to the Plaintiffs Motion for Summary Judgment was filed June 26, 2007. For the reasons expressed below, I grant plaintiff's motion for summary judgment.
Specifically, I conclude that plaintiff Peerless Insurance Company does not owe defendant Brooks Systems Corporation any duty to defend or indemnify under either the commercial general liability or umbrella insurance policies issued by plaintiff to defendant. Accordingly, I enter judgment in favor of plaintiff Peerless Insurance Company and against defendant Brooks Systems Corporation on Counts I and III of plaintiffs Second Amended Complaint for Declaratory Judgment.
Furthermore, I declare that plaintiff has no duty to defend or indemnify defendant Brooks Systems Corporation for claims brought in the underlying action of Ash Grove Cement Company v. Brooks Systems Corporation, No. 04-719, County of Baker, Circuit Court of the State of Oregon. Finally, because I have entered declaratory judgment of Counts I and III, I dismiss Counts II, IV, V and VI of plaintiffs Second Amended Complaint for Declaratory Judgment as moot.
This action is before the court on diversity jurisdiction. Plaintiff Peerless Insurance Company is an insurance company licensed to issue insurance policies in the Commonwealth of Pennsylvania and is incorporated under the laws of the State of New Hampshire. Defendant Brooks Systems Corporation is a Pennsylvania corporation with a principal place of business in Nazareth, Northampton County, Pennsylvania. The amount in controversy is in excess of $75,000. See 28 U.S.C. § 1332.
Venue is proper because plaintiff alleges that defendant resides in, and a substantial part of the events or omissions giving rise to the cause of action occurred in, Northampton County, Pennsylvania, which is in this judicial district. 28 U.S.C. §§ 118, 1391.
This matter is before the court on the Second Amended Complaint for Declaratory Judgment filed July 6, 2007 by plaintiff Peerless Insurance Company ("Peerless"). Plaintiff seeks an Order declaring that it does not have a duty to defend or indemnify defendant Brooks Systems Corporation for claims brought in the underlying action of Ash Grove Cement Company v. Brooks Systems Corporation, No. 04-719, County of Baker, Circuit Court of the State of Oregon.
Plaintiff seeks declaratory judgment on both its primary policy of insurance (policy number CBP9589877) ("primary policy") and its umbrella policy (policy number CU9581082) ("umbrella policy") and the renewal of these policies from May 26, 2002 until May 27, 2007. On July 10, 2007 Defendant's Answer to Plaintiffs Second Amended Complaint was filed.
On July 18, 2007 oral argument was conducted on plaintiffs motion for summary judgment. At the conclusion of oral argument I took this matter under advisement. Hence, this Memorandum.
Plaintiffs Second Amended Complaint for Declaratory Judgment contains six counts for declaratory judgment based upon numerous policy provisions and exclusions contained in both the primary and umbrella policies, similar to the claims contained, in plaintiffs original and first amended complaints.
In Count I plaintiff avers that the allegations contained in the underlying Ash Grove Complaint do not fall within plaintiff's primary policy.
Count II alleges that there are applicable exclusions contained in the primary policy.
In Count III plaintiff contends that the allegations contained in the underlying Ash Grove Complaint do not fall within plaintiffs umbrella policy.
Count IV alleges that there are applicable exclusions contained in the umbrella policy.
Count V, under Pennsylvania law, asserts that the known-loss doctrine prohibits obtaining insurance for a loss that either has already taken place or is in progress at the time insurance coverage was obtained.
Finally, in Count VI, plaintiff avers that both its primary and umbrella policies require defendant as soon as practicable to notify plaintiff of an occurrence or offense that may result in a claim. Plaintiff further avers that defendant failed to comply with this duty, and that plaintiff has been prejudiced by defendant's failure to notify plaintiff about the loss in this case. As a result plaintiff seeks a judgment declaring that plaintiff has no obligation to defend or indemnify defendant's potential losses regarding the underlying Ash Grove litigation.
At this time, plaintiff seeks summary judgment on Counts I through IV only.1
On December 10, 2004 Ash Grove Cement Company filed a lawsuit against Brooks Systems Corporation in the Circuit Court of the State of Oregon. On August 16, 2006 Ash Grove filed a Second Amended Complaint which is now the operative pleading in that action.
The Second Amended Complaint alleges that in January 2000 Ash Grove and Brooks Systems entered into an agreement under which Brooks Systems agreed to design and construct material crushing, screening and handling structures and equipment at Ash Grove's quarry and cement plant in Durkee, Oregon. After beginning to use the structure and equipment designed and constructed by Brooks Systems, Ash Grove alleges that it discovered defects in certain portions of the equipment.
Ash Grove contends that because of the defects, certain parts of the equipment became severely distressed, and Ash Grove was unable to use it as designed and required. Ash Grove avers that it has incurred or will incur costs in excess of $4,000,000 to repair, replace or relocate the equipment.
The first claim for relief in the Second Amended Complaint is for "Breach of Professional Services Contract". In that count, Ash Grove alleges that Brooks Systems breached the contract between the parties.
The second claim for relief is for "Breach of Warranty". In that cause of action, Ash Grove alleges that Brooks Systems provided certain express warranties in the contract and that defects in the equipment breached the express warranties set forth in the contract.
Finally, the third claim for relief alleges "Professional Negligence". In that claim, Ash Grove alleges that Brooks Systems was obligated to perform its design-build services with reasonable care and that the design-build services were defective, deficient and negligent in one or more ways.
Based upon the pleadings, record papers and exhibits, and the agreements of counsel at oral argument, the pertinent facts of the underlying loss in the Ash Grove case are as follows.
Initially, Brooks Systems never tendered a defense of the Ash Grove case to defendant. When Brooks Systems received the Ash Grove Complaint, it tendered defense of the action to One Beacon Insurance Company, the commercial general liability insurer whose policy was in effect immediately prior to the Peerless policies.
This prior insurance was in effect when the property damage to the equipment first manifested itself. One Beacon retained defense counsel for Brooks Systems and continues to defend the Ash Grove action through the filing of the within motion for summary judgment. It was One Beacon that placed Peerless on notice of the Ash Grove case. Peerless then brought the within action for declaratory judgment.
As early as February 2001, Ash Grove had formally put Brooks Systems on notice of problems with the mining equipment. Significantly, on February 8, 2001, Paul Reimer, an engineer from the Allentown, Pennsylvania civil engineering firm Reimer Associates, Inc., wrote to Ash Grove Cement Company confirming his retention by Brooks Systems to investigate problems and settling associated with "Reclaim Tunnel 282.TN2".2
In the February 8th letter, Mr. Reimer confirmed that there would be a site inspection at the quarry on February 19, 2001 to review the structures provided by Brooks Systems. Mr. Reimer confirmed that there had been a production problem with the "fines hopper", as two rock shelves did not go through the hopper quickly enough.
On March 5, 2001, Mr. Reimer issued a report to Brooks Systems regarding his inspection which occurred on February 20 and 21, 2001. Mr. Reimer concluded that the fines hopper failed when the hopper filled with material sagged onto the conveyer belt.3
On February 22, 2001, Brooks Systems' home office in Nazareth, Pennsylvania faxed to Brooks Systems representative Bryan Brooks in Oregon a 16-page facsimile regarding settling and foundations.4 The facsimile contained a textbook or hornbook excerpt on these issues.
Around this time, another engineering firm inspected the quarry. On March 7, 2001, Kleinfelder Engineers issued a report to Brooks Systems.5 With the permission of Brooks Systems, Kleinfelder inspected the quarry on March 1, 2001. The purpose of Kleinfelder's involvement was memorialized in the first paragraph of the March 7, 2001 report:
Kleinfelder is pleased to submit our conclusions and recommendations concerning the distress associated with the Reclaim Tunnel 282.TN2 at the Ash Grove Cement facility in Durkee, Oregon. The purpose of this preliminary investigation was to observe site conditions and develop preliminary recommendations to mitigate lateral displacement and settlement of the top of the tunnel. We received your written authorization for our limited investigation on 1 March 2001.
In the March 7, 2001 report, Mr. Kleinfelder noted the following history of the problem:
During the stockpiling of mine limestone material the...
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