Regents of Mercers. College v. Rep. Franklin Ins.
| Decision Date | 16 August 2006 |
| Docket Number | No. 04-3653.,04-3653. |
| Citation | 458 F.3d 159 |
| Parties | The REGENTS OF the MERCERSBURG COLLEGE, Appellant v. REPUBLIC FRANKLIN INSURANCE COMPANY. |
| Court | U.S. Court of Appeals — Third Circuit |
Michael R. Libor, Esquire (Argued), Christina E. Roberts, Esquire, Derek Eddy, Esquire, Morgan, Lewis & Bockius, Philadelphia, PA, for Appellant.
Steven J. Polansky, Esquire (Argued), Marshall, Dennehey, Warner, Coleman & Goggin, Cherry Hill, NJ, for Appellee.
Before BARRY and AMBRO, Circuit Judges and DEBEVOISE,* District Judge.
This is an insurance coverage dispute arising out of a lightning strike and fire that damaged Keil Hall on the campus of Mercersburg Academy. We affirm in part and reverse in part the judgment of the District Court.
I. Factual and Procedural Background
Mercersburg, the insured, is a private secondary and college preparatory boarding school located in Mercersburg, Pennsylvania. Keil Hall is a building located on the Mercersburg campus that was constructed over a century ago. It has four levels above ground and a basement containing mechanical equipment. The first floor of the building contains public spaces, including an auditorium and classrooms, while the second and third floors contain dormitory housing and common meeting areas. The fourth floor was designed and constructed for dormitory use as well, and had been used for that purpose in the past. At the time of the fire, however, that floor was used as attic and storage space, and was cordoned off from students.1
The chimney of Keil Hall was struck by lightning on June 13, 1998, igniting a fire that caused extensive damage to the roof and fourth floor of the building, as well as smoke and water damage to the first, second, and third floors. Following the fire, Mercersburg submitted a timely claim to its property insurance carrier, Republic Franklin Insurance Company, for (1) the costs to repair the actual fire damage, (2) additional costs to repair the building that were made necessary to bring the building in compliance with applicable laws and various building codes, and (3) lost business income.
Republic Franklin's primary policy only provides coverage for those repairs necessary to return the property to its pre-fire condition. Accordingly, Mercersburg purchased a separate "Ordinance and Law Endorsement" to its policy. That Endorsement provides in relevant part:
1. Coverage A—Coverage For Loss to the Undamaged Portion of the Building. If a Covered Cause of Loss occurs to covered Building property[,] ... we will pay for loss to the undamaged portion of the building caused by enforcement of any ordinance or law that: (a) requires demolition of parts of the same property not damaged by a Covered Cause of Loss; (b) regulates the construction or repair of buildings, or establishes zoning or land use requirements at the described premises; and (c) is in force at the time of loss.
...
3. Coverage C—Increased Cost of Construction Coverage. If a Covered Cause of Loss occurs to covered Building property[,] ... we will pay for the increased cost to repair, rebuild or construct the property caused by enforcement of building, zoning or land use ordinance or law. If the property is repaired or rebuilt, it must be intended for similar occupancy as the current property, unless otherwise required by zoning or land use ordinance or law.
The insurer's failure to reimburse the Academy for all of its costs incurred as a result of the fire prompted it to file a complaint in United States District Court for the Middle District of Pennsylvania alleging breach of contract and bad faith. Specifically, Mercersburg contended that the Ordinance and Law Endorsement required Republic Franklin to pay for repair and renovation costs required by the Americans with Disabilities Act (ADA), 42 U.S.C. §§ 12101-12213, the Pennsylvania Handicapped Act and Universal Accessibility Standards promulgated thereunder, 71 Pa. Cons.Stat. § 1455 et seq. (2000) & 34 Pa.Code § 60.1 et seq., as well as other Pennsylvania statutes and national building codes (including the International Mechanical Code, the Building Officials and Code Administrators International, Inc. Code, the National Electric Code, the International Plumbing Code and the standards of the American Society of Heating, Refrigerating and Air-Conditioning Engineers).
After extensive factual and expert discovery, the parties settled, resolving all disputes except those related to the Ordinance and Law Endorsement claim.2 Republic Franklin's motion for summary judgment on those claims was granted by the District Court. It held that (1) the ADA did not apply because the dormitory space in Keil Hall was not a "public accommodation" within the meaning of that statute (2) the PHA also did not apply because the costs of the fire damage did not reach the threshold cost to trigger coverage under the Act, and (3) nationally recognized standards of design and construction and Pennsylvania laws that require private schools to meet certain basic safety standards were inapplicable because the Borough of Mercersburg had not officially adopted any building code. This appeal followed.3
III. Standard of Review
Summary judgment is appropriate if there are no genuine issues of material fact presented and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). As far as the former, we resolve all factual doubts and draw all reasonable inferences in favor of the nonmoving party. Hugh v. Butler County Family YMCA, 418 F.3d 265, 267 (3d Cir.2005). "We exercise plenary review over summary judgment and we apply the same standard that the lower court should have applied." Farrell v. Planters Lifesavers Co., 206 F.3d 271, 278 (3d Cir. 2000).
The primary legal issue here is the interpretation of the scope of coverage of the Ordinance and Law Endorsement. "The interpretation of the scope of coverage of an insurance contract is a question of law properly decided by the court, a question over which [this court] exercise[s] plenary review." Med. Protective Co. v. Watkins, 198 F.3d 100, 103 (3d Cir.1999); McMillan v. State Mut. Life Assurance Co. of Am., 922 F.2d 1073, 1074 (3d Cir. 1990).
Where, as here, federal jurisdiction is based on diversity of citizenship, we apply the choice of law rules of the state in which the District Court sat. St. Paul Fire & Marine Ins. Co. v. Lewis, 935 F.2d 1428, 1431 n. 3 (3d Cir.1991) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)). As noted, this action was filed in the Middle District of Pennsylvania. Under Pennsylvania choice of law rules, an insurance contract is governed by the law of the state in which the contract was made. Crawford v. Manhattan Life Ins. Co., 208 Pa.Super. 150, 221 A.2d 877, 880 (1966); see also McMillan, 922 F.2d at 1074.4 "An insurance contract is `made' in the state in which the last act legally necessary to bring the contract into force takes place." Crawford, 221 A.2d at 880. The parties agree that the insurance contract was `made' in Pennsylvania and, consequently, Pennsylvania substantive law applies.
We now consider in turn each of the District Court's grounds for granting summary judgment in favor of Republic Franklin.
III. Merits
Mercersburg asserts that numerous accessibility upgrades made to Keil Hall were required to comply with the dictates of Title III of the ADA5 and, thus, the costs of those upgrades are covered under the Ordinance or Law Endorsement. The District Court ruled that the ADA protections afforded disabled persons do not apply to the dormitory space on the second, third and fourth floors of Keil Hall because dormitory housing is not considered "transient lodging" that is covered under the ADA. Citing 28 C.F.R. Part 36 Appendix A, Mercersburg responds that the ADA's regulations specifically include dormitories as "transient lodging," and hence the Endorsement covers the costs of accessibility modifications required by the ADA.
Under Title III of the ADA,6 it is unlawful for a public accommodation to discriminate against an individual on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations. Id. § 12182(a). "Public accommodation" is defined in terms of 12 categories,7 which the legislative history indicates "should be construed liberally" to afford people with disabilities "equal access" to the wide variety of establishments available to the nondisabled. S.Rep. No. 101-116, p. 59 (1989); H.R.Rep. No. 101-485, pt. 2, p. 100 (1990), U.S.Code Cong. & Admin. News 1990, pt. 2, at pp. 303, 382-383. The ADA obligates a "public accommodation" only with respect to a "facility" that is "used as, or designed or constructed for use as," either a place of public accommodation or a commercial facility. 28 C.F.R. § 36.102(b)(3)(i)-(ii). When a public accommodation or a part of it is altered, the Act requires that alterations be made so that "the altered portions of the facility are readily accessible to and usable by individuals with disabilities, including individuals who use wheelchairs." 42 U.S.C. § 12183(a). If an alteration
could affect usability of or access to an area of the facility containing a primary function, the entity shall also make the alterations in such a manner that, to the maximum extent feasible, the path of travel to the altered area and the bathrooms, telephones, and drinking fountains serving the altered area, are readily accessible to and usable by individuals with disabilities where such alterations ... are not disproportionate to the overall alterations in terms of cost and scope....
Given this legal landscape, our analysis of the ADA claim proceeds as a three-part inquiry: whether (1)...
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