Rosewood Cancer Care, Inc. v. Travelers Indem. Co., Civil Action No. 14-434

Decision Date28 September 2016
Docket NumberCivil Action No. 14-434
CourtU.S. District Court — Western District of Pennsylvania

CONTI, Chief District Judge

I. Introduction

This civil action arises from an insurance dispute between plaintiffs Rosewood Cancer Care, Inc. ("Rosewood") and Jefferson Radiation Oncology Center, L.P. ("Jefferson" and together with Rosewood, "plaintiffs"), and the Travelers Indemnity Company ("Travelers" or "defendant"). The dispute concerns an incident in which water from a leaking pipe allegedly caused damage to a linear accelerator that was utilized in plaintiffs' facility to provide radiation treatment to cancer patients. Plaintiffs contend that the damaged linear accelerator was subject to their insurance policy's higher limits applicable to "building" coverage, while defendant maintains that it was subject to the lower limits that applied to "business personal property." Plaintiffs further claim that defendant's conduct in the adjustment of their claim amounted to bad faith. The court has subject matter jurisdiction over these claims pursuant to 28 U.S.C. §1332.

Presently pending before the court are plaintiffs' motion for partial summary judgment (ECF No. 113) and defendant's cross-motion for summary judgment on all counts (ECF No.118). Also pending is a motion by plaintiffs to strike the affidavit of Chaz Beadling, which defendant submitted in support of its summary judgment motion (ECF No. 127). For the reasons that follow, plaintiffs' motion for partial summary judgment will be granted, defendant's motion for summary judgment will be granted in part and denied in part, and plaintiffs' motion to strike will be denied.

II. Background Facts and Procedural History1The Parties and the Facility at 521 East Bruceton Road

Jefferson operates a radiation oncology center that provides free-standing radiation therapy to cancer patients. (ECF No. 147, ¶ 37.) Since its inception in 1991, Jefferson has operated its business out of a facility located at 521 East Bruceton Road in the City of Pittsburgh, Pennsylvania. (Id. ¶¶ 36, 38.)

Jefferson was originally owned by Oncology Services Corporation ("OSC") in partnership with Jefferson Hospital. (D. Colkitt Dep. at 14:3-24, ECF No. 121-22.) In 1991, OSC acquired the property situated at 521 East Bruceton Road with the specific intent to build a facility there that would function as a radiation oncology treatment center. Id. at 12:4-13-4.) After it was built, OSC leased the facility to Jefferson, which then operated its treatment center at the facility. (Id. at 13:13-21.) In or around 2001, OSC sold the building at 521 East Bruceton Road to Mercury III, LP, the current owner. (Id. at 11:14-19.)

Rosewood was formed in 1999 by Donald Gallo ("Gallo") and Paul M. Castro, Ph.D. ("Castro") to provide management and physician services to cancer and oncology centers,particularly Jefferson. (ECF No. 147, ¶¶ 45-47.) To that end, Rosewood acquired an ownership interest in Jefferson and became its general partner in 1999. (Id. ¶¶ 41, 48.)2 Rosewood's acquisition of Jefferson did not involve a purchase of the building at 521 East Bruceton Road. (Id. ¶ 42.)

The Varian 2100c Linear Accelerator

At issue in this case is a device known as the Varian 2100c Linear Accelerator (referred to herein alternatively as the "Linac" or the "Varian Linac"). A linear accelerator is designed to generate radiation that is used to treat cancer patients. (ECF No. 114-10, ¶4.) When the facility at 521 East Bruceton Road was constructed in 1991, it was specially designed to be a radiation therapy center and to house a linac. (Id. ¶ 5.) The original model used at Jefferson's treatment facility was a Mitsubishi. (Id.; see ECF No. 147, ¶43.)

In 2008, the Mitsubishi Linac suffered a catastrophic failure and was replaced with the Varian 2100c Linac that is the subject of this litigation. (ECF No. 114-10, ¶ 8; ECF No. 147, ¶¶51-52.) Castro, a medical physicist, personally oversaw the removal of the Mitsubishi Linac and the installation of the Varian Linac, which is still currently housed at Jefferson's treatment facility in a special room known as a "vault." (ECF No. 121-10, ¶¶ 14 and 20; ECF No. 114-10, ¶¶ 6, 8.) The vault is specifically designed and constructed to shield radiation emitted by the Linac. (ECF No. 114-10, ¶6.) To that end, it contains primary shielding of approximately 5 to 6 feet of high density concrete and secondary shielding of approximately 2 to 3 feet of high-density concrete. (Id.) In addition, the door to the vault room is lined with lead in order to shield those outside the room from the radiation produced by the Linac. (Id. ¶14.)

Removal of the Mitsubishi Linac took about one week and involved a team of workers and the use of extensive equipment. (ECF No. 114-10, ¶9; ECF No. 147, ¶54.) Welding torches were used to cut the Mitsubishi Linac into many pieces so that it could be removed from the building. (ECF No. 147, ¶55.) In addition, workers used jackhammers to dislodge concrete and access the Linac's steel base frame, which had been cemented two feet below the floor's surface. (ECF No. 114-10, ¶9; ECF No. 147, ¶56.)

Installation of the Varian Linac took approximately two months and required a team of specialized workers. (ECF No. 114-10, ¶ 10; ECF No. 147, ¶64.) The Linac's steel base frame was cemented into the vault room floor using at least one foot of high-density, specially cured concrete. (ECF No. 114-10, ¶¶10, 13; ECF No. 147, ¶65.) The treatment couch, where the patient lies, and the gantry stand, which is located on the other side of the treatment room, weigh thousands of pounds; consequently, riggers and specialized equipment were used to put the treatment couch and gantry in place. (ECF No. 114-10, ¶10; ECF No. 147, ¶66.) The gantry and treatment couch are attached to the steel base frame in six places by bolts which pass through one foot or more of concrete into the base frame below the flooring. (ECF No. 114-10, ¶¶ 10, 13; ECF No. 147, ¶68.) A special high-voltage electrical line is hardwired into the Linac and runs from the machine, through the building, to the outside electric utility line. (ECF No. 114-10, ¶11; ECF No. 121-10, ¶17, ECF No. 147, ¶69.) This electrical line had to be specially approved by the electrical utility. (Id.) The Linac also utilizes two water lines that are connected to the building's internal water lines. (ECF No. 147, ¶70.) One plumbed line connects the Linac to the municipal water system, while a second plumbed line serves a closed loop cooling system. (ECF No. 114-10, ¶12.) In its present state, the Varian Linac remains plumbed, wired, andcemented into the building and cannot be removed without damaging the facility's physical plant. (Id. ¶15.)

The Policy

At times relevant to this case, plaintiffs had in place a commercial insurance policy (hereafter, the "Policy") issued by Travelers.3 (ECF No. 146, ¶¶ 1, 3.) The Policy has a limit of $559,620 for "building" coverage and a limit of $103,000 for "business personal property" coverage. (Id. at ¶¶ 4-5.)

In relevant part, the Policy provided as follows:

We will pay for direct physical loss or damage for Covered Property at the premises described in the Declarations caused by or resulting from a Covered Cause of Loss.
1. Covered Property
Covered Property, as used in this Coverage part, means the type of property described in this section, A.1., and limited in A.2., Property Not Covered, if a Limit of Insurance is shown in the Declarations for that type of property.
a. Building, meaning the building or structure described in the Declarations, including:
(1) Completed additions;
(2) Fixtures, including outdoor fixtures;
(3) Machinery and equipment permanently attached to the building or structure;
(4) Personal property owned by you that is used to maintain or service the building or structure or its premises, including:
(a) Fire extinguishing equipment;
(b) Outdoor furniture;
(c) Floor coverings;
(d) Lobby and hallway furnishings owned by you;
(e) Appliances used for refrigerating, ventilating, cooking, dishwashing or laundering (not used for restaurant operations);
(f) Lawn maintenance and snow removal equipment; and
(g) Alarm systems
(5) If not covered by other insurance:
(a) Alterations and repairs to the building or structure; and
(b) Materials, equipment, supplies, and temporary structures, on or within 1,000 feet of the described premises, used for making alterations or repairs to the building or structure.
b. Your Business Personal Property located in or on the building described in the Declarations or in the open (or in a vehicle) within 1,000 feet of the described premises, consisting of the following...
(1) Furniture and fixtures;
(2) Machinery and equipment;
(3) "Stock";
(4) All other personal property owned by you and used in your business;
(5) Labor, materials or services furnished or arranged by you on personal property of others;
(6) Your use interest as tenant in improvements and betterments. Improvements and betterments are fixtures, alterations, installations or additions:
(a) Made a part of the building or structure you occupy or lease, but do not own; and
(b) You acquired or made at your expense but are not permitted to remove;
(7) Leased personal property for which you have a contractual responsibility to insure, unless coverage is otherwise provided for under Personal Property of Others.

***(Compl. Ex. A, ECF No. 114-1, at 20-21; bold in the original; ellipses added.)

The Loss Incident and Adjustment of Plaintiffs' Claim

In early January 2014, Jefferson's treatment facility sustained water damage after a water pipe burst. (ECF No. 147, ¶82.) Plaintiffs maintain that the water infiltration caused damage to the Varian Linac. (Id. ¶83.) On January 15, 2014, plaintiffs gave notice of its losses to Travelers. (Id. ¶84.) The claim was assigned to JeVarn...

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