HIGH ASSOCIATES, LIMITED v. ZURICH AMERICAN INSURANCE COMPANY, 5:12-cv-05804

Plaintiffs own and develop Mill Creek Square in East Lampeter Township, PA; substantial sinkholes formed after heavy rainfall on Sep 30, 2012 affecting Basins A and B.
Zurich issued a builder’s risk Commercial Inland Marine policy for 1/1/2010–1/1/2011, reimbursing original basin reconstruction and emergency stabilization but denying redesign costs and sinkhole-fill costs.
State/local authorities required redesign of basins to include clay liners to prevent infiltration into karst formation; PADEP directed the repairs.
Policy endorsement provides Increased Costs to Repair for land-use ordinances but excludes costs to install process improvements to comply with environmental regulations (EPA/OSHA), and defines “earth movement” and “sinkhole collapse.”
Policy language contains an earth-movement exclusion and a specific sinkhole-collapse construct that excludes the cost of filling sinkholes; plaintiffs sought coverage for sinkhole-related costs and redesign costs that may be tied to environmental or land-use requirements.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether redesign costs are covered under land-use ordinance coverage.	Plaintiffs contend Township SWMO is a land-use ordinance, triggering coverage.	Zurich argues Township SWMO is an environmental regulation and is excluded.	Ambiguous; interpreted in insured's favor; some redesign costs covered.
Whether the sinkhole filling costs are covered under the policy.	Plaintiffs seek coverage for costs to fill sinkholes as part of covered damages.	Policy excludes costs to fill sinkholes despite coverage for sinkhole collapse.	Excluded; the policy unambiguously excludes filling sinkholes.

Nationwide Mut. Ins. Co. v. CPB Intern., Inc., 562 F.3d 591 (3d Cir. 2009) (interpretation of insurance contracts and ambiguity addressed on summary judgment)
Am. Auto. Ins. Co. v. Murray, 658 F.3d 311 (3d Cir. 2011) (ambiguity and contract interpretation in insurance disputes)
Madison Constr. Co. v. Harleysville Mut. Ins. Co., 557 Pa. 595, 735 A.2d 100 (Pa. 1999) (definition of ambiguity; preference to insured when language ambiguous)
401 Fourth St., Inc. v. Investors Ins. Grp., 583 Pa. 445, 789 A.2d 166 (Pa. 2005) (ambiguous terms construed in favor of insured)
Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006) (ambiguity and interpretation of contract language)
Steele v. Statesman Ins. Co., 607 A.2d 742 (Pa. 1992) (earth movement exclusion ambiguity; manmade vs natural not controlling for sinkhole costs)
Hesit Caribe Corp. v. American Home Assurance Co., 640 F.2d 479 (3d Cir. 1981) (interpretation of insurance contracts and whole-document reading)
Lucker Mfg. Inc. v. The Home Ins. Co., 23 F.3d 808 (3d Cir. 1994) (avoid torturing language to create ambiguities)