2013 U.S. Dist. LEXIS 33265
M.D. Pa.2013Background
- IUIC issued a multi-part policy to Hydro entities, with CGL, Pollution, and Professional Liability sections, effective Aug 1, 2010–Aug 1, 2011
- Underlying City of Scranton Action alleges breach of contract regarding Fabcor and Hydro grit snail equipment; Sewer Authority asserts it is intended beneficiary
- Grit Snails allegedly failed to meet contract specifications and caused costs, penalties, and operational issues for the Sewer Authority
- Policy defines an occurrence as an accident, requiring that damage be caused by an occurrence and within coverage territory; breach-of-contract allegations typically are not treated as occurrences
- Exclusion m excludes property damage to impaired property or delays in contract performance, with a carve-out for loss of use arising from sudden, accidental injury to your product/work
- Court applies Pennsylvania law due to substantial contract contacts, despite policy issued in Oregon; parties assume substantial similarity of relevant law and the contract’s Pennsylvania focus
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the City of Scranton Action's breach of contract claim constitutes an occurrence under the IUIC policy | IUIC: breach-of-contract claims generally do not constitute an occurrence | Hydro Defendants: alleged nonconformity could sound in tort under an occurrence | No occurrence; breach of contract not an occurrence under policy |
| Whether exclusion m bars coverage for impairment of property due to alleged breach of contract | Plaintiff: loss of use/impairment not triggered by sudden injury; exception unavailable | Defendants: impairment and loss of use arise from defective product/work within exclusion m | Exclusion m applies; no coverage for impairment/loss arising from contract-based defect |
| Whether Pennsylvania law governs the policy interpretation given Pennsylvania contract nexus | Policy issues with Pennsylvania contract law controls | Oregon law could apply but conflicts resolved by contacts analysis | Pennsylvania law applies due to strong contract-related contacts |
| Whether IUIC has a duty to defend in the City of Scranton Action | Duty to defend is triggered if underlying complaint could fall within policy coverage | No duty to defend where claims treated as contract-based and excluded | Plaintiff granted summary judgment; no duty to defend |
Key Cases Cited
- Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006) (limits on coverage for contract-based damages; focus on 'occurrence' vs. contract claim)
- Snyder Heating v. Pennsylvania Manufacturers’ Ass’n Ins. Co., 715 A.2d 483 (Pa. Super. Ct. 1998) (coverage for defective work depends on malfunction vs. contract breach)
- Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742 (3d Cir. 1999) (insurer duties broadened in defense depending on potential coverage in underlying complaint)
- Schuylkill Stone Corp. v. State Auto. Mut. Ins. Co., 735 F.Supp.2d 150 (D.N.J. 2010) (underlying suit can sound in tort vs. contract; distinguishs facts matching occurrence analysis)
- Griffith v. United Air Lines, Inc., 416 Pa. 1, 203 A.2d 796 (Pa. 1964) (third-party beneficiary principles in contract interpretation and insurance coverage context)
- Oak Crest Constr. Co. v. Austin Mut. Ins. Co., 329 Or. 620, 998 P.2d 1254 (Or. 2000) (coverage considerations in construction-related claims; policy language relevance)