3:05-cv-00282 | D. Conn. | May 2, 2006
Case 3:05-cv-00282-MRK Document 65 Filed 05/02/06 Page 1 of 38
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
CELEBRATE WINDSOR, INC., d/b/a :
SUMMERWIND PERFORMING ARTS :
CENTER, : NO. 3:05CV282 (MRK)
:
Plaintiff, :
:
v. :
:
HARLEYSVILLE WORCESTER :
INSURANCE COMPANY, :
:
Defendant. :
MEMORANDUM OF DECISION
In this diversity action, Plaintiff Celebrate Windsor, Inc., d/b/a SummerWind Performing
Arts Center ("SummerWind"), a non-profit community arts organization based in Windsor,
Connecticut, sues its insurer, Defendant Harleysville Worcester Insurance Company ("Harleysville"),
to recover under a commercial property insurance policy issued by Harleysville. SummerWind
made a claim on its insurance policy because in February, 2003, a substantial portion of the canopy
covering SummerWind's unique tent-like performing arts center developed tears and collapsed under
the weight of accumulated ice and snow. While there continues to be some question regarding the
precise cause of the damage to SummerWind's facility, there is no question in this case that the
damage is covered under the Harleysville policy. Instead, this dispute involves the amount that
SummerWind is entitled to recover under the policy for its loss. In addition, SummerWind asserts
that the manner in which Harleysville handled SummerWind's claim breached its implied covenant
of good faith and fair dealing. The Court held a bench trial on SummerWind's claims on January 17-
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19, 23 and 24, 2006 and heard final arguments on February 14, 2006.1 In accordance with Rule 52
of the Federal Rules of Civil Procedure, the Court makes the following findings of fact and
conclusions of law.
I.
SummerWind's Performing Arts Center. SummerWind was founded in March 2001
primarily to provide summer concerts and other cultural events in a relaxed, family-oriented setting
at its performing arts center in rural Windsor, Connecticut. Before constructing the performing arts
center in 2002, the Board of Directors of SummerWind considered many types of structures.
Ultimately, the Board selected a design by Birdair, Inc., that utilizes a 17,500 square foot canopy
reminiscent of a circus tent that is supported by long poles (or masts) and is open on all sides. The
canopy, a tensile strength, custom-manufactured membrane using a Kevlar fabric that is proprietary
to Birdair, affords protection from the rain and sun for performers and provides cover for
approximately 1500 seats. In good weather, an additional 2500 patrons can stretch out under the sun
or the summer stars on a lawn that slopes gently upward from the canopy area forming an
amphitheater of sorts.
Birdair completed the design, manufacture, construction, and installation of the canopy
structure in June 2002. Originally, the canopy was designed to be 70 feet in height, but the height
of the structure had to be reduced because of objections from the owner of the property on which the
1
In addition to their Joint Trial Memorandum [doc. # 38], which contained detailed
proposed findings of fact and conclusions of law, the parties were permitted to file several
supplemental briefs. See Harleysville's Bench Memo Re: Scope of Replacement Compensable
Under Policy [doc. # 51]; SummerWind's Post-Trial Memorandum [doc. # 59]; Harleysville's Post-
Trial Brief [doc. # 60]; SummerWind's Supplemental Post-Trial Memorandum [doc. # 63] and
Harleysville's Post-Trial Brief Re. Consequential Damages [doc. # 64].
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performing arts center is situated. Consequently, Birdair lowered the masts and flattened out the
membrane to a maximum height of about 40 feet. The membrane is stretched taut and held in place
by its own tension, by numerous masts, anchors, plates and steel cables, and by substantial
underground concrete footings that act as huge (about half a million pounds each) counterweights.
Despite the lowering of the canopy, the newly constructed performing arts center was large,
imposing, and impressive, and the canopy quickly became SummerWind's signature or symbol,
widely used in all of its brochures and advertisements.
The original contract price for the Birdair canopy structure was $679,255. Defendant's
Exhibit 520. That price included engineering, design, steelwork, cables, masts and the membrane
itself, but it did not include concrete and other foundation and site work. The total cost of
SummerWind's performing arts center was approximately $1.2 million, $350,000 of which came
from the Town of Windsor, $350,000 from the State and the balance from loans, grants, and fund-
raising. However, because the project came in over budget, SummerWind did not have sufficient
funds to pay Birdair all that it was due. Therefore, SummerWind owed Birdair about $250,000
following completion of the arts center. SummerWind took the position that it was not responsible
for some or all of that amount because Birdair was the cause of the cost overruns.
Summer 2002 was SummerWind's first season. The season began in the third week of June
and ended the first week in September. A combination of regional and national talent appeared at
various concerts during the summer. Audiences and the musicians appeared to like the site, and the
acoustics and canopy worked well. SummerWind considered its first season an artistic success,
though it was not a financial success. As then-Executive Director Steven McKay testified,
SummerWind's first season was an "artistic sensation [but] a financial flop." Ticket sales were
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below expectations, and SummerWind lost approximately $300,000, though first season losses are
not atypical of start-up arts organizations. Defendant's Exhibit 501. SummerWind's Board and staff
spent the fall of 2002 attending to finances (it was in default under one of its lines of credit and was,
by all accounts, in a difficult financial condition), planning for the summer 2003 season, pursuing
sponsors, and revamping the talent mix it expected to use the following summer. By February of
2003, SummerWind had already booked most of the talent for the 2003 season.
SummerWind's canopy was intended to be a permanent structure so the membrane was not
taken down for the winter. On February 18, 2003, John Berkey, then SummerWind's Development
Director and later its Executive Director, visited the site to take some photographs of the canopy in
winter for promotional brochures. Connecticut had recently been the recipient of approximately 15
inches of snow, and Mr. Berkey expected to capture the canopy – SummerWind's symbol – in the
snow. To his dismay, he discovered that the canopy membrane was severely torn, that it had lost
tension and collapsed in places, and that numerous brackets and plates had buckled, although all of
the masts were still standing. The canopy consists of two large pieces of fabric that have a welded
seam. Mr. Berkey's photographs from February 18, 2003, which were admitted as evidence, show
that the rear portion of the canopy – that which covers the stage and is furthest from the lawn –– had
ripped, separated along the seam from the other portion of the canopy, and collapsed, while the front
section of the canopy – that which covers patrons and is closest to the lawn – was not ripped and was
still supported on its masts. SummerWind immediately notified Harleysville and Birdair of the
damage.
The Harleysville Insurance Policy. Douglas Kerr, an experienced insurance agent, was
a member of SummerWind's Board from its inception and was SummerWind's Treasurer through
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the fall of 2004. Designated by the Board to deal with SummerWind's insurance needs and to obtain
necessary insurance coverage, Mr. Kerr arranged to obtain a commercial property insurance policy
from Harleysville. The policy included Building Property Coverage of $800,000, Personal Property
Coverage of $150,000, and Extra Expense Coverage of $100,000. SummerWind decided not to
purchase business interruption coverage, but it did purchase optional replacement cost coverage.
The policy, which has a $5,000 deductible, is an all-risk policy that insured SummerWind's
performance structure subject to the terms and conditions of the policy. The policy term was from
June 21, 2002 through June 21, 2003, and SummerWind duly paid the $4,400 premium to
Harleysville.
The policy was included as part of Plaintiff's Exhibit 1. A number of its provisions are
relevant to the current dispute and to an understanding of the manner in which both parties
responded to SummerWind's loss. The Building and Personal Property policy provides that
Harleysville will "pay for direct physical loss of or damage to" property covered by the policy in the
event of a covered loss. Plaintiff's Exhibit 1, Building and Personal Property Coverage Form, at 1.
The "Loss Payment" portion of the policy form provides that in the event of a covered loss,
Harleysville "will either: (1) Pay the value of the lost or damaged property; (2) Pay the cost of
repairing or replacing the lost or damaged property subject to b. below; (3) Take all or any part of
the property at an agreed or appraised value; or (4) Repair, rebuild or replace the property with other
property of like kind and quality, subject to b. below. Id. at 8. However, the Building and Personal
Property Coverage is subject to a key limitation, specified in the above-referenced subsection "b":
"The cost to repair, rebuild or replace does not include the increased cost attributable to enforcement
of any ordinance or law regulating the construction, use or repair of any property." Id. at 9.
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SummerWind also purchased Optional Replacement Cost Coverage. This coverage is also
limited in a critical fashion, providing that Harleysville will not pay on a replacement cost basis for
any loss or damage "(1) [u]ntil the lost or damaged property is actually repaired or replaced; and (2)
[u]nless the repairs or replacement are made a soon as reasonably possible after the loss or damage."
Id. at 12-13. The provision also goes on to state:
[Harleysville] will not pay more for loss or damage on a replacement cost basis than
the least of (1), (2) or (3), subject to f. below:
(1) the Limit of Insurance applicable to the lost or damage property
(2) The cost to replace the lost or damaged property with other property:
(a) Of comparable material and quality; and
(b) Used for the same purpose; or
(3) The amount actually spent that is necessary to repair or replace the lost or
damaged property.
Id. Like subsection b of the Building and Personal Property Coverage, subsection f of the Optional
Replacement Coverage provides: "The cost of repair or replacement does not include the increased
cost attributable to enforcement of any ordinance or law regulating the construction, use or repair
of any property." Id.
Purchasers of Replacement Cost Coverage, like SummerWind, also benefit from provisions
of the policy providing "Additional Coverage." The Additional Coverage, which is described in the
policy form under the heading "Increased Cost of Construction," states that Harleysville "will pay
the increased costs incurred to comply with enforcement of an ordinance or law in the course of
repair, rebuilding or replacement of damaged parts of the property," subject to a number of
limitations. Id. at 4. As is relevant here, the Additional Coverage provides that Harleysville "will
not pay any costs due to an ordinance or law that: (a) You were required to comply with before the
loss, even when the building was undamaged; and (b) You failed to comply with." Id. Furthermore,
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"the most [Harleysville] will pay under this Additional Coverage for each described building insured
. . . is $10,000 or 5% of the Limit of Insurance applicable to the building, whichever is less." Since
5% of the limit of insurance SummerWind purchased ($800,000) is $40,000, SummerWind's
Additional Coverage for the increased costs of complying with ordinances, even when applicable,
was limited to $10,000. The Additional Coverage also provided that Harleysville would not pay for
the increased cost of construction until the property was actually repaired or replaced and only so
long as repairs or replacement are made "as soon as reasonably possible after the loss or damage, not
to exceed two years." Id. at 5.
SummerWind also purchased $100,000 of Extra Expense Coverage, which provides for
necessary expenses incurred "during the 'period of restoration' that you would not have incurred if
there had been no direct physical loss or damage," in order "a. To avoid or minimize the 'suspension'
of business and to continue 'operations,' " "[t]o minimize the 'suspension' of business if you cannot
continue 'operations;' or . . . [t]o repair or replace any property." Extra Expense Coverage Form, at
1. The "period of restoration" begins on the date that the damage is incurred and ends on the earlier
of "(1) [t]he date when the property at the described premises should be repaired, rebuilt or replaced
with reasonable speed and similar quality; or (2) [t]he date when business is resumed at a new
permanent location." Furthermore, the restoration period "does not include any increased period
required due to the enforcement of any ordinance or law that . . . [r]egulates the construction, use or
repair, or requires the tearing down of any property . . . ." Id. at 3.
Further limitations on coverage are set out in the Causes of Loss – Special Form, which states
that, regardless of any other cause or event that contributes to the loss, Harleysville will not pay for
loss or damage caused directly or indirectly by the "enforcement of any ordinance or law: . . .
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[r]egulating the construction, use or repair of any property." Causes of Loss – Special Form, at 1.
This exclusion applies regardless whether increased costs result from compliance with an ordinance
or law "in the course of construction, repair, renovation, remodeling or demolition of property." Id.
Harleysville is also excused from paying for loss or damage attributable to "[f]aulty, inadequate or
defective: . . . [d]esign, specifications, workmanship, repair, construction, renovation, remodeling,
grading, compaction . . . [or] [m]aterials used in repair, construction, renovation or remodeling." Id.
at 3.
Having recited the major provisions of the coverage and its limitations, the Court notes that
the Building and Personal Property Form also provides a method for resolving disputes about
coverage without resorting to the courts. In a Section entitled "Loss Payment," the Building and
Personal Property Form provides that Harleysville will pay for covered loss or damage within 30
days of receiving a sworn proof of loss, and provided that "[w]e have reached agreement with you
on the amount of loss" or an "appraisal award has been made." Id. at 9. The appraisal referred to is
described in the "Loss Condition" section of the Building and Personal Property Form, and states that
if Harleysville and its insured "disagree on the value of the property or the amount of loss, either may
make written demand for an appraisal of the loss." Id. at 8. The appraisal mechanism calls for each
party to select one appraiser and for the two party-selected appraisers to choose an umpire. A
decision agreed to by any two of the appraisers is binding on the parties, though Harleysville retains
the right to deny the claim entirely. Id. The Extra Expense Coverage contains a similar appraisal
provision.
The Immediate Aftermath of the Canopy Collapse. Paul Corrado, a claims adjuster,
was originally assigned to handle SummerWind's claim for Harleysville, while Douglas Kerr and
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Steven McKay worked on the claim for SummerWind. Mr. Corrado acknowledged receipt of
SummerWind's claim on February 19, 2003. Plaintiff's Exhibit 5.
The communications between SummerWind and Harleysville are set forth in detail in
Harleysville's adjuster log, which was marked as Plaintiff's Exhibit 4. The log shows that both Mr.
Corrado and SummerWind's representatives promptly contacted Birdair to determine whether Birdair
would repair the collapsed portion of the canopy under the three-year warranty that Birdair had
provided SummerWind upon completion of the performing arts center. According to SummerWind,
Birdair had represented to SummerWind that the canopy should last 30 years.
On March 5, 2003, Mr. Corrado spoke with Tom Wuerch of Birdair, who said that Birdair
did not consider the damage to be a warranty item since Birdair believed the damage to be weather
related. On March 10, Mr. Wuerch sent a letter to SummerWind reciting Birdair's position that it
did not believe its warranty covered the damage to the canopy and further stating that, at Mr.
Corrado's request, Birdair was preparing a cost estimate to repair the canopy. At this time,
SummerWind still owed Birdair approximately $250,000, and Mr. Wuerch stated in his letter that
the Birdair debt would have to be resolved "before Birdair will return to the facility." Plaintiff's
Exhibit 10. Given SummerWind's financial condition at that time, SummerWind could not have
come up with the money to pay off the Birdair debt.
In early March 2003, Mr. Corrado decided to bring in an independent adjuster, Del Cade,
to work on this loss. At about that same point, Cheryl McLaughlin took over responsibility for
SummerWind's claim at Harleysville. On March 14, Steve Dupre, Chief Building Inspector for the
Town of Windsor, issued a letter to the owner of the SummerWind site, stating that "due to
wind/storm damage, the SummerWind Amphitheater tent structure has become damaged to the
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extent that it has become unsafe. This structure must be repaired or removed" within 30 days.
Plaintiff's Exhibit 9.
On the same day, Birdair sent Harleysville an estimate to fabricate and install a replacement
tensioned membrane assembly for the damaged portion of SummerWind's canopy. Plaintiff's Exhibit
11. The price of the Birdair proposal was $250,000, though Birdair reserved its right to seek
additional compensation in the event further damage to the structure or the non-torn membrane were
discovered, or if modifications in the design details were required. In effect, Birdair was proposing
simply to replace the rear portion of the canopy fabric. The company projected that it would need
approximately 13 weeks for fabrication and installation of the new canopy fabric. Birdair's proposal
expressly stated that it could be withdrawn if not accepted within 30 days. However, contrary to Mr.
Wuerch's March 10 letter to SummerWind, Birdair's proposal was not conditioned on resolution of
its financial dispute with SummerWind. Cheryl McLaughlin's log indicates that she received a copy
of Birdair's proposal on March 21. SummerWind's lawyer (who had been retained because of the
possibility of a warranty claim against Birdair) received Birdair's proposal on March 28. At about
the same time, Mr. Kerr sent a letter to Birdair asking it to reconsider its position on the warranty
and stating that in SummerWind's view, the damage had been caused by a "construction/product
defect." Defendant's Exhibit 511.2
At or around the same time, Steven McKay of SummerWind decided to contact Soper's
Engineered Fabric Solutions ("Soper's"), another fabricator of canopy structures. Mr. McKay
contacted Soper's because the collapse of the canopy after just one year of operation made
2
An internal email from John Berkey, later SummerWind's Executive Director, to Mr. Kerr,
states that he, too, believed that the cause of the canopy collapse was a "faulty" and "dangerous"
design. Defendant's Exhibit 515.
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SummerWind uncertain about Birdair's competence, and also because Mr. Weurch's March 10 letter
gave SummerWind concern that Birdair might decline to repair the membrane pending resolution
of the parties' financial dispute. Soper's sent SummerWind a proposal dated March 27, 2003, in
which it proposed to provide design, manufacturing and field services "to complete replacement of
fabric membrane" for the SummerWind facility, with an objective of June 6, 2003 for completion
of the work. Plaintiff's Exhibit 15. Soper's proposal estimated the cost of its work at $260,000 to
$350,000, though it is clear from Soper's proposal that this is merely an estimate and that the final
cost would be subject to the total time and materials necessary to complete the work. Indeed, the
cover email forwarding the proposal described it as a "preliminary estimate only." Defendant's
Exhibit 506. Soper's proposal assumed replacement of the entire existing membrane and was based
on Soper's understanding that it would be given access to Birdair's configuration designs for the
canopy fabric. The reason that Soper's proposal called for replacement of the entire membrane rather
than only the rear portion (as Birdair had proposed) is that Soper's did not have access to Birdair's
proprietary fabric and, therefore, Soper's would have to replace the entire membrane with its own
fabric. A copy of Soper's proposal was also provided to Harleysville.
In early April, SummerWind hired a construction manager, Orlando Annulli & Sons, for the
expected replacement of the canopy. Brad Downey from Orlando Annulli initially authorized
Soper's to commence work on its proposal. Defendant's Exhibits 508, 516, 517, 519. Mr. Downey
also informed Del Cade of SummerWind's decision to proceed with Soper's. Defendant's Exhibit
507. However, shortly thereafter, Mr. Downey told Soper's that it should cease all work on the
proposal until further word from SummerWind. Apparently, SummerWind's Board had decided to
proceed with Birdair instead for, on April 8, Mr. Downey wrote to Birdair informing the company
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that he thought the SummerWind Board would release the work to Birdair and requesting further
detail regarding the scope of Birdair's proposal. Defendant's Exhibit 518.
Meanwhile, in April, Del Cade provided Cheryl McLaughlin with a report on the
SummerWind claim. The report concluded that the cause of the damage to the canopy was the
weight of snow and ice. Plaintiff's Exhibits 4 & 13. Mr. Cade's report also recited that coverage
existed for this loss, and stated that he was working on the claim with the insured and Brad Downey.
The report provides Mr. Cade's view that Birdair's proposal was more reasonable than Soper's,
though he also thought that the Birdair proposal of $250,000 might be too high since it was for only
a portion of the entire canopy and just one year earlier the total cost of the structure (fabric, masts,
design, cabling, etc.) had been only $679,000. As a result, Mr. Cade stated that he had requested a
complete breakdown of the Birdair proposal from Brad Downey. Mr. Cade also stated that he had
been informed by subrogation counsel that SummerWind should not sign any contract with Birdair
until Harleysville's subrogation attorney had reviewed it to "verify that there is no verbiage which
would impact the potential subrogation claim." Plaintiff's Exhibit 13 at 2. Mr. Cade cautioned Ms.
McLaughlin that Birdair needed a commitment "ASAP" in order to get the work done before the next
season began. He recommended a partial advance to SummerWind of $100,000, which Ms.
McLaughlin approved on April 24.3 Unfortunately, however, rather than putting the $100,000 aside
to cover the costs of future repairs, SummerWind, which was in a difficult financial condition at that
time, used portions of the $100,000 on ordinary operating expenses.
By a letter dated April 17, Birdair notified Harleysville that since its proposal of March 14
had not been accepted within 30 days, it was being withdrawn. Plaintiff's Exhibit 12. Birdair never
3
Mr. Cade's involvement appears to have ended by early May 2003.
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made another proposal for, at or around the same time, Birdair's attorney had advised counsel for
SummerWind and Harleysville that Birdair would not in any event make any repairs to the
SummerWind facility unless both SummerWind and Harleysville waived their rights to sue Birdair
for the collapse of the canopy. Plaintiff's Exhibit 14; Defendant's Exhibit 523. Harleysville told
SummerWind that it would not waive its subrogation rights against Birdair. See Plaintiff's Exhibit
4 ("We are not going to waive our subrogation rights."). As a result, by late April, it was clear that
it was no longer feasible to expect Birdair to make the necessary repairs, since Birdair would not do
so without a waiver from Harleysville and Harleysville would provide no such waiver..
The Birdair development had two implications for SummerWind as Ms. McLaughlin
recognized in her notes. First, the cost of repairs would be higher since any company doing the
repairs would not have access to Birdair's designs and would have to replace the entire membrane
and not just the rear portion. Second, any company taking Birdair's place at this point probably
would not be able to get all of the work done in time for the start of SummerWind's summer 2003
season. As Ms. McLaughlin put it:
This will cause a problem for [SummerWind] . . . because they will have to have
another company complete the repairs which will cost add[itional] money. The
Kevlar fabric that covers this structure is made exclusively by Birdair. Another
company would need to, therefore, replace all the fabric rather than just repair the
damaged area. [Summerwind] already has a pre[liminary] est[imate] of $260-$350K.
Also another company will not be able to make the 6/1/03 time[-]frame that
[SummerWind] needs this to be completed by.
Plaintiff's Exhibit 4 at 6. Puzzlingly, despite these statements recognizing the additional cost of
replacement that would now accrue to SummerWind, Ms. McLaughlin also stated immediately
thereafter that Harleysville "owe[d] the [insured] the reasonable cost of repairs which is no more than
$250K." Id. (emphasis added). This statement is inexplicable to the Court, since Ms. McLaughlin
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knew at that time that the only proposal to effect repairs for $250,000 had been withdrawn and the
company making that proposal, Birdair, was no longer willing to perform the work unless
Harleysville waived a right that it was absolutely unwilling to waive.
Ultimately, SummerWind sued Birdair in state court, asserting that Birdair's faulty design
was the cause of the damage to the SummerWind facility.4 That action has remained pending while
this case has proceeded. An expert hired on behalf of SummerWind in that case, Simpson Gumpertz
& Heger, concluded that the combination of snow load and wind pressures in February 2003 were
"substantially less severe than required [by the State Building Code] for the design" of the
SummerWind canopy. Because the snow and wind loads were significantly less than those required
for the proper design of the structure, the expert concluded that the failure of the Birdair canopy was
caused by one of the following:
* Inadequate design for snow loads and for the combination of snow and wind
loads
* Inadequate fabric-to-structure connection design
* Defective fabric or fabric seams.
Plaintiff's Exhibit 19 at 6.
Soper's Involvement and the Summer 2003 Season. Once it became clear in late April
that neither Harleysville nor SummerWind could count on Birdair to repair the facility,
SummerWind's focus returned to Soper's. However, Soper's informed SummerWind that given the
delay in getting Soper's started, Soper's could no longer complete the work by the start of the 2003
4
Harleysville's Property Claims Direct Supervisor Robert DeMayo inspected the loss on
May 1, 2003. In a report of the inspection, Mr. DeMayo stated that the weight of snow and ice on
the fabric caused the roof fabric to tear. He also noted that SummerWind had suggested that the
snow loads involved were less than the design specifications for the facility.
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season (just as Ms. McLaughlin had predicted). Therefore, SummerWind's Board decided not to
proceed with the work outlined in Soper's March 27 proposal. Instead, the Board decided to proceed
with a two-stage program. First, SummerWind would make temporary alterations and repairs to the
structure, using a temporary band shell to cover the rear portion of the canopy area so that it could
proceed with its summer 2003 season as scheduled. Soper's was asked to perform the remediation
work needed for the first stage and Soper's provided a $47,400 estimate to "design, supply materials
and provide installation supervision services for summer 2003 remediation relating to Owner's
procurement of a non-snow rated, seasonal shell and re-tensioning and re-rigging of existing
membrane." Plaintiff's Exhibit 17. Second, SummerWind engaged Soper's to provide an estimate
for the permanent replacement of the canopy, upon which SummerWind hoped to embark in the fall
of 2003, after close of the summer season. To perform all of this work, Soper's engaged FTL Design
Engineering Studio; Timothy Thiel was retained by FTL to be its site manager.
To protect its performers, SummerWind located a seasonal band shell to be incorporated into
the remediated structure. Steven McKay informed Cheryl McLaughlin of SummerWind's two-stage
plan in late May. The plan was acceptable to Harleysville, and the insurer agreed to cover the costs
of the band shell as well as Soper's remediation costs under SummerWind's Extra Expense Coverage,
which, as previously indicated, was designed to allow an insured to avoid or minimize the
suspension of its business and to continue operations during the period of restoration. Harleysville
purchased the temporary bandshell on behalf of SummerWind for approximately $47,000. Ms.
McLaughlin also told Mr. McKay to firm up Soper's proposal for permanent repairs in the fall of
2003. Throughout the summer, she repeatedly asked Mr. McKay how the plans were proceeding for
the permanent repairs, but each time Mr. McKay told her that he was so busy with the season that
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he had not had time to get around to the permanent repairs. Ms. McLaughlin acknowledged that she
never asked anyone at SummerWind to file a sworn proof of loss, and none was ever filed.
Tim Thiel oversaw the remediation work, which was successfully completed by the end of
June. An engineer certified to the Town that the repair work had been done satisfactorily. Plaintiff's
Exhibit 18. During his remediation work on the canopy at this time, Mr. Thiel became concerned
that the damage to the structure was more substantial than previously thought. In a report to Soper's
in June 2003, Mr. Thiel informed Soper's that his close-up inspection of the canopy showed that
there had been more severe damage to the structure than had previously been suspected. In
particular, the masts were out of plumb as a result of the release of the tension provided by the fabric.
Also, he had to re-tighten most of the connection points. Plaintiff's Exhibit 42. In Mr. Thiel's view,
every structural location for the canopy had been compromised by the collapse.
The temporary repairs allowed SummerWind to proceed with its summer 2003 season.
Because they were unable completely to cover the area previously covered by the rear portion of the
canopy, SummerWind was unable to use about 300 seats toward the stage portion of the facility.
Nevertheless, the second season appears to have been a success with audiences, since SummerWind
sold more tickets. The losses continued, however. SummerWind lost approximately $233,000 on
its 2003 season, $100,000 less than the summer 2002 season.
Fall 2003-Winter 2004. At the end of the 2003 season, Ms. McLaughlin asked Mr.
McKay whether SummerWind had any further need for the band shell. Mr. McKay responded that
SummerWind expected to effect a permanent fix to its structure before the start of its summer 2004
season and therefore had no interest in retaining the shell. Accordingly, Ms. McLaughlin asked the
Harleysville property department to find a buyer for the unwanted band shell. Harleysville
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advertised it on a website, but no one put in an offer and the property department told Ms.
McLaughlin that it could not find a buyer. Some time later, CT Audio, a company that was doing
work for SummerWind on the site, offered to buy the shell for $6500, and Ms. McLaughlin approved
the sale to CT Audio. At trial, SummerWind's witnesses and attorneys complained bitterly about the
sale of the band shell, contending that Harleysville should never have sold the band shell and that,
in any event, Harleysville should have obtained more than $6500 for it. However, the reality is that
the Executive Director of SummerWind told Ms. McLaughlin that Summerwind had no interest in
the band shell and that Harleysville should sell it, and there is no indication that Ms. McLaughlin
knew or should have known that the price offered by CT Audio was inadequate. So far as the Court
is concerned, SummerWind's complaints about the band shell are merely post-hoc sour grapes.
Even though it passed on keeping the band shell, SummerWind and Soper's still had not
finalized their plans for a permanent repair by the fall of 2003, and those repairs did not take place
at that time. Instead, SummerWind proposed another two-step plan to Harleysville. The first step
would be to take down the temporary structure that Soper's had created in May 2003 since it was not
safe to leave it up through the winter snows. At the same time, Soper's would do a controlled take
down of the rest of the Birdair canopy since Soper's would eventually have to replace the entire
canopy membrane when it effected the permanent repairs. Second, Soper's would make the
permanent repairs to the structure in the spring of 2004 once Soper's had completed unspecified
further design and engineering work. In a telephone conversation with Ms. McLaughlin on
November 20, 2003, Mr. Kerr, the insurance agent and Treasurer of SummerWind, informed Ms.
McLaughlin of this plan and stated that "he is aware that [SummerWind is] only entitled to put this
structure back to the way it was before and that is what is being estimated" by Soper's. Ms.
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McLaughlin later approved Soper's estimate of $19,000 to take down the temporary structure.
During these conversations between Ms. McLaughlin and Mr. Kerr, Mr. Kerr raised the issue
whether the front section of the canopy had also been damaged as a result of collapse of the rear
portion of the canopy, a subject that Mr. Thiel had raised with Soper's in June 2003. Mr. Kerr and
Ms. McLaughlin agreed that the best way to resolve that issue was to have Soper's engineers meet
with Harleysville's engineers and inspect the structure at the time of the controlled take down.
In late December 2003, Harleysville issued another check to SummerWind, this time for
$145,000, for the building loss. That brought Harleysville's advances on the building loss to
$245,000. Ms. McLaughlin arrived at that figure by taking Birdair's March 2003 estimate of
$250,000 as the cost of repair and deducting $5,000 for SummerWind's deductible. In early January,
Harleysville made additional payments to SummerWind under the Extra Expense Coverage.
As planned, in February 2004, the canopy was taken down by Soper's (whose team was again
led by Tim Thiel) in the presence of engineers hired by Harleysville: Joe Zona and Dominic Kelly.
Ms. McLaughlin's log indicates that the engineers told her that the front section of the canopy was
also ripped and damaged at the link loops and that they "attribute this to weight of ice and snow."
Plaintiff's Exhibit 4 at 18. They examined the fabric when it was down and "found creases/lines in
the fabric which tend[] to form when fabric is being stretched in 2 different directions. It was a
similar condition that was found in the rear fabric. [The engineer] also found 2 holes in the fabric
at 1 mast and 1 at the other mast . . . [and] is in agreement that the front section was also damaged
and need[s] to be replaced." Id. (emphasis and alterations added). Ms. McLaughlin's log for March
29, 2004 states: "Expert has confirmed that front section also damaged and needs to be replaced.
[SummerWind] in process of obtaining est[imate]." Id. at 20. At trial, Mr. Kelly acknowledged the
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damage to the front section of the canopy, but stated that the damage was to the fabric and not to the
structure. He also testified that the damage to the front portion of the fabric came about after the
February 2003 collapse as a result of a loss of tension that occurred when the rear portion collapsed.
At long last, on April 7, 2004, Soper's provided its estimate for "Membrane supply, structural
modifications, site preparation & installation." Plaintiff's Exhibit 25. This time, the estimated (not
firm) price was $675,000, which, as Ms. McLaughlin noted with an exclamation mark in her log,
was essentially the same amount as Birdair's original contract to construct the entire SummerWind
performing arts structure (engineering, masts, steel, cables, and fabric). Ms. McLaughlin called Mr.
Kerr about the latest estimate, and he told her that SummerWind was also taken aback by Soper's
proposal and had asked Soper's to explain why the estimate for repairs was so much higher than it
had been just one year earlier. Plaintiff's Exhibit 4. At or around the same time, Harleysville
received word that SummerWind was complaining about Harleysville's sale of the band shell to the
Connecticut Insurance Commissioner.
By a letter dated April 21, 2004, Ms. McLaughlin wrote to Mr. Berkey, then Executive
Director of SummerWind, recounting the handling of the claim from Harleysville's perspective.
Plaintiff's Exhibit 26. The letter acknowledges Soper's $675,000 proposal and states that "[t]his
estimate is to replace the entire structure with a totally different structure with a different design and
a different cabling system." Id. Accordingly, Harleysville rejected that estimate "as it is not
replacing the existing structure." Id. At this point, it is fair to say that the relationship between the
parties broke down completely, though the Court ascribes principal blame for that breakdown to
SummerWind, since Harleysville (unlike SummerWind) appears to have remained willing to
continue discussions about the proper reimbursement under the policy.
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At trial, Mr. Gallagher of Soper's described the work that was included in its $675,000
proposal. The proposal is not limited to merely replacing the existing canopy membrane. Instead,
the proposal called for a redesign of the canopy structure so that the membrane would lie less flat
and would have steeper pitches. As Mr. Gallagher explained, these changes were made to allow the
canopy to shed snow and ice better than the Birdair design. To accomplish this work, Soper's
proposed to use the existing masts but increase their height by approximately four feet, add two
additional masts and two additional huge concrete footings, and rework cables and connections.
Soper's original re-design of the structure called for it to be approximately twelve feet higher than
the Birdair design, but that was reduced to approximately four feet after the owner of the property
objected to the proposed height of the Soper's re-design.5
A draft of Soper's contract with FTL for the design work on Soper's proposal was admitted
as an exhibit at trial and states:
Permanent remediation design services shall include development of a re-design of
the membrane for structural optimization, including, but not limited to, development
of a new structural shape (within the limits of the site and other constraints) to
optimize the structural performance of the membrane, retrofit of existing steel and
other related upgrades for a permanent snow-load design.
Defendant's Exhibit 512. Mr. Gallagher testified that while Soper's never evaluated the Birdair
original design to determine whether it was structurally sound, he was not comfortable with the
Birdair design. For example, he testified that he had observed pooling of water and ice on the
canopy membrane, a condition that he viewed as "inappropriate," and he wanted Soper's design to
prevent pooling. He also testified that he had no confidence in Birdair's design in view of the
5
Soper's expended approximately $66,000 on the original re-design (at 12 feet higher than
Birdair's) and then had to expend further sums on the reduced height (4 feet) re-design.
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collapse. It was apparent to the Court that Soper's was unwilling simply to stretch new fabric on
the existing Birdair structure because Soper's feared that any such solution would risk a similar
collapse from the weight of snow and ice. As Mr. Gallagher testified, Soper's decided to change the
configuration and geometry of SummerWind's canopy structure "so he could sleep at night." When
asked to explain what he meant by that, Mr. Gallagher said that he did not want Soper's to inherit
the same problems that had caused the Birdair membrane to collapse in the first place.
To the Court's great frustration, and despite repeated requests for clarification,
SummerWind and Soper's each declined to say how much of Soper's 2004 proposal was for simple
replacement of the existing structure and how much of the proposal was for the additional design,
engineering, materials, and construction related to remedying the defects in Birdair's original design.
Thus, for reasons known only to SummerWind, it chose to continue at trial the same "all or nothing"
approach to coverage of Soper's 2004 proposal that it had taken with Harleysville prior to the
commencement of this lawsuit. For an entity that presumably was trying to get a new structure built
promptly, the Court finds most perplexing SummerWind's intransigence on the question of the
proper breakdown of Soper's April 2004 proposal.
Summer 2004 and Beyond. By late April 2004, SummerWind had no facility at all (the
tent had been taken down in February), Harleysville had rejected Soper's estimate, and SummerWind
had no realistic means of financing Soper's proposal on its own. Therefore, SummerWind decided
to proceed with the summer 2004 season without any canopy at all. Unfortunately, the summer of
2004 was very rainy, and SummerWind's draw was less than in prior years. Ironically, however,
SummerWind had an operating net profit of $50,000, principally the result of fund-raising efforts.
At some point during the summer of 2004, the parties had discussions with Connecticut's
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Insurance Commissioner in an attempt to resolve their dispute. Ms. McLaughlin sought additional
information regarding Soper's April 2004 proposal from Douglas Kerr and, in September, she also
met with Mr. Gallagher of Soper's in an effort to learn more about why Soper's was proposing to re-
design the SummerWind structure. During that time period, Harleysville offered SummerWind
$350,000 to resolve the building loss claim (an increase of $100,000 over the $250,000 Harleysville
had already paid). Ms. McLaughlin testified that Harleysville arrived at the $350,000 based on the
top end of Soper's March 2003 proposal to replace the entire canopy membrane. In any event,
SummerWind rejected Harleysville's offer, and it does not appear that SummerWind ever made a
counteroffer. Instead, SummerWind insisted that Harleysville pay the entire amount of Soper's April
2004 proposal though SummerWind never provided Harleysville with any breakdown of Soper's
proposal. According to SummerWind's counsel, it was Harleysville's obligation to obtain a
breakdown of Soper's proposal, not SummerWind's, a position the Court finds baffling since it was
SummerWind that originally asked Soper's to prepare an estimate for a permanent fix.
This lawsuit was filed in February 2005 and was tried to the Court one year later.6 In
connection with the litigation, Soper's updated its estimate in October 2005. Soper's now estimates
that its proposed work would cost $789,700. The building coverage limit on the Harleysville policy
is $800,000. Furthermore, according to Mr. Kerr, SummerWind no longer has the $245,000 that it
had previously received from Harleysville to replace the canopy, having spent it all on normal
operating expenses and bills from Soper's. Given SummerWind's financial condition, unless it
6
The following witnesses testified at trial or by deposition: John Berkey; Cheryl
McLaughlin; Stephen Dupre; Timothy Thiel; Dr. Gerald Sazama; Dominic Kelly; Joseph Zona;
Douglas Kerr; Dr. Richard Wise; Bradford Downey; Stephen McKay; Jamie Gallagher; Del Cade;
Robert Binner; David Ricci; and Cheryl Macintosh.
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prevails in this litigation, SummerWind cannot realistically rebuild its performing arts center. The
Board of SummerWind decided to cancel the 2005 season in its entirety, and the Court was informed
that the Board had not yet decided whether to cancel the 2006 season or go forward without a
canopy.
As damages in this action, SummerWind seeks the following amounts: $789,700 under the
Building Loss policy, less the $245,000 already paid on that policy; an additional $34,904.36 on the
Extra Expense policy; lost profits of $1,209,208 for Harleysville's alleged breach of its insurance
contract; $290,000 for the cost of making SummerWind's credit rating whole; and attorneys' fees of
$410,698. The Court notes with considerable chagrin that, so far, SummerWind's attorneys have
apparently expended on this litigation nearly two-thirds of what Birdair charged to build
SummerWind's performing arts center in the first place.
II.
SummerWind advances two claims in this litigation. First, SummerWind asserts that
Harleysville breached its contract of insurance with SummerWind by failing to pay the amounts
required by the policy as a result of the collapse of the canopy in February 2002. Second,
SummerWind claims that Harleysville breached the covenant of good faith and fair dealing, both
substantively and procedurally, by the manner in which it dealt with SummerWind's loss and
insurance claim. The parties agree that both claims are governed by Connecticut law. Resolution
of the breach of contract claim is more difficult since Connecticut courts have not yet addressed the
precise legal issue that this case presents. The claim for breach of the covenant of good faith and fair
dealing, however, is not even a close question, and will therefore be dealt with briefly before the
Court turns to the real issue in this case – namely, whether Harleysville has breached its contract of
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insurance.
A.
Connecticut has long recognized an independent action in tort arising from a breach of an
insurer's common law duty of good faith and fair dealing. Buckman v. People Express, Inc., 205
Conn. 166, 170 (1987); see also McCauley Enterprises, Inc. v. New Hampshire Ins. Co., 716 F.
Supp. 718, 723 (D. Conn. 1989). "[I]n every contract of insurance the duty 'to act in good faith and
fairly in handling the claim of an insured, namely a duty not to withhold unreasonably payments due
under a policy' [i]s necessarily implied." Grand Sheet Metal Prod. Co. v. Protection Mut. Ins. Co.,
34 Conn. Supp. 46" date_filed="1977-02-24" court="Conn. Super. Ct." case_name="Grand Sheet Metal Products Co. v. Protection Mutual Insurance">34 Conn. Supp. 46, 50 (Conn. Super. Ct. 1977) (quoting Gruenberg v. Aetna Ins. Co., 510 P.2d
1032, 1037 (1973)). This cause of action is "separate and distinct from [a] plaintiff's statutory
claims." Buckman, 205 Conn. at 170.
As discussed below, the Court concludes that SummerWind has not established a breach of
contract by Harleysville. That conclusion necessarily disposes of the substantive portion of
SummerWind's good fair and fair dealing claim. For as the Connecticut Supreme Court has
explained, the doctrine of good faith and fair dealing is essentially "a rule of construction designed
to fulfill the reasonable expectations of the contracting parties as they presumably intended. The
principle, therefore, cannot be applied to achieve a result contrary to the clearly expressed terms of
a contract, unless, possibly, those terms are contrary to public policy." Magnan, 193 Conn. at 567.
However, the Court's resolution of SummerWind's breach of contract claim does not resolve
the procedural portion of SummerWind's bad faith claim. For SummerWind's procedural bad faith
claim focuses on the manner in which Harleysville dealt with SummerWind's loss. The Connecticut
Supreme Court has not explicitly recognized a claim for procedural bad faith, though at least one of
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this Court's colleagues has held that a procedural bad faith claim is cognizable under Connecticut
law even if the insurer has not breached the express terms of the policy. See Royal Ins. Co. of
America v. Zygo Corp., 349 F. Supp. 2d 295" date_filed="2004-12-14" court="D. Conn." case_name="Royal Insurance Co. of America v. Zygo Corp.">349 F. Supp. 2d 295, 313 (D. Conn. 2004); United Tech. Corp. v. American
Home Assurance Co., 118 F. Supp. 2d 181" date_filed="2000-07-11" court="D. Conn." case_name="United Technologies Corp. v. American Home Assurance Co.">118 F. Supp. 2d 181, 187 (D. Conn. 2000). Harleysville does not contest that
Connecticut recognizes a claim for procedural bad faith, and in any event, as explained below, the
Court finds that Harleysville's conduct did not constitute procedural bad faith. Therefore, this Court
need not, and does not, decide whether the Connecticut Supreme Court will ultimately recognize
a cause of action for procedural bad faith in this context.
SummerWind's counsel admitted that Harleysville was extremely responsive to
SummerWind's predicament and acted in good faith until April 2004. This concession was wise in
view of the testimony of Steven McKay, SummerWind's Executive Director, that Harleysville was
responsive to all of SummerWind's requests during his tenure and that Cheryl McLaughlin was fair
and professional at all times. Indeed, Harleysville advanced SummerWind nearly $250,000 on the
building loss policy even before it had a final estimate for the permanent repair of the facility, and
Harleysville paid SummerWind all or nearly all of the $100,000 of the Extra Expense Coverage to
allow Summerwind to continue its operations pending completion of the repairs to the canopy.
Accordingly, SummerWind focuses on two aspects of Harleysville's conduct after April 2004: (1)
Harleysville's sale of the bandshell in early 2004 without first offering it to SummerWind or getting
a reasonable price for it; and (2) Harleysville's rejection of Soper's April 2004 proposal and its delay
in resolving SummerWind's claim, which undoubtedly has severely disrupted SummerWind's
business.
The Court disagrees with each of SummerWind's contentions and finds that at all times
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Harleysville acted in good faith. The Court has previously discussed the bandshell claim. Suffice
it to say, the Court finds this claim factually untenable. The same observation applies to
SummerWind's allegations regarding Harleysville's reaction to Soper's April 2004 proposal and the
failure to resolve this claim more promptly. Harleysville rightly questioned Soper's April 2004
proposal as representing more than its policy covered. Even if Harleysville was mistaken in that
view, however, the record shows that SummerWind at no time provided Harleysville with any details
or breakdown of the proposal from which Harleysville could discern what portion of the proposal
was attributable to the new and upgraded design and what portion was for replacement using the
Birdair design. Indeed, to this very day SummerWind has even declined to provide the Court with
that information, a stance that this Court finds inexplicable and counter-productive.
To be sure, Harleysville fixated on Birdair's $250,000 estimate, which the Court has already
explained was not a feasible estimate in view of Harleysville's own position that it would not waive
its subrogation rights. Therefore, in the Court's view, $250,000 should never have been the "floor"
for the repair work. But it was not the floor because Harleysville later offered SummerWind
$350,000 for the building loss, an offer that SummerWind flatly declined. In any event, Harleysville
never said that it would not pay more than $250,000 or even $350,000, only that it would not pay
for a newly designed structure, as represented by Soper's April 2004 proposal, a position that this
Court finds was well-founded.
However, the most fundamental defect in SummerWind's good faith claim is that, at all
times, SummerWind had the means at its disposal to resolve the amount of its loss with promptness
and certainty, and yet SummerWind chose not to employ the means at its disposal. What the Court
is referring to is the right of appraisal in the Harleysville policy. Under that provision of the policy,
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SummerWind could have compelled Harleysville at any time to participate in a prompt and relatively
inexpensive appraisal process, one in which the appraisers' determination of the amount of loss
would have been final and binding on Harleysville. It is true that the appraisal provision does not
waive Harleysville's right to contest coverage but, since Harleysville had already accepted coverage
in this case, the appraisers' determination of SummerWind's loss would have been binding on it.
For reasons that this Court remains at a loss to understand, SummerWind chose not to avail
itself of this straightforward and prompt appraisal process and instead chose to engage in protracted
and enormously expensive litigation in court. Having refused to this day to provide details regarding
Soper's April 2004 proposal and having eschewed the prompt and efficient remedy provided in the
policy for resolving disputes over the amount of its loss, SummerWind cannot credibly maintain that
Harleysville has acted in bad faith in this case. See Buckman, 205 Conn. at 171 ("'[g]ood faith and
fair dealing mean an attitude or state of mind denoting honesty of purpose, freedom from intention
to defraud and generally speaking means faithful to one's duty or obligation . . . an honest intention
not to take an unconscientious [sic] advantage of another'; '[b]ad faith is defined as the opposite of
good faith, generally implying a design to mislead or to deceive another, or a neglect or refusal to
fulfill some duty or some contractual obligation not prompted by an honest mistake as to one's rights
or duties.'" (alterations in original)). Accordingly, judgment should enter for Harleysville and against
SummerWind on Count Two of the Complaint alleging breach of the implied covenant of good faith
and fair dealing.
B.
SummerWind's breach of contract claim is principally founded on its argument that
Harleysville is obligated under its building loss policy to pay SummerWind the full amount
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estimated by Soper's, a sum that as of October 2005 was $789,700, less the $245,000 already
advanced to SummerWind. Harleysville contests SummerWind's claim on a number of grounds,
only one of which the Court finds to be meritorious.7 Harleysville asserts that under the policy it is
responsible only for the cost to replace the canopy with "property of like kind and quality" and that
Soper's proposal is not for such a replacement but rather for an improved and upgraded facility that
is designed, engineered and constructed to correct the design defects in the Birdair structure that led
to the collapse of the canopy in the first place. In the circumstances of this case, the Court agrees
with Harleysville.
1. As an initial matter, the Court finds that Harleysville has demonstrated that Soper's
April 7, 2004 and October 2005 proposals contemplate an upgraded structure for the SummerWind
facility so that it will better shed snow and ice and thereby bring the structure into compliance with
existing building codes and avoid problems like those that led to the collapse in February 2003.
While neither Soper's nor SummerWind was willing at trial firmly to commit on the cause of the
7
For example, Harleysville argues that it is not required to pay SummerWind anything
because SummerWind never filed a proof of loss. But Harleysville never asked for a proof of loss
and continued to process the claim in the absence of one. Therefore, Harleysville waived that
requirement. Harleysville also contends that it is not required to pay for any loss until the structure
is actually repaired or replaced, and obviously that has not happened yet. But courts have found a
duty on the insurer to reimburse the insured before rebuilding takes place when, as here, the insured
does not have the means to rebuild the facility without the insurance proceeds. See, e.g., Zaitchick
v. American Motorists Ins. Co., 554 F. Supp. 209" date_filed="1982-12-28" court="S.D.N.Y." case_name="Zaitchick v. American Motorists Insurance">554 F. Supp. 209, 217 (S.D.N.Y. 1982); Pollock v. Fire Ins. Exch.,
423 N.W.2d 234" date_filed="1988-03-22" court="Mich. Ct. App." case_name="Pollock v. Fire Insurance Exchange">423 N.W. 2d 234, 237 (Mich. Ct. App. 1988). The Court believes that Connecticut courts would
adopt those decisions as the law of Connecticut and, therefore, the Court rejects Harleysville's claim.
Finally, Harleysville argues that its policy obligations are conditioned upon the insured replacing the
property within a reasonable time after incurring the loss and that SummerWind has not done so.
However, if Harleysville's failure to pay Soper's estimate was the reason why the facility has not been
repaired sooner, then surely Harleysville could not defend its conduct on this basis. Therefore, this
argument by Harleysville does not add anything to its main argument, which is that it is not required
to pay the full cost of Soper's 2004 estimate.
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collapse, simple common sense reveals that if they believed the cause of the collapse was a defect
in the fabric alone, Soper's would have simply replaced the canopy fabric, a project that it proposed
to do in 2003 for between $250,000-360,000. The 2004 and 2005 proposals were significantly more
than the 2003 proposal (nearly three times the low end of the 2003 proposal) because Soper's and
SummerWind concluded that replacement of the torn canopy membrane was insufficient and that
the structure itself had to be redesigned and configured so that it could carry and shed the quantities
of snow and ice loads that a safe and proper design would manage.
In this regard, the Court notes that the only expert to testify at trial on the cause of the
collapse testified without contradiction that the snow loads and wind pressure experienced by the
Birdair canopy in or about February 2003 were "substantially less severe" than the minimum
tolerance required by the State Building Code for the design of the canopy, namely, resistance to 30
pounds of pressure per square foot. Moreover, in its answers to interrogatories in the litigation with
Birdair, SummerWind stated that its experts would testify to the improper design, manufacture and
installation of the tent membrane and "how weather factors were well below design minimum
condition." Defendant's Exhibit 502 ¶ 4. In further answers, SummerWind stated that the "[d]esign
of canopy was not to support snow or rain load." Id. ¶ 20.8 And in its Answer and Counterclaim in
the Birdair litigation, SummerWind also stated that "[a]t the time the Project's Roof was damaged,
the layer of snow covering it did not exert more than thirty pounds of pressure per square inch," the
state building code requirement. Defendant's Exhibit 514 at 8.
Furthermore, Mr. Gallagher conceded that Soper's proposal called for a much steeper pitch
8
These allegations are not only consistent with the report of SummerWind's experts but also
with Mr. Berkey's email to Mr. Kerr, dated March 7, 2003, in which Mr. Berkey refers to Birdair's
"faulty design" and "dangerous design."
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on the canopy, with the attendant need to increased the height of the masts and add two additional
masts, associated cabling and steel work, and two large concrete footings. These changes were not
made for aesthetic effect or because Soper's fabric required them; instead, Mr. Gallagher admitted
that substantial changes were made because he was concerned about the snow load performance of
the original structure and that the changes were needed to protect public safety. As he
acknowledged, Soper's decided it needed to "upgrade" the SummerWind structure beyond the Birdair
design and construction to achieve better sloping, snow shed and snow performance, and that Soper's
did this in order to comply with building codes that existed at the time Birdair designed and
constructed the original structure.
Therefore, the Court has little difficulty concluding based upon the testimony of witnesses
and the documentary evidence submitted that Soper's proposal calls for an upgraded and differently
configured structure than previously existed at the site and that the substantial changes Soper's
proposed were designed to ensure that the structure complied with building code regulations and
design criteria that the original Birdair structure should have complied with but unfortunately did
not. In short, Soper's proposal does not merely replace the existing structure; rather, it contains
additional, albeit unquantified, costs that are directly attributable to re-designing and re-constructing
the structure to remedy design defects that existed in the original structure. The question, then, is
whether SummerWind's replacement cost insurance policy covers those additional costs, and if not,
what amount SummerWind is entitled to under the policy.
2. Before analyzing the Harleysville policy, the Court notes that the parties agree on the
standards that govern construction of insurance policies under Connecticut law. In Connecticut,
insurance policies, like other contracts, are to be construed to effectuate the intent of the parties as
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expressed in the language used in the policy. Travelers Ins. Co. v. Namerow, 257 Conn. 812" date_filed="2001-09-04" court="Conn." case_name="Travelers Insurance v. Namerow">257 Conn. 812, 826
(2001). The determinative question is "what coverage the . . . [insured] expected to receive and what
the [insurer] was to provide as disclosed by the provisions of the policy." Id. (alterations in original;
internal quotation marks omitted). The Court must view the policy in its entirety and, if a policy
provision is clear and unambiguous, it should be enforced in accordance with its terms. As the
Connecticut Supreme Court has emphasized:
'If the words in the policy are plain and unambiguous the established rules for the
construction of contracts apply, the language, from which the intention of the parties
is to be deduced, must be accorded its natural and ordinary meaning, and courts
cannot indulge in a forced construction ignoring provisions or so distorting them as
to accord a meaning other than that evidently intended by the parties.'
Buell, 259 Conn. at 545 (quoting Hammer v. Lumberman's Mut. Cas. Co., 214 Conn. 573" date_filed="1990-04-17" court="Conn." case_name="Hammer v. Lumberman's Mutual Casualty Co.">214 Conn. 573, 583
(1990)). Furthermore, a court should "'not torture words to import ambiguity, where the ordinary
meaning leaves no room for ambiguity and words do not become ambiguous simply because lawyers
or laymen contend for different meanings.'" Buell, 259 Conn. at 545 (quoting Downs v. Nat'l Cas.
Co., 146 Conn. 490" date_filed="1959-06-05" court="Conn." case_name="Downs v. National Casualty Co.">146 Conn. 490, 494-95 (1959)); see also Alstrom Power, Inc. v. Balcke-Durr, Inc., 269 Conn.
599, 610-611 (2004). However, if the language of the policy manifests some ambiguity, a court must
construe the provision in favor of the insured and to provide coverage. Buell, 259 Conn. at 545;
McGlinchey v. Aetna Cas. & Surety Co., 224 Conn. 133" date_filed="1992-12-08" court="Conn." case_name="McGlinchey v. Aetna Casualty & Surety Co.">224 Conn. 133, 137 (1992).
With these standards in mind, the Court finds that the Harleysville policy is not ambiguous
and that it does not cover the added costs of re-engineering and re-constructing SummerWind's
facility to comply with existing building codes and to correct design defects in the original Birdair
design. In reaching this conclusion, the Court relies on several portions of the policy. First, in the
Loss Payment section, the policy provides that Harleysville will "[r]epair, rebuild or replace the
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property with other property of like kind and quality, subject to b. below." Plaintiff's Ex. 1, Building
& Personal Property Coverage Form at 8 (emphasis added). Subsection b explicitly states that the
"cost to repair, rebuild or replace does not include the increased cost attributable to enforcement of
any ordinance or law regulating the construction, use or repair of any property." Id. at 9 (emphasis
added). Similarly, the Replacement Cost provisions state that Harleysville "will not pay more for loss
or damage on a replacement cost basis than the "cost to replace the lost or damaged property with
other property [o]f comparable material and quality." Id. at 13.
It is true that SummerWind's policy included Additional Coverage and that the Additional
Coverage provisions included a section entitled "Increased Cost of Construction," which states that
Harleysville "will pay the increased costs incurred to comply with enforcement of an ordinance or
law in the course of repair, rebuilding or replacement of damaged parts of the property." Id. at 4.
However, that undertaking is subject to a number of limitations, the most important of which for
current purposes provides that Harleysville "will not pay any costs due to an ordinance or law that:
(a) You were required to comply with before the loss even when the building was undamaged; and
(b) You failed to comply with." Id. (emphasis added). Those words could not be clearer. Finally, the
policy provides that Harleysville "will not pay for loss or damage caused by or resulting from . . .
[f]aulty, inadequate or defective . . . [d]esign, specifications [or] workmanship." Causes of Loss –
Special Form at 3.
Based upon the foregoing language of the policy, which the Court finds is clear and
unambiguous, SummerWind is entitled to recover the costs of replacing its structure with one of
similar or comparable kind and quality. However, Harleysville is not liable for the increased costs
attributable to complying with ordinances that existed before the loss and need not pay the additional
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costs of re-designing and re-building the structure so as to remedy design defects in the pre-existing
structure. The policy shifts those additional costs onto the insured, undoubtedly in the expectation
that the insured will recover any such additional costs from the original manufacturer, as in fact
SummerWind is trying to do in its lawsuit against Birdair. Further buttressing the Court's plain
meaning reading of the Harleysville policy is the testimony of Douglas Kerr, SummerWind's
Treasurer and an experienced insurance agent who procured the Harleysville policy for
SummerWind. Mr. Kerr testified that he understood that the Harleysville policy would not cover the
additional costs of re-designing the facility to remedy defects in the Birdair design. This
understanding is correct, and makes SummerWind's adamant response to Harleysville in April 2004
all the more puzzling.
In support of its argument to the contrary, SummerWind relies on a number of cases from
jurisdictions other than Connecticut. One line of cases that SummerWind invokes deals with a
situation where building codes change between the time the structure was originally built and the
time it must be replaced. The decisions SummerWind cites allow recovery for the costs of
complying with new building codes and ordinances See, e.g., Prytania Park Hotel v. General Star
Indemnity Co., 896 F. Supp. 618" date_filed="1995-08-21" court="E.D. La." case_name="Prytania Park Hotel v. General Star Indemnity Co.">896 F. Supp. 618, 623 (E.D. La. 1995); Bering Strait School Dist. v. RLI Ins. Co., 873
P.2d 1292, 1295-96 (Alaska 1994); Unified School Dist., No. 285 v. St. Paul Fire & Marine Ins. Co.,
627 P.2d 1147" date_filed="1981-05-08" court="Kan. Ct. App." case_name="Unified School District No. 285 v. St. Paul Fire & Marine Insurance">627 P.2d 1147, 1153-54 (Kan. Ct. App. 1981); Starczewski v. Unigard Ins. Group, 810 P.2d 58" date_filed="1991-07-17" court="Wash. Ct. App." case_name="Starczewski v. Unigard Insurance">810 P.2d 58, 62
(Wash. Ct. App. 1991). The rationale for including the cost of compliance with newly enacted codes
is that "the average person would believe that 'the amount necessary to repair or replace the damaged
property' includes the amount necessary to comply with mandatory building codes enacted after the
policy was issued." Starczewski, 810 P.2d 58" date_filed="1991-07-17" court="Wash. Ct. App." case_name="Starczewski v. Unigard Insurance">810 P.2d at 62. However, courts are not unanimous even on this
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point, and some courts have held that post-loss code changes are not covered by replacement cost
policies similar to Harleysville's. See, e.g., Spears v. Shelter Mut. Ins. Co., 73 P.3d 865" date_filed="2003-06-24" court="Okla." case_name="Spears v. Shelter Mutual Insurance Co.">73 P.3d 865, 869-70
(Okla. 2003); Bischel v. Fire Ins. Exch., 1 Cal. App. 4th 1168" date_filed="1991-11-22" court="Cal. Ct. App." case_name="Bischel v. Fire Insurance Exchange">1 Cal. App. 4th 1168, 1178 (1991).
Connecticut courts have not yet addressed this issue, but the Court need not decide which
line of authority Connecticut might adopt, because the cases are inapposite. First, no one here has
claimed that building codes changed or that new requirements were imposed after construction of
the original facility. Second, unlike the policy in Starczewski and the other cases cited, the
Harleysville policy has specific provisions covering the increased cost of complying with newly
enacted building codes and those provisions expressly limit Harleysville coverage to, in this case,
a maximum of $10,000.
SummerWind also relies on cases from other jurisdictions discussing the meaning of policy
phrases such as "like kind and quality" or "comparable kind and quality." For example,
SummerWind relies heavily on Republic Underwriters Ins. Co. v. Mex-Tex, Inc., 150 S.W.3d 423" date_filed="2004-11-19" court="Tex." case_name="Republic Underwriters Insurance Co. v. Mex-Tex, Inc.">150 S.W.3d 423
(Tex. 2004). In Republic Underwriters, an insured replaced its roof with one of the same kind but
attached differently to the house. The cost of replacing the roof with an identical and identically-
attached roof was $145,460, while the insured's cost was $179,000. The Texas Supreme Court held
that policy language requiring a roof of "comparable material and quality" did not require the insured
to replace the roof with an identical one. Id. at 425. According to the court, "comparable" does not
mean "identical. The policy clearly allows for more leeway than that." Id. In view of the fact that
the only expert called at trial testified that the two roofs were in fact "comparable," the court held
that there was coverage for the increased cost of the new roof.
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Republic Underwriters, and cases like it, are distinguishable from SummerWind's case.9
Like the Court in Republic Underwriters, the Court does not interpret the phrase "like kind and
quality" to mean "identical." Indeed, the Court recognizes that an "identical" replacement is not
possible in this case since Birdair's fabric was proprietary and Soper's fabric will not be the same as
Birdair's. However, in this case no one testified at trial that Soper's design was even "comparable"
to the Birdair design. To the contrary, Mr. Gallagher testified that there were important differences
between the two designs, differences that were required to remedy defects and code problems in the
original design. Furthermore, Harleysville does not rely solely on the "like kind and quality"
language in the policy but also relies on portions of the policy explicitly dealing with the need to
conform the structure to code requirements that existed at the time of the loss and disclaiming any
obligation to pay for design defects. In sum, the clear and unambiguous language of the policy
indicates that there is no coverage for costs incurred to remedy the defects and code noncompliance
in the original Birdair design, and whatever "leeway" or flexibility may exist in the use of phrases
like "like kind and quality" is not sufficient to encompass substantial additional changes and
upgrades made with just that purpose. Cf. Spears, 73 P.3d 865" date_filed="2003-06-24" court="Okla." case_name="Spears v. Shelter Mutual Insurance Co.">73 P.3d at 868-69 (remarking that other decisions
"are not extremely helpful because the wording of each policy clause is different").
3. The Court's interpretation of the insurance policy necessarily leads to the conclusion
that Harleysville did not breach its contractual obligations by refusing to pay for the costs of either
9
SummerWind also relies heavily on North River Ins. Co. v. Godley, 189 S.E. 577" date_filed="1936-11-20" court="Ga. Ct. App." case_name="North River Insurance v. Godley">189 S.E. 577 (Ga. Ct.
App. 1936). That case also is distinguishable. There, the insurer argued that the value of the old
roof was less than that of the new roof after repairs, and therefore, the policy, which was limited to
replacement with "materials of like kind and quality" would not cover the increased cost. In effect,
the insurer argued that the insured should have replaced the roof with old shingles, a proposition the
court had little difficulty rejecting. That decision provides no guidance in resolving the question
presented in this case.
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Soper's April 2004 or October 2005 proposals, the only estimates that SummerWind provided the
insurer. However, it is also clear to the Court that Harleysville's $250,000 payment to SummerWind
is not sufficient to fully discharge its obligations under the building loss policy. The $250,000 sum
paid to date is identical to the estimate that Birdair gave in March 2003, an estimate that the Court
does not believe is an adequate proxy for replacement cost under the terms of the policy. This is so
for several reasons. First, the Birdair estimate only covered replacement of the rear portion of the
canopy, whereas Harleysville now concedes that the entire canopy must be replaced. Second,
Birdair's proposal was no longer feasible as of April 2003 because Birdair would not do the work
proposed without a subrogation waiver, and Harleysville was unwilling to provide such a waiver.
Third, as Ms. McLaughlin herself recognized, the cost of replacing the canopy with a company other
than Birdair would necessarily be higher than Birdair's estimate, since Birdair would not share its
designs and its proprietary fabric could not be used.
The Court is convinced beyond doubt, therefore, that the policy entitles SummerWind to
more than $250,000. The question is how much more. Both parties have repeatedly expressed their
desire to have the Court fix a number so that they can move past this disagreement, but neither party
has presented the Court with any evidence from which it could make a reasoned decision as to an
appropriate recovery between the two extremes of $250,000 and $789,700.10 Under these
circumstances, the Court will give the parties 30 days to file a joint written report indicating how
they wish to proceed before the Court enters final judgment. Perhaps they will agree upon an
10
Contrary to Harleysville's claim, the Court cannot simply use Soper's April 2003 estimate,
since that was an estimate only, set forth a wide range of figures, and was premised on Soper's
gaining access to Birdair's design drawings. If anything, Soper's April 2003 estimate suggests to the
Court that the replacement cost figure is more than $350,000 though considerably less than Soper's
April 2004 estimate of $679,000.
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appropriate figure consistent with this Court's opinion. Presumably, Soper's April 2004 proposal is
a good baseline from which to begin those discussions,11 although the costs that the Court has
determined not to be covered by the policy would have to be backed out of the estimate. Failing
agreement, the Court urges the parties to agree to present the issue of the appropriate recovery to
appraisers for a binding determination in accordance with the policy, as it has been interpreted by
this Court. If the parties are unable to agree even on a process and nevertheless insist that the Court
fix the amount owing under the policy, the Court will require them to provide briefing on the
appropriate disposition in view of the evidence and this Court's rulings to date.
C.
A few odds and ends remain.
First, the Court rejects SummerWind's claim that Harleysville has not paid SummerWind the
amounts required by the Extra Expense policy. So far as the Court can determine from the record,
Harleysville has paid SummerWind nearly $100,000 under the Extra Expense part of the policy.
Since the Court has previously rejected SummerWind's claims regarding the band shell, it does not
appear that SummerWind is owed anything further on that policy.
Second, the Court had previously taken under advisement Harleysville's motion to preclude
Dr. Sazama from testifying as an expert regarding SummerWind's projected future economic losses.
See Defendant's Motion in Limine to Preclude the Expert Testimony of Gerald Sazama [doc. # 37].
11
Soper's October 2005 proposal is not an appropriate benchmark in any case since
Harleysville's policy anticipates that the building will be rebuilt or replaced within a reasonable
period of time. A reasonable period of time would be the Spring of 2004, which is consistent with
the two-stage plan for permanent repair that SummerWind and Harleysville had agreed to in the
summer and fall of 2003. Harleysville cannot be blamed for any increased costs attendant to delay
after April 2004.
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In view of the Court's conclusion that Harleysville has not yet breached its obligations under the
insurance policy and did not breach its duty of good faith and fair dealing, the Court need not address
that motion, and it is therefore moot.
III.
Accordingly, the Court DENIES as moot Defendant's Motion in Limine to Preclude the
Expert Testimony of Gerald Sazama [doc. # 37]. The parties are required to file a joint written
report with the Court no later than June 2, 2006, containing their suggestions as to how, if at all, the
Court should proceed on the issue of what additional amounts are owed to SummerWind on the
Harleysville building loss policy.
IT IS SO ORDERED.
/s/ Mark R. Kravitz
United States District Judge
Dated at New Haven, Connecticut: May 2, 2006.
38