Allegheny Design Management, Inc. v. Travelers Indemnity Co. of America , 572 F. App'x 98 ( 2014 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 13-4263
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ALLEGHENY DESIGN MANAGEMENT, INC.,
Appellant
v.
TRAVELERS INDEMNITY COMPANY OF AMERICA
On Appeal from the United States District Court
for the Western District of Pennsylvania
(District Court No.: 2-12-cv-00658)
District Judge: Terrence F. McVerry
Submitted under Third Circuit LAR 34.1(a)
on July 7, 2014
Before: RENDELL, CHAGARES and JORDAN, Circuit Judges
(Opinion filed: July 11, 2014)
OPINION
RENDELL, Circuit Judge:
Plaintiff Allegheny Design Management, Inc. (“ADM”) appeals the District
Court’s grant of summary judgment in favor of defendant Travelers Indemnity Company
of America (“Travelers”) in connection with an insurance dispute. For the reasons set
forth below, we will reject plaintiff’s arguments and affirm summary judgment in favor
of Travelers.
I. Factual Background
ADM was hired as a general contractor to construct a Finish Line retail store
inside a mall in Las Vegas, Nevada. The terms of the agreement with Finish Line were
memorialized in a General Contractor Agreement. Travelers issued a Commercial
General Liability Insurance Policy to ADM in connection with its general contractor
responsibilities.
ADM hired two subcontractors to work on the Finish Line project. Elite Glass and
Mirrors, Inc. (“Elite”) was hired to install all glass 1 required in the project, and Gold Star
Cleaning Company (“Gold Star”) was hired to do the final cleaning of the glass within
the store.
Elite completed its work within two to three days of receiving the glass to be
installed at the Finish Line store. Then, on October 23, 2011, Gold Star began cleaning
1
The glass at issue in this case was specifically to form the wall between the public mall
area and the retail store.
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the newly installed glass and a Gold Star representative notified the ADM Superintendant
that the glass was damaged. Gold Star was instructed by ADM to continue cleaning the
glass. The parties thus agree that the damage to the glass took place before Gold Star
finished cleaning, and that either Gold Star or Elite caused the damage. On October 26,
2011, the Finish Line store opened for business. On October 27, 2011, the Las Vegas
mall’s manager issued a “punch list” for the Finish Line store, indicating that the glass
had many small fine scratches.
On October 31, 2011, ADM submitted a claim to Travelers seeking coverage for
the damaged glass under its insurance policy. ADM’s claim was denied. Although Finish
Line’s legal department has informally asserted that ADM is obligated to pay for the
damages to the glass, Finish Line has not brought suit against ADM or made a formal
claim.
ADM filed a three count complaint against Travelers setting forth the following
claims: (1) breach of contract; (2) declaratory judgment; and (3) bad faith. After ADM’s
complaint was removed from state court to the federal District Court, Travelers moved
for summary judgment, which the District Court granted. ADM appeals this ruling.
II. The Insurance Contract
Under Pennsylvania law, a contract is interpreted according to its plain language,
and where a plaintiff’s claim is foreclosed by the plain language of the contract, summary
judgment is appropriate. See Meyer v. CUNA Mut. Ins. Soc’y 648 F.3d 154, 163 (3d Cir.
2011) (“A policy must be read as a whole and its meaning construed according to its
plain language”); see also Wheeler v. Graco Trucking Corp., 985 F.2d 108, 114 (3d Cir.
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1993) (reversing a District Court’s denial of summary judgment to defendants where it
was clear that the contract did not allow for recovery). The insurance agreement states
that Travelers will provide coverage for “property damage” that is caused by an
“occurrence” that takes place during the policy period. (App. 209.) An “occurrence” is
defined as either an “accident” (which is undefined in the contract), or an act or omission
that causes “subcontracted work property damage.” (App. 225.) “Subcontracted work
property damage,” in turn, is defined as property damage that is unexpected and
unintended and is a “products-completed operations hazard.” (App. 225.) The strangely-
named “hazard” simply means that the property which is damaged must have been, inter
alia, put to its intended use. (App. 222-23.) In sum, the policy generally covers (1)
accidents and (2) damage occurring after the property has been put to its intended use.
In moving for summary judgment, Travelers invoked two provisions of the
insurance policy which exclude from coverage “property damage” to:
(5) That particular part of real property on which you or any contractors or
subcontractors working directly or indirectly on your behalf are performing
operations, if the “property damage” arises out of those operations; or
(6) That particular part of any property that must be restored, repaired or replaced
because “your work” was incorrectly performed on it.
(App. 212.) Of note, Exclusion 6 “does not apply to ‘property damage’ included in the
‘products-completed operations hazard.’” (App. 213.)
III. Discussion
The District Court here concluded that there was no breach of contract because
ADM had not identified a covered “occurrence.” Specifically, the Court stated that there
was no evidence in the record suggesting that the damage was the result of an accident,
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rather than faulty workmanship. The Court also found that there was no covered
“subcontracted work property damage” because there was no “products-completed
operations hazard,” since the glass had yet to be put to its intended use. (App. 10, 13.)
The Court stated that at the time the glass was damaged, neither all of the work in the
contract with Finish Line had been completed, nor had the glass yet been put to its
intended use by Finish Line.
The Court also found that, even if the damage to the glass had been caused by an
“occurrence” under the policy, Exclusions 5 and 6 both applied. Finally, the Court held
that Travelers did not have a duty to defend or indemnify ADM in the absence of a suit
by Finish Line, and that Travelers was entitled to summary judgment on the bad faith
claim since there was no coverage under the insurance policy. ADM challenges each of
these legal conclusions.
ADM argues that the damage to the glass occurred during cleaning, rather than
installation and thus was necessarily the result of an accident, such that it is covered
under the policy. We need not resolve this issue, however, because we agree with the
District Court that Exclusion 6 applies. Exclusion 6 precludes coverage for property
damage caused by the incorrect performance of work by ADM or its subcontractors.
(App. 212) The parties agree that one of ADM’s two subcontractors caused the property
damage to the glass through improper performance of their work. By its plain terms,
Exclusion 6 applies.
ADM’s response to Traveler’s invocation of Exclusion 6 is that the damage was
“products-completed operations hazard” property damage, so Exclusion 6 does not apply.
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However, as we noted above, a “products-completed operations hazard” is defined as
damage to property that has been put to its intended use. (App. 222.) ADM argues that
the glass was no longer physically possessed by ADM and had been put to its intended
use by Finish Line. Once the glass was installed in the storefront, it urges, it was put to its
intended use because Finish Line had begun stocking, inventorying and moving into the
store.
The District Court found, and we agree, that the damage to the glass occurred
before the glass was put to its intended use. The purpose of the glass was clearly to serve
as a window through which potential customers could survey items for sale. Accordingly,
ADM’s work (the glass) was only put to its intended use by Finish Line when the store
opened for business – two days after the damage was first noticed. (App. 334, 338-339,
359.) The glass was not put to its intended use before the store was open to the public.
For this reason, the damage did not constitute a products-completed operations hazard.
The damage to the glass, therefore, falls under Exclusion 6 as damage caused by
subcontractors, and is excluded from coverage under the insurance policy. 2
ADM also contends that Travelers breached its contract by failing to defend or
indemnify ADM. The insurance agreement between ADM and Travelers states that,
“[Travelers] will pay those sums that the insured becomes legally obligated to pay as
2
Even were we to agree that this property damage constituted such a “hazard,” Exclusion
5 would apply and thus preclude the claim from coverage. Neither party disputes that the
damage to the glass was caused by the operations of one of ADM’s two subcontractors.
This squarely falls under Exclusion 5, which bars from coverage property damage to the
part of real property “on which. . . .subcontractors working. . . .on your behalf are
performing operations, if the ‘property damage’ arises out of those operations.” (App.
212)
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damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.
[Travelers] will have the right and duty to defend the insured against any ‘suit’ seeking
those damages.” (App. 209.) A suit is defined under the agreement as “a civil proceeding
in which damages because of ‘bodily injury’, ‘property damage’ or ‘personal and
advertising injury’ to which this insurance applies are alleged.” (App. 223.)
ADM admits that a suit has not been filed against it by Finish Line. In the absence
of a suit, under the plain language of the policy, Travelers does not have a duty to defend.
Furthermore, as the District Court stated, “there is [] no record evidence that ADM has
otherwise been held liable for the damaged glass in any amount to trigger
indemnification.” (App. 15.) Consequently, there has been no breach of contract and the
District Court correctly ruled on this issue.
With respect to ADM’s claim of bad faith, under Pennsylvania law it must
establish by “clear and convincing evidence that the insurer (1) did not have a reasonable
basis for denying benefits under the policy; and (2) knew or recklessly disregarded its
lack of reasonable basis in denying the claim.” W.V. Realty, Inc. v. Northern Ins. Co., 334
F.3d 306, 312 (3d Cir. 2003) (citation omitted). Here, Travelers had a reasonable basis
for denying coverage to ADM based upon the “occurrence” definition and the Exclusions
referred to above. The District Court, therefore, properly granted summary judgment to
Travelers on ADM’s bad faith claim.
IV. Conclusion
For the foregoing reasons, we will affirm the District Court’s ruling of summary
judgment in favor of Travelers.
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