PA Federal Business Decisions Volume 18, No. 1

Business Litigation Update

Pennsylvania Federal Business Decisions

Kelly A. Williams and  Henry M. Sneath , Business Decisions Editors (Originally published in the Winter 2013 edition of the Pennsylvania Bar Association's Civil Litigation Update)

 

Third Circuit Finds District Court Misapplied Alternative Liability Theory in Products Liability Case, Reverses Grant of Summary Judgment

The United States Court of Appeals for the Third Circuit recently undertook application of the alternative liability theory in a products liability action involving consolidated suits in a non-precedential opinion. In  Reese v. Ford Motor Company, No. 11-3978, No. 11-3979, 2012 U.S. App. LEXIS 20341 (3d Cir. Sept. 12, 2012), Plaintiffs car caught on fire, which spread to and damaged their home. It was undisputed that the fire was caused by aftermarket wiring installed in the vehicle, while the parties disputed which party was actually in possession of the vehicle when the wiring was installed.

Plaintiffs purchased a 2006 Mercury Monterey manufactured by Defendant Ford from Defendant Faulkner. However, Defendant Faulkner did not have the specified car in its inventory, and obtained the car from Defendant dealership Magarino, and subsequently delivered the car to Plaintiffs. During three years of ownership, Plaintiff Timothy Reese either serviced the car himself or brought it to Pep Boys, where he worked.  Plaintiffs’ car caught on fire in May of 2009, which spread to and damaged Plaintiffs’ house. Defendants claimed that the aftermarket wiring was not original to the vehicle, and offered evidence that Plaintiff was a mechanic who frequently worked on the vehicle as proof that Plaintiff installed said wiring after purchase of the vehicle. Plaintiff claims that he never installed such wiring.

Plaintiffs brought causes of action against three Defendants. Against Faulkner, Plaintiffs alleged strict products liability, negligence and breach of implied warranty of merchantability. Against Defendant Ford, Plaintiffs brought a breach of contract action, and against Defendant Magarino a cause of action in negligence. The Eastern District of Pennsylvania granted summary judgment against Plaintiffs on all issues. Plaintiffs appealed, and the Third Circuit reversed the district court’s ruling as to the strict products liability and implied warranty claims.  It affirmed the remainder of the ruling.

The key issue for review was the apportionment of liability amongst the Defendants in the strict products liability cause of action. The district court granted summary judgment against Plaintiffs on their strict liability claim on the ground that they could not show which of the Defendants installed the faulty wiring. The court cited in its opinion the proper test for determining liability in such matters; "where the conduct of two or more actors is tortious, and it is proved that harm has been caused to the plaintiff by only one of them, but there is uncertainty as to which one has caused it, the burden is upon each such actor to prove that he has not caused the harm."

The district court, however, took a detour from applying the theory of alternative liability and inaccurately chose to rely on the Pennsylvania Superior Court’s decision in  Pennfield Corp. v. Meadow Valley Elec., Inc. 604 A.2d 1082 (Pa. Super. 1992), ultimately deciding that the application of the theory was inappropriate.  The district court ruled Plaintiffs remained responsible for proving which Defendant was responsible for installing the wiring, and since they did not sustain such a burden, summary judgment was granted against them.

The Third Circuit reversed the district court and remanded the case. The court analyzed the reasoning in  Pennfield as opposed to the alternative liability theory and pointed out the glaring factual differences between it and the facts in the case at hand. In  Pennfield, the plaintiff’s injuries (related to the death of over a thousand pigs) were allegedly caused by a defective electrical cable that a maintenance company had installed in the ventilation system in the pig’s shelter. In that case, there was insufficient evidence to determine which of the two companies had provided the defective cable. Because of this lack of evidence, the maintenance company sought to join the cable distributor as a co-defendant in the matter, arguing that the burden of proof should be shifted to each distributor to prove that it did not supply the defective wiring. The court in  Pennfieldproperly declined to apply the alternative liability theory, as it only applies when two actors have acted tortuously, and there was only evidence that the company that sold the defective cable acted tortuously.

These facts differed considerably from the current case, where Plaintiffs were not harmed by one of two products that were sold separately by two different distributors. Here, Plaintiffs were harmed by a single product they purchased from a single dealership due to a defective piece of wiring that was installed in that product at some point along the product distribution chain. The court noted that under Pennsylvania strict products liability law, sellers are strictly liable for selling a defective product so long as that product was defective when it was transferred from the seller to plaintiff and plaintiff’s injury was caused by that defect. As such, it is irrelevant whether Plaintiffs are able to show what entity was responsible for making the alteration that left the product defective; all Plaintiffs needed to do was provide evidence that the wiring was installed by the time the car was sold to them by Defendant Faulkner.

In expert deposition, Plaintiffs were able to create a disputed issue of fact with regard to when the aftermarket wiring was installed in their vehicle, and that while unlikely, it could have been installed at the dealership prior to their purchase. Although this evidence was not compelling, it created an issue of fact nonetheless that the Plaintiffs was permitted introduce to the jury as circumstantial evidence.

Defendant’s Demurrer Denied in Damaged Deck Dispute

The Eastern District of Pennsylvania recently rejected a motion to dismiss a putative class action in  Fleisher v. Fiber Composites, No. 12-1326, 2012 U.S. Dist. LEXIS 157343 (E.D. Pa. Nov. 2, 2012) (opinion by J. Padova).  The putative class members claimed that they had purchased a special kind of decking material from Defendant, which had been advertised as mold and mildew resistant, but which was not.  Defendant moved to dismiss each count of the class’s first amended complaint.  With just one exception, the court either denied these requests or granted the Plaintiffs leave to replead.

The court first found that Defendant advertised its decking as being impervious to mold and mildew and that these statements constituted an express warranty that could not, per the UCC, be disclaimed by a limited warranty that came with the decking material.  Id. at *19.  The court concluded that to the extent that Plaintiffs had relied on the advertisements when buying the decking, they had a colorable claim for breach of express warranty.  Because the first amended complaint did not explicitly state that Plaintiffs had so relied, the court granted Defendant’s motion to dismiss but gave Plaintiffs leave to replead.   Id.

The court then found that while the decking might be fit for its ordinary purpose (providing outdoor recreational space), the fact that Defendant had advertised it as being impervious to mold and mildew created a warranty of merchantability that extended to the decking’s aesthetic appearance.  This meant that Plaintiffs had a colorable claim for breach of an implied warranty of merchantability.  Moreover, Plaintiffs had equally plausible related claims for declaratory relief, for violating the Magnuson-Moss Consumer Products Warranty Act, for unjust enrichment, and, to the extent that Defendant’s misstatements were fraudulent, for violating the consumer protection statutes of Massachusetts, New York, and New Jersey.  See id. at *22.  In making this decision, the court followed the rationale in two cases from California which found that, due to advertising, someone who makes a car which is fit for its central purpose (transportation) but which smells, smokes, and lurches, or someone who makes a mattress which is fit for its central purpose (sleep) but which is moldy, can be liable for breach of an implied warranty of merchantability.   Id. (citations omitted).

The court did dismiss a claim for violation of Pennsylvania’s consumer protection act on the grounds that the Plaintiffs sought the same damages in this tort claim as they did in their contractual claims for breach of warranty:  under the economic loss doctrine, a tort claim will be barred unless it seeks damages that are separate from and in addition to contractual damages.   Id. at *28.

-- Contributed by  Jason A. Spak, Esq., Picadio Sneath Miller & Norton, P.C., Pittsburgh, Pennsylvania; jspak@psmn.com


Issues of Fact Exist Regarding Interpretation of Agreements

In  Amerisourcebergen Drug Corp. v. Kohll’s Pharmacy & Homecare, Inc., No. 09-1166, 2012 U.S. Dist. LEXIS 153885 (E.D. Pa. Oct. 26, 2012) (opinion by J. Pratter), Amerisourcebergen Drug Corp. ("ABDC") and Kohll’s Pharmacy and Homecare, Inc. ("Kohll’s") filed cross motions for summary judgment, both of which were denied by the court.

ABDC is a wholesale distributor of pharmaceutical products and Kohll’s is a retail pharmacy.  In December 2005, Kohll’s signed an Individual Purchase Agreement ("IPA") that set forth certain terms for a business relationship with ABDC.  The IPA included a clause wherein each party reserved the right to terminate the agreement with 60 days of notice.  In January 2006, the parties entered into a Prime Vendor Agreement ("PVA"), wherein ABDC agreed to provide prescription and over-the-counter pharmaceuticals to Kohll’s.  The parties agreed that either party could terminate the PVA for cause but that the PVA did not allow Kohll’s to terminate the agreement upon receipt of a more favorable offer from an ABDC competitor.  The term of the PVA was from January 23, 2006 until January 31, 2012, and the PVA did not include the same or similar language as in the IPA, allowing either party to terminate the agreement upon 60 days of notice prior to January 31, 2012.  Also, the PVA contained a clause stating that the terms of the PVA would control and supersede prior oral or written representations by the parties in the event of a conflict between a prior document and the PVA.  Finally, the PVA included a section entitled "Minimum Order Volume," which stated as follows:

[Kohll’s] minimum annual Net Purchase (total purchases less returns, credits, rebates, late payment fees and similar items) volume during Year 1 is $15,600,000.  Year 1 is from the Effective Date to January 31, 2007.  Subsequent contract years are the following twelve (12) month periods.  [Kohll’s] Net Purchases during subsequent years are projected to increase at a rate of 5.00% per year during each year of the Term.  [Kohll’s] aggregate Net Purchase volume over the life of this Agreement will be no less than $106,089,000.

In January 2009, Kohll’s informed ABDC that it intended to terminate the PVA, and notwithstanding objections from ABDC’s counsel, Kohll’s ceased purchasing product from ABDC after January 2009.  The parties agreed that Kohll’s did not terminate the PVA for cause.  In February 2009, ABDC filed suit alleging that Kohll’s breached the terms of the PVA.

Kohll’s first argued that either a mutual or unilateral mistake occurred during the formation of the PVA and that the court should reform the PVA to include a provision allowing either party to terminate the contract after giving the other side 60 days of notice.  In Pennsylvania, courts may only reform a contract due to the mutual mistake of the parties, which exists only if both parties are mistaken as to existing facts at the time of execution.  The court found that, based on testimony from ABDC’s director of sales who negotiated the PVA with Kohll’s and testimony from its business development manager, Kohll’s failed to show by clear, precise and convincing evidence that both ABDC and Kohll’s mistakenly failed to include a 60-day termination provision in the PVA.  The court determined that a fact-finder could reasonably conclude that ABDC did not mistakenly omit the 60-day termination provision in the IPA from the terms of the PVA because it never intended such a provision to become part of the PVA.

Kohll’s also argued that it made a unilateral mistake and signed the PVA believing that it contained the 60-day termination provision.  A party seeking to reform a contract due to a unilateral mistake must show, by clear and convincing evidence, that the party against whom reformation is sought had such knowledge of the mistake as to justify an inference of fraud or bad faith.  Again, the court determined that Kohll’s failed to demonstrate that a reasonable fact-finder would necessarily conclude that ABDC knew or should have known that Kohll’s believed the PVA contained a 60-day termination provision.  The court relied on evidence that Kohll’s extensively negotiated the terms of the PVA in January 2009 and that David Kohll was a very smart and very tough businessman who would have read any draft of the agreement prior to signing and approving of the terms, and found that a fact-finder could conclude that ABDC possessed a good-faith belief that Kohll’s knew the terms of the PVA and lacked any knowledge of a mistake as to justify an inference of fraud or bad faith.

ABDC also moved for summary judgment regarding Kohll’s liability under the PVA.  Specifically, ABDC argued that, even if a fact-finder concluded that a mutual or unilateral mistake caused the parties to omit the 60-day termination provision from the PVA, the PVA nonetheless required Kohll’s to purchase $106 million in product from ABDC.  ABDC argued that the language in the provision above was unambiguous and that Kohll’s aggregate purchase volume over the life of the agreement was to be no less than $106,089,000.  However, the court concluded that other contractual language indicated an alternative reading of the PVA.

Under Pennsylvania law, the fundamental rule in interpreting the meaning of a contract is to ascertain and give effect to the intent of the contracting parties.  In interpreting a contract, the whole instrument must be taken together in arriving at contractual intent.  A latent ambiguity in a contract arises from extraneous or collateral facts which make the meaning of a written agreement uncertain although the language thereof, on its fact, appears clear and unambiguous.  According to the Third Circuit Court of Appeals, while mere disagreement between the parties over the meaning of a term is insufficient to establish that term as ambiguous, a party may nonetheless show that a seemingly clear contractual term contains a latent ambiguity.  To make such a finding, the party must first identify other portions of the contract that support a reasonable alternative interpretation of a seemingly clear term and narrow the plain meaning of that term without flatly contradicting it.  Once a party clears that hurdle, it may then rely on extrinsic evidence, including the testimony of its employees, to establish the existence of a latent ambiguity.

The court referenced another clause in the PVA that established that the parties would only have to pay a penalty for an early termination of the contract if the termination occurred prior to January 31, 2009, and concluded that such language indicated that the parties did not intend to penalize each other if a termination occurred after three years, regardless of whether Kohll’s had purchased $106 million in product from ABDC.  The court also relied on the language immediately preceding the PVA’s $106 million purchase requirement.  The court found that the parties’ choice to include language about projected five-percent increases may evidence their intent to establish purchase requirements that took effect on an annual basis and to only require Kohll’s to purchase $106 million if the PVA remained in effect for the full six years.  Because additional language in the PVA served to cast doubt on ABDC’s claim that the PVA was unambiguous, the Court then analyzed extrinsic evidence offered by Kohll’s to support an alternative interpretation of the $106 million requirement.  Kohll’s offered deposition testimony regarding statements made by ABDC’s representatives that clearly indicated that the parties intended to allow Kohll’s to terminate the PVA without penalty after three years, regardless of whether it already had purchased $106 million in product.  The court concluded that the other provisions of the PVA and the extrinsic evidence proffered by Kohll’s demonstrate that the PVA contained latently ambiguous language and that the proper interpretation of the $106 million requirement was an issue for the jury.

-- Contributed by  Esq. Picadio Sneath Miller & Norton, P.C., Pittsburgh; (412) 288-4000;


Plaintiffs’ Inconsistent Amended Pleading Results in Complaint Being Dismissed with Prejudice

The decision in  Mickel Drilling Partners v. Cabot Oil & Gas Corp., No. 3:CV-11-0061, 2012 U.S. Dist. LEXIS 148515 (M.D. Pa. Oct. 16, 2012) (opinion by J. Caputo) highlighted the danger of amending a pleading to assert facts that are inconsistent with an earlier pleading. As the Plaintiffs in this case found out, one can plead oneself out of court.

The case revolved around an oil and gas lease agreement that Plaintiffs alleged Defendant breached. In their initial complaint, Plaintiffs alleged that the parties entered into an October 2008 lease, which governed their dispute. Eighteen months later, Plaintiffs amended their complaint to assert that an August 2008 lease actually governed the relationship between the parties. Defendant moved to dismiss the amended complaint, arguing that the August 2008 lease was only a draft and that under the terms of the October 2008 lease, Plaintiffs failed to state a claim.

As an initial matter, the court noted that it could not determine as a factual matter which version of the contract controlled at this procedural phase of the case. Factual determinations such as this one should not be made in resolving a motion to dismiss.

However, the court noted that it did not have to accept every allegation in the complaint as true. Instead, Supreme Court and Third Circuit precedent required the court to only accept well-pleaded facts as true. Mere conclusory statements of fact or law that are not well-supported are not sufficient. On a motion to dismiss, the court was to engage in a three-step analysis: (1) identify the elements of a claim, (2) review the complaint to strike conclusory allegations, and (3) look at the well-pleaded allegations to determine whether the Plaintiffs sufficiently stated a claim.

The central question in this case was whether the court had to accept Plaintiffs new allegation that the parties’ relationship was governed by the August 2008 lease, or whether their prior allegation that the October 2008 lease controlled their relationship trumped. In resolving this issue, the court considered various approaches in other Circuits for determining how to deal with inconsistent pleadings before concluding that a party is generally free to amend their pleading to assert contradictory facts, as there are often occasions where discovery reveals information that alters a party’s understanding of the case. Thus, courts should not  per se bar such amendments. This case, however, was an exception.

First, the court was troubled by the eighteen months that had passed since Plaintiffs filed their original complaint. Second, Plaintiffs offered no explanation as to why they changed their theory. Third, Plaintiffs knew about the August 2008 lease from the beginning—this was not an instance of a newly discovered fact. Fourth, Plaintiffs were represented by counsel and were not  pro se, which might have entitled them to some leniency. Fifth, Plaintiffs indicated on three prior occasions that the October 2008 lease controlled. Finally, the court found that Plaintiffs misrepresented the differences between the two leases, wrongly claiming that they contained the same terms.

Taken together, the court found that it could not plausibly accept that the August 2008 lease governed. Instead, it found that it must accept Plaintiffs’ original allegation that the October 2008 lease governed. Under this interpretation, the court found that Plaintiffs failed to state a claim because the documents attached to the amended complaint confirmed that Defendant did not breach the terms of the October 2008 lease. Therefore, the court granted Defendant’s motion to dismiss.

Finally, the court determined whether Plaintiffs’ case must be dismissed with prejudice. The court acknowledged that parties should generally be given an opportunity to amend their pleadings, but that this was not required where, as here, the amendments would be futile. Thus, the court dismissed the case with prejudice.

--Contributed by  Robert Wagner, Esq., Picadio Sneath Miller & Norton, P.C., Pittsburgh, Pennsylvania; rwagner@psmn.com

 

Attorney’s Fees Awarded in Breach of Contract Action Including In-House Counsel Fees

In  Anesthesia Services & Products Inc. v. Augustine Temperature Management LLC, No. 11-3072, 2012 U.S. Dist. LEXIS 147719 (E.D. Pa. October 15, 2012) (opinion by J. Schiller), the court addressed whether to grant a petition for attorneys’ fees in a contract dispute governed by Minnesota Law.

Plaintiff, Anesthesia Services & Products ("ASAP") brought an action against Augustine Temperature Management ("ATM") for breach of contract over a Distribution Agreement ("Agreement") in which ASAP was to distribute ATM’s warming blankets in various territories.  ATM counterclaimed for breach of contract and conversion.  A jury found for ATM, and they were awarded damages on their counterclaims.

ATM subsequently filed a petition for attorneys’ fees seeking $136,322.39 for the services of their General Counsel ("Benham") and a seventh-year associate ("Gallinaro") who acted as local counsel.  The Agreement provided the following language:

"The prevailing party shall be entitled to collect from the losing party reasonable costs and expenses (including, but not limited, its court costs, litigation expenses, attorneys’ fees and costs of collection of payments due hereunder) in connection with enforcing its rights under this Agreement."

The parties agreed that ATM was the "prevailing party" as defined by the Agreement and that Minnesota law governed.

The first issue examined by the court was whether fees could be awarded for work performed by ATM’s in-house counsel.  The court examined two Minnesota cases interpreting that state’s statute providing for recovery of attorney’s fees and found that "costs and expenses" were not confined to direct expenditures and therefore, fees to Benham were recoverable.  The court also rejected ASAP’s argument that the Benham’s billing record was inadmissible hearsay and was not contemporaneously recorded.  The court found instead that the bills qualified as a "reconstructed estimate" which referred to specific events and Benham attested to his good faith effort to accurately record his time.

The court also awarded fees for hours worked on arbitration despite the fact that the arbitration was discontinued.  They reasoned that Benham’s preparation for the arbitration was work that he would have nevertheless undertaken for the litigation including research, discovery and document production.

With respect to Benham’s proper hourly rate, the court divided his yearly salary by the number of hours worked and then multiplied that amount by the hours spent on the case.  The court declined to factor in Benham’s 4% equity stake in the calculation of his hourly rate and therefore awarded a significantly lower amount than ATM’s request (i.e. $34,396.20 instead of the requested $120,280.00).

Turning to the question of ATM’s local counsel, Gallinaro, the court found that his discounted hourly rate of $270 was within the range of fees for attorneys with six to ten years of experience.  However, the court reduced the requested amount by half as they found that some of the work performed by Benham and Gallinaro was duplicative.


 

Court Denies Motion to Dismiss CASPA Claims, Finding Work Fell Within CASPA

In Polygon US Corp. v. Diversified Info. Technologies , No. 3:cv-12-0923, 2012 U.S. Dist. LEXIS 155763 (M.D. Pa. Oct. 31, 2012) (opinion by J. A.R. Caputo), the court denied Defendant Diversified Information Technologies’ ("Diversified") motion to dismiss Plaintiff Polygon US Corporation’s ("Polygon") amended complaint as Polygon adequately plead its claims under the Pennsylvania’s Contractor and Subcontractor Payment Act ("CASPA").

Polygon’s amended complaint alleged breach of contract, violations of CASPA, 73 Pa. Stat. Ann. §§ 501, et seq. , unjust enrichment and quantum meruit against Diversified.  Polygon had supplied material, labor and equipment necessary for drying and dehumidification at two Diversified properties.  Polygon alleged that despite performing all of the work in a good and workmanlike manner, it did not receive full payment.  Diversified moved to dismiss Polygon’s CASPA claims on the basis that the complaint failed to state a claim for which relief could be granted and that Polygon had failed to join an indispensable party, Affiliated FM.  More specifically, Diversified argued that Polygon’s CASPA claims should be dismissed because (1) the "pack out" was not an improvement to the building under the definitions of CASPA; (2) the rental of dehumidification equipment was not covered by CASPA; and (3) no valid, signed contract had been produced by Polygon.

Under CASPA, 73 Pa. Stat. Ann. §§ 501, et seq. , "[p]erformance by a contractor or a subcontractor in accordance with the provisions of a contract shall entitle the contractor or subcontractor to payment from the party with whom the contractor or subcontractor has contracted."  CASPA applies to construction contracts, which are defined under CASPA as "[a]n agreement, whether written or oral, to perform work on any real property located within this Commonwealth."  "Real property" means "[r]eal estate that is improved, including lands, leaseholds, tenements and hereditaments, and improvements placed thereon."  CAPSA defines "improve" as "[t]o design, effect, alter, provide professional or skilled services, repair or demolish any improvement upon,…or to perform any labor upon improvements" with "improvements" defined as "[a]ll or any part of a building or structure."

The court determined that Polygon sufficiently plead that it performed work pursuant to the two construction contracts.  Polygon had improved an improvement to real property by supplying the material, labor and equipment necessary to perform the drying of residential, commercial and industrial structures at two of Diversified’s properties, each of which qualified as "real property" under CASPA.  Polygon sufficiently plead that it had contracted to provide all "labor" necessary to perform the drying at the properties.  The court held that Pennsylvania courts recognize that CASPA is broadly written and covers a variety of work, including in this case, the drying and dehumidification services provided by Polygon in the instant case.

Finally, the court found that Affiliated FM, Diversified’s insurer, was not necessary to the action as it had no relationship with Polygon.  The court held that a favorable judgment for Polygon would not prejudice Affiliated FM’s ability to protect its interest nor would it prejudice Diversified’s right to pursue a claim against its insurer.  As a result, the court denied Diversified’s motion to dismiss in its entirety.

 

 

Damage to Wall of Home Caused by Deterioration and Wind Not Covered Under Homeowner’s Policy

In  Hamm v. Allstate Prop. & Cas. Ins. Co., No. 2:11-CV-00614, 2012 U.S. Dist. LEXIS 159348 (W.D. Pa. Nov. 6, 2012) (opinion by J. Hornak), the U.S. District Court for the Western District of Pennsylvania granted summary judgment in favor of a homeowner’s insurer on claims for breach of contract and bad faith in violation of 42 Pa. C.S. § 8371, arising from the insurer’s denial of coverage for alleged damage to the insured’s home.

Plaintiffs, George and Alethia Hamm, husband and wife, were insured under a homeowner’s insurance policy issued by Defendant Allstate Property & Casualty Company ("Allstate").  The policy covered "sudden and accidental direct physical loss to property described in Coverage A - Dwelling Protection and Coverage B - Other Structures Protection except as limited or excluded in this policy."  The policy excluded from coverage,  inter alia, loss to property caused by "7. a) wear and tear, aging, marring, scratching, deterioration, inherent vice, or latent defect."  The policy also provided that it did not cover "9. Weather Conditions that contribute in any way with a cause of loss excluded … to produce a loss."

In 2008, Mr. Hamm noticed bulging of the stone veneer wall in the rear of his home and filed a claim under his policy with Allstate.  The following day an Allstate adjuster conducted an inspection of the wall and determined that the damage was not covered under the homeowner’s policy because it was "caused by deterioration" and was "not sudden."  The adjuster also noted that there was a "likelihood that there could be further problems down the line."

Allstate then sent a letter to the Hamms denying their claim.  On May 27, 2010, the rear stone veneer wall of the Hamms’ home fell.  The Hamms filed another claim as a result of the fallen wall.  The Hamms contended that winds from a bad storm had caused the damage to the wall.  In early June 2010, an Allstate adjuster performed an inspection of the wall, reviewed the previous claim from 2008 and noted in a report that the loss would not be covered because it was "not sudden."  In a letter dated June 8, 2010, Allstate denied the claim.

Shortly after the denial, Allstate hired an engineer to inspect the damage.  The engineer opined that the weather on the date of the collapse did not cause the final collapse of the wall but, rather, that the wall was in an ongoing state of collapse over an extended period of time and that the damages were caused by, among other things, wear and tear and deterioration.

The Hamms hired their own expert to determine the cause of the damage.  The Hamms’ expert opined that the wall ties and mortar deteriorated over time due to moisture behind the wall, but retained enough strength to resist wind forces during most of the life of the structure.  He further opined that the wind speeds at the residence on the day of the collapse were sufficient to create suction forces that resulted in the collapse of the wall.

The Hamms eventually hired a contractor to have the wall repaired and were charged $22,080 for the repairs.  Subsequently, Allstate terminated the Hamms’ homeowner’s coverage due to the condition of their property.  The Hamms then filed suit against Allstate.  Allstate moved for summary judgment.

After it concluded that it had subject matter jurisdiction over the case, the court considered Plaintiffs’ breach of contract claim.  The court initially found that there was a genuine issue of fact as to whether the wall’s collapse was "sudden and accidental."  Despite that finding, the court concluded that there was no coverage under the policy for the Hamms’ claim because policy exclusions applied to bar coverage.  Specifically, the court found that, under the clear and unambiguous language of the policy, if wind (i.e., a Weather Condition) "contributes in any way" with deterioration (a plainly excluded cause) to "produce a loss," then such loss is excluded from policy coverage.  Based on the record facts, the court held that a reasonable jury could not conclude that wind was the sole cause of the Hamms’ loss or that deterioration was not involved and, thus, the exclusionary provisions applied to bar coverage.  Accordingly, the court granted summary judgment on the breach of contract claim.

The court next considered Plaintiffs’ bad faith claim under 42 Pa. C.S. § 8371.  Plaintiffs asserted bad faith claims relating to the denial of coverage, inadequate investigation and abusive claims handling practices.  The court found based on the record facts that Allstate had a reasonable basis to deny coverage under the policy and thus, was not in bad faith for denying the Hamms’ claim.  Specifically, the court found that the inspections by Allstate’s claims adjusters following the November 2008 claim and after the wall’s eventual collapse, offered reasonable grounds for Allstate to deny the claim.  The court also found that Allstate’s failure to employ an expert to determine the cause of the loss prior to the claim denial did not rise to the level of bad faith.  Finally, the court found that Allstate’s employees’ "nasty" behavior directed towards the Hamms while handling their claim was not bad faith.  Consequently, the court granted summary judgment on Plaintiffs’ bad faith claim.

--Contributed by  R. Brandon McCullough, Esq., Picadio Sneath Miller & Norton, P.C., Pittsburgh, Pennsylvania; bmccullough@psmn.com