Caldon, Inc. v. Peerless Insurance , 217 F. App'x 176 ( 2007 )

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
2-16-2007
Caldon Inc v. Peerless Ins
Precedential or Non-Precedential: Non-Precedential
Docket No. 05-2250
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Recommended Citation
"Caldon Inc v. Peerless Ins" (2007). 2007 Decisions. Paper 1609.
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 05-2250
CALDON, INC.,
Appellant
v.
PEERLESS INSURANCE, as successor in interest to
GENERAL ACCIDENT INSURANCE COMPANY OF AMERICA
and as successor in interest to
COMMERCIAL UNION INSURANCE COMPANY
On Appeal from the United States District Court
for the Western District of Pennsylvania
(No. 05-cv-00113)
District Judge: Honorable Arthur J. Schwab
Submitted Under Third Circuit LAR 34.1(a)
May 8, 2006
Before: BARRY and SMITH, Circuit Judges, and DITTER,* District Judge
(Filed: February 16, 2007)
OPINION OF THE COURT
*
Hon. J. William Ditter, Jr., Senior United States District Judge for the Eastern
District of Pennsylvania, sitting by designation.
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DITTER, District Judge.
Caldon, Inc. appeals from a District Court order dismissing its declaratory
judgment suit against Peerless Insurance. We will affirm.
FACTS and PROCEDURAL HISTORY
Caldon produces the LEFM Flow Measurement System (“LEFM”) which is used
by nuclear power plants. In order to construct the system, Caldon engaged Key
Technologies, Inc. to provide mechanical engineering and design, and Ionics Inc. to weld
the necessary tubing called flow elements. Caldon contracted with two electric
generating companies to supply the LEFM: Exelon Nuclear1 for its station in Delta,
Pennsylvania, and that of Progress Energy Service Company near Hartsville, South
Carolina.2
During this time Caldon was insured by the defendant, Peerless Insurance, for
$2,000,000 under a commercial general liability policy and for $2,000,000 additional
coverage under a commercial umbrella policy. In the winter of 2002, a number of welds
on the flow elements failed causing damage in Exelon’s plant and that of Progress
Energy. Caldon submitted a letter to Peerless on May 19, 2003, providing notice that it
1
The complaint refers to both “Excelon Nuclear” and “Exelon.” Judge Schwab’s
opinions refer to the company as “Excelon.” However, the correct spelling is “Exelon”
and is used throughout this opinion.
2
At the times important in this matter, Progress Energy was known as Carolina
Power & Light Company. For the sake of simplicity we will refer to it as Progress
Energy.
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had a claim for damage to its equipment and property. On December 29, 2003, Peerless
denied the claim and explained its reasoning in a thirty-eight page letter. (App. 223-
260). In essence, Peerless said its insurance covered Caldon’s liability for damages to
others, but not Caldon’s damages to its own equipment. Caldon then filed suit against
Peerless (C.A. No. 04-1138, W.D. Pa. Nov. 5, 2004), seeking a declaration that the
Peerless policies provided coverage for damages to Caldon’s property. It also noted that
Caldon would incur additional repair and loss of generating capacity expenses although at
that time no claim or demand had been presented by either Exelon or Progress. (Compl.
at ¶ 40; App. 5)
The District Court found that the policies did not cover Caldon’s claim for
damages to its own product or costs associated with fixing its own system and therefore
granted defendant’s motion to dismiss without prejudice. Caldon then filed a second
complaint for declaratory judgment stating that Exelon and Progress Energy had asserted
claims against it. Again, the District Court granted Peerless’ motion to dismiss, holding
that Caldon’s claim was premature because Caldon had failed to notify Peerless of the
third party claims of Exelon and Progress, a requirement of the Peerless policies. (App.
005). Caldon filed a timely appeal bringing the matter before us.
DISCUSSION
Caldon alleges in paragraph 43 of its complaint that insurance in the amount of
$2,000,000 was provided to it by a “Commercial General Liability”policy issued by
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Peerless. The Insuring Agreement of that policy states:
We will pay those sums that the insured becomes legally obligated to pay
as damages because of “bodily injury” or “property damage” to which this
insurance applies. We will have the right and duty to defend the insured
against any “suit” seeking those damages. However, we will have no duty
to defend the insured against any suit seeking damages for “bodily injury”
or “property damage” to which this insurance does not apply.3 (emphasis
added).
There is no allegation in the complaint that Caldon is legally obligated to pay any
damages to anyone.
Paragraph 29 alleges that as a result of the deficiencies of Caldon’s subcontractors,
there was damage to Caldon’s and Exelon’s property. Although Paragraph 32 alleges that
Caldon and Exelon have repaired the damage at Exelon’s facility, Paragraph 31 asserts
that Exelon has demanded $2,868,278 for property damage it suffered.
Paragraphs 33 through 39 and 41 detail how the defective welding performed by
Caldon’s subcontractor, Ionics, caused damage to Progress’ plant for which Caldon
assumes responsibility in Paragraph 42. Paragraph 40 sets forth that Progress has
demanded $368,000 from Caldon for the damages to the Progress facility.
The fact remains, however, that there is no assertion that Caldon is legally
3
In Paragraph 44 of its complaint, Caldon alleges that the Peerless umbrella policy
provides an additional $2,000,000 in coverage. That policy has a similar insuring
agreement, i.e., “We will pay the sums that the “insured” becomes legally obligated to
pay as damages in excess of ‘underlying insurance’ . . . because of ‘bodily injury,’
‘property damage,’‘personal injury,’ or ‘advertising injury’ to which this insurance
applies.” (Emphasis added)
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obligated to pay the claim of either Exelon or Progress.
Federal Rule of Civil Procedure 8(a)(2) requires a pleading to provide “a short and
plain statement of the claim showing that the pleader is entitled to relief.” The Supreme
Court clarified the purpose of the rule, noting the “Federal Rules reject the approach that
pleading is a game of skill in which one misstep by counsel may be decisive to the
outcome and accept the principle that the purpose of pleading is to facilitate a proper
decision on the merits.” Conley v. Gibson, 355 U.S. 41, 48 (U.S. 1957).
In this Circuit we have explained:
Just as a pleading must “be construed as to do substantial justice,” a
plaintiff generally need not explicitly allege the existence of every element
in a cause of action if fair notice of the transaction is given and the
complaint sets forth the material points necessary to sustain recovery. This
is especially so if the material deficiencies in the complaint stem from
nothing more than inartful pleading – the precise sort of pleading as a
highly developed form of art that the federal rules sought to abandon.
Menkowitz v. Pottstown Mem'l Med. Ctr., 154 F.3d 113, 124-25 (3d Cir. 1998)
(internal citations omitted).
However, other courts have cautioned that “the liberal pleading standard set
forth in Federal Rule of Civil Procedure 8(a) does not invite plaintiffs to use clever
omissions and cynical pleading practices to overcome otherwise valid motions to
dismiss.” Sapiro v. Encompass Ins., 2004 U.S. Dist. LEXIS 22054, *17 (N.D. Cal.
Nov. 2, 2004) (internal quotations and citations omitted). Further, in discussing
the art of clever pleading in relation to removal jurisdiction, another District Court
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stated “(c)lever pleading, of course, is neither unethical nor illegal – it is, in fact,
good lawyering. But good lawyering should not defeat good judging, which
requires a court to call things as it sees them.” Linnin v. Michielsens, 372 F. Supp.
2d 811, 825 (E.D. Va. 2005).
At best, this complaint amounts to a purposeful side-step by Caldon’s
attorneys, not a misstep to be overlooked by the rule of liberal pleading. Here, we
are presented with the same attorneys, the same parties, the same District Court
Judge, and the same occurrence as in Caldon’s first suit against Peerless. There,
the District Court dismissed Caldon’s claim, not only holding that the policy did
not cover claims for damages to Caldon’s own property but observing that “there is
no coverage at this time because the insured is not legally obligated to pay
damages now. If and when a claim is made by Excelon [sic] and [Progress
Energy] or another third party, the parties are free to take whatever legal action
they believe is legally appropriate at that time.”
Having been put on notice by the District Court of the need to aver that
there was a legal obligation to pay damages, surely Caldon’s attorneys would have
alleged that duty had they been able to do so. If somehow they had overlooked the
vital “legally obligated” language, they would have amended their complaint.
Instead, to avoid stating what they apparently cannot, they have “artfully” written
the complaint to provide only an inference of a meritorious claim where no such a
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claim exists.
The complaint is therefore fatally defective for failing to allege a condition
that is necessary for Caldon to prevail, namely that Caldon is legally obligated to
pay a third party.
The District Court dismissed the complaint holding that Caldon’s failure to
provide notice of claims by Exelon and Progress Energy, a requirement of the
Peerless policy, rendered the case unripe. We base our holding on the ground that
Caldon has failed to state a claim for which relief may be granted. Fed. R. Civ. P.
12(b)(6). “[I]f the decision below is correct, it must be affirmed, although the
lower court relied upon a wrong ground or gave a wrong reason.” Helvering v.
Gowran, 302 U.S. 238, 245 (1937). See also Erie Telecomms. v. Erie, 853 F.2d
1084, 1089 (3d Cir. 1988) (citing Helvering and other cases). Therefore, although
we reach the same conclusion as did the District Court, we believe the result is
better explained in the terms of a simple failure to plead rather than in the more
complicated terms of ripeness.
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