Buczek v. Continental Casualty Insurance

Opinions of the United
2004 Decisions States Court of Appeals
for the Third Circuit
8-6-2004
Buczek v. Cont Cslty Ins Co
Precedential or Non-Precedential: Precedential
Docket No. 02-2847
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PRECEDENTIAL GERARD J. JACKSON, ESQ. (Argued)
1260 Marlkress Road
UNITED STATES COURT OF P.O. Box 1820
APPEALS FOR THE THIRD CIRCUIT Cherry Hill, NJ 08034
Counsel for Appellees
Nos. 02-2847, 02-4063 SHEILA A. HAREN, ESQ. (Argued)
MONICA E. O'NEILL, ESQ.
Post & Schell, P.C.
JACK BUCZEK; MARIE BUCZEK; 1600 John F. Kennedy Blvd, 13th Floor
MICHAEL NEILL; SANDY NEILL, Four Penn Center
an Unincorporated Association Philadelphia, PA 19103
t/a MEADOWS CONDOMINIUM Counsel for Appellant
ASSOCIATION;
MEADOWS CONDOMINIUM
ASSOCIATION OPINION
v.
CHERTOFF, Circuit Judge.
CONTINENTAL CASUALTY Appellees Jack and Marie Buczek
INSURANCE COMPANY; and Michael and Sandy Neill are the sole
TRANSPORTATION INSURANCE and exclusive members of an
COMPANY, unincorporated condominium association
Appellant known as “Meadows Condominium
Association” (“Owners”). The Owners
On Appeal from the United States commenced the underlying contract action
District Court for the against Transportation Insurance
District of New Jersey Company (“Transportation”) and
(Dist. Ct. No. 00-cv-04274) Continental Casualty Insurance Company
District Judge: Honorable Joseph E. (“Continental”)1 in the United States
Irenas District Court for the District of New
Jersey on August 31, 2000. The Owners
Argued December 9, 2003 sued the two insurance companies
following the denial of their condominium
Before: AMBRO, FUENTES, and
CHERTOFF, Circuit Judges.
1
Continental Insurance Company is
(Filed: August 6, 2004) not an appellant in this matter. The
Owners have not appealed the District
Court’s decision to dismiss all claims
against Continental.
insurance claim, and they asserted claims wooden pilings, which extended from
for breach of contract and breach of the approximately three to four feet above
duty of good faith dealing. At the grade to approximately forty feet into the
conclusion of the proceedings, the District ground. As the District Court established
Court entered a judgment in favor of the and the record clearly reflects, the pilings
Owners and against Transportation in the served as the foundation for the house.
amount of $103,634.00. Over a series of About November 1, 1998, the Owners
amended orders, the District Court also noticed that their structure was swaying in
granted costs and prejudgment interest to high winds. They investigated the
the Owners. For the reasons set out problem in the Spring of 1999 and found
below, we will reverse the orders of the visible discoloration on the surface level
District Court and vacate the judgment of the pilings that supported the building.
entered in favor of the Owners. A general contractor, exterminator, and
engineer were retained to investigate the
I. situation further.
On April 5, 1999, the structure was
The Buczeks, citizens of the jacked up approximately one foot, and two
Commonwealth of Pennsylvania, and the longitudinal steel beams were inserted
Neills, citizens of the State of New Jersey; under the building for support. Local
purchased in 1986 a three-story, two-unit code enforcement officials deemed the
s t r u c t u r e k n o w n a s M e a d o ws temporary foundation to be unsatisfactory
Condominium located in Wildwood, New and dangerous and required that the
Jersey. At the time of their condominium building be secured and anchored to
purchase, the Owners obtained from another temporary or permanent
Transportation, an Illinois corporation, an foundation.
all-risk policy of insurance (“the Policy”) The Owners decided to replace the
to cover the Condominium Association. rotted portions of the existing pilings with
“All-risks insurance is a special type of concrete beams over the piles, building up
insurance extending to risks not usually a foundation wall from the concrete beams
contemplated, and generally allows to the house. The Owners claim that the
recovery for all fortuitous losses, unless replacement costs were approximately
the policy contains a specific exclusion $103,634.00. On April 22, 1999, the
expressly excluding the loss from Owners submitted a Notice of Loss to
coverage.” Jane Massey Draper, Transportation. The Owners described the
Annotation, Coverage Under All-Risk loss as follows: “supports [of] building
Insurance, 30 A.L.R. 5th 170 (2004). rotted and wood boring beetles took over”
Built on filled marshland, the and that the loss occurred on or about
condominium building is located on an November 1, 1998. App. 254a.
inlet and was supported by thirty-four On May 22, 1999, Irving
2
Fruchtman, an engineer retained by the appeals timely filed by Transportation
Owners, inspected the property and contesting the District Court’s March 1,
discovered that the pilings had rotted from 2002 judgment; the May 31, 2002
just below the water surface level to amended judgment; the June 17, 2002
approximately one foot below grade. order denying Appellant’s post-trial
Wood samples from the pilings were motions; and the October 16, 2002 order
analyzed, and it was determined that awarding costs. This Court has appellate
wood-destroying fungi and anaerobic jurisdiction pursuant to 28 U.S.C. § 1291.
bacteria were present in the pilings in II.
addition to brown rot or decay.
Transportation’s own investigation yielded Transportation appeals the District
similar findings. Transportation issued a Court’s conclusion that the Owners were
written denial of the Owners’ claim on entitled to coverage under the Policy and
October 6, 1999, noting, “[s]ince the argues that this Court should rule that it is
pilings are the cause of the loss, and not entitled to judgment as a matter of law. In
covered property under the policy, [the the alternative, Transportation argues that
company] must respectfully deny any it is entitled to a new trial because the
voluntary assistance or payment for this District Court “remov[ed] numerous
loss.” App. 257a. critical factual issues from the jury” and
On August 31, 2000, the Owners improperly took judicial notice of an issue
filed the underlying contract action in of importance in this case. Appellant’s Br.
District Court. Following a three-day jury at 9. Finally, Transportation claims that it
trial, the District Court decided the matter is entitled to a remittitur because the
on motions pursuant to Rules 50(a)(1) and District Court granted damages not
50(a)(2) of the Federal Rules of Civil recoverable under the Policy.
Procedure. On March 1, 2002, the Court We exercise plenary review over
entered judgment against Transportation the District Court’s decision to grant the
in the amount of $103,634.00. The Court Owners’ motions for judgment as a matter
subsequently granted the Owners’ request of law. Goodman v. Penn. Tpk. Comm’n,
for pre-judgment interest on the contract 293 F.3d 655, 664-65 (3d Cir. 2002). “In
obligation and amended the judgment to reviewing the grant of a judgment as a
$117,197.49, reflecting interest in the matter of law under Fed. R. Civ. P. 50
amount of $13,563.49. On June 17, 2002, following a jury verdict, we must view the
the District Court entered an order evidence in the light most favorable to the
denying Transportation’s post-trial non-moving party, and determine whether
motions. On October 15, 2002, the the record contains the ‘minimum
District Court awarded costs of $1,778.71 quantum of evidence from which a jury
to the Owners. might reasonably afford relief.’” Glenn
This appeal consolidates four Distribs. Corp. v. Carlisle Plastics, Inc.,
3
297 F.3d 294, 299 (3d Cir. 2002) (quoting enforce the policy as it is written.” Royal
Parkway Garage, Inc. v. City of Ins. Co. v. Rutgers Cas. Ins. Co., 638 A.2d
Philadelphia, 5 F.3d 685, 691 (3d Cir. 924, 927 (N.J. Super. Ct. App. Div. 1994)
1993)). (quoting Flynn v. Hartford Fire Ins. Co.,
The parties agree that New Jersey 370 A.2d 61, 63 (N.J. Super. Ct. App.
law applies to this case, as do we. Div. 1977)). However, in the absence of
Determination of the proper coverage of any ambiguity, courts should not write for
an insurance contract is a question of law. the insured a better policy of insurance
Atlantic Mut. Ins. Co. v. Palisades Safety than the one purchased. Vassiliu v.
and Ins. Ass’n., 837 A.2d 1096, 1098 Daimler Chrysler Corp., 839 A.2d 863,
(N.J. Super. Ct. App. Div. 2003).2 An 867 (N.J. 2004). A genuine ambiguity
insurance policy should be interpreted exists “where the phrasing of the policy is
according to its plain meaning. Benjamin so confusing that the average policyholder
Moore & Co. v. Aetna Cas. & Sur. Co., cannot make out the boundaries of
843 A.2d 1094, 1103 (N.J. 2004) (internal coverage.” Lee v. Gen. Accident Ins. Co.,
citations omitted). Where the express 767 A.2d 985, 987 (N.J. Super. Ct. App.
language of the policy is clear and Div. 2001). When the terms of coverage
unambiguous, “the court is bound to are ambiguous, “that doubt is ordinarily
resolved in favor of the insured.” Moore,
843 A.2d at 1103.
2
We review the District Court’s
interpretation of state law de novo. Wiley A.
v. State Farm Fire & Cas. Co., 995 F.2d
457, 459 (3d Cir. 1993). In adjudicating a The “Condominium Association
case under state law, we are not free to Coverage Form” sets out the terms of
impose our own view of what state law coverage for “Covered Property.” In
should be; rather, we are to apply existing pertinent part, the Policy provides:
state law as interpreted by the state’s
highest court in an effort to predict how A. COVERAGE
that court would decide the precise legal We will pay for direct
issues before us. Kowalsky v. Long physical loss of or damage
Beach Township, 72 F.3d 385, 388 (3d to Covered Property at the
Cir. 1995). In the absence of such premises described in the
guidance, we must look to decisions of Declarations caused by or
state intermediate appellate courts, of resulting from any Covered
federal courts interpreting that state's law, Cause of Loss.
and of other state supreme courts that have
addressed the issue. Wiley, 995 F.2d at 1. Covered Property
459-60. Covered Property, as used
4
in this Coverage Part, means wharves or docks;
the type of property ***
described in this section 3. Covered Causes of Loss
A.1., and limited in A.2., See applicable Causes of
Property Not Covered, if a Loss Form as shown in the
Limit of Insurance is shown Declarations.
in the Declarations for that
type of property. App. 201-03a.
The “Causes of Loss– Special
a. Building, meaning the Form” details the types of “Covered
building or structure C a u s e s o f L os s ” c o v er e d by
described in the Transportation. It provides:
Declarations, including:
(1) Completed additions; A. C O V E R E D
(2) Fixtures, outside of individual CAUSES OF LOSS
units, including outdoor fixtures; When Special is shown in
(3) Permanently installed: the Declarations, Covered
(a) Machinery and Causes of Loss means
(b) Equipment; R I S KS O F D I R E CT
*** PHYSICAL LOSS unless
2. Property Not the loss is:
Covered 1. Excluded in Section B.,
Covered Property does not Exclusions; or
include: 2. Limited in Section C.,
*** Limitations; that follow.
f. The cost of excavations,
grading, back filling or B. EXCLUSIONS
filling; ***
g. Foundations of buildings, 2. We will not pay for
structures, machinery or loss or damage
boilers if their foundations caused by or
are below: resulting from any of
(1) The lowest the following:
basement floor; or ***
(2) The surface of d.
the ground if there is (1) Wear and tear;
no basement. (2) Rust, corrosion, fungus,
*** decay, deterioration, hidden
j. Bulkheads, pilings, piers, or latent defect or any
5
quality in property that Covered Property caused by
causes it to damage or collapse of a building or any
destroy itself . . . part of a building insured
under this Coverage Form,
App. 216-17a. if the collapse is caused by
In a decision issued from the bench one or more of the
following the conclusion of the Owners’ following:
and Transportation’s cases, the District ***
Court established that the Owners’ claims b. H i d d e n
would not be covered under the terms of decay;
the General Insurance Policy. App. 780a. c. Hidden insect
To the extent that the Owners argue or vermi n
otherwise and claim that the pilings are damage;
insured as “Covered Property,” we ***
disagree. As the District Court’s opinion
and the record establish, the pilings served App. 221a.
as the foundation for the building, and the Since the pilings were damaged by
language of the Policy clearly excludes hidden decay, the applicability of this
both foundations and “pilings” as clause turns on whether there was damage
“Covered Property.” to the Covered Property— i.e., the
The District Court concluded building— caused by “collapse.” The
nevertheless that coverage was warranted word “collapse,” as used in insurance
under the Section D “Additional Coverage policies, has been litigated for many years.
– Collapse” provision of the Policy (the See Annotation, What Constitutes
“Collapse Clause”). Transportation “Collapse” of a Building Within Coverage
disputes this ruling. of Property Insurance Policy, 71 A.L.R.
The Additional Coverage clause 3d 1072 (1976). As this Court discussed
reads: in Ercolani v. Excelsior Insurance Co.,
830 F.2d 31 (3d Cir. 1987), courts have
3. A D D I T I O N A L not uniformly agreed on what constitutes
C O V E R A G E – the collapse of a building under the
COLLAPSE collapse coverage of a casualty insurance
The term Covered Cause of Loss policy. Id. at 34.
includes the Additional Coverage - Some courts have adopted a
Collapse as described and limited “narrow” interpretation, requiring
in D.1 through D.5 below. coverage only where a building has fallen
down or caved in. See id. However, as
1. We will pay for direct the District Court noted, New Jersey
physical loss or damage to follows an alternative approach, i.e., the
6
“majority rule.” Our opinion in Ercolani imminent risk. The fact the event may or
predicted, “New Jersey courts would . . . may not occur in any given point in time
read the collapse peril as covering serious doesn’t mean the risk is not imminent.”
impairment of structural integrity making Id. In short, the District Court concluded
the wall no longer capable of supporting that the house’s vulnerability to ninety
the house’s superstructure.” Id. at 34.3 In mile-per-hour winds, which may occur
Fantis Foods, Inc. v. North River once in twenty years, constituted
Insurance Co., 753 A.2d 176, 183 (N.J. “imminent collapse.”
Super. Ct. App. Div. 2000), the New We disagree with the District
Jersey Appellate Division echoed our Court’s definition of “imminent collapse.”
holding in Ercolani and decided that the Certainly our decision in Ercolani made it
definition of collapse “must be taken to clear that a house need not be in a pile of
cover any serious impairment of structural rubble before it is deemed “collapsed.”
integrity that connotes imminent collapse However, even if we assume that a ninety
threatening the preservation of the mile-per-hour wind might occur once
building as a structure or the health and every ten or twenty years, that is still not
safety of occupants and passers-by.” an “imminent” risk.4
Fantis, 753 A.2d at 183 (emphasis added).
After mulling the parameters of
4
what would be considered “imminent,” the We do note, however, that “[a]
District Judge made two pivotal findings. judicially noticed fact must be one not
First, he accepted testimony that ninety subject to reasonable dispute in that it is
mile-per-hour winds would cause the either (1) generally known within the
building to collapse, and second, he took territorial jurisdiction of the trial court or
judicial notice that ninety mile-per-hour (2) capable of accurate and ready
winds sometimes hit the New Jersey shore. determination by resort to sources whose
App. 767-68a. The District Judge accuracy cannot re as on ab ly b e
concluded, “I’m holding that even a risk questioned.” Fed. R. Evid. 201(b).
that might be a one in ten, or one in twenty Indeed, on this appeal, the Owners’ own
year risk, is still a very serious and evidence, an Army Corps of Engineers
survey, cited only two instances in the last
sixty-eight years where winds at Atlantic
3
At the time of our decision in City reached ninety miles-per-hour. Other
Ercolani, the New Jersey courts had yet to government data seems to suggest no
determine which interpretation of storms in the Jersey shore in the past
“collapse” would be the determinate rule, century achieved winds of ninety miles-
leaving this Court to predict how the New per-hour. National Climate Data Center,
Jersey Supreme Court would rule. 830 National Oceanic and Atmospheric
F.3d at 34. Administratio n, 1899-1 996 U.S .
7
“Imminent” is defined as “ready to “heard loud moaning and shrieking noises
take place: near at hand,” Webster’s Third emanating from the south basement wall,
New International Dictionary 1130 (1st noticed a crack in it, and observed it move
ed. 1966), and “likely to occur at any and bulge inward.” 830 F.2d at 33.
moment: impending,” The Random House Likewise, in Fantis Foods, the masonry
Dictionary of the English Language 957 consultant who inspected the damaged
(2d ed. 1987). As one court has observed, property noted, “‘[t]he main cause of the
“imminent” means collapse “likely to parapet walls [sic] displacement and
happen without delay.” See Ocean Winds imminent collapse is hidden decay of steel
Council of Co-Owners v. Auto-Owner Ins. beams and lintels which are located or
Co., 565 S.E.2d 306, 308 (S.C. 2002); see behind the brick masonry walls’” and that
also Doheny West Homeowners Ass’n v. the “‘[n]orth wall parapet has the
Am. Guarantee & Liab. Ins. Co., 70 emergency condition.’” Fantis, 753 A.2d
Cal.Rptr.2d 260, 264 (Cal. App. 2 at 180.
Dist.,1997) (“‘likely to happen without In short, the District Court’s
delay’” (quoting Webster's New World interpretation of “imminent” wrenched it
Dictionary (3d college ed. 1991))). from any reasonable definition of the
The District Court’s findings on the word.5
“imminent” threat to the structural
integrity of the condominium contrast with
5
the findings of imminence relied upon by We need not consider whether our
this Court in Ercolani and by the New decision would be different if there was
Jersey Appellate Division in Fantis. Here, evidence in the record that a common gust
the District Court noted, “[there was] no of wind would knock the structure down.
observable damage [to the house]. . . . The Owners chose to offer evidence only
[D]rywall wasn’t flying apart. Flashing as to the effect of ninety mile-per-hour
wasn’t coming apart. The walls weren’t winds on the house. The District Court
bulging or cracking which sometimes tried in vain to probe whether the house
happen when a house becomes out of was threatened with collapse by less
whack, did not exist.” App. 765a. powerful winds. App. 304-05a. But as
However, in Ercolani, the policyholder Judge Irenas explained, “[Fructman]
didn’t say . . . it would collapse on its
own. I tried to get him to say that. I
Landfalling Major Hurricanes– GIF Maps, asked, would a lesser [sic] wind, [e.g.,] a
available at forty [or] thirty [mile-per-hour wind], . . .
http://lwf.ncdc.noaa.gov/img/climate/sev [would] make the thing fall. His answer
ereweather/2hur9996.gif (last visited July was, I only did calculations for ninety
8, 2004). This kind of disputed fact is not miles-an-hour. Nothing [Transportation’s
one that is appropriate for judicial notice. expert] Honig[] said [was] anything
8
B. By way of analogy, they point to the so-
called “Sue and Labor” insurance clauses,
The Owners also argue that which oblige insurance companies to
Transportation was responsible for the reimburse expenses to insured parties who
renovation costs because the Owners were spend money to avert harm to covered
obliged to renovate under their duty to property and to mitigate damages.
minimize losses and mitigate damages. 6 Two provisions in the Policy
appear to resemble traditional “Sue and
Labor” provisions found in other “all-risk”
different.” App. 786a. Having chosen to insurance policies: the “Preservation of
try the case on the theory that the house Property” and “Duties in the Event of Loss
was vulnerable to the rare threat of a or Damage” provisions.
ninety mile-per-hour wind, the Owners are The Preservation clause provides:
bound to accept the consequence of our
determination that such a threat is not b. Preservation of Property
imminent and cannot serve to support a If it is necessary for you to
finding of “collapse.” move Covered Property
6
The Owners also cite Harr v.
Allstate Insurance Co., 255 A.2d 208 (N.J. exclusions therefrom, to an
1969), for the propo sition that insured before or at the
Transportation should be estopped from inception of the contract,
denying coverage because the Owners and the insured reasonably
relied on the language of the “Duties” relies thereupon to his
clause articulated in the Policy and copied ultimate detriment, the
in a letter sent by the Company that was insurer is estopped to deny
dated April 30, 1999. The Owners’ coverage after a loss on a
reliance on Harr is misplaced. In that risk or from a peril actually
case, the New Jersey Supreme Court not covered by the terms of
provided that equitable estoppel was the policy.
available in “appropriate circumstances.”
Id. at 219. Id. That case is clearly distinguishable
from the matter at hand. The District
These decisions all proceed Court found no evidence o f
on the thesis that where an misrepresentation regarding the coverage
insurer or its agent of insurance policy, as evidenced by its
misrepresents, even though rejection of the bad faith claim against
innocently, the coverage of Transportation. See App. 798-99a.
an insurance contract, or the
9
from the described premises The Owners also refer to the
to preserve it from loss or language of the “Duties in the Event of
damage by a Covered Cause Loss or Damage” Clause in the Policy.
of Loss, we will pay for any This Clause provides:
direct physical loss or
damage to that property: 3. Duties in the Event
(1) While it is being of Loss or Damage
moved or while a. You must see that
temporarily stored at the following are
another location; and done in the event of
(2) Only if the loss or loss or damage to
damage o ccurs Covered Property:
within 30 days after ***
the property is first (4) Take all reasonable
moved. steps to protect the
Covered Property
App. 204a (emphasis added). from further damage.
The District Court indicated that it . . . However, we will
relied on the Preservation of Property not pay for any
Clause in concluding that the Owners subsequent loss or
were entitled to coverage. The Court damage resulting
explained, “I think that there is [sic] from a cause of loss
mutual obligations, obligations on the part that is not a Covered
of the insured to do that, preserve the Cause of Loss.
property and obligations for them to pay
for it. The insured did it.” App. 793a. App. 208a (emphasis added).
The Preservation Clause provides Once again, the language clearly
coverage only in instances where a provides that loss or damage resulting
“Covered Cause of Loss” is implicated. from a cause of loss that is not a “Covered
But absent a finding of “collapse” under Cause of Loss” is excluded from
the Collapse Clause, the Owners do not coverage. Id. As we articulated in our
have a “Covered Cause of Loss.”7 discussion of the Preservation Clause, the
Owners have not established a “Covered
Cause of Loss” that would warrant
7
Absent a “Covered Cause of coverage under the Policy.
Loss,” we find no need to delve into the The Owners finally cite Broadwell
issues of what constitutes something
“being moved” to another location or what
items constitute “Covered Property” under the Policy.
10
Realty Services, Inc. v. Fidelity and a covered cause of loss. As we observed
Casualty Company of New York, 528 in GTE Corp. v. Allendale Mut. Ins. Co.,
A.2d 76 (N.J. Super. Ct. App. Div. 1987), addressing “Sue and Labor” clauses, “an
for the proposition that an insured has a alternative interpretation would permit [an
common law duty to prevent harm to the insured party] to recover for
property and that an insurer has a improvements and measures taken to
corresponding obligation to reimburse the address a host of uninsured risks.” 372
insured for out-of-pocket expenditures for F.3d 598, 618 (3d Cir. 2004).
these efforts. This case, however, is Accordingly, we will vacate the
clearly distinguishable. judgment (as amended) of the District
First, the policy at issue in Court, vacate the awards of prejudgment
Broadwell was a general liability policy, interest and costs, and remand for
not an “all-risk” policy purchased by the judgment to be entered in favor of
Owners. “General liability policies are not Transportation Insurance Company.
‘all-risk’ policies . . . . They provide an
insured with indemnification for damages
up to policy limits for which the insured
becomes liable as a result of tort liability
to a third party.” Standard Const. Co., Inc.
v. Maryland Cas. Co., 359 F.3d 846, 852-
53 (6th Cir. 2004) (internal citations
omitted); see also Lenning v. Commercial
Union Ins. Co., 260 F.3d 574, 584 (6th
Cir. 2001) (emphasis omitted). The issue
in Broadwell was whether the insurer had
to reimburse the insured for steps taken to
prevent damages to a third party which
were covered under the policy.
Significantly, the Broadwell court denied
coverage for the preventive measures
taken by the insured because the liability
policy excluded the insured’s property
from coverage. 528 A.2d at 528.
Simply put, the insurer’s obligation
to reimburse for acts taken to preserve or
protect Covered Property does not extend
to require reimbursement for prevention of
damage to property that is excluded from
coverage or for a circumstance that is not
11