Western Metal Bed v. Certain Underwriters at Lloyd's, London, 2007 Phila. Ct. Com. Pl. LEXIS 240 (August 29, 2007) and 2007 Phila. Ct. Com. Pl. LEXIS 340 (November 26, 2007) and 2008 Pa. Super. LEXIS 3079 (September 19, 2008)

In this breach of contract, bad faith and declaratory judgment action, involving claims of insurance coverage under an "all risk" Policy, the Philadelphia County Court of Common Pleas, the Hon. Mark I. Bernstein, agreed with Certain Underwriters at Lloyd's, London, that the Plaintiff could not proceed with its claims, given its inability to prove when the damage occurred. Plaintiff countered with an argument that it should be able to proceed, because it discovered the damage during Certain Underwriters' Policy period. The Court, however, correctly applied a Policy condition requiring damage to "commence" during the Policy period, and granted Certain Underwriters' request for declaratory relief. The Hon. Sandra M. Moss issued a concurring opinion, and the Superior Court of PA affirmed on appeal.

Summary

The Hon. Mark I. Bernstein, of the Philadelphia County Court of Common Pleas, recently held that in order to recover with respect to the Policy of Insurance at issue, the Plaintiff must establish that the property damage to the premises did not occur before the effective date of the Policy. The Plaintiff, in this matter, however, alleged that the damage was only discovered when the lessees vacated the premises (during the Policy), and was not able to present any evidence as to when the damage actually occurred. The Plaintiff, furthermore, admitted that the property damage may have occurred as early as July, 1986. Therefore, the Plaintiff had failed to prove that the damage to the premises commenced during the Policy period.

Furthermore, the Court held, in accordance with the Suit Limitation provision of the Policy, that Plaintiff was required to bring an action against Certain Underwriters within two years after the date on which the direct physical loss or damage occurred. Plaintiff failed to file suit within the two years required by the Policy and, thus, Plaintiff's claims were time barred and summary judgment was granted.

The Litigation

On September 1, 2005, Western Metal Bed filed a Complaint seeking a declaratory judgment, and asserting claims of breach of contract and bad faith against Lexington Insurance Company. On November 9, 2005, Western Metal Bed filed an Amended Complaint naming Certain Underwriters at Lloyd's, London, as well. The Complaint sought recovery for damages to a property located at 2100 West Allegheny Avenue.

The Featherman Partnership owned the foregoing property. Beginning in June, 1986, and continuing through November, 1995, discovery revealed that the Featherman Partnership entered into a series of lease agreements for parts of the property with operators of scrap paper businesses, S&M Rudnitsky and David Cutler Industries, Ltd. S&M Rudnitsky and David Cutler Industries purportedly vacated the property no later than November, 2001.

In the Amended Complaint filed against Certain Underwriters, Western Metal Bed alleged that the tenants caused extensive damage to the property during their occupancy, allegedly estimated to exceed $173,175.00. The alleged property damage was described as: multiple layers of the floor ripped apart in various locations throughout the interior of the premises; scratches and surface damage to interior floor, walls and ceilings; buckling and structural damage to the ceiling; buckling and structural damage to exterior windows and framing; structural damage to exterior walls and foundation; shattered windows and damaged windows; damaged and non-functional exterior security grates on windows; etc.

The alleged property damage occurred "sometime between July, 1986, and November, 2001," the date on which the lessees vacated the premises. Western Metal Bed, however, failed to produce any further evidence regarding when each item of damage occurred during that period. In considering whether the Plaintiff had established an entitlement to coverage, in the first instance, the Court noted that the policyholder has the burden to prove that its claim falls within the coverage of an insurance policy. Even in an "all risks" policy, the Plaintiff must demonstrate that the property damage was the result of an occurrence during the policy period, and that it was a covered cause of loss. "While policies of insurance will be construed most strongly against [the] insurer (citation omitted), it is a necessary prerequisite to recovery upon a policy for the insured to show a claim within the coverage provided by the policy." Warner v. Employers' L. Assur. Corp., 390 Pa. 62, 133 A.2d 231 (1957). Only after the policyholder has shown that the policy covers its claim, does the burden of proof shift to the insurance company to establish an exclusion. Erie Insurance Exchange v. Transamerica Insurance Company, 516 Pa. 574, 580, 533 A.2d 1363, 1366 (1987) (citations omitted).

The Decision

The Court, in ruling in favor of Certain Underwriters, held that Plaintiff had to establish that the property damage to the premises at issue did not occur before January 8, 2001, the effective date of the policy, at issue. While Western Metal Bed alleged and agreed that it discovered the property damage during the effective period of the Policy, it could not specifically identify when the damage actually occurred. Indeed, the Plaintiff admitted that the property damage may have occurred as early as July, 1986. As Plaintiff, Western Metal Bed, had failed to prove that the property damage to the premises commenced during the Policy period, summary judgment was entered in favor of Certain Underwriters.

The Court was also asked to determine that Plaintiff, Western Metal Bed, had not filed suit in accordance with the Suit Limitation provision in the Policy. Pursuant thereto, Western Metal Bed was required to bring an action against Defendant within two years after the date on which the direct physical loss or damage occurred. The Court noted, once again, that Western Metal Bed had not presented any evidence as to when the damage actually occurred, but for purposes of the Motion, allowed the Plaintiff the date of November, 2001 (the date of discovery). Given that "date of discovery," the Complaint against Certain Underwriters should have been filed no later than November, 2003. The Amended Complaint naming Certain Underwriters, however, was not filed until November 9, 2005, almost four years after the property damage was discovered. Therefore, since Western Metal Bed had failed to bring any legal action against the Defendant within two years, summary judgment was appropriate.

Once again, as noted above, Certain Underwriters at Lloyd's, London, had previously denied the claim for a number of reasons, including a number of exclusions, which it believed were applicable. Since the Court decided that Plaintiff had failed to prove its entitlement to coverage, under the Policy, the Court was not required to consider those additional issues.

For a complete copy of the Opinion of the Honorable Mark I. Bernstein, click here.

For a copy of the Honorable Sandra Moss's Memorandum in Support of the Opinion of the Honorable Mark I. Bernstein, or a copy of the Opinion of the Superior Court affirming the Opinion of the Honorable Mark I. Bernstein, or for further information, please contact Law Wright at Wright & O'Donnell, P.C., directly at (610) 940-4092.

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