Court Opinion

ID: 183093
Source: CourtListenerOpinion
Date Created: 2011-01-21 01:03:34+00
Date Added: 2024-06-11T17:26:02.368590
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                 ____________

                                      No. 10-1976
                                     ____________

                                 ANDRE COLELLA;
                                CHRISTINA COLELLA,
                                             Appellants

                                           v.

                   STATE FARM FIRE AND CASUALTY COMPANY
                                     ____________

            APPEAL FROM THE UNITED STATES DISTRICT COURT
              FOR THE EASTERN DISTRICT OF PENNSYLVANIA
                          (D.C. Civil No. 09-cv-02221)
                   District Judge: Honorable J. Curtis Joyner
                                 ____________

                      Submitted Under Third Circuit LAR 34.1(a)
                                  January 14, 2011
                                   ____________

             Before: SCIRICA, BARRY and VANASKIE, Circuit Judges

                           (Opinion Filed: January 20, 2011)
                                    ____________

                                       OPINION
                                     ____________

BARRY, Circuit Judge

      Andre and Christina Colella (“the Colellas”) appeal the District Court’s grant of

summary judgment in favor of State Farm Fire and Casualty Company (“State Farm”).
The Court found that the Colellas’ homeowners’ insurance policy did not cover damage

to their basement resulting from a leak in a sewage pipe traveling underneath their home

and underground, and that State Farm did not act in bad faith in denying coverage. For

the reasons discussed below, we will affirm.

                                I.     Factual Background

       The Colellas own a two-story home in Warminster, Pennsylvania, with a basement

that does not run the entire length of the home. Several rooms on the first floor are built

on a slab, and below the slab is ground, dirt, and soil. On or about July 1, 2008, a drain

line running in the ground underneath the slab sprung a leak, causing damage primarily to

carpeting and walls in the basement, with some damage to areas of the first floor. An

initial estimate of repairs came to $25,408.79.

       The Colellas had an “all risk” homeowners’ insurance policy with State Farm.1

The policy stated, in relevant part:

              SECTION I – LOSSES INSURED
              COVERAGE A – DWELLING

              We insure for accidental direct physical loss to property described in
              Coverage A, except as provided in SECTION I – LOSSES NOT
              INSURED.
              ...

              SECTION I – LOSSES NOT INSURED
              ...

1
  “Under an all-risk policy, all losses are covered except for those specifically excluded.”
T.H.E. Ins. Co. v. Charles Boyer Children’s Trust, 455 F. Supp. 2d 284, 290-91 (M.D. Pa.
2006) (citation and internal quotation marks omitted), aff’d 269 F. App’x. 220 (3d Cir.
2008).
                                              2
             2. We do not insure under any coverage for any loss which would not
             have occurred in the absence of one or more of the following
             excluded events. We do not insure for such loss regardless of: (a)
             the cause of the excluded event; or (b) other causes of the loss; or (c)
             whether other causes acted concurrently or in any sequence with the
             excluded event to produce the loss; or (d) whether the event occurs
             suddenly or gradually, involves isolated or widespread damage,
             arises from natural or external forces, or occurs as a result of any
             combination of these:
             ...

             c. Water Damage, meaning:

                    (1) flood, surface water, waves, tidal water, tsunami, seich,
             overflow of a body of water, or spray from any of these, all whether
             driven by wind or not;

                   (2) water or sewage from outside the residence premises
             plumbing system that enters through sewers or drains, or water
             which enters into and overflows from within a sump pump, sump
             pump well or any other system designed to remove subsurface water
             which is drained from the foundation area; or

                   (3) water below the surface of the ground, including water
             which exerts pressure on, or seeps or leaks through a building,
             sidewalk, driveway, foundation, swimming pool or other structure.

             However, we do insure for any direct loss by fire, explosion or theft
             resulting from water damage, provided the resulting loss is itself a
             Loss insured.

App. at 156, 159 (emphasis in original).

      The Colellas reported a claim to State Farm on July 1, 2008. Over the next several

weeks, State Farm representatives and various plumbing specialists and insurance

adjusters investigated. There was no dispute about the cause of the leak, which was a

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“drain line . . . leaking from the horizontal section below the concrete slab.” Id. at 201.

On July 29, 2008, State Farm issued a written denial of the Colellas’ claim. The denial

letter cited the above language from the insurance policy and stated that “the homeowners

policy specifically excludes loss caused by water below the surface of the ground.” Id.

Because the water leaking from the damaged drain line first entered the ground before

leaking through the basement wall, State Farm stated that “the damage in the basement is

caused by water below the surface of the ground,” and it therefore denied coverage. Id. at

202.

       The Colellas filed a complaint against State Farm in Pennsylvania state court on

April 6, 2009. The complaint alleged one count of breach of contract and one count of

bad faith in violation of 42 Pa. Cons. Stat. § 8371. The Colellas asked for damages in

excess of $50,000, as well as punitive damages and costs. State Farm removed the case

to federal court based on diversity jurisdiction, and, following discovery, moved for

summary judgment.

       The District Court granted State Farm’s motion. On the breach of contract claim,

the Court agreed with State Farm that the policy “unequivocally excludes coverage for

losses caused by water below the surface of the ground, regardless of the source.” Id. at

338. Focusing on the policy’s “lead-in” clause to the ground-water exclusion (paragraph

2), the Court stated that

              The plain language of the policy clearly shows that the exclusion
              applies regardless of what caused the excluded event and regardless
              of whether the cause of the excluded event was from natural or
                                             4
              external forces. The language of the Policy is in no way ambiguous.
              It clearly and succinctly states that regardless of the cause, any water
              damage which seeps into the foundation from water below the
              surface of the ground is not covered by the policy.

Id. at 339-40. The Court also found that the Colellas failed to show any evidence of bad

faith, other than State Farm’s denial of their claim. This appeal followed.

                                     II.     Discussion

       We have appellate jurisdiction under 28 U.S.C. § 1291. We exercise plenary

review over the District Court’s grant of summary judgment, and “we assess the record

using the same summary judgment standard that guides the district courts.” Gardner v.

State Farm Fire and Cas. Co., 544 F.3d 553, 557 (3d Cir. 2008). Summary judgment is

appropriate “if the movant shows that there is no genuine dispute as to any material fact

and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).

                                A.      Breach of Contract Claim

       There is no dispute over the material facts relating to the breach of contract claim.

The Colellas argue that the District Court erred in finding that their policy did not provide

coverage. The resolution of this issue requires us to analyze Pennsylvania law regarding

the interpretation of insurance contracts.

       In Pennsylvania, the courts’ “primary goal in interpreting a policy, as with

interpreting any contract, is to ascertain the parties’ intentions as manifested by the

policy’s terms.” Kvaerner Metal Div. of Kvaerner U.S., Inc. v. Commercial Union Ins.

Co., 908 A.2d 888, 897 (Pa. 2006). “When the language of the policy is clear and

                                              5
unambiguous, we must give effect to that language.” Id. (citation, quotation marks and

internal brackets omitted). When a provision is ambiguous, however, “the policy is to be

construed in favor of the insured to further the contract’s prime purpose of

indemnification and against the insurer, as the insurer drafts the policy, and controls

coverage.” 401 Fourth St., Inc. v. Investors Ins. Grp., 879 A.2d 166, 171 (Pa. 2005).

“Contractual language is ambiguous if it is reasonably susceptible of different

constructions and capable of being understood in more than one sense.” Madison Constr.

Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100, 106 (Pa. 1999) (citation and internal

quotation marks omitted). Finally, where a party is insured under an “all risks” policy

like the one at issue here, Pennsylvania law places the burden on the insured “to show that

a loss has occurred; thereafter, the burden is on the insurer to defend by showing that the

loss falls within a specific policy exclusion.” Wexler Knitting Mills v. Atl. Mut. Ins. Co.,

555 A.2d 903, 905 (Pa. Super. Ct. 1989).

       The Colellas argue that State Farm improperly denied their claim based on the

“subsurface water” exclusion and point to several cases in support of their argument, all

of which stem from the holding of Kozlowski v. Penn Mutual Insurance Company, 441

A.2d 388 (Pa. Super. Ct. 1982). In that case, the plaintiff’s basement was damaged by a

leak from the water main connected to a neighbor’s home. The plaintiff’s insurance

policy stated, in relevant part, that it did not insure against loss “[c]aused by, resulting

from, contributed to or aggravated by . . . water below the surface of the ground . . . .” Id.

                                               6
at 390. The court found that plaintiff could not identify any provision of the insurance

contract that would cover the claim. Additionally, and as relevant here, the court also

examined the “exclusion” section of the contract and stated that “we hold that where . . .

the cause of the discharge, leakage or overflow of water is in the insured’s own plumbing

system, the exclusion does not apply; but that if the cause is outside that system, then the

exclusion is applicable.” Id. at 391. Because the cause of the water damage was not

within the plaintiff’s plumbing system, she could not recover. Id.

       District courts within the Third Circuit have adopted the Kozlowski holding. In

Gatti v. Hanover Insurance Company, the plaintiffs sought coverage after discovering

leaks from underground water main pipes on the property of the apartment complex they

owned. 601 F. Supp. 210, 210 (E.D. Pa. 1985), aff’d, 774 F.2d 1151 (3d Cir. 1985). The

exclusions in the insurance policy stated that “[t]he company shall not be liable for loss: .

. . [c]aused by, resulting from, contributed to or aggravated by . . . water below the

surface of the ground . . . .” Id. at 212. The insurance company argued that under

Kozlowski the exclusion applied because Kozlowski held that water discharged from a

water main fit within the subsurface water exclusion irrespective of whether it came from

within the insured plumbing system or outside that system. The court called the insurance

company’s reading of Kozlowski “an obvious misinterpretation” because Kozlowski held

that the exclusion applies only when the cause of the water damage emanates from

outside the insured’s plumbing system. Id. Because the water had been lost from the

                                              7
plaintiffs’ plumbing system, the exclusionary provision did not apply and the insurance

company was required to provide coverage. Other district courts also have applied the

reasoning of Kozlowski, but in those cases it was to uphold the application of

exclusionary clauses in insurance contracts because the water damage came from a source

outside of the plaintiffs’ plumbing systems. See Pavuk v. State Auto. Ins. Co. of

Columbus, Ohio, Civ. A. No. 96-8459, 1997 WL 431014, *2-3 (E.D. Pa. July 15, 1997);

Kimmel v. Nationwide Mut. Ins. Co., Civ. A. No. 91-4728, 1992 WL 7198, *2-3 (E.D. Pa.

Jan. 15, 1992).

       The Colellas argue that under Kozlowski, the exclusion in their State Farm contract

for subsurface water damage does not apply because the leak came from their own

plumbing system. The District Court found Kozlowski to be “inapplicable” because “the

main issue in that case was whether the damage to the insured’s property came from

within their own plumbing or external plumbing. The Policy in this case is more

expansive as it excludes any loss that results from water below the surface of the ground

even if the water leaked from an insured’s own plumbing system.” App. at 340-41.

       State Farm urges us to follow the District Court’s interpretation of Kozlowski. It

argues that this case is different from Kozlowski because of the expansive lead-in clause

to the exclusionary section in this case, which did not exist in Kozlowski. In Kozlowski,

the lead-in clause stated that the policy did not insure against loss “caused by, resulting

from, contributed to or aggravated by any of the following . . . .” Here, the lead-in clause

                                              8
states:

                 We do not insure under any coverage for any loss which would not
                 have occurred in the absence of one or more of the following
                 excluded events. We do not insure for such loss regardless of: (a)
                 the cause of the excluded event; or (b) other causes of the loss; or (c)
                 whether other causes acted concurrently or in any sequence with the
                 excluded event to produce the loss; or (d) whether the event occurs
                 suddenly or gradually, involves isolated or widespread damage,
                 arises from natural or external forces, or occurs as a result of any
                 combination of these:

Id. at 159 (emphasis added).

          State Farm argues that the distinction between the two clauses is that the State

Farm policy qualifies coverage by excluding any loss resulting from subsurface water,

regardless of the cause. The Kozlowski policy, however, made no distinction as to the

cause of the subsurface water, and State Farm states that the absence of language

excluding coverage regardless of the cause was what allowed the Kozlowski court to find

relevance in whether the subsurface water came from within or without the insured’s

plumbing system. Essentially, State Farm argues that the words “regardless of the cause”

distinguish its policy from the policy in Kozlowski. It points to a Colorado case where the

court interpreted identical policy language in regards to a claim resulting from nearly

identical facts. See Thompson v. State Farm Fire & Cas. Co., 165 P.3d 900 (Colo. App.

2007). There, the court held:

                 The plain language of the policy excludes any loss from water below
                 the surface of the ground that leaks through a foundation, regardless
                 of cause and regardless of whether or not the water arises from
                 natural or external forces. The policy does not make any distinction
                 among the sources or external forces. To find such a distinction
                                                 9
              would be to disregard some terms and add other terms to the
              contract, which we are not at liberty to do.

Id. at 902.

       We agree with State Farm and see no way to interpret the words “regardless of the

cause” in a manner that provides coverage for the Colellas. The State Farm policy states

that it excludes coverage for damage caused by water below the surface of the ground,

regardless of the cause of the subsurface water. The Kozlowski policy was not as explicit

in excluding coverage regardless of any cause, which allowed the court to interpret

coverage when the cause was the insured’s own plumbing system. Because the State

Farm policy language is unambiguous, “we must give effect to that language.” Kvaerner

Metal Div., 908 A.2d at 897.

       The Colellas make the alternative argument that the leak was not actually

subsurface water and thus was not excluded by the policy. The Colellas rely on Whitmore

v. Liberty Mutual Fire Insurance, where the court analyzed whether the insurance

company properly classified leaked heating oil as a pollutant to exclude coverage. Civ.

A. No. 07-5162, 2008 WL 4425227, *4-6 (E.D. Pa. Sept. 30, 2008). There, the court

found that the insurance company did not meet its burden of showing that heating oil fell

under the definition of a pollutant. Accordingly, it found coverage. Id. at *6. The

Colellas argue that Whitmore shows that “there can be a definitional threshold to

determine whether an exclusion contained in an insurance policy applies to the facts of a

specific case.” Appellants’ Br. at 24. While the Colellas state that “under Kozlowski . . .

                                            10
water that escapes from a broken pipe within the insured’s plumbing system is not

subsurface water,” id. at 25, this is a misreading of Kozlowski. The Kozlowski court did

not state that water emanating from an insured’s plumbing system was not subsurface

water—it only stated that such leaks did not fall under the exclusion of the specific policy

at issue. The Colellas have not presented any information that suggests that the water at

issue here was not subsurface water.

       Finally, the Colellas argue that they are entitled to coverage under the “concurrent

causation” or “efficient proximate cause” doctrine, which holds that “when there are two .

. . or more causes of loss, the policyholder’s claim is covered as long as the immediate or

proximate cause of loss is covered by the policy.” Appellants’ Br. at 25 (citing, among

other cases, Trexler Lumber Co. v. Allemannia Fire Ins. Co. of Pittsburgh, 136 A. 856,

858 (Pa. 1927)). The District Court was correct in rejecting this argument because the

lead-in clause of the State Farm policy (“[w]e do not insure for such loss regardless of: . .

. (c) whether other causes acted concurrently or in any sequence with the excluded event

to produce the loss . . .”) clearly negates the application of the doctrine.

                                      B.      Bad Faith Claim

       The Colellas argue that State Farm acted in bad faith in denying their claim. The

only evidence of bad faith to which the Colellas point is a statement by Michael Paccione,

a State Farm team manager, who stated in a deposition that he only relied on the language

of the policy in determining that the Colellas’ claim was not covered; he did not seek a

                                              11
legal opinion before denying coverage. According to the Colellas, Paccione’s reliance on

the language of the policy “demonstrates a reckless disregard for the rights of the

insureds.” Appellants’ Br. at 33.

       Pennsylvania law provides a remedy when an insurer has acted in bad faith toward

the insured. See 42 Pa. Cons. Stat. § 8371. “[T]o recover under a claim of bad faith, the

plaintiff must show that the defendant did not have a reasonable basis for denying

benefits under the policy and that defendant knew or recklessly disregarded its lack of

reasonable basis in denying the claim.” Terletsky v. Prudential Prop. and Cas. Ins. Co.,

649 A.2d 680, 688 (Pa. Super. Ct. 1994). The District Court correctly concluded that the

Colellas had not identified any evidence which could show bad faith on the part of State

Farm. Further, because State Farm had a reasonable basis for denying the Colellas’

claim, the Colellas could not establish the elements of the cause of action.

                                    III.   Conclusion

       We will affirm the order of the District Court.

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