Court Opinion

ID: 4150429
Source: CourtListenerOpinion
Date Created: 2017-03-06 18:00:43.302953+00
Date Added: 2024-06-11T14:49:52.494803
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                 ___________

                                       No. 16-2680
                                       ___________

                                 DAVID DOUGHERTY,
                                        Appellant

                                             v.

           ALLSTATE PROPERTY AND CASUALTY INSURANCE COMPANY

                       ____________________________________

                     On Appeal from the United States District Court
                         for the Eastern District of Pennsylvania
                               (E.D. Pa. No. 2-14-cv-07270)
                      District Judge: Honorable Thomas O’Neill, Jr.
                      ____________________________________

                       Submitted under Third Circuit LAR 34.1(a)
                            on Monday, October 24, 2016

             Before: VANASKIE, KRAUSE, and NYGAARD, Circuit Judges

                                  (Filed: March 6, 2017)

                                        OPINION*

KRAUSE, Circuit Judge.

       *
        This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
       Appellant David Dougherty challenges the District Court’s grant of summary

judgment in favor of his insurance company on his claims for breach of contract and bad

faith claims handling. For the reasons that follow, we will affirm.

 I.    Background

       Dougherty owns a home in Glenolden, Pennsylvania that suffered extensive

damage when water escaped from the home’s plumbing system. Dougherty maintained

an insurance policy for this home with Appellee, Allstate Property and Casualty

Insurance Company, and sought coverage for the water damage under the policy.

Allstate denied Dougherty’s claim, invoking the policy’s “maintenance exclusion.”1 This

exclusion provided in pertinent part that Allstate would not “cover loss to the

property . . . consisting of or caused by . . . [p]lanning, [c]onstruction or [m]aintenance,

meaning faulty, inadequate or defective . . . maintenance.” Dougherty filed a two-count

complaint, alleging that Allstate both breached the terms of his insurance contract and

denied him insurance benefits in bad faith when it refused to cover the damage to his

home. The District Court granted summary judgment to Allstate, concluding that

Dougherty had not raised a genuine issue of material fact as to whether Allstate properly

applied the maintenance exclusion in light of extensive evidence that the water discharge

was caused by Dougherty’s failure to maintain his furnace. See Dougherty v. Allstate

Prop. & Cas. Ins. Co., 185 F. Supp. 3d 585, 598 (E.D. Pa. 2016). This appeal followed.

       1
        Allstate also denied Dougherty’s claim on the basis of a separate
“occupancy/heat exclusion.” Appellee’s Br. 14. The District Court did not address this
additional exclusion, and we decline to do so here.

                                              2
II.    Discussion2

       We review the District Court’s grant of summary judgment de novo, and will

affirm if “there is no genuine issue of material fact” and if, viewing the facts in the light

most favorable to Dougherty, Allstate is “entitled to judgment as a matter of law.” Fed.

Home Loan Mortg. Corp. v. Scottsdale Ins. Co., 316 F.3d 431, 443 (3d Cir. 2003).

           A. Breach of Contract3

       Dougherty argues that there are disputes of material fact remaining for trial on his

breach of contract claim because Allstate has not demonstrated that his dysfunctional

furnace was the cause of the water leak and, even if it has, there are multiple explanations

in the record as to what may have caused the furnace to stop working. We disagree, and

affirm the District Court’s grant of summary judgment in Allstate’s favor.

       Because Allstate invoked an exclusion as the basis for denying Dougherty’s claim,

it bears the burden of proving the exclusion applies. Madison Const. Co. v. Harleysville

Mut. Ins. Co., 735 A.2d 100, 106 (Pa. 1999). Dougherty asserts that Allstate has not met

this burden, relying on Allstate’s admission that, despite denying coverage on the ground

that Dougherty’s unmaintained furnace caused a pipe to freeze, it never investigated the

bathroom where the leak originated to locate the defective pipe. Dougherty makes much

of evidence that a restoration company reported to Allstate that there were “no visible

       2
        The District Court had diversity jurisdiction over Dougherty’s state law claims
pursuant to 28 U.S.C. § 1332. We have jurisdiction pursuant to 28 U.S.C. § 1291.
       3
         The parties agree that Pennsylvania law applies to Dougherty’s breach of
contract claim.

                                              3
broken pipes,” on the floor where the leak originated, App. 795, and urges that Allstate’s

failure to investigate further creates a factual dispute as to the source of the water.

       Viewing the record as a whole, we agree with the District Court that there is

“ample evidence” that “the incident can be attributed to [Dougherty’s] failure to

sufficiently maintain the furnace.” Dougherty, 185 F. Supp. 3d at 597. First, there is

overwhelming evidence that Dougherty’s lack of maintenance caused his furnace to

malfunction. Allstate’s expert engineer concluded that the furnace was in dire need of

service, and ultimately failed when essential parts became clogged with debris and soot.

These findings were corroborated by a label on the furnace reflecting that it had last been

serviced seven years earlier,4 and Dougherty’s admission that he had been living in

Colorado for the previous five years and did not know if the furnace had been serviced

during that time.

       Following his investigation, Allstate’s expert felt comfortable concluding “to a

reasonable degree of engineering certainty” that the leak was “attributable to an

accidental malfunction of the furnace caused by a clogging of the oil supply system” and

“[t]he incident would not have occurred if the owner had not failed to maintain the

furnace in [a] reasonably timely manner.” App. 329. Dougherty’s expert also examined

the furnace and, while he chose not to address the ultimate cause of the leak, he likewise

       4
         Allstate’s expert report states that an oil-fired furnace “should be routinely
serviced every year” and that a failure to service for seven years would reflect a “gross
lack of proper diligence on the part of the owner.” App. 329.

                                               4
concluded that “[the] furnace failed due to a clogged oil nozzle and clogged oil filter.”

App. 306.

       Second, the record reflects that the house had reached freezing temperatures

around the time of the leak. Dougherty’s property manager testified at his deposition that

when he went to check the damage, it was cold enough outside that “anything that was

wet just froze” and “everything [in the house] was frozen” with “sheets of ice on the

wall” and “carpets . . . frozen solid.” App. 598. This is also consistent with a letter

Dougherty received from a realtor in April 2013 warning him of the potential of freezing

pipes if he did not “winterize” his unoccupied property. App. 259. Dougherty not only

failed to “winterize” his home; he allowed his heating system to deteriorate leading up to

this incident in January 2014.5

       Lastly, Dougherty has acknowledged on multiple occasions, both prior to and

during this litigation, that the leak was caused by freezing pipes. When Dougherty first

reported the loss to Allstate, he submitted a copy of his contract with a public adjuster,

which identified the loss as a result of “water-freeze.” App. 216. Next, in his Rule 26(f)

statement at the commencement of this case, Dougherty stated that “an accidental failure

of his heating system caused a water pipe in the second floor bathroom of his home to

freeze and burst.” App. 990. Most recently in his deposition, Dougherty admitted that,

       5
         In his brief, Dougherty repeatedly asserts that the furnace was working and the
house was at a temperature of forty-eight to fifty degrees one week prior to the discovery
of the damage. That assertion, however, has little bearing on whether pipes began to
freeze once the furnace became clogged and temperatures dropped below freezing in the
days that followed.

                                              5
although “it’s never been determined . . . for a fact,” he does not “dispute that it was

water freeze.” App. 556.

       Dougherty now attempts to reverse course and dispute the evidence and his prior

admissions6 by arguing the possibility that the leak occurred before the furnace

malfunctioned and thus was attributable to some other cause. Specifically, he points to

evidence that the operating controls of the furnace were found to have suffered water

damage and postulates that the leak may have caused the furnace malfunction—not the

other way around. Such sheer speculation, however, does not create a factual dispute as

to the cause of the furnace malfunction, see Halsey v. Pfeiffer, 750 F.3d 273, 301 (3d Cir.

2014), particularly in the face of overwhelming evidence to the contrary. Indeed, even

Dougherty’s expert who identified the damage to the controls acknowledged that it was

“most likely caused by water from the broken pipe.” App. 308.

       In sum, Allstate’s failure to identify the pipe that caused the leak does not create a

factual dispute that would render summary judgment inappropriate. Even drawing all

reasonable inferences in Dougherty’s favor, the record does not support any conclusion

other than that Dougherty’s failure to maintain the furnace caused it to malfunction, and

       6
          In his reply brief, Dougherty argues that statements made during this litigation
are not relevant because they were not available to Allstate at the time it made its
coverage determination. Regardless of whether they factored into Allstate’s coverage
decision at the time, Dougherty’s additional admissions as to the cause of the leak are
relevant to the question of whether Allstate had any obligation to provide him with
coverage for the damage to his home. In addition to their independent probative value,
these admissions also bolster the deposition testimony of Allstate’s claims adjuster, who
asserted that Allstate did not attempt to identify the pipe that caused the damage because
“there was never a question” that freezing pipes were the source of the leak. App. 952.

                                              6
that malfunction in the middle of winter caused his water pipes to freeze and leak.

Dougherty himself at times appears to concede as much, and, to the extent he contends

otherwise, he has not offered more than a “mere scintilla of evidence” to rebut Allstate’s

credible showing that the maintenance exclusion barred coverage for his claim.7

Williams v. Borough of W. Chester, Pa., 891 F.2d 458, 460 (3d Cir. 1989).

       Dougherty also raises an alternative argument, contending that even if the clogged

furnace was the cause of the flooding, the maintenance exclusion does not apply to his

claim because furnaces are “fixtures” rather than “property” under Pennsylvania property

law. Appellant’s Br. 20-22. Thus, because the exclusion only applies to a failure to

maintain “property,” he asserts his failure to maintain his furnace falls outside the scope

of exclusion.

       We reject this strained interpretation of the insurance policy. Under Pennsylvania

law, the language of an insurance policy “must be construed in its plain and ordinary

sense” and to “effectuate the intent of the parties as manifested by the language of the

specific policy.” Pa. Nat. Mut. Cas. Ins. Co. v. St. John, 106 A.3d 1, 14 (Pa. 2014). This

is a contract dispute, not a property one, and Dougherty gives no explanation why we

       7
          Dougherty takes issue with the District Court’s consideration of a number of
emails between him and his public adjuster that the District Court found relevant because
they “provide insight into [Dougherty’s] efforts to maintain his property and also into
whether he provided sufficient information to [Allstate] to permit it to perform the
required investigation of his claim.” Dougherty, 185 F. Supp. 3d at 590 n.5. We find
there is sufficient evidence that Dougherty did not properly maintain his property
irrespective of these emails, but see no abuse of discretion in the District Court’s
consideration of them.

                                             7
should conclude the parties intended to use the word “property” as a legal term of art,

much less one that exempts an insured’s failure to maintain his home’s temperature

regulation system, a potential source of significant damage, from an exclusion

specifically designed to protect the insurer against damage caused by the insured’s

negligence. As the District Court correctly noted, the “plain and ordinary” meaning of

the term “property” in a contract is far broader and undoubtedly encapsulates fixtures, as

it covers “[a]ny external thing over which the rights of possession, use, and enjoyment

are exercised.” Dougherty, 185 F. Supp. 3d at 596 n.13 (quoting Property, Black’s Law

Dictionary (10th ed. 2014)). We agree with that “common sense interpretation.”

Universal Teleservices Ariz., LLC v. Zurich Am. Ins. Co., 879 A.2d 230, 233 (Pa. Super.

Ct. 2005).

             B. Bad Faith

       To prevail on his bad faith claim under 42 Pa. Cons. Stat. § 8371, Dougherty must

demonstrate by clear and convincing evidence that (1) Allstate lacked a reasonable basis

for denying coverage; and (2) Allstate knew or recklessly disregarded its lack of a

reasonable basis. Klinger v. State Farm Mut. Auto. Ins. Co., 115 F.3d 230, 233 (3d Cir.

1997). Because we conclude that the maintenance exclusion was properly applied,

Allstate by definition had a reasonable basis to deny Dougherty’s claim. Frog, Switch &

Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 751 n.9 (3d Cir. 1999). Even if viewed as a

distinct claim that requires us to consider only the facts Allstate knew at the time of the

coverage determination to evaluate its subjective intent, the experts’ reports detailing the

condition of Dougherty’s furnace coupled with the frozen condition of the home,

                                              8
Dougherty’s failure to “winterize” his home, and Dougherty’s characterization of the

incident as a “water-freeze” to his public adjuster provided more than a reasonable basis

for Allstate to deny coverage.

III.   Conclusion

       For the foregoing reasons, we will affirm the judgment of the District Court.

                                            9