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Residential Property Exclusion Holds Water Following Hurricane (PA)
March 11, 2020
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<p style="text-align: justify;">Recently, in <a href="https://www.wcmlaw.com/wp-content/uploads/2020/03/Elite-Restoration-Inc.-v.-First-Mercury-Insurance-Company.pdf"><em>Elite Restoration Inc. v. First Mercury Insurance Company</em></a><em>,</em> the Eastern District of Pennsylvania considered whether First Mercury Insurance Company (“FMIC”) was entitled to judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) and a declaration that it was not obligated to defend and indemnify Elite Restoration, Inc. (“Elite”) in respect of an underlying claim for property damage.</p>
<p style="text-align: justify;">By way of background, while Elite was working on the restoration of a condominium property (“Property”), there was a hurricane, which damaged the Property. Due to the damage and potential that Elite could face liability for the damage, Elite submitted a claim to the Property’s insurer, FMIC. After FMIC denied Elite’s claim, Elite commenced the instant action against FMIC alleging claims for breach of contract and bad faith. In addition, Elite sought a declaratory judgment that FMIC must defend and indemnify Elite from litigation related to the Property damage/claims, FMIC breached its duty to Elite, and Elite may settle or compromise any claims from or related to the Property. In response, FMIC filed a motion for judgment on the pleadings on all counts and a declaration that it does not have a duty to defend or indemnify Elite in respect of the Property claim.</p>
<p style="text-align: justify;">FMIC’s motion for judgment on the pleadings stemmed from the relevant policy’s “residential property” exclusion (“Exclusion”), which provides, in pertinent part that “[t]his insurance does not apply to any claim, ‘suit,’ demand or loss that alleges … ‘property damage’ … that … relates to … ‘residential property …”. The Exclusion defines “residential property” as, <em>inter alia</em>, “condominiums”. However, the Exclusion contains an exception that states the Exclusion “does not apply to the following designated exception(s): Single-family dwellings that are not ‘tract homes’, condominiums (as defined by the applicable controlling statute) or ‘townhouse projects.’”</p>
<p style="text-align: justify;">In support of its motion, FMIC argued the exception to the Exclusion clause only applies to certain single-family dwellings, a category that does <em>not</em> include condominiums. Elite, however, asserted the exception creates three separate exceptions to the Exclusion for (1) condominiums, (2) townhouse projects, and (3) single-family dwellings that are not ‘tract homes.’</p>
<p style="text-align: justify;">In consideration of Elite’s breach of contract claim through the Court’s well-established standard of review, the Court held that, based on the plain language of the policy, the Exclusion Clause explicitly provides that “condominiums” are excluded from coverage. Accordingly, the Court concluded, as a matter of law, the policy excludes coverage for the Property, and therefore, Elite’s claim. The Court next addressed Elite’s declaratory judgment claim. As the Court determined the policy did not provide coverage for Elite’s claim, the Court held, as a matter of Pennsylvania law, FMIC does not have a duty to defend or indemnify Elite in respect of any third-party lawsuits related to the Property damage.</p>
<p style="text-align: justify;">Finally, in regard to Elite’s bad faith claim against FMIC, the Court applied traditional Pennsylvania case law to determine whether FMIC acted in bad faith under 42 Pa.C.S. § 8371. In doing so, the Court considered whether FMIC lacked “a reasonable basis for denying benefits under the policy” and “either knowingly or recklessly disregarded its lack of reasonable basis in denying the claim.” Since the policy did not provide coverage, FMIC did not lack a reasonable basis for denying the claim. Accordingly, the Court granted FMIC’s motion for judgment on the pleadings in its entirety. Ultimately, this case is a reminder of the impact motions for judgment on the pleadings can have on litigation in federal courts, and the significance of the plain language of the policy.</p>
<p style="text-align: justify;">Thanks to Lauren Berenbaum for her contribution to this post. If you have any questions or comments, please contact <a href="mailto:vterrasi@wcmlaw.com">Vincent Terrasi</a>.</p>