April 2010 Bad Faith Cases: No Bad Faith Where Builder’s Risk Insurance Policy Did Cover Loss at Manufacturing Facility (Western District)

In 151 First Side Associates, L.P. v. Peerless Insurance Company, the parties disputed the coverage of the Builder’s Risk Insurance Policy that the carrier issued to the insureds for the construction of residential condominiums.  The insureds had entered into a subcontract with High Concrete Innovations (“High Concrete”) to fabricate and erect concrete panels for the project.  High Concrete was not a named insured under the policy.  A fire destroyed High Concrete’s manufacturing facility and the concrete panels, which were awaiting delivery on the subcontract.  The insureds filed claims under the policy for (1) soft costs; and (2) extra expenses and overtime attributed to the loss of the concrete panels.  The insurer denied both claims.  The insureds sued the carrier alleging claims of breach of contract and bad faith pursuant to 42 Pa. C.S. § 8371.  The insurer filed a motion for summary judgment.
The insurance policy contained a Soft Cost, Extra Expense and Rental Income Endorsement, which provided that the insurer would pay for soft cause expenses and extra expenses “that arise out of a ‘delay’ resulting from direct physical loss or damage to a building or structure described on the Soft Cost Schedule that is caused by a covered peril.”  The “Property Covered” provision of the policy only covered material and supplies “at the jobsite.”  However, under the Supplemental Coverages, the policy provided coverage for certain property located at “storage locations.”  The insureds argued that the supplemental coverage policy provision expanded the coverage beyond the loss or damage that occurred “at the jobsite” to certain property located at “storage locations.”
The court held that the language of the policy was not ambiguous and under the plain meaning of the language the High Concrete production facility was not a “storage location” under the policy.”  The mere fact that the concrete panels were damaged post-production but pre-delivery did not transform a manufacturing facility into a “storage location.”  Further, the court found that the expansion of coverage under Soft Cost, Extra Expense, and Rental Income Endorsement was very specific and did not cover expenses related to a loss at a storage location.  Because the policy did not cover the insureds’ claims, the court held that the insurer did not breach the contract of insurance when it denied the  claims.  Since the insured was not in breach of contract, the insureds’ bad faith claim failed.
Date of Decision: March 11, 2010
151 First Side Assocs., L.P. v. Peerless Ins. Co., No. 2:08cv79, United States District Court for the Western District of Pennsylvania, 2010 U.S. Dist. LEXIS 23093 (W.D. Pa. Mar. 11, 2010) (Cercone, J.).