EASY CORNER, INC. v. STATE NATIONAL INSURANCE CO., INC.
MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE EDUARDO C. ROBRENO ON 1/6/2016. 1/6/2016 ENTERED AND COPIES E-MAILED.(kp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
EASY CORNER, INC.,
STATE NATIONAL INSURANCE
M E M O R A N D U M
EDUARDO C. ROBRENO, J.
January 6, 2016
This case arises from an insurance dispute. Easy
Corner, Inc. (“Plaintiff”) alleges that State National Insurance
Company (“Defendant”) has breached contract by declining to pay
Plaintiff for damage suffered after a business dispute with a
third party. Following a bench trial and pursuant to Federal
Rule of Civil Procedure 52(a), this Memorandum constitutes the
Court’s findings of fact and conclusions of law. Ultimately, for
the following reasons, the Court will enter judgment for
On January 28, 2014, Plaintiff filed a Complaint in
the Court of Common Pleas for Philadelphia County (ECF No. 1
Exhibit A). The Complaint contained two counts: breach of
contract for failing to pay on the insurance policy, and bad
faith in violation of 42 Pa. C.S.A. § 8371. Defendant removed
the case to this Court (ECF No. 1), then filed an Answer on
February 27, 2014 (ECF No. 3).
After completing discovery, Defendant filed a motion
for summary judgment (ECF No. 14). Plaintiff responded to the
motion on September 5, 2015 (ECF No. 15), and Defendant replied
to Plaintiff’s response on September 12, 2014 (ECF No. 17).
On November 3, 2014, the Court granted the motion for
summary judgment in part and denied it in part (ECF Nos. 20,
21). Finding insufficient evidence of bad faith, the Court
granted Defendant summary judgment as to Plaintiff’s claim of
bad faith. On the breach of contract claim, the Court granted
summary judgment as to any claims of loss from theft, but denied
summary judgment as to the balance of Plaintiff’s claim.
The Court then held a bench trial on February 9, 2015.
Plaintiff called as witnesses Sara Reuven and Ezra Reuven, as
well as three insurance adjusters: Timothy Brennan,1 Steven
The Court also heard argument on Defendant’s motion to
exclude Brennan’s testimony (ECF No. 22) as to damages.
Fasano, and Brian DiBricida. Defendant called Darius Mason as a
witness. The Court has reviewed this testimony and the parties’
proposed findings of fact and conclusions of law (ECF Nos. 35,
36), as well as the exhibits admitted at trial. The Court also
held an additional hearing on December 7, 2015, and has
considered the arguments made there, as well as the parties’
supplemental memorandums (ECF Nos. 40, 42). Upon this record,
including credibility findings, the Court makes its findings of
fact and conclusions of law.
FINDINGS OF FACT
For more than ten years, Ezra and Sara Reuven owned
and operated Easy Corner Bar at 537 North 35th Street in
Philadelphia. Trial Tr. at 28:1-19, ECF No. 33. In 2012, the
couple decided to get a new manager for the bar (Sara had
managed it previously), and ultimately entered into a management
agreement with Darius Mason. Id. at 28:14-29:4. Under the terms
of the agreement, Mason would manage the bar from June 2012
through May 2013. Id. at 29:3-7. However, Mason continued to
Ultimately, the Court conditionally admitted Brennan’s
testimony, electing to hear the testimony before deciding
whether it was admissible. Trial Tr. at 24:4-25:7, ECF No. 33.
For the reasons discussed below, the Court finds that
Plaintiff is entitled to no damages. Accordingly, the Court need
not decide the Motion to Exclude Expert Testimony – because
Brennan offered testimony relating only to damages – and so the
motion will be denied as moot.
operate the bar after the end of the agreement. In fact, at one
point, the Reuvens changed the locks, but he cut them and put
his own locks on. Id. at 29:9-19. Eventually, however, Mason and
the Reuvens agreed that Mason would surrender operation of the
bar on August 18, 2013. Id. at 252:13-253:6.
During Mason’s tenure at the bar, with the knowledge
of the Reuvens, he made a number of changes and improvements to
it. For example, he installed speakers, mirrored ceiling tiles,
a slushie machine, a DJ booth, a video game machine, new floor
tiles, shelves, lights, a television, bar paneling, an air
conditioning unit, and more. Id. at 236:13-252:7. Mason paid for
all of these alterations and additions himself. Id. at 252:8-12.
When it was time for Mason to vacate the bar on August
18, he decided to take with him the things that he had added to
the property, because he intended to reuse them. Id. at 253:215. He informed Ezra that he was going to remove his things, but
would clean up and repair the bar afterward. Id. at 257:5-11.
With the help of several friends, Mason began to uninstall and
take away his items. Id. at 253:7-255:7. But after he had taken
away two truckloads – and while he was still in the process of
removing items – the Reuvens arrived at the bar and called the
police. Id. at 255:2-18, 272:3-5. Mason assured Ezra that he was
going to repair the areas that had been left in disarray as a
result of his removing his things – and, in fact, he had tools,
plywood, ceiling tiles, and drywall ready so he could do just
that – but the police arrested Mason before he could repair or
restore the place to its previous condition. Id. at 272:6-22,
257:2-258:8. Mason and his friends were taken to the police
station, where they were held briefly, but they were not charged
with any crimes, and Mason ultimately got back his truck and the
contents of it. Id. at 274:1-275:6.
III. CONCLUSIONS OF LAW
Plaintiff claims that under its insurance policy,
Defendant is liable for any repairs needed after Mason removed
his items from the bar.2
In Pennsylvania, the insured has the burden “to
establish coverage under an insurance policy.” Nationwide Mut.
Ins. Co. v. Cosenza, 258 F.3d 197, 206 (3d Cir. 2001). If the
insured does so, the burden shifts to the insurer to establish
an applicable exclusion to coverage. Id. Exclusions are
“strictly construed against the insurer and in favor of the
insured.” Id. at 206-07.
Plaintiff does not appear to dispute that Mason had a
right to remove the items he took from the bar. See Trial Tr.
71:16-18. Any potential loss that Plaintiff incurred here,
therefore, is limited to any damage Mason may have done in the
process of removing these items.
Under the all-risk insurance policy in this case,
coverage extends to “direct physical loss of or damage to
Covered Property . . . caused by or resulting from any Covered
Cause of Loss.” Def.’s Mot. Summ. J. Ex. C at 1 of 16, ECF No.
14-4. Any cause of loss appears to be covered “unless the loss
is excluded or limited in this policy.” Id. at 1 of 10. In other
words, all losses are covered unless specifically excluded, so
Plaintiff need only show that a loss occurred to meet its
burden. Here, it is obvious that Mason’s actions caused loss or
damage in the sense that portions of the bar needed repair after
Mason removed his things. Therefore, Plaintiff has established
coverage, and the Court must now consider whether Defendant has
shown that an exclusion applies.
Defendant argues that under the circumstances here, an
“unnamed exclusion” not expressly included in the policy
applies: the fortuity exclusion.3 The Third Circuit has
In turn, Plaintiff argues that Defendant should be
estopped from raising the issue of fortuity because Defendant
initially denied coverage not on the basis that the loss was not
fortuitous, but on the basis that the insurance policy, due to
another exclusion, did not cover acts of destruction by
employees or theft by employees. Under the “mend the hold”
doctrine, Plaintiff says, Defendant cannot now change the basis
for denial. See Ry. Co. v. McCarthy, 96 U.S. 258, 267-68 (1877)
(“Where a party gives a reason for his conduct and decision
touching any thing involved in a controversy, he cannot, after
litigation has begun, change his ground, and put his conduct
upon another and a different consideration. He is not permitted
thus to mend his hold.”).
predicted4 that the Pennsylvania Supreme Court would recognize
this implicit exclusion in every all-risk insurance policy, like
the one in this case.5 This Court will assume the same. See,
e.g., Koppers Co., Inc. v. Aetna Cas. & Sur. Co., 98 F.3d 1440,
However, because Plaintiff is asserting an estoppel
argument, Plaintiff must demonstrate prejudice that resulted
from Defendant’s change of position. Mendel v. Home Ins. Co.,
806 F. Supp. 1206, 1215 (E.D. Pa. 1992) (“[I]n the context of an
insurer’s failure to assert all possible defenses to coverage,
the courts apply an estoppel only when there is actual
prejudice, that is, when the failure to assert all possible
defenses causes the insured to act to his detriment in reliance
thereon.”); see also Rock-Epstein v. Allstate Ins. Co., No. 072917, 2008 WL 4425059, at *3-4 (E.D. Pa. Sept. 29, 2008).
Plaintiff has not even attempted to show prejudice, and it is
unlikely that Plaintiff could do so successfully, because (1)
Defendant’s current position that the fortuity exclusion applies
is not inconsistent with its previous position; and (2) in its
initial denial letter as well as its Answer to the Complaint,
Defendant reserved the right to assert other defenses. See
Compl. Ex. C, ECF No. 1-1; Answer 4, ECF No. 3. Moreover,
Plaintiff has also changed positions, or asserted new
alternative positions, several times throughout this litigation.
Under those circumstances, Plaintiff could not reasonably argue
that by responding with its own new alternative position,
Defendant unfairly surprised and prejudiced Plaintiff.
Accordingly, the “mend the hold” doctrine is inapplicable here.
“When exercising diversity jurisdiction, a federal
court sitting in Pennsylvania must predict how the Supreme Court
of Pennsylvania would decide questions of state law.” Fry v.
Phoenix Ins. Co., 54 F. Supp. 3d 354, 361 (E.D. Pa. 2014)
(citing Specialty Surfaces Int’l, Inc. v. Cont’l Cas. Co., 609
F.3d 223, 237 (3d Cir. 2010)).
Although the insurance policy does not label itself an
“all-risk” policy, it is one, as it provides coverage for all
loss or damage unless specifically excluded by the terms of the
policy. See Bishops, Inc. v. Penn Nat. Ins., 984 A.2d 982, 99495 (Pa. Super. Ct. 2009). The parties also indicated that they
agree with this assessment at the December 7, 2015, hearing on
the issue of fortuity.
1446-47 (3d Cir. 1996); Intermetal Mexicana, S.A. v. Ins. Co. of
N. Am., 866 F.2d 71, 74-75 (3d Cir. 1989).
The “fortuity exclusion,” as it has sometimes been
labeled, should perhaps be called the nonfortuity exclusion,
because it precludes coverage under all-risk policies for losses
arising from nonfortuitous events, even if a loss would be
otherwise covered under the insurance policy. See id. An event
is fortuitous if, “so far as the parties to the contract are
aware, [it] is dependent on chance.” Compagnie des Bauxites de
Guinee v. Ins. Co. of N. Am., 724 F.2d 369, 372 (3d Cir. 1983)
(quoting Restatement of Contracts § 291 cmt. a (1932)). Such an
event “may be beyond the power of any human being to bring the
event to pass; it may be within the control of third persons; it
may even be a past event . . . provided that the fact is unknown
to the parties.” Id. If the event is “expected or intended,” it
is not fortuitous. Koppers Co., 98 F.3d at 1446.
Morrisville Pharmacy, Inc. v. Hartford Casualty
Insurance Co., No. 09-2868, 2010 WL 4323202 (E.D. Pa. Oct. 29,
2010), which involved a dispute over physical access to a
pharmacy, is factually analogous to the case at hand. In
Morrisville, the owner of the pharmacy at issue – the tenant –
suffered an overdose on the premises and was hospitalized for
nearly two months. During that time, the pharmacy was closed.
More than a month after the pharmacy was first closed, the
property owner – the landlord – sent a letter to the tenant,
asking her to surrender the premises because the pharmacy was no
longer open for business. Nearly two weeks later, after the
tenant failed to respond, the landlord changed the locks and
secured the doors with a chain. When the tenant found that she
could not enter her pharmacy, she reported the lock change to
the police, who “characterized the matter as a civil dispute and
noted no loss of Pharmacy property.” Id. at *1. Eventually, the
tenant filed an insurance claim, alleging that the pharmacy
suffered losses due to her inability to access files and other
property within the building. The district court granted summary
judgment for the insurance company, holding that no covered loss
occurred – and that even if a loss had occurred, the event that
caused it was not fortuitous. Specifically, the court said, any
loss arose from a business dispute, the results of which the
tenant could have foreseen because of the landlord’s letter.
Similarly, though Mason’s actions in the underlying
events of this case have been characterized as “theft” and
“vandalism” at various points during this litigation, it is now
clear that the losses Plaintiff suffered arose from a business
dispute that was not “outside the parties’ realm of control.”
Intermetal Mexicana, 866 F.2d at 77.6
To be clear, the Court is not stating that losses
arising from a business dispute can never be fortuitous. In this
The events at issue here began not on August 18, 2013,
but earlier in Mason’s tenure as manager of the bar, when, to
the knowledge of the Reuvens, he began to make fairly extensive
alterations to the property. Mason installed quite a few items
in the bar, some of which involved altering the very structure
case, for example, if in response to an ongoing dispute with the
Reuvens, Mason entered the bar and simply trashed the place,
those losses may well be fortuitous. Or if what Mason took was
not in fact his to take, but rather the property of the bar, the
losses would likely then be fortuitous. See A & B Enters. v.
Hartford Ins. Co., 604 N.Y.S. 2d 166, 389-90 (N.Y. App. Div.
1993) (finding fortuitous a loss where a third party, under no
claim of right, took some of the insured’s property after a
dispute over wages owed to the third party). The relevant
question, it seems, should be not whether the losses arose from
a dispute of some kind, but the amount of control the insured
had over the act that caused the loss. The fact that the loss
arises from a dispute between the insured and a third party may
therefore be relevant, but not dispositive, as is the case here.
However, this distinction may be merely semantic, as
it is possible that the matter of “control” is built into the
definition of a business dispute – that is, that all business
disputes are necessarily within the control of the insured.
Intermetal Mexicana arguably suggested as much in a footnote,
quoting a representative of the insurance company: “A business
dispute in particular is something that is typically within the
control of the insured.” 866 F.2d 77 n.14. However, the
Intermetal Mexicana court expressed no opinion about whether
that statement is true as a matter of law. If it is, then the
question is indeed whether the insured had control over the
events at issue.
At any rate, some courts outside of this circuit have
made “control” an explicit consideration. New York, for example,
defines a “fortuitous event” to mean “any occurrence or failure
to occur which is, or is assumed by the parties to be, to a
substantial extent beyond the control of either party.” Highland
Capital Mgmt., L.P. v. Glob. Aerospace Underwriting Managers
Ltd., 488 F. App’x 473, 475 (2d Cir. 2012) (quoting New York
Insurance Law § 1101(a)(2)).
of the bar. See Trial Tr. at 235:23-252:12. For example, in a
space that had been empty, Mason built a wall with a door and a
window for a DJ booth. Id. at 237:22-238:21. He also built
shelves, id. at 240:23-241:2, 243:18-244:4, several additional
and replacement walls, id. at 243:1-10, 245:2-5, and installed
new lighting behind the bar, id. at 244: 5-20, and new wood on
the top and sides of the bar itself, id. at 248:21-249:8, among
other changes. Mason made all of these alterations at his own
expense. Id. at 252:8-12.
The heart of this matter is ultimately a dispute about
Mason’s right to reverse these changes he made to the bar –
which necessarily involved deconstructing portions of the space,
such as the wall he built for the DJ booth. Apparently, the
Reuvens had no problem with Mason making improvements to the bar
on his own dime, so long as he left them in place when he left
the bar.7 On the other hand, Mason believed it to be fully his
right to remove all items he had added to the property,
regardless of whether they had become part of the structure of
the bar. As a result, it appears that when Mason and Ezra formed
“an understanding that [Mason] was going to take [his] stuff
Ezra testified: “If they want to take your stuff
professionally, I understand. If it’s your stuff, you are
allowed to take. But first of all, I understand everything you
bolt to the wall, everything you build you not allowed to take
it apart.” Trial Tr. 71:14-20. Whether this testimony accurately
states the law is not an issue before the Court at this time.
back, but . . . clean up the bar and put things back in good
nature,” id. at 257:6-10, they were on different pages regarding
the type of “stuff” Mason would be taking.
In effect, the Reuvens seek compensation from the
insurance company because Mason did not leave his alterations in
place – or, at the very least, because he did not remove them
“professionally,” as Ezra testified.8 Id. at 71:17. This loss is
not fortuitous, because the course of events was not outside the
Reuvens’ “realm of control.” Intermetal Mexicana, 866 F.2d at
77. They allowed Mason to make alterations at his own expense
for some time.9 Then Ezra formed the aforementioned understanding
about Mason removing his things before leaving the bar. Whether
Plaintiff does also argue that Mason’s behavior on
August 18 was “intentional defacement” of the bar, going beyond
Mason’s removal of his own items, but the evidence put forth at
trial does not support that conclusion. Plaintiff offers
“cutting wires” and “ripping down walls” as examples of such
defacement. Pl.’s Supp. Mem. Law 3, ECF No. 40. But Mason cut
only the wires supporting lights he himself had installed, Trial
Tr. at 259:11-260:7, and the walls he took down were also walls
that he himself had installed, id. at 263:13-265:8.
For this reason, Plaintiff’s argument that
“Plaintiff’s [sic] had no way of knowing this could happen,”
Pl.’s Supp. Mem. Law 3 – “this” being Mason’s so-called
destruction of the bar – is clearly incorrect. It is unfortunate
for the Reuvens if they misunderstood Mason’s intentions in
improving the bar on his own dime, but the results are far from
unforeseeable. Indeed, it should have been entirely foreseeable
that Mason’s many additions to the bar were perhaps not done out
of the kindness of his own heart, for the benefit of the bar
even after his own tenure there, and that upon his departure, he
might want to take with him the items he installed at his own
Mason and Ezra had the same understanding about what exactly
Mason would be taking – or about whether Mason even had the
right to remove items he had installed in the bar – is a
contractual matter between the two of them. Ezra’s obvious
misunderstanding about Mason’s stated plans does not render the
resulting loss fortuitous, especially where the Reuvens actively
prevented Mason from “put[ting] things back in good nature,”
Trial Tr. 257:9-10, by having him arrested.
In short, nothing about this scenario was “dependent
on chance.” Compagnie des Bauxites de Guinee, 724 F.2d at 372.
Rather, it resulted from apparent miscommunication between Mason
and the Reuvens, which the Reuvens had ample opportunity to
correct or clarify throughout Mason’s tenure at the bar.
Accordingly, the loss claimed by Plaintiff is not fortuitous,
and Defendant is not liable here.
For the foregoing reasons, the Court will enter
judgment for Defendant. The Court will also deny as moot
Defendant’s Motion to Exclude Expert Testimony.
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