CITI GAS CONVENIENCE, INC. v. UTICA MUTUAL INSURANCE COMPANY

Filing 9

MEMORANDUM AND/OR OPINION SETTING FORTH THE REASONS WHY THE COURT IS GRANTING DEFENDANT'S MOTION TO DISMISS (DOCKET NO. 3). AN APPROPRIATE ORDER FOLLOWS. SIGNED BY HONORABLE GENE E.K. PRATTER ON 2/9/16. 2/9/16 ENTERED AND COPIES E-MAILED.(rab, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
CITI GAS CONVENIENCE, INC.,
Plaintiff,
v.
UTICA MUTUAL INS. CO.,
Defendant.

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CIVIL ACTION

No. 15-6691

MEMORANDUM
PRATTER, J.

FEBRUARY 9, 2016

Citi Gas Convenience, Inc. claims its insurer, Utica Mutual, breached its insurance
contract by refusing to cover property damage and business interruption costs caused by a water
main break and that Utica acted in bad faith in handling Citi Gas’s claim. Utica moves the Court
to dismiss Citi Gas’s Complaint, arguing that the language of the insurance policy excludes the
type of insurance claim made by Citi Gas and, accordingly, that Citi Gas’s bad faith claim must
fail if the contract claim fails. After reviewing Utica’s motion and Citi Gas’s opposition to it, the
Court will grant the motion and dismiss the case.
BACKGROUND
According to the Complaint, Citi Gas Convenience operates a business at 4601 Frankford
Avenue, Philadelphia, Pennsylvania. On December 23, 2013, the business premises were
damaged by a water main break. Citi Gas submitted a claim to Utica Mutual under its
commercial property policy. Utica denied coverage, stating that the damage was due to “surface
water,” 1 and citing the following policy exclusion:

1

In its Complaint, Citi Gas alleges that Utica denied coverage because the damage was caused by
“ground water” and attaches Utica’s denial letter to the Complaint. That letter, however, states that the
denial was because the cause of the damage was “surface water,” a term used in the policy’s Water
Exclusion. See Complaint, Ex. B. “While the Court must accept as true all allegations in a Complaint, it

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B. Water
1. Flood, surface water, waves (including tidal wave and tsunami), tides, tidal
water, overflow of any body of water, or spray from any of these, all whether or
not driven by wind (including storm surge);
2. Mudslide or mudflow;
3, Water that backs up or overflows or is otherwise discharged from a sewer,
drain, sump, sump pump or related equipment;
4. Water under the ground surface pressing on, or flowing or seeping through:
a. Foundations, walls, floors or paved surfaces;
b. Basements, whether paved or not; or
c. Doors, windows or other openings; or
5. Waterborne material carried or otherwise moved by any of the water referred to
in Paragraph 1., 3. or 4., or material carried or otherwise moved by mudslide or
mudflow.
This exclusion applies regardless of whether any of the above, in Paragraphs 1.
through 5., is caused by an act of nature or is otherwise caused. An example of a
situation to which this exclusion applies is the situation where a dam, levee,
seawall or other boundary or containment system fails in whole or in part, for any
reason, to contain the water. But if any of the above, in Paragraphs 1. through 5.,
results in fire, explosion or sprinkler leakage, we will pay for the loss or damage
caused by that fire, explosion or sprinkler leakage (if sprinkler leakage is a
Covered Cause of Loss).
Def.’s Mot. to Dismiss, Ex. B, at 50.
Citi Gas filed suit in the Philadelphia Court of Common Pleas, asserting claims for
breach of contract, both for failing to pay for Citi Gas’s property damage and for failing to pay
its business interruption claim, and for bad faith. Utica removed the case to federal court on the
basis of diversity jurisdiction and filed a motion to dismiss.
LEGAL STANDARD
A Rule 12(b)(6) motion to dismiss tests the sufficiency of a complaint. Although Rule 8
of the Federal Rules of Civil Procedure requires only “a short and plain statement of the claim
showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), “in order to ‘give the
defendant fair notice of what the . . . claim is and the grounds upon which it rests,’” Bell Atl.
is not obliged to ignore exhibits that directly contradict those allegations . . .” Rose v. Rothrock, No. CIV.
A. 08-3884, 2009 WL 1175614, at *6 (E.D. Pa. Apr. 29, 2009).

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Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citation omitted) (alteration in original), the
plaintiff must provide “more than labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do,” id.
To survive a motion to dismiss, the plaintiff must plead “factual content that allows the
court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Specifically, “[f]actual allegations must be enough
to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. The question is
not whether the claimant “will ultimately prevail . . . but whether his complaint [is] sufficient to
cross the federal court’s threshold.” Skinner v. Switzer, 131 S. Ct. 1289, 1296 (2011) (citation
and internal quotation marks omitted). Thus, assessment of the sufficiency of a complaint is “a
context-dependent exercise” because “[s]ome claims require more factual explication than others
to state a plausible claim for relief.” W. Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85,
98 (3d Cir. 2010).
In evaluating the sufficiency of a complaint, the Court adheres to certain well-recognized
parameters. For one, the Court “must consider only those facts alleged in the complaint and
accept all of the allegations as true.” ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 (3d Cir. 1994);
see also Twombly, 550 U.S. at 555 (stating that courts must “assum[e] that all the allegations in
the complaint are true (even if doubtful in fact)”); Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir.
2010) (“[A] court must consider only the complaint, exhibits attached to the complaint, matters
of public record, as well as undisputedly authentic documents if the complainant’s claims are
based upon these documents.”). Also, the Court must accept as true all reasonable inferences
emanating from the allegations, and view those facts and inferences in the light most favorable to
the nonmoving party. See Rocks v. City of Philadelphia, 868 F.2d 644, 645 (3d Cir. 1989); see

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also Revell v. Port Auth., 598 F.3d 128, 134 (3d Cir. 2010). That admonition does not demand
that the Court ignore or disregard reality. The Court “need not accept as true unsupported
conclusions and unwarranted inferences,” Doug Grant, Inc. v. Greate Bay Casino Corp., 232
F.3d 173, 183-84 (3d Cir. 2000) (citations and internal quotation marks omitted), and “the tenet
that a court must accept as true all of the allegations contained in a complaint is inapplicable to
legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice.” Ashcroft, 556 U.S. at 678; see also Morse v. Lower
Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997) (explaining that a court need not accept a
plaintiff’s “bald assertions” or “legal conclusions” (citations omitted)). Finally, “if a [claim] is
vulnerable to 12(b)(6) dismissal, a district court must permit a curative amendment, unless an
amendment would be inequitable or futile.” Phillips v. County of Allegheny, 515 F.3d 224, 236
(3d Cir. 2008).
DISCUSSION
I.

Breach of Contract (Counts I and II)

Under Pennsylvania law, “[w]hen the language of the [insurance] policy is clear and
unambiguous, [the Court] must give effect to that language.” Kvaerner Metals Div. of Kvaerner
U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888, 897 (Pa. 2006) (citation, quotation
marks, and internal brackets omitted). However, if a provision in the policy is ambiguous, “the
policy is to be construed in the 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).
The dispute in this case hinges on the definition of the policy term “surface water,” and,
more specifically, whether that term is ambiguous, in that it may mean water from natural
sources only, or water from both natural and man-made sources. Utica argues that even though
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“surface water” is not defined in the policy, the term is not ambiguous because the water
exclusion provision makes clear that “surface water” includes water from both natural and manmade causes. It points to the policy language outlining the exclusion, which states that “[t]his
exclusion applies regardless of whether any of the above in Paragraphs 1. through 5., is caused
by an act of nature or is otherwise caused.” See Def.’s Mot., Ex. B, at 50. Utica also cites to
decisions of other courts applying water exclusions to water main breaks. See, e.g., Pavuk v.
State Auto Ins., Co., No. Civ. A. 96-8459, 1997 WL 43104, at *4 (E.D. Pa. July 5, 1997)
(holding that the water exclusion “clearly excludes coverage for water damage caused in whole
or in part from non-domestic sources” regardless of whether the source is natural or man-made);
Kozlowski v. Penn Mutual Ins. Co., 441 A.2d 388, 391 (Pa. Super. Ct. 1982) (holding that the
water exclusion applied when the damage came from a water main break). 2
Citi Gas’s primary argument for coverage is that the “plain and ordinary” definition of
“surface water” is water from natural sources, not from man-made sources like a water main. 3
To support this argument, Citi Gas quotes four dictionary definitions of “surface water,” all of
which use the word “natural,” or “naturally,” or cite examples of naturally occurring water. 4

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In Pavuk, the plaintiffs argued that the water exclusion could be interpreted as applying to only natural
causes, making it ambiguous and obligating the court to construe it in the insured’s favor. Pavuk, 1997
WL 43104, at *3-4. The court rejected the plaintiffs’ attempt to find ambiguity in the policy and held that
the only distinction the policy drew was between domestic and non-domestic sources. Id. at *4. The
Kozlowski court did not consider the question of natural versus man-made sources. Neither case involved
“surface water” specifically, given that both cases involved direct or indirect damage from subsurface
water originating from water main breaks.

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In its opposition, Citi Gas also argues that “there is no admission by Defendant as to the actual cause of
the water damage, and a question of fact exists, rendering Defendant’s motion premature.” Pl.’s Opp. at
3. However, Utica, as it must at this stage, accepted Citi Gas’s allegations as true for purposes of its
motion, including Citi Gas’s allegation that a water main break caused the damage to its property. Thus,
any factual dispute as to the actual cause of the water damage is irrelevant.

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Pennsylvania courts have stated that surface waters are “‘commonly understood to be waters on the
surface of the ground, usually created by rain or snow, which are of a casual or vagrant character,
following no definite course and having no substantial or permanent existence.’” T.H.E. Ins. Co. v.

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Citi Gas does not cite any case law, and it dismisses the cases cited by Utica by saying that Utica
does not compare the policy language of the policies in those cases with the policy here, making
comparison to those case “baseless and inappropriate.” However, Citi Gas does not attempt to
explain why the comparison is inapt or how any differences in policy language distinguish this
case from those cases. 5
All in all, Citi Gas’s arguments are unavailing. While dictionary definitions of “surface
water” may suggest naturally occurring water, Citi Gas ignores the language of the policy that
modifies the term “surface water.” “Surface water” is a term in Paragraph 1 of the policy’s water
exclusion. The water exclusion states that it “applies regardless of whether any of the above in
Paragraphs 1. through 5., is caused by an act of nature or is otherwise caused.” See Def.’s Mot.,
Ex. B, at 50. Thus, the policy clearly and plainly excludes damage from “surface water” that “is
caused by an act of nature or is otherwise caused.” Even in the absence of a specific definition,
then, “surface water,” as used in this policy, encompasses both “surface water” from natural
sources and “surface water” from man-made sources. 6

Charles Boyer Children’s Trust, 455 F. Supp. 2d 284, 296 (M.D. Pa. 2006) (quoting Richman v. Home
Ins. Co. of N.Y., 94 A.2d 164, 166 (Pa. Super. 1953)). The word “usually” in that definition leaves room
for the positions of both the Plaintiff and the Defendant in this case.
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Indeed, Citi Gas would be hard pressed to find a way to meaningfully distinguish the policy language
here from the policy language in Pavuk. The main difference between the policy language here and the
policy language in Pavuk is that the policy here is even more explicit in encompassing both natural and
man-made causes than the language in the Pavuk policy. While much of the exclusion in Pavuk is very
similar to the language in Citi Gas’s policy, the Pavuk policy did not include language similar to the
“caused by an act of nature or [] otherwise caused” language found in Citi Gas’s Utica policy.
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There is case law from other jurisdictions in which courts have held that “surface water” is an
ambiguous term and have therefore construed the term as including only water from natural sources (i.e.,
in favor of the insured). See, e.g., Robert Dorsen, Inc. v. Aetna Cas. & Surety Co., 562 F. Supp. 495
(D.D.C. 1983); Ferndale Dev. Co., Inc. v. Great Am. Ins. Co., 527 P.2d 939 (Colo. App. 1974). Even if
those cases were somehow binding on this Court, the exclusion clauses in the insurance policies discussed
in those cases did not contain language like the language in the Citi Gas policy that clarified that the
exclusion applied “whether any of the above in Paragraphs 1. through 5., is caused by an act of nature or
is otherwise caused.”

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Because the plain language of the policy excludes the type of damage alleged by Citi Gas
and because Citi Gas has not identified, in its Complaint or in its opposition, any other
contractual provision that would provide coverage or somehow stem the tide of arguments
favoring Utica’s invocation of the exclusion, the Court will dismiss Citi Gas’s breach of contract
claims.
II.

Bad Faith (Count III)

Utica also seeks dismissal of Citi Gas’s bad faith claim. “Resolution of a coverage claim
on the merits in favor of the insurer requires dismissal of a bad faith claim premised on the denial
of coverage, because under the circumstances the insurer necessarily has a reasonable basis for
denying benefits.” Gold v. State Farm Fire & Cas. Co., 880 F. Supp. 2d 587, 597 (E.D. Pa.
2012). Most of the allegations in Citi Gas’s Complaint relating to its bad faith claim are tied to
the denial of coverage. To the extent that Citi Gas is asserting a bad faith claim based on the
denial, the Court will dismiss the bad faith claim with prejudice.
Citi Gas also alleges in its bad faith claim that Utica acted in bad faith in the investigation
of the claim. “[I]f bad faith is asserted as to conduct beyond a denial of coverage, the bad faith
claim is actionable as to that conduct regardless of whether the contract claim survives.” Id. at
598. Thus, Citi Gas may have an actionable claim for bad faith with respect to Utica’s
investigation of its claim. However, Citi Gas provides no factual allegations that would support
such a claim beyond conclusory statements. To the extent that Citi Gas is asserting a bad faith
claim based on something other than the denial of coverage, the Court will dismiss the bad faith
claim without prejudice.

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CONCLUSION
For the foregoing reasons, the Court will grant Utica’s Motion to Dismiss. An
appropriate Order follows.
BY THE COURT:

S/Gene E.K. Pratter
GENE E.K. PRATTER
United States District Judge

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