Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


5-18-2005

Motorists Mutl Ins v. Hardinger
Precedential or Non-Precedential: Non-Precedential

Docket No. 04-1750




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                                                              NOT PRECEDENTIAL

                      UNITED STATES COURT OF APPEALS
                           FOR THE THIRD CIRCUIT


                                      No. 04-1750


                 MOTORISTS MUTUAL INSURANCE COMPANY

                                          v.

               DAVID M. HARDINGER; CHRYSTAL HARDINGER,
                                                   Appellants


                   On Appeal from the United States District Court
                       for the Eastern District of Pennsylvania
                         D.C. Civil Action No. 02-cv-08310
                      (Honorable Franklin S. Van Antwerpen)


                            Argued March 10, 2005
         Before: SCIRICA, Chief Judge, ROTH and AMBRO, Circuit Judges

                                 (Filed: May 18, 2005)

TIMOTHY G. LENAHAN, ESQUIRE (ARGUED)
CHRISTINE S. LEZINSKI, ESQUIRE
Lenahan & Dempsey, P.C.
116 North Washington Avenue
Suite 400, Kane Building
P.O. Box 234
Scranton, Pennsylvania 18503

STEPHEN J. DEVINE, ESQUIRE
Armstrong & Carosella
882 South Matlack Street, Suite 101
West Chester, Pennsylvania 19382

      Attorneys for Appellants
LYNNE K. BEUST, ESQUIRE (ARGUED)
DAVID E. TURNER, ESQUIRE
Bingaman, Hess, Coblentz & Bell, P.C.
Treeview Corporate Center
Suite 100, 2 Meridian Boulevard
Wyomissing, Pennsylvania 19610

      Attorneys for Appellee


                               OPINION OF THE COURT


SCIRICA, Chief Judge.

      The District Court granted summary judgment to Motorists Mutual Insurance

Company (“Motorists”), holding that Motorists had no duty to provide insurance coverage

under David and Chrystal Hardinger’s homeowner’s insurance policy. We will vacate

and remand.

                                            I.

      At the end of October of 2000, the Hardingers bought a homeowner’s insurance

policy from Motorists for their home in Berks County. Coverage under the policy began

on September 29, 2000, and continued until October 1, 2001. Within a week and a half of

moving in, Chrystal Hardinger and her children became ill, experiencing infections, as

well as respiratory, viral, and skin conditions. The Hardingers vacated the premises on

February 28, 2001, notifying Motorists on May 10, 2001, that they would pursue a

property damage claim under the policy.




                                            2
          Motorists conducted a study on February 28, 2001, and received a report from the

testing company on October 19, 2001. Motorists employed a second company to analyze

the samples taken from the Hardingers’ well. The test occurred on June 14, 2001, and

the group issued a report on June 19, 2001. It found that the well was contaminated with

e-coli bacteria. On August 26, 2002, a third testing company collected and tested water

samples, and in a report issued on September 19, 2002, also found the samples contained

e-coli.

          On October 22, 2001, Motorists informed the Hardingers it would deny their

property claim for the following reasons:

          The occurrence of the loss was prior to the inception of the policy by
          Motorists Insurance Group. The loss is also excluded under the current
          Home Owners Policy carried by the above insured.

The letter also stated that the loss fell under a policy provision that excluded loss caused

by pollutants (“the pollution exclusion”). Motorists reaffirmed its denial of coverage in a

letter dated October 4, 2002.

          Attempts to fix the problem were unsuccessful. The Hardingers conveyed their

property to National Penn Bank on February 19, 2003.

          On November 4, 2002, Motorists brought a declaratory judgment action against the

Hardingers, seeking a determination that it was under no duty to provide insurance

coverage under the policy. The District Court granted Motorists’ motion for summary




                                              3
judgment on the basis that the Hardingers failed to establish a physical loss, a prerequisite

for coverage under the policy.

                                              II.

       The District Court had diversity jurisdiction under 28 U.S.C. § 1332 and the

declaratory judgment action was brought under 28 U.S.C. § 2201. We have jurisdiction

over this appeal based upon 28 U.S.C. § 1291.

       Summary judgment is appropriate if there are no genuine issues of material fact

presented and the moving party is entitled to judgment as a matter of law.1 Fed. R. Civ.

P. 56(c); Celotex Corp. v. Catrett, 

, 322- 23 (1986). In determining whether

a genuine issue of fact exists, we resolve all factual doubts and draw all reasonable

inferences in favor of the nonmoving party. Suders v. Easton, 

, 435 n.2 (3d

Cir.2003). On appeal, “[w]e apply the same standard that the District Court should have

applied.” Stratton v. E.I. DuPont De Nemours & Co., 

, 253 (3d Cir. 2004).

Pennsylvania substantive law applies in this diversity suit. Nowak By and Through

Nowak v. Faberge USA Inc., 

, 757 (3d Cir. 1994).




   1
    The District Court incorrectly identified the non-moving party as Motorists, stating
that “[a]ll inferences must be drawn, and all doubts resolved, in favor of the non-moving
party – in this case, Plaintiff” (emphasis added). The non-moving party in this case was
not the plaintiff, Motorists, but the defendants, the Hardingers. We believe this mistake
was in all likelihood a clerical error and did not reflect the District Court’s actual analysis.
On remand, the District Court should ensure that it draws inferences and resolve doubts in
favor of the appropriate party.

                                               4
                                              III.

       Motorists argues that three grounds justify its denial of coverage: the loss does not

constitute a “physical loss,” the loss predated the policy, and the loss falls within the

pollution exclusion. We believe there is a genuine issue of material fact on whether there

was a physical loss and whether the loss predated the policy. We leave the inquiry

whether the pollution exclusion applies to the District Court.

       A. Physical Loss

       A prerequisite for coverage under the homeowner’s policy is “direct physical loss

or risk of a direct physical loss.” The policy does not define the term “physical loss to

property.” 2 Holding that there was no genuine issue on whether there was a physical loss,

the District Court granted summary judgment to Motorists.3 While the bacteria allegedly

made the house uninhabitable, the court deemed this a “constructive loss,” and held it

insufficient to satisfy the policy’s requirement of “physical loss.”

       We look to Pennsylvania law in this diversity action and predict how the Supreme

Court of Pennsylvania would decide the case. See Debiec v. Cabot Corp., 

,

128 (3d Cir. 2003) (citing Bohus v. Beloff, 

, 924 (3d Cir. 1991)). No

Pennsylvania Supreme Court case, however, directly addresses whether loss of use may



   2
    In the definition section, the policy does, however, define the term “property damage”
as “physical injury to, destruction of, or loss of use of tangible property.”
   3
   We agree with the District Court that Motorists did not waive its ability to deny
coverage on the basis that there was no physical loss.

                                               5
constitute a physical loss. Decisions of lower Pennsylvania courts also provide little

guidance.4

       In Port Authority of New York & New Jersey v. Affiliated FM Ins. Co., 

(3d Cir. 2002), we considered a similar policy that insured against “physical loss or

damage” as it applied to existence of asbestos in the insured buildings.5 We held that the

insurer was only required to cover the expense of correcting the problem insofar as the

asbestos made the structure unusable. 

In the case of asbestos, Port Authority

stated the following as the “proper standard for ‘physical loss or damage’ to a structure”:

       only if an actual release of asbestos fibers from asbestos containing
       materials has resulted in contamination of the property such that its function
       is nearly eliminated or destroyed, or the structure is made useless or
       uninhabitable, or if there exists an imminent threat of the release of a
       quantity of asbestos fibers that would cause such loss of utility.

(emphasis added).


   4
    Instructive, however, is Hetrick v. Valley Mut. Ins. Co., 

, 273
(Pa. Com. Pl. 1992). In Hetrick, the court gave substantial attention and approval to
Western Fire Insurance Co. v. First Presbyterian Church, 

, 38-39(1968). In
that case, the Colorado Supreme Court held the term “direct physical loss” extended to
cover the loss of use of the insured property where the accumulation of gasoline around
and under the property rendered it uninhabitable.
   5
    Like the Hardingers’ policy, the policy in Port Authority was a first-party insurance
policy – one which protects against loss caused by injury to the insured’s property. See
Port 

.
   6
    We noted that, “[i]n ordinary parlance and widely accepted definition, physical
damage to property means ‘a distinct, demonstrable, and physical alteration’ of its
structure.” Port 

. (citing 10 Couch on Insurance § 148:46 (3d
ed.1998)). We found that “[p]hysical damage to a building as an entity by sources
unnoticeable to the naked eye must meet a higher threshold.” 

District Court provided two reasons why Port Authority is inapplicable. First,

the District Court reasoned that Port Authority’s holding, a “prediction of what may

eventually become the law of [New York and New Jersey],” is not applicable to this

diversity case, which is governed by Pennsylvania substantive law. Motorists Mut. Ins.

Co. v. Hardinger, 

, at *5 n.5 (E.D.Pa. Feb. 27, 2004). We find nothing,

however, in New York, New Jersey, or Pennsylvania law that would cause us to disregard

Port Authority under Pennsylvania law. Indeed, Port Authority noted that “applicable

state law provides no guidance,” 

and thus, it appears that nothing unique

about the law of New York or New Jersey dictated the result. Nor does it appear that

there is any substantive law in Pennsylvania at odds with Port Authority. Second, the

District Court suggested that Port Authority does not apply because “[t]he presence of

asbestos in a structure presents unique concerns” not applicable in this case. Hardinger,

, at *5 n.5. While we agree that asbestos presents unique concerns, we

find Port Authority instructive in a case where sources unnoticeable to the naked eye have

allegedly reduced the use of the property to a substantial degree.

       We predict that the Pennsylvania Supreme Court would adopt a similar principle as

we did in Port Authority. Applying Port Authority’s standard here, we believe there is a

genuine issue of fact whether the functionality of the Hardingers’ property was nearly

eliminated or destroyed, or whether their property was made useless or uninhabitable.




                                             7
       B. Whether the Loss Predated the Policy and the Pollution Exclusion

       Because it decided the motion for summary judgment entirely on the basis that

there was no physical loss, the District Court did not consider Motorists’ other stated

reasons for denial – namely, that the loss predated the policy and that it fell within the

pollution exclusion.

              1. Whether the Loss Predated the Policy

       We believe the August 20, 2001 memorandum written by Ron Snyder, a Motorists

regional property consultant, at the least, creates a genuine issue of material fact on

whether the loss predated the policy. Snyder wrote:

       After as through [sic] investigation as possible at this time it can also be
       concluded that the well became contaminated after our insured moved into
       the house based of a water test by the health department and the fact that the
       previous occupants did not become ill. Microbiological contamination
       was not found in the water well when it was tested in 1998.

Appendix at 393 (emphasis in original). Snyder’s opinion may not definitively establish

that the loss occurred after the policy’s inception, but it is sufficient to create a genuine

issue of fact. Summary judgment on the basis that the loss predated the policy is

therefore inappropriate for Motorists.

              2. Pollution Exclusion

       The pollution exclusion applies to loss caused by “solid, liquid, gaseous or thermal

irritant or contaminant, including smoke, vapor, soot, fumes, acids[,] alkalis, chemicals

and waste.” There is no Pennsylvania case law identified by the parties that addresses



                                               8
whether bacteria should fall within the definition. Courts that have addressed whether

bacteria fits under similar pollution exclusions are divided. Compare Keggi v.

Northbrook Prop. and Cas. Ins. Co., 

, 47 (Ariz. App. Div. 2000) (holding

that bacteria does not constitute a pollutant under an identical pollution exclusion clause),

and E. Mut. Ins. Co. v. Kleinke, Index # 2123-00, RJI #0100062478 (N.Y. Super. Ct. Jan.

17, 2001) (holding that similar pollution exclusion is ambiguous on whether e-coli

bacteria falls within the policy’s definition of pollutant), with Landshire Fast Foods of

Milwaukee v. Employers Mut. Cas. Co., 

, 532 (“bacteria, when it renders

a product impaired or impure” falls within “the ordinary, unambiguous definition of

‘contaminant’”).

       While Judge Ambro’s concurrence thoughtfully considers the matter, we express

no opinion. We believe the issue whether bacteria fall under the plain meaning of the

pollution exclusion or whether the pollution exclusion is ambiguous as applied to the

facts of this case should be left to the District Court in the first instance.7 Therefore, we




   7
    Some insurers have defined “pollutant” to include biological and etiologic agents.
See, e.g., Hydro Sys., Inc. v. Cont’l Ins. Co., 

, 474 (9th Cir. 1991) (defining
pollutant as “any noise, solid, semisolid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, mists, acids, alkalis, chemicals,
biological and other etiologic agents or materials”) (emphasis added); E. Quincy Servs.
Dist. v. Cont’l Ins. Co. 

, 979 (E.D.Ca. 1994) (“‘Pollutants’ mean any
noise, solid, semi-solid, liquid, gaseous or thermal irritant or contaminant, including. . . .
biological and etiologic agents or materials, . . . “waste” and any irritant or
contaminant.”).

                                               9
will direct the court to consider whether the pollution exclusion applies to the presence of

e-coli bacteria in the Hardingers’ well.8

                                              IV.

       Summary judgment was not proper because there is a genuine issue of material

fact whether there was a physical loss. In addition, there is at least a genuine issue

whether that loss predated the policy and we leave to the District Court to address the

applicability of the pollution exclusion in the first instance. For the foregoing reasons, we

will vacate and remand.




AMBRO, Circuit Judge, concurring




       I agree with my colleagues that there are genuine issues of material fact regarding

whether there was a physical loss and whether that loss predated the policy. Though I

also agree that the District Court should consider this issue in the first instance, I write


   8
     Whether or not the pollution exclusion applies to bacteria per se, e-coli may spread
through sewage-contaminated water and waste, and there may be a question whether that
is classifiable as a pollutant. But see Inc. Village of Cedarhurst v. Hanover Ins. Co., 

, 529 (N.Y. App. Div. 1996) (“‘raw sewage’ is not explicitly listed in the
policy as a pollutant, and the term ‘waste’ contained in the exclusion is subject to more
than one reasonable interpretation. Thus, since the exclusion is ambiguous as to whether
raw sewage is encompassed within the definition of waste, the exclusion is not applicable
in this case”) (collecting cases). In this case, however, so far as we can determine, the
record does not appear to show how the e-coli found its way into the Hardingers’ well.

                                              10
separately to explain briefly why the pollution exclusion is likely ambiguous (if not

plainly inapplicable) as applied to the facts of the case. This issue is crucial in the

insurance context because “where a provision of a policy is ambiguous, the policy

provision is to be construed in favor of the insured and against the insurer.” Minn. Fire &

Cas. Co. v. Greenfield, 

, 861 (Pa. 2004).

       With respect to the pollution exclusion, the parties have primarily addressed two

possible bases of ambiguity. First, they have jousted over the meaning of the language in

the policy limiting the exclusion to situations involving the “[d]ischarge, dispersal,

seepage, migration, release or escape of pollutants.” At this stage of the proceedings the

source of the bacteria has not been established; therefore, the resolution of this point of

contention is best left to the District Court.

       Whether the second issue regarding the pollution exclusion should be resolved

now or on remand presents a closer question. As Chief Judge Scirica indicates, courts

have reached different conclusions regarding whether bacteria are “pollutants” under

similar policy language. Nevertheless, Keggi v. Northbrook Property and Casualty

Insurance Co., 

(Ariz. Ct. App. 2000), is instructive. In reaching its

conclusion that an identical pollution exclusion did not include bacteria within the

definition of “pollutants,” the Court pointed out the significant problems with reading the

exclusion to cover bacteria. The policy (like the Hardingers’) limited “pollutants” to

“irritants” and “contaminants” that are “solid, liquid, gaseous or thermal” and the Court



                                                 11
reasoned—correctly, in my view—that “water-borne bacteria . . . do not fit neatly within

this definition. To the extent that bacteria might be considered ‘irritants’ or

‘contaminants’ they are living, organic irritants or contaminants that defy description

under the policy as ‘solid,’ ‘liquid,’ gaseous,’ or ‘thermal’ pollutants.” 

(emphasis in original).

       The policy in Keggi also stated that “smoke, vapor, soot, fumes, acids, alkalis,

chemicals and waste” were included within the definition of “pollutants.” 

However, “[b]acteria, as living organisms, are not similar to the exclusion’s enumerated

list.” 

is an argument that bacteria, to the extent they emanate from

sewage (apparently a factual possibility in our case), fall within the definition of “waste,”

that term appears to be either inapplicable or susceptible to more than one reasonable

interpretation, in which case the language is ambiguous. See id.; see also Wagner v. Erie

Ins. Co., 

, 1231 (Pa. Super. Ct. 2002) (“Terms in an insurance contract are

ambiguous if they are subject to more than one reasonable interpretation when applied to

a particular set of facts.” (internal quotation omitted)).

       On the other side of the legal divide, the Wisconsin Court of Appeals held in

Landshire Fast Foods of Milwaukee v. Employers Mutual Casualty Company, 

, 532 (Wis. Ct. App. 2004), that the term “contaminants” in a similar

pollution exclusion unambiguously “incorporates bacteria such as Listeria

monocytogenes” in food products. Landshire Fast Foods, however, is inconsistent with



                                              12
Pennsylvania case law. Under Pennsylvania law, courts are guided by the principle that

ambiguity (or the lack thereof) is “determined by reference to a particular set of facts.”

Madison Constr. Co. v. Harleysville Mut. Ins. Co., 

, 107 (Pa. 1999). The

Landshire Fast Foods Court, applying Wisconsin law, accepted the conclusion reached in

a prior case that language in the policy was unambiguous, notwithstanding that the case

relied on did not involve bacteria, but brine and ammonia. See Landshire Fast 

(citing Richland Valley Prods. v. St. Paul Fire & Cas. Co., 

, 132 (Wis. Ct. App. 1998)). For this reason, I believe the Pennsylvania

Supreme Court is unlikely to find Landshire Fast Foods’s reasoning persuasive. Cf.

Nationwide Mut. Fire Ins. Co. v. Pipher, 

, 228 (3d Cir. 1998) (explaining

that in applying Pennsylvania law “we are not free to exercise our independent judgment

but must instead predict how the Supreme Court of Pennsylvania would rule”).

       While it is prudent to afford the District Court the opportunity to consider these

issues in the first instance, I doubt further proceedings will render the reasoning of Keggi

less apt. With this personal sidebar to my colleagues’ opinion, I concur.




                                             13