BS BIG V, LLC. v. Philadelphia Indemnity Insurance Company

Background

The plaintiffs alleged that Philadelphia Indemnity Insurance Company breached an insurance policy by refusing to indemnify them for water damage to a building they owned. The building had previously housed a bank, which vacated in late 2017. On December 19, 2018, a pipe in the building’s heating, ventilation, and air-conditioning system ruptured and caused extensive water damage.

The policy contained exceptions for losses caused by freezing water, subject to specified requirements concerning heat or shutting off the water supply. It also contained an exception for losses occurring when the building had been vacant for more than 60 consecutive days. The record indicated that the building was not heated during the month before the rupture, its water supply remained on, and average temperatures in the area were at or below freezing.

The insurer denied coverage, stating that the loss resulted from a pipe freezing and bursting because the building’s heat was not properly maintained. The plaintiffs’ expert, Rudi O. Sherbansky, concluded after inspecting the building and reviewing records that the pipe joint separated because of a latent condition and faulty soldering, not freezing. The insurer’s expert, James Davis, reached a contrary conclusion and attributed the failure to freezing caused by sub-freezing temperatures and the building’s vacancy.

Expert-testimony motion

The insurer moved to exclude Sherbansky’s testimony under Federal Rule of Evidence 702 and the standards governing expert evidence. Magistrate Judge Sarah L. Cave denied that motion. Judge George B. Daniels reviewed the ruling under the deferential standard applicable to a magistrate judge’s non-dispositive order and adopted it.

The court held that Sherbansky’s opinions were sufficiently supported by his experience, his inspection, and his review of building permits, photographs, weather reports, public records, and occupancy and compliance certificates. His inspection found none of the typical symptoms of a pipe freeze. The court also noted that the insurer’s own expert had not performed the testing or additional pipe inspections that the insurer criticized Sherbansky for not performing.

The court treated the insurer’s criticisms—including the three-month delay before Sherbansky’s inspection, his failure to identify the specific force that separated the pipe, and alleged conflicts with other literature—as matters concerning the weight and credibility of the testimony rather than its admissibility. Those issues could be explored through cross-examination and opposing evidence. The court did not decide the insurer’s newly raised argument that Sherbansky’s testimony would not help the jury because that argument had not been properly presented earlier.

Summary-judgment motion

The insurer also moved for summary judgment. Summary judgment is available only when there is no genuine dispute about a material fact and the moving party is entitled to judgment under the law. The court concluded that the insurer had not met that standard on any of its three grounds.

First, the court denied summary judgment on causation. The competing expert opinions created a factual dispute over whether freezing or faulty soldering caused the pipe failure. Resolving that “battle of the experts” would require assessing the experts’ credibility and the information supporting their opinions, which the court said was for a jury rather than the court to decide on summary judgment.

Second, the court concluded that the plaintiffs had shown a genuine factual dispute concerning their loss. As owners, they had a substantial economic interest in preserving the building and therefore had an insurable interest. Evidence concerning the building’s condition, the insurer’s adjuster’s report, and a restoration-cost estimate was sufficient to create a factual dispute about damages.

Third, the court denied summary judgment on the insurer’s argument that the plaintiffs violated a condition required for coverage by disposing of damaged property before inspection and failing to provide an inventory. The insurer did not provide evidence that it acted diligently to obtain the plaintiffs’ cooperation, made appropriate inspection or inventory requests, or that the plaintiffs acted willfully and obstructively.

The court noted that it was not deciding the ambiguity or applicability of a separate policy exception that the insurer said was not the basis of its coverage denial or summary-judgment motion.

Disposition

Judge Daniels overruled the insurer’s objections, adopted Magistrate Judge Cave’s report in full, denied the motion to exclude the plaintiffs’ expert witness, and denied the motion for summary judgment. The order left the insurance dispute unresolved.