Opinion
CIVIL ACTION No. 01-0605
October 31, 2003
MEMORANDUM AND ORDER
I. INTRODUCTION
Plaintiff Acceptance Insurance Company ("Acceptance") brought this action seeking a declaratory judgment that it had no duty to defend or indemnify Defendants Hull Corporation ("Hull") and SP Industries, Inc., d/b/a Hull Corp. ("SPI"), with respect to their potential liability in Berg Chilling Sys., Inc. v. Hull Corp., No. CIV.A.00-5075, 2003 WL 21362805, 2003 U.S. Dist. LEXIS 9936 (E.D. Pa. June 10, 2003) ("Berg litigation"). After initially ruling that Acceptance had a duty to defend its insured, this Court reconsidered its decision and ruled on April 2, 2002 that Acceptance had no duty to defend or indemnify and entered a judgment of dismissal. Berg Chilling Sys., Inc. v. Hull Corp., CIV.A.00-5075, 2002 WL 1833351, 2002 U.S. Dist. LEXIS 12281 (E.D. Pa. Apr. 2, 2002). Hull subsequently appealed that judgment to the United States Court of Appeals for the Third Circuit. On July 11, 2003, the Third Circuit reversed this Court's decision and remanded the case for further proceedings consistent with its opinion. Berg Chilling Sys. Inc. v. Hull Corp., No. 02-2241, 2003 WL 21658276, 2003 U.S. App. LEXIS 14304 (3d Cir. July 11, 2003).
II. BACKGROUND
In 1995, Berg Chilling Systems, Inc. ("Berg") entered into a $2.8 million equipment contract with Beijing Huadu Meat Products Company ("Huadu") to supply a large food processing system. (First Am. Compl., Ex. F (The Contract).) Pursuant to a purchase order dated April 20, 1995, Hull sold $1,150,000.00 in freeze dryer equipment to Berg for incorporation into the larger food processing system Berg contracted to provide to Huadu. (First Am. Compl. ¶¶ 31-34.) In addition to Hull, Berg contracted with five other major suppliers of component parts for the system. ( Id. ¶ 34.)
Pursuant to its contract with Huadu, Berg assumed sole responsibility for shipping all of the component parts to Huadu's production facility in Beijing. Berg, 2003 WL 21362805, at *2. During Berg's transportation of the Hull freeze dryer components from the east coast of the United States to Vancouver, Canada, the transporter was involved in a road accident. Id. Due to the accident and other delays in shipment, Berg and Huadu entered into a subsequent agreement ("Amending Agreement"), which amended the equipment contract with respect to the delivery dates. (First Am. Compl. ¶ 36.)
During initial start-up testing of the freeze drying system in 1997, Huadu discovered a series of problems, including damage to, and non-conformity of, the heat platen racks. ( Id. ¶ 44.) Hull also claims that Huadu failed to provide a clean cooling water supply during product testing, which resulted in contamination and failure of the refrigeration compressors. (Def.'s Resp. Mem. of Law on "Occurrence" Issue at 10.) Huadu eventually complained to Berg about damages and delays and claimed that the system could not be successfully operated. In connection with the Huadu complaints, Berg, Hull, and Huadu entered into a new agreement, dated October 8, 1997 ("Modified Agreement"). (First Am. Comp. ¶ 45.) Thereafter, however, Huadu rejected the entire food processing system, including the freeze drying system provided by Hull. Berg, 2003 WL 21362805, at *8.
On March 29, 1999, Huadu submitted an arbitration claim against Berg to the Arbitration Institute of the Stockholm Chamber of Commerce in Sweden ("Arbitration Institute"), alleging breach of contract. (First Am. Compl., Ex. N.) On December 7, 2000, the Arbitration Institute rendered its arbitral award ("Arbitral Award"). ( Id., Ex. A.) The Arbitration Institute concluded that Berg was liable for all of the seller's obligations under the Equipment Contract and was liable for any breaches of the Equipment Contract. ( Id., Ex. A at 2.) Berg did not pay the full amount of damages awarded against it in the Arbitral Award. Instead, in June of 2002, Berg settled the claims against it. Pursuant to this settlement, Berg paid Huadu one million dollars. In addition, Berg was relieved from the expenses of retrieving the freeze dryers and other equipment imposed by the Arbitral Award. Berg, 2003 WL 21362805, at *14-15.
On October 6, 2000, Berg sued Hull for indemnification from the international arbitration award. Berg also joined SPI as a defendant, which had previously purchased some of Hull's assets. In its First Amended Complaint ("Complaint"), Berg alleged that Hull and SPI were liable to Berg for indemnification or contribution of the arbitration award based on Hull's breaches of contract and warranty in connection with its contract with Berg. Hull and SPI cross-claimed against each other for indemnity and contribution.
On September 20, 2000, Hull sent a letter to Acceptance requesting defense and indemnification in the Berg litigation pursuant to the Commercial General Insurance Policy (the "Policy") Acceptance issued to Hull. (Pl.'s Mem. of Law at 3.) The relevant terms of the policy are as follows:
SECTION 1: COVERAGE
The Company will pay on behalf of the insured those sums which the insured shall become legally obligated to pay as damages because of
A. bodily injury or B. property damage to which this insurance applies, caused by an occurrence, and the Company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent.
* * *
DEFINITIONS
"Occurrence" means an accident, including continuous or repeated exposure to conditions, which result in bodily injury or property damage neither expected nor intended from the standpoint of the insured;
* * *
"property damage" means (1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at anytime resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period;
(Pl.'s Mem. of Law, Ex. E.)
By a letter dated September 28, 2000 and a supplemental letter on February 2, 2001, Acceptance denied coverage under the Policy. On February 7, 2001, Acceptance filed a complaint, subsequently amended on February 20, 2001, seeking a declaration that it was not required to defend or indemnify Defendants for any losses resulting from the Berg litigation. This Court originally ruled that Acceptance had a duty to defend its insured but, upon Acceptance's motion for reconsideration and extensive briefing, reconsidered its prior ruling and held that Acceptance did not have a duty to defend or indemnify Hull in the Berg litigation. Berg, 2002 WL 1833351. The Berg litigation went to trial before this Court on January 13, 2003. On June 10, 2003, this Court entered judgment against Berg, SPI, and Hull each in the amount of $333,333. Id. at *11.
Hull appealed this Court's April 2, 2002 memorandum and order holding that Acceptance had no duty to defend or indemnify to the Third Circuit. On July 11, 2003, the Third Circuit reversed this Court's decision and remanded the case for further proceedings. Berg, 2003 WL 21658276. The Third Circuit instructed this Court to determine whether any of three specified events qualified as an "occurrence" under the Policy and whether the underlying Berg litigation pleadings were sufficient to trigger a duty to defend in light of the relevant case law. Id. at *5. The three specified events are as follows: (1) the road accident that caused damage to the freeze dryers and Berg's failure to repair the damage; (2) the negligent modification work done on the Hull freeze dryers by SPI; and (3) the dirty water, steam, and nitrogen ("bad utilities") provided by Huadu over an eighteen-month period. Id. The Third Circuit also instructed this Court to consider whether it could look beyond the four corners of the Complaint to determine whether there was an occurrence. Id. For the reasons that follow, I find that all three of the events were alleged in the Complaint and that two of the events, the road accident and the bad utilities, could potentially support recovery under the Policy and thus triggered Acceptance's duty to defend. Because I find that the three events were alleged in the Complaint, I do not reach the issue of whether I can look beyond its four corners.
III. DISCUSSION
A. Duty to Defend
Hull argues that the following three events constitute "occurrences" under its insurance policy and thus triggered Acceptance's duty to defend: (1) the road accident that caused damage to the freeze dryers and Berg's failure to repair the damage; (2) the negligent modification work done on the Hull freeze dryers by SPI; and (3) the dirty water, steam, and nitrogen ("bad utilities") provided by Huadu over an eighteen-month period. An insurer's duty to defend arises whenever the allegations in a complaint filed against the insured potentially fall within the policy's coverage. Lucker Mfg., Inc. v. Home Ins. Co., 23 F.3d 808, 813 (3d Cir. 1994). This duty remains with the insurer unless and until the insurer demonstrates that the complaint alleges factual liability which, even if proved, would not fall within the scope of the policy. Id. (citing Stidham v. Millvale Sportsmen's Club, 618 A.2d 945, 953-54 (Pa.Super. 1992) (holding that if indemnification depends upon existence or nonexistence of disputed facts, insurer has duty to defend until claim is narrowed to one patently outside policy coverage)).
The Pennsylvania courts have taken a fairly broad view in determining whether a complaint triggers the insurer's duty to defend. The duty to defend is triggered if the underlying complaint avers any facts that potentially could support a recovery under the policy. Lucker, 23 F.3d at 814. Furthermore, in determining the duty to defend, a district court is instructed that "the factual allegations of the underlying complaint against the insured are to be taken as true and liberally construed in favor of the insured." Frog, Switch Mfg. Co v. Travelers Ins. Co., 193 F.3d 742, 746 (3d Cir. 1999). As the Third Circuit explained in Lucker: "The underlying complaint need not track the policy language for there to be coverage: under the liberal rules of notice pleading, [the] complaint need only . . . indicate the type of litigation involved so that the defendant would have fair notice of the claim and its defenses." Lucker, 23 F.3d at 814. The insurer must defend the insured "[a]s long as the complaint comprehends an injury which may be within the scope of the policy." United Servs. Auto. Ass'n v. Elitzky, 517 A.2d 982, 985 (Pa.Super. 1986). This rule applies even when the suit is "groundless, false, or fraudulent." Britamco Underwriters, Inc. v. Weiner, 636 A.2d 649, 651 (Pa.Super. 1994); D'Auria v. Zurich Ins. Co., 507 A.2d 857, 859(Pa.Super. 1986) ("It is the face of the complaint and not the truth of the facts alleged therein which determines whether there is a duty to defend.").
Guided by the Third Circuit's instructions, this Court must first determine whether the pleadings allege any of the three events. If this Court finds that any of these events are alleged, the Court will proceed to determine whether the allegations in the Complaint potentially entitle Hull to coverage under the Policy, such that Acceptance's duty to defend would be triggered.
1. Allegations in the Underlying Complaint
a. Road Accident
While it is true, as Acceptance argues, that the factual allegations in the body of the Complaint do not specifically mention the road accident, the factual allegations contained therein were sufficient to put Acceptance on notice that the damage sustained during transportation of the Hull Equipment was at issue in this case. Wilson v. Md. Cas. Co., 105 A.2d 304, 305 (finding duty to defend based upon allegations in Plaintiffs complaint in conjunction with allegations in related complaint that was attached and incorporated by reference). The Complaint recites the allegations Huadu made before the Arbitral Tribunal, including allegations that "the Hull Equipment was delivered late" and "the Hull Equipment was not in compliance with the contract specifications, standards and guarantee." (First Am. Compl. ¶ 60(b)-(c).) Furthermore, the Complaint includes several attached exhibits which are referred to in the body of the Complaint, including the Arbitral Award. (First Am. Compl., Ex. A.); Wilson, 105 A.2d at 305. The Arbitral Award, the basis for the underlying suit, clearly finds that "late delivery of the freeze dryers" entitles Huadu to a penalty under the Equipment Contract and further states that "[w]hen the freeze dryers arrived in China it was observed that one of them was in a damaged state after a road accident, of which the Chinese authorities had not been notified." (First Am. Compl., Ex. A at 22.) Furthermore, Huadu's Request for Arbitration against Berg is also referred to in the Complaint and attached thereto. (First Am. Compl. ¶ 59.) The Request for Arbitration states, in relevant part, that "some major components of the Contract Equipment were found to be of inferior quality, and some even being damaged (it turned out that the damage was caused in a road accident before shipment)." (First Am. Compl., Ex. N at 3.) Thus, the Complaint contains numerous references to the road accident and resulting damages.
In Heffernan Co. v. Hartford Insurance Co., 614 A.2d 295, 298 (1992), the Pennsylvania Superior Court concluded that a reviewing court may determine a duty to defend by looking outside of the four corners of the complaint and supplementing the facts alleged with discovery responses. The Superior Court reasoned that such a review was appropriate given that a complaint can always be amended to state an additional damage claim prior to final judgment. Id. Since I find a duty to defend in this action based upon review of the Complaint, including its appended and internally incorporated documents, I will not address the question of whether a court can look beyond the four corners of the complaint to determine whether there was an occurrence.
b. Negligent Modification
The Complaint alleges that Hull bore responsibility for making modifications to the equipment and that these modifications were negligently performed. Specifically, the Complaint alleges that "[b]y letter dated August 14, 1997, Berg confirmed to Huadu that Berg had met with representatives of Hull and that Berg and Hull had developed a joint plan of action regarding making modifications to the Hull Equipment so that the Hull Equipment would meet Huadu's requirements." (First Am. Compl. ¶ 45.) The Complaint further alleges that, pursuant to the Modified Agreement, "Hull had warranted the Hull Equipment and that Huadu had agreed to accept Hull's full warranty in lieu of all others for the operation, maintenance and tuning of the Hull Equipment." ( Id. ¶ 47.) The Complaint also states that "Hull Corporation and/or SPI, through Hull Company, progressed with the modification work" and that the Arbitration Institute found that "the modification work on the Hull Equipment under the Modification Agreement was not completed in a timely or proper fashion." ( Id. ¶¶ 52, 61.)
c. Bad Utilities
The factual allegations contained in the Complaint, together with the parties' positions described in the appended Arbitral decision, were sufficient to put Acceptance on notice of property damage to the freeze dryers incurred due to the alleged provision of bad utilities by Huadu. The Complaint alleges damage to the Hull Equipment and costly delays that, as the appended Arbitral Decision suggests, were potentially the result of "Huadu's maintenance and operational procedures." (First Am. Compl., Ex. A at 16.) In recognition of the Complaint's allegations of Hull's responsibility for failure of the freeze dryers, Hull's Answer asserts the conduct of third parties as an affirmative defense. (Answer ¶¶ 88, 90, 91.) Thus, Acceptance was on notice that the unexpected provision of bad utilities by Huadu would be a possible defense to Hull's liability in the underlying litigation. See Lucker, 23 F.3d at 814 ("[The] complaint need only to indicate the type of litigation involved so that the defendant would have fair notice of the claim and its defenses.").
Liberally construing these allegations in favor of the insured, Frog, Switch Mfg. Co., 193 F.3d at 746, I find that the Complaint, together with its internally referenced and attached documents, averred facts sufficient to put Acceptance on notice of damages arising from the three events described above.
2. Scope of Policy
Having determined that the Complaint alleged each of the three events described above, we must now determine whether any of these events could support coverage under the Policy if the facts as alleged in the Complaint were found to be true. The parties agree that Pennsylvania law governs the interpretation of this insurance contract. Berg, 2003 WL 21658276 at *3. The determination of coverage under an insurance policy is a question of law. PECO Energy Co. v. Boden, 64 F.3d 852, 855 (3d Cir. 1995); Madison Const. Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100 (Pa. 1999). The goal of interpreting an insurance contract is to "ascertain the intent of the parties as manifested by the language of the written instrument." Madison Const. Co., 735 A.2d at 106. Moreover, where a provision of a policy is ambiguous, the provision is to be construed in favor of the insured and against the insurer. Id. Where, however, the language of the contract is clear and unambiguous, a court is required to give effect to that language. Id. ( quoting Std. Venetian Blind Co. v. Am. Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983)).
Hull argues that each of the three events described above constitute "occurrences" under the applicable Policy provisions and thus triggered Acceptance's duty to defend. The Policy defines "occurrence" as "an accident, including continuous or repeated exposure to conditions, which result in bodily injury or property damage neither expected nor intended from the standpoint of the insured." (Pl.'s Mem. of Law, Ex. E.) As the Third Circuit has noted, "it is well established that the test of whether the injury or damage is caused by an accident must be determined from the perspective of the insured and not from the viewpoint of the person who committed the injurious act." Nationwide Mut. Fire Ins. Co. v. Pipher, 140 F.3d 222, 226 (3d Cir. 1998). The accident that occurred during Berg's shipment of the freeze dryers, the negligent design and modification work performed by SPI, and the bad utilities provided by Huadu are all "accidents" that Hull neither expected nor intended. See Pipher, 140 F.3d at 225 (finding employee's intentional killing of tenant constituted occurrence under landlord's insurance policy because it was neither expected nor intended by landlord); Elitzky, 517 A.2d at 989 (holding that expected and intended exclusion in general liability insurance contract only excludes damages which insured intended to cause). Furthermore, all three events caused damage to the proper functioning and/or delayed the use of the Hull equipment. (First Am. Compl., Ex. A at 22-25 (Arbitral Award)) (concluding that freeze dryers arrived in China late and in damaged state, and that Huadu suffered losses due to delay and eventual failure to successfully modify equipment to make it operational); see also Berg, 2003 WL 213 62805 at *2 (finding that truck accident caused damage to the Hull freeze dryers); id. at *11 (finding that SPI's improper design and modification of Hull Equipment made it impossible for Equipment to satisfy contract's through-put requirements). Thus, the alleged events constitute occurrences under the Policy.
See Kyaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 825 A.2d 641 (Pa.Super. 2003). In Kvaerner, the Pennsylvania Superior Court quoted the Ohio Court of Appeals in Erie Insurance Exchange v. Colony Development Corporation, 736 N.E.2d 941, 947 (Ohio Ct.App. 1999), for its analysis that negligent construction or repair work can be considered an "occurrence" under a general liability policy. In Erie, the Ohio court considered a condominium association's claims that a building developer's conduct, by itself or through its agents, in constructing and designing the condominium complex was negligent. Id. at 944. Despite the insurance company's claims that "a policy is not a performance bond and . . . does not cover claims for insufficient or defective work of the repair . . . of that work," the Court concluded, that, although the general proposition that a general liability policy "does not cover claims for insufficient or defective work" is true, "it is not because the allegations of negligent construction or design practices do not fall within the broad coverage for property damage caused by an `occurrence,' but because . . . the damages resulting from such practices are usually excluded . . . by the standard exclusions." Id. at 947.
Acceptance argues that even if these events fall within the Policy's definition of "occurrence," they are nonetheless outside of the scope of coverage for two reasons. First, Acceptance argues that these events are acts of Berg, SPI, and Huadu and thus are not claims "against the insured" as required by the Policy. Acceptance's suggestion that claims for damages resulting from these events could only properly or successfully be brought against SPI or Huadu, rather than Hull, however, is inapposite. Given that the Complaint explicitly stated claims against Hull for property damage arising from these events, the fact that a suit against Hull for the damage caused by these events might, in the end, be unsuccessful does not absolve Acceptance of its duty to defend. See Frog, Switch Mfg. Co., 193 F.3d at 746 ("An insurer's duty to defend an insured in litigation is broader than the duty to indemnify, in that the former duty arises whenever an underlying complaint may `potentially' come within the insurance coverage."); D'Auria, 507 A.2d at 859 ("It is the face of the complaint and not the truth of the facts alleged therein which determines whether there is a duty to defend.").
Second, Acceptance argues that, to the extent this Court deems SPI's negligent modification and Huadu's provision of bad utilities to be occurrences under the Policy, they are excluded from coverage by exceptions in the Policy. When an insurer invokes an exclusionary provision to disclaim coverage, "it is the insurer which bears the burden of proving that the exclusion is applicable to the particular case." Fed. Ins. Co. v. Gen. Mach. Corp., 699 F. Supp. 490, 495 (E.D. Pa. 1988) ( citing Daburlos v. Commercial Ins. Co., 521 F.2d 18 (3d Cir. 1975)). If the insurer cannot satisfy this burden, Pennsylvania law requires that the policy must be construed in favor of the insured and "in a manner which is more favorable to coverage." Imperial Cas. and Indem. Co. v. High Concrete Structures, Inc., 858 F.2d 128, 131 n. 4 (3d Cir. 1988) ( citing Houghton v. Amer. Guar. Life Ins. Co., 692 F.2d 289, 291 (3d Cir. 1982)).
Acceptance suggests that two specific exclusions in the Policy are relevant to this case. First, Acceptance argues that any claim arising out of SPI's negligent modification work is excluded from coverage under Section (p) of the Policy. Section (p) provides that the Policy does not apply "to property damage to work performed by or on behalf of [Hull] arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith." (Pl.'s Mem. of Law, Ex. E.) This "injury to work-performed" exclusion reflects the reasoning that "the replacement of faulty goods or the repair of poor craftsmanship is part of the insured's cost of doing business" for which the seller should "not be permitted to indemnity himself." Bendixen v. Allstate Ins. Co., CIV.A. NO. 88-6265, 1989 WL17540, at *1, 1988 U.S. Dist. LEXIS 15808, at *3 (E.D. Pa. Feb. 28, 1989). If the Complaint's allegations that Hull bore responsibility for the negligent modification work performed by SPI were true, then Section (p) would apply to bar coverage for work performed "by or on behalf of [Hull]." Std. Venetian Blind Co., 469 A.2d at 574 (holding that "an insured who is asked to replace or return the price of his own failed work product [cannot] reasonably expect coverage from his liability carrier"). Thus, Acceptance does not have a duty to defend based on allegations of SPI's negligent modification work in the Complaint.
Second, Acceptance suggests that any claim arising out of Huadu's provision of bad utilities would be excluded from coverage under Section (o) of the insurance policy. Section (o) precludes coverage for "property damage to [Hull's] products arising out of such products or any part of such product." (Pl.'s Mem. of Law, Ex. E.) This clause, commonly known as the "injury-to-products" exclusion, reflects the reasoning that an insured should not be able to indemnify himself against his own flawed product in a general liability policy. Bendixen, 1989 WL 17540, at *1, 1988 U.S. Dist. LEXIS 15808, at *3 ("[W]here the damage is limited to the product itself, and the damage was caused by flaws in the product or performance, the injury-to-products . . . clause exclude[s] coverage."). Acceptance has failed to demonstrate how Section (o) is applicable in a situation such as this, where property damage arose from an external source, that is the dirty water, steam and nitrogen provided by Huadu, rather than an internal flaw in the product or its performance.
In conclusion, I find that the Complaint's allegations regarding the road accident and the provision of bad utilities are occurrences within the scope of the Acceptance insurance policy and not subject to any contractual exclusion. Therefore, Acceptance had a duty to defend its insured.
3. Costs of Defense
Having determined that Acceptance had a duty to defend its insured, Acceptance must reimburse Hull for attorneys' fees and costs associated with Hull's defense in the Berg litigation. Carpenter v. Fed. Ins. Co., 637 A.2d 1008, 1013 (Pa.Super. 1994) ("If a duty to defend is found on the part of an insurer, it is also the insurer's responsibility to pay for attorneys' fees and costs incurred by the insured in the underlying action."); Imperial Cas. Indem. Co., 858 F.2d at 131 n. 2 ("[I]f an insurer has a duty to defend a suit and is requested to provide a defense, then that insurer is clearly obligated to pay fees and costs incurred by the insured in defending the suit.").
B. Duty to Indemnify
"While an insurer must defend its insured if the complaint alleges conduct that potentially falls within the scope of the policy, it must indemnify its insured only if liability is found for conduct that actually falls within the scope of the policy." Winner Intern. Corp. v. Continental Cas. Co., 889 F. Supp. 809, 816 (W.D. Pa. 1994); Allstate Ins. Co. v. Brown, 834 F. Supp. 854, 857 (E.D. Pa. 1993). Thus, the duty to indemnify is narrower than the duty to defend. TIG Ins. Co. v. Nobel Learning Cmtys., Inc., No. CIV. A.01-4708, 2002 WL1340332, at *6, 2002 U.S. Dist. LEXIS 10870, at *16 (E.D. Pa. June 18, 2002). Due to these differing standards, an insurer may have an obligation to defend although no obligation to indemnify. Frog, Switch Mfg. Co., 193 F.3d at 746; Heffernan Co. v. Hartford Ins. Co. of America, 614 A.2d 295 (Pa.Super. 1992).
In the Berg litigation, this Court found Hull liable on the following two bases:
Delays and problems with the freeze dryers are attributable to Hull Corporation. Specifically, Hull Corporation was not able to prepare the freeze dryers for shipment to Huadu by the June 15, 1996 deadline. Once the freeze dryers were in China, Hull Corporation was unable to start-up the freeze dryers and did not cooperate with Berg Chilling in the Summer of 1996 in attempting to remedy the significant performance problems with the freeze dryers.Berg, 2003 WL 21362805 at *11. Neither of these two incidents, for which Hull was ultimately found liable, constitute occurrences within the scope of the Policy because they are not "accident[s] . . . which result in bodily injury or property damage neither expected nor intended from the standpoint of the insured." (Pl's, Mem. of Law, Ex. E.);see Berg, 2003 WL 21362805 at *2 (finding that Hull did not have the freeze dryers ready for shipment until mid-October 1996 despite Hull's obligation to have the freeze dryers ready by June 15, 1996 and that "Hull Corporation did not cooperate with Berg Chilling in its attempts to address the defects and deficiencies in the freeze dryers."). Therefore, Acceptance does not have a duty to indemnify Hull.
Hull argues that Acceptance should be responsible for paying the award entered against Hull Corporation without regard to a determination of the duty to indemnify because Acceptance improperly refused to defend Hull in the underlying action and thus prejudiced Hull's defense. (Def.'s Mem. of Law at 12.) Defendant has not cited any case law for this proposition and this Court has not identified any such support. But cf. Am. States Ins. Co. v. State Auto Ins. Co., 721 A.2d 56, 64 (Pa.Super. 1998) (recognizing that insurer who breaches its duty to defend may automatically be required to indemnify if subsequent settlement of suit prevents court's analysis of indemnification issue). Therefore, this Court will not award indemnification on that basis.
IV. CONCLUSION
In conclusion, I find that Acceptance had a duty to defend its insured in the Berg litigation but did not have a duty to indemnify. Therefore, Acceptance must reimburse Hull for costs and attorneys fees expended in its defense. An appropriate Order follows.
ORDER
AND NOW, this 31 st day of October, 2003, upon consideration of the Third Circuit's opinion in Berg Chilling Systems Inc. v. Hull Corp., No. 02-2241, 2003 WL 21658276, 2003 U.S. App. LEXIS 14304 (3d Cir. July 11, 2003), Plaintiffs Memorandum of Law Regarding the "Occurrence" Issue, Defendant's Responsive Memorandum of Law Regarding the "Occurrence" Issue, and for the foregoing reasons, it is hereby ORDERED that:Plaintiffs First Amended Complaint in Declaratory Judgment (Document No. 2) is GRANTED in part and DENIED in part as follows:
1. Plaintiff owed a duty to defend Defendant in Berg Chilling Systems, Inc. v. Hull Corp., No. CIV.A.00-5075, 2003 WL 21362805, 2003 U.S. Dist. LEXIS 9936 (E.D. Pa. June 10, 2003) and thus must reimburse Defendant for costs and attorneys fees expended in its defense.
2. Plaintiff does not have a duty to indemnify Defendant.