Adam Spector v. Fireman's Fund Insurance Co

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 10-4265
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ADAM SPECTOR; SYLVIA SPECTOR

v.

FIREMAN‟S FUND INSURANCE CO.; NATIONAL SURETY CORPORATION,

Appellants

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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
(D.C. Civ. Action No. 2-09-CV-01311)
District Judge Petrese B. Tucker
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Submitted Under Third Circuit LAR 34.1(a)
September 22, 2011
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Before: FISHER, HARDIMAN, and GREENAWAY, JR., Circuit Judges.

(Opinion Filed: September 29, 2011)

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OPINION
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GREENAWAY, JR., Circuit Judge.

Adam and Sylvia Spector (the “Spectors”) filed suit against Fireman‟s Fund

Insurance Company t/a/d/b/a National Surety Corporation (“Appellant”) for breach of

contract, bad faith, and violation of the Pennsylvania Unfair Trade Practices and

Consumer Protection Law.

Appellant appeals four orders of the District Court: (1) denial of Appellant‟s

Motion for Summary Judgment; (2) judgment in favor of the Spectors after a bench trial;

(3) denial of Appellant‟s Motion to Amend the District Court‟s findings and judgment;

and (4) final judgment in favor of the Spectors. For the reasons explained below, we will

affirm the District Court‟s orders with the exception of its award of attorney‟s fees to the

Spectors in its final judgment.1

I. BACKGROUND

We recite the pertinent facts primarily for the benefit of the parties. Appellees

purchased their home for $1,300,000.00 in 2000. Appellant issued a homeowner‟s

insurance policy (the “Policy”) covering Appellees‟ home, which contained specific

provisions relating to water damage. The Policy “do[es] not cover loss or damage caused

directly or indirectly” by “water damage.” (App. at 778a-79a.) However, there was an

exception to this exclusion provided in the Policy‟s definition of water damage.

“[C]ontinuous or repeated seepage or leakage of water or steam from any source” over a

period of time was excluded:

1
The Spectors concede the attorney‟s fees issue on appeal.
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 (3) . . . unless such loss is sudden and accidental. Sudden and accidental
shall include a physical loss that is hidden and concealed for a period of
time. A hidden or concealed loss must be reported to us no later than 30
days after the date appreciable loss or damage occurs and is detected or
should have been detected.

(Id. at 779a.) The Policy also excludes coverage for “(c) faulty, inadequate or defective .

. . (2) design specifications, workmanship, repair, construction, renovation, remodeling,

grading, compaction.” (Id. at 779a-80a.)

In 2006, the Spectors, neither of whom possesses any specialized experience or

knowledge regarding home construction or moisture intrusion, noticed that the paint on

many of their windows was peeling. The Spectors hired construction consultant Barry A.

Bornstein (“Bornstein”) to inspect their home and evaluate any potential problems with

its windows and doors. Bornstein inspected the Spectors‟ home, interviewed them about

the problems they were experiencing, and created a report regarding the problems.

Bornstein‟s report, based on his visual inspection of open and accessible areas, did not

contain commentary on possible problems between the external stucco walls and the

internal drywall.

Bornstein recommended Jerry Yedinak (“Yedinak”), a stucco inspection and

design consultant, to work on this project. The Spectors hired Yedinak to inspect the

external stucco of their home. His inspection involved using probes to test moisture

levels in the Spectors‟ home. The Yedinak report indicated that just under 91% of the

readings from the probes revealed moisture levels that were at acceptable levels and

thirteen of the readings revealed potential problems. Yedinak advised the Spectors that

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they could not know the true condition of the substrate through the use of small probes.

He informed them that deconstructing the walls would be necessary for a thorough

assessment.

The Spectors hired Campbell Plastering and consulted with owner Barry

Campbell, who advised them that to discover the problems existing behind the stucco,

they had to expose the space between the stucco and the drywall. Campbell also advised

the Spectors that their roof had been incorrectly installed. Based on this advice, the

Spectors redid their roof and replaced their windows. After that process, Campbell began

removing the stucco for inspection. In late November 2007, the Spectors learned the

extent of the water damage to their home and were able to fully assess their systemic

problems. (Id. at 9a.)

The Spectors filed a claim with Appellant on December 7, 2007. Appellant‟s

notice provision required that a claimant inform Appellant within thirty days of discovery

of hidden or concealed water damage to the property. The Spectors understood the notice

provision to mean that where damage was hidden, each new discovery of damage began a

new thirty day cycle for notice. Mr. Spector testified that when the walls were

completely stripped off, he became “aware that [he] had massive problems that needed to

be addressed.” (Id. at 557a.)

Appellant sent Mark Massa, a property adjuster, to assess the Spectors‟ damage.

Massa‟s damage report, along with photographs of his inspection and the Spectors‟

photographs of the project at various stages, were sent to Appellant‟s regional claims

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adjuster, Jean Hargrove (“Hargrove”). Hargrove visited the Spectors‟ home. After

meeting with the Spectors to review their claim and to discuss coverage, Hargrove denied

their claim based on the Policy exclusion for defective construction and failure to comply

with the thirty-day notice provision for water damage.

After their claim was denied, the Spectors filed a Complaint alleging breach of

contract, bad faith, and violation of the Pennsylvania Unfair Trade Practices and

Consumer Protection Law in the Delaware County, Pennsylvania Court of Common

Pleas. After the case was removed to federal court, Appellant moved for summary

judgment on all three counts of the Appellees‟ Complaint. The motion was denied.

Following a bench trial, the District Court ruled in favor of the Spectors on their breach

of contract claim and awarded them damages of $104,432.00. The District Court ruled

against the Spectors on the remaining claims. The District Court also awarded the

Spectors attorney‟s fees in the amount of $37,135.38 and pre-judgment interest in the

amount of $16,136.72, making the total judgment $157,704.10. Appellant‟s Motion to

Amend the District Court‟s Findings and Judgment was denied. Appellant filed a timely

notice of appeal.

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 II. JURISDICTION

The District Court had jurisdiction, pursuant to 28 U.S.C. § 1332. We have

jurisdiction, pursuant to 28 U.S.C. § 1291. The parties do not dispute that Pennsylvania

law applies in this diversity matter.2

III. ANALYSIS

A. Proof of Damages

i. Summary Judgment

The District Court‟s June 18, 2010 Order denying Appellant‟s summary judgment

motion was brief. However, drawing all inferences in the Spectors‟ favor, there were

genuine disputes as to material fact regarding whether the Spectors met their burden of

showing that the amount of costs attributable to home repair satisfied the water damage

exception.

Appellant argues that the District Court erred in denying its Motion for Summary

Judgment based on the Spectors‟ alleged failure to meet their burden of establishing that

a discernable portion of the total amount spent on their home repairs was attributable to

remedying water damages as opposed to construction defects. Appellant argues that

there were no genuine disputes of material fact as to whether the Spectors met this

2
Under Pennsylvania law, an insurance contract is governed by the law of the state in
which the contract was made. Crawford v. Manhattan Life Ins. Co. of N.Y., 221 A.2d
877, 880 (Pa. Super. Ct. 1966). “The interpretation of the scope of coverage of an
insurance contract is a question of law properly decided by the court.” Regents of
Mercersburg Coll. v. Republic Franklin Ins. Co., 458 F.3d 159, 163 (3d Cir. 2006) (citing
Med. Protective Co. v. Watkins, 198 F.3d 100, 103 (3d Cir. 1999) (internal quotation
marks omitted)).
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burden. We exercise plenary review over the District Court‟s denial of summary

judgment. Howard Hess Dental Labs. Inc. v. Dentsply Int‟l, Inc., 602 F.3d 237, 246 (3d

Cir. 2010). Summary judgment is appropriate when the movant shows that there is no

genuine dispute as to any material fact and that the movant is entitled to judgment as a

matter of law. See FED. R. CIV. P. 56(a) (amended Dec. 1, 2010).

“[T]he general rule in Pennsylvania, as in most jurisdictions, is that if damages

are difficult to establish, an injured party need only prove damages with reasonable

certainty.” ATACS Corp. v. Trans World Commc‟ns, Inc., 155 F.3d 659, 669-70 (3d

Cir. 1998) (noting that “reasonable certainty embraces a rough calculation that is not „too

speculative, vague or contingent‟ upon some unknown factor” and the standard does not

preclude a damages award because of “some uncertainty as to the precise amount of

damages incurred”) (citing Scobell, Inc. v. Schade, 688 A.2d 715, 719 (Pa. Super. Ct.

1997)).

We agree with the District Court that there were genuine disputes of material fact

regarding whether the Spectors met their burden. They presented their bank statement

with copies of processed checks from the relevant time period of November to December

2007 made out to Campbell which went towards payment of Campbell‟s work related to

hidden water damage discovered after removal of the external stucco. Although in

discovery the Spectors did not present with certainty the amount spent on water damage,

drawing inferences in the Spectors‟ favor, there existed genuine disputes of material fact

as to which costs were attributable to home repair for defects versus water damage.

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Specifically, the evidence included Mr. Campbell‟s deposition testimony that the

Spectors paid him for new work, either before or within one to three days of work, and

the Spectors‟ payment to Campbell in early November 2007. It also included the fact that

Campbell began the stucco work in early to mid November, first by prepping the area for

one to two days and then taking the stucco off for seven or eight days. (App. at 349a-

52a.)

If the Spectors had no proof that money they spent in November and December

2007 was for newly discovered water damage, there would be no genuine disputes of

material fact; however, their evidence and testimony, as well as Campbell‟s, created a

genuine dispute of material fact.

ii. District Court‟s Final Judgment

Appellant also argues that at trial, the Spectors failed to meet their burden of

proving damages under the policy. “When reviewing a judgment entered after a bench

trial, we exercise plenary review over [the] [D]istrict [C]ourt‟s conclusions of law and its

choice and interpretation of legal precepts.” Battoni v. IBEW Local Union No. 102 Emp.

Pension Plan, 594 F.3d 230, 233 (3d Cir. 2010) (quoting Am. Soc‟y for Testing &

Materials v. Corrpro Cos., 478 F.3d 557, 566 (3d Cir. 2007)) (internal quotations

omitted). We review the District Court‟s findings of fact for clear error. Id.

This is a highly deferential standard of review. Factual findings are clearly
erroneous where the appellate court is “left with the definite and firm
conviction that a mistake has been committed.” Frett–Smith v. Vanterpool,
511 F.3d 396, 399 (3d Cir. 2008). It is not enough that we would have
reached a different conclusion as the trier of fact; as long as the district
court‟s factual findings are “plausible” when viewed in light of the entirety
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 of the record, we must affirm. Brisbin v. Superior Valve Co., 398 F.3d
279, 285 (3d Cir. 2005) (quoting Anderson v. City of Bessemer, 470 U.S.
564, 573–74, (1985)).

Prusky v. ReliaStar Life Ins. Co., 532 F.3d 252, 257-58 (3d Cir. 2008).

The District Court found, as a matter of law, that Appellant had no obligation to

reimburse the Spectors for amounts spent to repair damages due to defective construction

or to repair the roof or windows of the home, and ordered that Appellees not be

reimbursed for such costs. (App. at 14a.) On the other hand, the Court did conclude that

the Spectors suffered loss in the amount of $104,432.50 for hidden water damage. We

review the District Court‟s calculation of damages for clear error. See Lerman v. Joyce

Int‟l, Inc., 10 F.3d 106, 113 (3d Cir. 1993). “The law does not permit a damages award

to be based on mere guesswork or speculation, but rather requires a reasonable basis to

support such an award.” Helpin v. Trs. of Univ. of Pa., 10 A.3d 267, 270 (Pa. 2010)

(citing Kaczkowski v. Bolubasz, 421 A.2d 1027, 1030 (Pa. 1980)). We find that the

District Court did not err in finding a reasonable basis to support the award.

The District Court‟s finding was supported by evidence of the Spectors‟ four

separate payments to Campbell in November and December 2007.3 Mr. Spector‟s and

Campbell‟s testimony supported the finding that the December 14 and December 21

checks were issued for the stucco work that Campbell was performing and that Spector

3
The District Court did not include the November 5, 2007 payment in its calculation.
9
paid Campbell at or about the time that the work was performed. The District Court‟s

damage award of $104,432.504 was not clearly erroneous.

B. Notice to Fireman‟s Fund Insurance

Appellant claims that the Spectors failed to provide notice, as required in their

insurance contract, and that the District Court incorrectly interpreted notice under the

contract. Specifically, Appellant claims that the Policy‟s notice provision is not a

“rolling notice” policy, restarting the 30-day notice period each time new damage is

discovered, and that the Spectors were obligated to give notice sooner than they did in

order to be covered under the Policy.

“The burden is on the insured, not the insurer, to introduce evidence to show that

the exclusion which appears to be triggered does not apply.” Air Prods. and Chem., Inc.

v. Hartford Acc. and Indem. Co., 25 F.3d 177, 180 (3d Cir. 1994) (citing N. Ins. Co. v.

Aardvark Assocs., 942 F.2d 189, 194-95 (3d Cir. 1991)). A policy must be read as a

whole and its meaning construed according to its plain language. Frog, Switch & Mfg.

Co., Inc. v. Travelers Ins. Co., 193 F.3d 742, 746 (3d Cir. 1999); Melrose Hotel Co. v. St.

Paul Fire and Marine Ins. Co., 432 F. Supp. 2d 488, 495 (E.D. Pa. 2006). In this case, the

exception to water damage coverage exclusion in the Policy requires that “[a] hidden or

concealed loss must be reported to us no later than 30 days after the date appreciable loss

or damage occurs and is detected or should have been detected.” (App. at 779a.)

4
The District Court‟s final Order states that judgment is entered in favor of the Spectors
in the amount of $104,432.00. We need not resolve this discrepancy.
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 Based on the plain language of the policy, nature of the hidden damage, and

inspections that the Spectors had on the house, we are not left with the definite and firm

conviction that the District Court made a mistake in finding that the Spectors timely

notified Appellant on December 7, 2007 because the hidden water damage was not

appreciable until within 30 days prior, when Campbell began removing the stucco.

The Spectors were required to notify Appellant within 30 days of appreciable loss

or damage, which by its common usage is loss or damage that is “capable of being

measured or perceived,” as defined in Black‟s Law Dictionary (8th ed. 2005) and

Merriam-Webster Dictionary (11th ed. 2005).

The record provides support for the finding that appreciable damage was

discovered within 30 days before December 7, 2007. 5 Spector testified that prior to the

removal of the walls, it was “physically impossible” to see the damage. (Id. at 556a.)

Campbell had explained to Mr. Spector that there was “no way” that he could “actually

know what is going on behind stucco unless you rip the stucco off, because you can‟t see

through it.” (Id. at 541a.)

Campbell erected scaffolding and began removing the stucco once the new roof

was on and the windows in place; according to his testimony, that work was done in early

to mid November and continued into December. Campbell testified that it took seven or

eight days after doing preparation work, which started at the beginning of November, to

5
Because we find that the Spectors satisfied the notice requirement, Appellant‟s
argument that the District Court improperly relied on the Schmader claim in adopting a
rolling notice theory is irrelevant.

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remove the stucco, and by the middle of November, the stucco was completely off and

the damage could be clearly seen.6 Spector also testified that he did not know of the

hidden damage until the walls were taken off and the damage was revealed in the middle

of November.

Spector‟s testimony that he would pay Campbell prior to starting work on a new

phase, and that he introduced a cancelled check made out to Campbell on November 5,

2007 for $42,493.00 also corroborates the notion that the water damage discovery

occurred in this time frame. (Id. at 549-52a.)

In light of the record, we are not “left with the definite and firm conviction that a

mistake has been committed” in the District Court‟s finding that the Spectors‟ satisfied

notice to Appellant under the Policy.7 Frett–Smith v. Vanterpool, 511 F.3d 396, 399 (3d

Cir. 2008).

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Additionally, the record supports a finding that the expert reports, which Appellant
claims should have triggered notice, did not reveal damage that was capable of being
measured, in part, because it could not be seen. The Bornstein report stated that “[t]here
was no invasive, exploratory examination of the exterior building envelope,” (App. at
816a), and recommended further stucco investigation and moisture analysis by Yedinak.
Yedinak‟s report pointed out construction and material defects not covered under the
policy and concluded “possible water intrusion and damages.” (Id. at 827a.)
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We find two of the District Court‟s findings of fact – findings 22 and 34 – were in error;
however, they are harmless because it is “highly probable that [they] did not affect the
outcome of the case.” Moyer v. United Dominion Indus., Inc., 473 F.3d 532, 545 (3d
Cir. 2007) (internal quotation marks and citation omitted). The District Court found that
when Hargrove inspected the Spectors‟ home on January 11, 2008, ninety percent of the
work had been completed. In fact, at the time of Massa‟s inspection (not Hargrove‟s) on
December 18, 2007, ninety percent of the work had already been completed. Further, the
District Court stated that Massa was consulted in the Schmader matter. Massa saw the
house when repairs to it were ninety percent complete and Hargrove had access to all of
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 C. Attorney‟s Fees

Finally, Appellant argues that the District Court erred in awarding Appellees

$35,000 in attorney‟s fees on the breach of contract claim because the Policy contained

no attorney‟s fee provision and no applicable statute authorizes such an award, a point

that the Spectors concede. Accordingly, we will reduce the District Court‟s damages

award by $35,000 for the fees awarded by the District Court.

IV. CONCLUSION

For the reasons discussed above, we will affirm the District Court‟s summary

judgment order, denial of Appellant‟s Motion to Amend, and grant of final judgment in

favor of Appellees. However, we will reverse the District Court‟s determination to award

Appellees attorney‟s fees. On remand, the District Court is directed to adjust its pre-

judgment interest award accordingly.

the information that Massa obtained, including Campbell‟s photos of the work as it
progressed. Additionally, Massa‟s non-involvement in the Schmader matter does not
alter our decision. The Spectors concede these errors.
Appellant also asserts that additional findings of fact are in error – i.e., findings 7,
13, 15 and 33. Unlike the factual findings discussed above, these findings are not clearly
erroneous. See Prusky v. ReliaStar Life Ins. Co., 532 F.3d 252, 257-58 (3d Cir. 2008).

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