The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
KUNJI HARRISBURG, LLC, CIVIL ACTION
Plaintiff,
v.
AXIS SURPLUS INSURANCE NO. 19-1213
COMPANY,
Defendant.
MEMORANDUM OPINION
Plaintiff Kunji Harrisburg, LLC alleges that Defendant Axis Surplus Insurance Company
breached the insurance contract into which the parties entered when Defendant denied coverage
for damage to Plaintiff’s hotel. Plaintiff further alleges that, in denying coverage, Defendant
acted in bad faith in violation of 42 Pa. C.S.A. § 8371. Defendant moves for summary judgment
on both claims.
I. FACTS
Plaintiff is the owner and operator of the Eisenhower Hotel and Conference Center,
located in Gettysburg, Pennsylvania. On April 25, 2018, Plaintiff’s property manager, Sapan
Mehta, received a photo from a hotel employee showing water damage to the lobby. Mehta then
inspected the roof and noticed missing shingles laying on the ground. After attempts to patch the
roof proved unsuccessful, Mehta decided to have portions of it replaced.
Construction on the new roof began on May 7, 2018. In the course of replacing it, the
contractors removed the top layer of roof, leaving intact what is known as the ethylene propylene
diene monomer membrane. Nails were then driven into the membrane to secure the “tapered
wood sleepers” that were acting as rafters for the replacement roof. A blue tarp was then placed
over the membrane and sleepers.
According to Plaintiff, on May 14, 2018, a windstorm blew the tarp off, and water then
entered the hotel, causing extensive damage. Two days later, Plaintiff submitted a Property Loss
Notice to Defendant Axis Surplus, through whom it had an insurance policy for the property.1
Defendant retained York Risk Services Group as an independent adjusting company, as well as
consultants from J.S. Held and engineers from Wiss, Janney, Elster Associates (“WJE”) to assist
in handling the claim. J.S. Held and WJE both conducted site visits to the hotel in May. WJE
concluded that the damage occurred because the roof was improperly installed and maintained at
the outset, and then the replacement roof was improperly installed and incomplete, allowing the
numerous holes in the membrane to let water through. The tarp, it further concluded, was neither
part of the roof nor damaged.
Citing WJE’s conclusions, on October 2, 2018, Defendant denied Plaintiff’s claim.
Plaintiff’s policy covers “direct physical loss” to a building. That means that a qualifying event,
such as a windstorm, must be what immediately causes the loss. Ordinary wear and tear, for
example, is not a direct physical loss. The policy is subject to numerous exceptions, however;
not all forms of direct loss are covered. According to Defendant, the causes of Plaintiff’s
damages are specifically excluded under the Policy’s limitations clause, which reads as follow:
C. Limitations The following limitations apply to all policy forms and
endorsements, unless otherwise stated.
1. We will not pay for loss of or damage to property, as described and
limited in this section. In addition, we will not pay for any loss that is a
consequence of loss or damage as described and limited in this section.
***
c. The interior of any building or structure, or to personal property
in the building or structure, caused by or resulting from rain, snow,
sleet, ice, sand or dust, whether driven by wind or not, unless:
(1) The building or structure first sustains damage by a
Covered Cause of Loss to its roof or walls through which
the rain, snow, sleet, ice, sand or dust enters; or
1 Plaintiff and Defendant dispute both what claims were made by Plaintiff and what claims Defendant addressed.
This issue will be discussed further in detail. Infra Part III.
(2) The loss or damage is caused by or results from thawing
of snow, sleet or ice on the building or structure.
Under Plaintiff’s policy, damage caused by a leak is only covered if the roof first sustained direct
physical loss through a covered event (again, such as a windstorm). Thus, Defendant alleges, it
denied Plaintiff’s claim because the issues with the roof that led to the water damage were
caused by installation defects and a partial roof repair, not a windstorm or other covered event.
II. LEGAL STANDARDS
Summary judgment shall be granted if the “the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” FED.
R. CIV. P. 56(a). In reaching this decision, it must be determined “whether the pleadings,
depositions, answers to interrogatories, admissions on file, and affidavits show that there is no
genuine issue of material fact and whether the moving party is therefore entitled to judgment as a
matter of law.” Macfarlan v. Ivy Hill SNF, LLC, 675 F.3d 266, 271 (3d Cir. 2012). A disputed
issue is “genuine” only if there is a sufficient evidentiary basis on which a reasonable factfinder
could find for the non-moving party. Kaucher v. Cty. of Bucks, 455 F.3d 418, 423 (3d. Cir.
2006). A factual dispute is “material” only if it might affect the outcome of the suit under
governing law. Doe v. Luzerne Cty., 660 F.3d 169, 175 (3d Cir. 2011). In deciding a motion for
summary judgment, all evidence and reasonable inferences from the evidence must be taken in
the light most favorable to the non-moving party. Macfarlan, 675 F.3d at 271.
Plaintiff’s bad faith claim must be proven by clear and convincing evidence. Terletsky v.
Prudential Prop. & Cas. Ins. Co., 649 A.2d 680, 688 (Pa. Super. 1997). This standard requires
Plaintiff to show that the evidence is so “clear, direct, weighty and convincing as to enable a
clear conviction, without hesitation, about whether or not the defendants acted in bad faith.” J.C.
Penney Life Ins. Co. v. Pilosi, 393 F.3d 356, 367 (3d Cir. 2004) (internal quotation omitted).
Plaintiff’s burden at the summary judgment stage is thus commensurately high in light of the
substantial evidentiary burden at trial. Id.
III. ANALYSIS
A. Count I: Breach of Contract
Plaintiff argues that by failing to cover the hotel damage, Defendants breached the
insurance contract. Defendant contends that summary judgment is appropriate because: (1) the
blue tarp placed on top of the hotel is not considered a “roof” for the purposes of the exception to
the Policy’s rain limitation at Paragraph C.1.c.(1); (2) Defendant is not required to pay for any
loss or damage to the interior of the property caused by or resulting from rain entering the
property when the tarp was blown off the property; and (3) Defendant is not required to pay for
any loss or damage that is a consequence of the loss or damage referenced above.
Ultimately, the breach of contract claim turns on whether the blue tarp was functioning as
the building’s roof at the time of the windstorm. According to Defendant, the only roof on the
hotel at the time in question was the membrane, which was covered in holes during construction.
The windstorm thus did not damage the roof; the roof had pre-existing issues that led to rain
entering the hotel. Plaintiff, on the other hand, argues that the tarp was part of the roof structure;
the wind blew the tarp off its holdings and thus damaged the outer layer of the roof; and that
damage is the only reason the hole-filled membrane was exposed to rain.
Interpretation of an insurance contract is a question of law, and it is well established that
“in construing any written instrument, and particularly an insurance contract, the instrument must
be strictly construed against the writer.” Miller v. Boston Ins. Co., 218 A.2d 275, 277 (Pa. 1966).
The definitions of “roof” proposed by the numerous experts provide minimal insight into
whether the tarp, which lay on top of the membrane, may qualify as such. For example, WJE
Engineer Justin Spivey cited the definition from the Dictionary of Architecture and Construction,
which defines roof as “the top covering of a building, including all materials and constructions
necessary to support it on the walls of the building[]; provides protection against rain, snow,
sunlight, extremes of temperature and wind.” This definition highlights the ambiguity of the role
of the tarp. According to Defendants, the membrane was the cover—the tarp was simply resting
on top of the roof. But according to Plaintiff, the membrane was an inner layer and the tarp, in
fact, was the outermost cover. And according to Plaintiff, it rained eight times between when the
roof repair began and the May 14 incident, and no water damage occurred, indicating that, as this
definition requires, the tarp provided protection against rain (until its functioning was damaged
via displacement during the windstorm). Defendant’s retained roofing expert from J.S. Held,
Derek Boggi, offered an even less clarifying definition. He cited the National Roofing
Contractors Association manual and Webster’s Dictionary, which both define roof as “the cover
of a building.” Such a definition falls into the same ambiguities as discussed above—Plaintiff
and Defendant offer different, plausible interpretations of what was acting as the “cover.” And
Plaintiff’s interpretation of the tarp serving as the cover is supported by testimony from its
expert, Andrew Weaver, an insurance adjuster with a background in construction. Weaver
testified that a roof can have multiple layers. It is thus possible, under that conception, for both
the membrane and the tarp to be serving as the roof. Ultimately, working within the definitions
of “roof” provided by the experts, there is a disputed issue of material fact as to whether the tarp
was the roof.
Looking to case law from other courts that have considered this issue only further
highlights the fact-bound and uncertain nature of the question. Generally, the outcome of
whether a tarp qualifies as a roof turns on the durability and relative permanence of the covering.
The Mississippi Supreme Court, for example, concluded that “construction or reconstruction
must have reached the point where a reasonably prudent householder would consider [the
temporary covering], if left in that condition for a month or months, or longer, as adequate
against all risks of wind and rain which could be reasonably anticipated as likely to happen . . . .”
Camden Fire Ins. Ass’n v. New Buena Vista Hotel Co., 24 So.2d 848, 850 (Miss. 1946).
Likewise, the Oregon Supreme Court concluded that a roof must be durable enough to serve its
key purposes: “to cover and protect a building against weather-related risks that reasonably may
be anticipated.” Dewsnup v. Farmers Ins. Co., 239 P.3d 493, 499 (Or. 2010).
A tarp that is part of a temporary roofing system thus has been found to be part of a roof.
In Dewsnup, the defendant argued that the plaintiff’s “roof” at the time in question was just a
plastic tarp. Id. But the court noted that in fact the tarp was part of a covering that included a
“plywood sublayer, a six-mil-thick polyethylene covering, and a system of staples, roof tacks,
and wooden bats to secure the roof components in place.” Id. According to the plaintiff’s
expert, the covering would have been enough to protect the home for “one or two years if
necessary.” Id.
On the other side, in Camden, the plaintiff’s roof was being repaired and the workers
opened a large hole through all layers of it. Camden, 24 So.2d at 849. An unexpected storm
approached, prompting the workers to construct a two-layer felt covering that ultimately proved
insufficient to protect the property from rain. Id. Hence, such a temporary covering “was not a
roof blown off by the direct action of the wind, but, as stated, only a presently emergent effort to
stop a hole by the men who made it.” Id. at 850. See also Valentino v. Harleysville Preferred Ins.
Co., 2015 WL 7572410, at *7 (Pa. Super. Feb. 3, 2015) (holding that a tarp is not a roof); Christ
Church of Gospel Ministries v. Guideone Mut. Ins. Co., 2019 WL 6134793, at *2 (E.D. Mich. Nov.
19, 2019) (holding that because the plaintiff “did not replace the entire roof with sheeting
amounting to a long-term roof replacement,” the temporary cover during repairs was not a roof).
Plaintiff’s temporary covering appears to fall somewhere between Dewsnup’s near-
permanent structure and Camden’s hastily constructed attempt at a fix. Plaintiff did not wholly
remove the roof and merely place a plastic tarp on top; instead, the existing membrane was left in
place and wooden sleepers were installed as rafters. The tarp was then placed on top to cover
any holes left in the membrane. And as noted, the tarp appears to have been sufficient to keep
out rain on multiple occasions prior to the alleged windstorm. Whether the tarp was actually
serving as the outer layer of the roof thus turns on factual and credibility issues, including how
well the tarp was secured at the time in question (if at all) and which expert opinion is believed
as to the durability of the roof structure.
B. Count II: Bad Faith
Plaintiff next alleges that the denial of the claim was in violation of the Pennsylvania bad
faith statute. See 42 Pa. C.S.A. § 8371. The statute permits the recovery of interest, punitive
damages, and attorney’s fees against the insurer if it is found to have acted in bad faith. Id. To
recover, a plaintiff must show “[1] that the defendant did not have a reasonable basis for denying
benefits under the policy and [2] that the defendant knew or recklessly disregarded its lack of
reasonable basis in denying the claim.” Rancosky v. Was. Nat’l Ins. Co., 170 A.3d 364, 373 (Pa.
2017) (internal citation and quotation omitted). The first prong is an objective inquiry into
whether a reasonable insurer would have denied payment of the claim under the facts and
circumstances presented. Id. at 374. For the second prong, Plaintiff must show more than mere
negligence or bad judgment. Terletsky v. Prudential Prop. & Cas. Ins. Co., 649 A.2d 680, 688
(Pa. Super. 1994) (quoting Black’s Law Dictionary 139 (6th ed. 1990)). Bad faith is not
restricted to just denying the claim; it can extend to the insurer’s investigative practices. Hamm
v. Allstate Prop. & Cas. Ins. Co., 908 F. Supp.2d 656, 673 (W.D. Pa. 2012).
1. The April 25, 2018 Claim
According to Plaintiff, it requested payment from Defendant for two separate incidents of
damage, one on April 25 and one on May 14. The notice of loss form Plaintiff submitted lists
the date of loss as May 14, and the only date referenced in the denial of coverage letter is May
14. Plaintiff claims, however, that it adequately provided notice of the April 25 claim for wind
damage to roof shingles, and Defendant acted in bad faith when it failed to address the claim.
Defendant argues that no claim was ever made for the April 25 claim (and even if a claim was
made, it properly addressed it in the denial letter).
An insurer can receive constructive notice of a claim. Philadelphia Elec. Co. v. Aetna Cas.
& Sur. Co., 484 A.2d 768, 772 n.11 (Pa. 1984). The determination of indirect notice, as opposed to
direct notice via a claim form, is determined through a “case by case approach, taking into
consideration the particular factual situation presented by the respective parties.” Id. Fact issues
surround whether Plaintiff provided reasonable notice in this case. Although it is undisputed that the
notice of loss form did not explicitly mention the April 25 damage, it is likewise undisputed that the
adjuster hired by Defendant received a text message photo of the April damage in July, and Plaintiffs
submitted a timeline of damage that specifically addressed the April event. And WJE’s report
analyzed the cause of the April and May events separately. The record supports a conclusion that
Defendant was aware of and fully considered the April event. But the record could also support a
conclusion that Defendant simply viewed the April event as background, not a separate claim—
particularly because the documents Plaintiff submitted to support its claim, including its loss
calculation, just included one number, not separate documentation for each date.
Likewise, assuming Plaintiff did make the April claim, a reasonable jury could reach
differing conclusions as to whether the denial letter addressed that claim. Defendant’s denial letter
specifically mentions only the May event; it never lists an April date. The letter also focuses
primarily on the new roof construction, which began on May 7, as the cause of the loss. It never
mentions any windstorm occurring prior to May. While Defendant maintains that an April claim was
never properly made, it also argues in the alternative that, even if such a claim existed, its letter
adequately addresses it. To that end, Defendant argues that the April event is not mentioned in the
denial letter simply because, just as Plaintiff did not segregate out its claims, neither did Defendant.
And it points to language in the letter referring to earlier wear-and-tear and defective installation as
the reason why the roof needed to be replaced, indicating that it was denying the April claim as not
covered. Whether the claim was addressed thus too is a disputed issue. If a jury were to conclude
that Defendant was aware that Plaintiff had made a claim for the April damage, but ignored it, that
could be seen as an objectively unreasonable, frivolous, intentional refusal to pay (or to otherwise
resolve the claim in a timely fashion). Terletsky, 649 A.3d at 688; see also Hamm, 908 F. Supp.3d at
673 (extending bad faith to insurer’s investigative practices).2
2. The May 14, 2018 Claim
Plaintiff also claims that Defendant’s denial of the May 14, 2018 claim was in bad faith,
because Defendant’s investigation clearly established that the loss was covered. In the denial
letter, Defendant articulated its reasons for denying the claim: water entered the roof not because
2 Defendant also argues that it did not receive notice of the April claim until, at the earliest, July 2018, three months
after it occurred. And during that three-month period, Plaintiff conducted repairs to the building that impeded
Defendant’s ability to assess the earlier damage. Delay in reporting a claim is not by itself sufficient to hold that the
insured cannot recover. Brakeman v. Potomac Ins. Co., 371 A.2d 193, 196 (Pa. 1977). The insurer must also show
it is in a “substantially less favorable position” than it would have been with timeline notice. Id. The record is not
clear as to when precisely Plaintiff shared the timeline of events that contained information about the April claim
and the timing of certain conversations surroundings the claim. Additionally, the record does not conclusively
establish whether Defendant is now in a substantially less favorable position. Summary judgment on this issue is
thus not warranted.
wind damaged it, but because there were hundreds of holes in the membrane as a result of
construction. Plaintiff disagrees with Defendant’s understanding of what constituted the roof.
But as discussed above, supra Part III.A, courts have not been in unanimous agreement about
when a tarp placed on a building that was undergoing repairs was sufficient to qualify as a roof.
See, e.g., Valentino, 2015 WL 7572410, at *7; Christ Church of Gospel, 2019 WL 6134793, at *2.
An insurer who makes a reasonable legal conclusion based on an uncertain area of the law has not
acted in bad faith. Brown v. Progressive Ins. Co., 860 A.2d 493, 501 (Pa. Super. 2004). With no
binding guidance from the Pennsylvania Supreme Court or the Third Circuit, and numerous fact-
intensive cases on the subject, Defendant reasonably interpreted the membrane, and not the tarp,
to be the roof. Even if that call is ultimately found to have been incorrect, Defendant did not act
in bad faith by denying the claim.
IV. CONCLUSION
For the foregoing reasons, Defendant’s motion for summary judgment will be granted in
part and denied in part. An appropriate order follows.
March 18, 2020 BY THE COURT:
/s/Wendy Beetlestone, J.
_______________________________
WENDY BEETLESTONE