Melkir Capital v. Erie Insurance

J-A27013-17

NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

MELKIR CAPITAL, LP, IN THE SUPERIOR COURT

OF

PENNSYLVANIA

Appellant

v.

ERIE INSURANCE EXCHANGE,

Appellee No. 302 WDA 2017

Appeal from the Order Entered January 24, 2017

In the Court of Common Pleas of Allegheny County

Civil Division at No(s): No. GD 14-21669

BEFORE: BENDER, P.J.E., SHOGAN, J., and MUSMANNO, J.

MEMORANDUM BY BENDER, P.J.E.: FILED MARCH 7, 2018

Appellant, Melkir Capital, LP (“Melkir”), appeals from the trial court’s

January 24, 2017 order granting Appellee’s, Erie Insurance Exchange (“Erie”),

motion for summary judgment and denying Melkir’s motion for summary

judgment. After careful review, we vacate the trial court’s order and remand

for further proceedings consistent with this memorandum.

The trial court summarized the facts alleged by Melkir in its motion for

summary judgment as follows:

[Melkir] is the owner of property located at 3336 Babcock

Boulevard, Pittsburgh, PA 15237 (“the Property[]”)[.] The

Property is situate[d] at the northeast corner of the intersection

of Babcock Boulevard and Hillcrest Drive. At all times in question,

the Property was insured by Erie….

During the effective period of the [insurance policy at issue, the

Ultrapack Plus Policy (hereinafter “Policy”)], Melkir [] suffered a

loss in the form of a sinkhole collapse in an area adjacent to the

parking lot of the Property immediately adjacent to Hillcrest Drive.

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An engineering consulting firm was retained to inspect the

sinkhole and to determine its cause and origins. Following his

inspection, Chief Engineer Harold P. McCutcheon of KU Resources

issued a report, in which he concludes that the sinkhole collapse

occurred due to water moving in and around a subterranean

culvert system that had displaced the soil and limestone

aggregate backfill under the pavement, creating a void under the

area of collapse. The water was allowed to move freely outside of

the culvert system due to cracks and breaks in the metal piping

which comprises the culvert system in that area. The displaced

material was then flushed away through the openings in the

culvert system, resulting in the formation of a sinkhole.

On August 5, 2014, Erie [] issued a denial for the sinkhole collapse

on the property, prior to reviewing their own expert report. The

expert report issued by Erie[’s] expert[,] Joshua Hunt, PE.,

concurred with the findings of [Melkir’s] expert, KU Resources

Inc.[,] and rendered the following conclusions:

1. It appears likely that the noted significant water

infiltration through the concrete masonry block of the

exterior walls of the exterior stairwell is largely

attributable to elevated groundwater levels resulting

from the leaking of the storm water line that is located

along the southern (right) edge of the property. I

observed no visible evidence that would indicate

that the conclusions expressed in the letter

prepared by KU Resources Inc. [,] the engineer

retained by Melkir…[,] were incorrect, and I

recommend that this storm water line be repaired as

soon as practically possible to mitigate against

additional damages resulting from the enlargement

of the existing sinkhole and/or the creation of

additional sinkholes.

2. However, I cannot rule out that at least a portion of

this water infiltration through the blockwork of the

walls of the exterior stairwell is the result of surface

water seeping through the gapping at the junctures of

the concrete curbs at the top of the south (right) and

west (rear) stairwell walls and the surrounding

concrete sidewalk/pavement. In addition, I cannot

rule out that at least a portion of this water infiltration

is [a] result of surface water seeping through the

cracking in the asphalt pavement at the juncture of

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the asphalt pavement and the concrete pavement. I

recommend these areas be properly sealed.

3. Furthermore, I cannot rule out that at least a portion

of this water infiltration through the block work of the

walls of the exterior stairwell is the result of an

improperly functioning underground rainwater

conductor that is discharging water into the soils in

this area. I recommend that these conductors be

inspected with a sewer camera and any required

repairs be implemented. I also recommend that the

drain in the slab at the base of the exterior stairs be

inspected with a sewer camera to ensure that it is

functioning properly.

4. No significant cracking or other visible signs of

structural distress were noted in the exterior walls of

the stairwell at the time of my inspection. However,

if elevated groundwater levels resulting from the

leaking of the storm[]water line are not corrected, it

is likely that the resultant lateral hydrostatic pressures

will cause the exterior walls of the stairwell to laterally

displace inward.

On July 3, 2014, Melkir…, by and through counsel, submitted a

claim for its losses arising from the sinkhole collapse.

Correspondence was received on October 13, 2014, by which Erie

… notified Melkir … it was denying the claim.

Trial Court Opinion (TCO), 4/12/2017, at 1-3 (quoting Melkir’s Brief in Support

of Motion for Summary Judgment, 10/31/2016, at 2-4) (internal brackets and

citation omitted; emphasis in original).1

____________________________________________

1 We note that Erie disputes whether a sinkhole actually exists. See Erie’s

Brief at 56 (remarking that it continues to dispute whether “the collapse of

earth qualifies as a sinkhole collapse”) (unnecessary emphasis and

capitalization omitted). As discussed infra, in accordance with the applicable

standard of review for summary judgment motions, the trial court accepted

Melkir’s allegations that the collapse at issue qualified as a sinkhole. See TCO

at 1-3, 5, 17; Feleccia v. Lackawanna College, 156 A.3d 1200, 1209 (Pa.

Super. 2017) (“When considering a motion for summary judgment, the trial

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Subsequently, Melkir filed a complaint against Erie, seeking, inter alia,

a declaratory judgment that the Policy covers Melkir’s losses stemming from

the sinkhole event.2 Thereafter, the parties each filed motions for summary

judgment.

To support its motion for summary judgment, Erie argued, inter alia,

that (1) the sinkholes and the deterioration of the culvert system are not

losses to covered property; (2) loss to the exterior wall of the rear exterior

stairwell is excluded by the Policy’s water exclusion; (3) Melkir did not incur

any covered losses caused by a collapse; and (4) the Policy’s extension of

coverage for building ordinance or law coverage does not cover Melkir’s losses.

See Erie’s Brief in Support of Motion for Summary Judgment, 8/30/2016, at

17, 19, 26, 34.

Conversely, Melkir argued, inter alia, in support of its summary

judgment motion that (1) the area adjacent to the parking lot where the

sinkhole collapse occurred is covered property under the Policy; (2) damage

has occurred to the building on the property, therefore the loss is covered

under the Policy; (3) the insured purchased additional coverage for sinkhole

collapses, therefore the sinkhole collapse in this case is covered under the

____________________________________________

court must take all facts of record and reasonable inferences therefrom in a

light most favorable to the non-moving party.”) (citations omitted). We do

the same, and therefore refer to the collapse at issue as a sinkhole.

2 The trial court mentions that Melkir also sought damages for breach of

contract and bad faith. See TCO at 3. However, those counts have been

bifurcated. Id. at 3 n.1.

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Policy; and (4) the insured purchased an extension of coverage for building

ordinance or law coverage, therefore the sinkhole collapse in this case is a

covered loss under the Policy. See Melkir’s Brief in Support of Motion for

Summary Judgment at 9, 11, 12, 15. Further, in response to Erie’s motion

for summary judgment, Melkir additionally contended (1) the Policy

specifically includes coverage for damage to “walks” as an extension of

coverage; and (2) damage that has occurred to the building on the property

was concurrently caused by the sinkhole collapse, therefore the loss is covered

under the Policy. See Melkir’s Brief in Opposition to Motion for Summary

Judgment filed by Erie, 12/9/2016, at 4, 6.

As mentioned above, on January 24, 2017, the trial court granted Erie’s

motion for summary judgment and denied Melkir’s motion for summary

judgment. In doing so, it determined, among other things, that the sinkhole

located in an area adjacent to the parking lot was not covered property under

the Policy, and that the Policy’s additional coverage for collapse did not apply

given that there had been no abrupt collapse of an insured building or part

thereof. See TCO at 6-7, 8-9. Further, it recognized that Melkir had not cited

any provision of the Policy to support its concurrent cause argument. Id. at

15-17.

On February 17, 2017, Melkir filed a timely notice of appeal. The trial

court did not instruct Melkir to file a concise statement of errors complained

of on appeal pursuant to Pa.R.A.P. 1925(b). Presently, Melkir raises the

following issues for our review:

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1. Do “all-risk” insurance policies provide coverage for any and

all losses unless the insurance company can specifically

identify and prove the applicability of a specific written

policy exclusion?

2. Are “walks” or “walkways” where the incident occurred in

this case covered by the all-risk policy at issue here?

3. Are “sinkholes” covered by the all-risk policy at issue here?

4. Does the “Additional Coverage” provide coverage for the

sinkhole that opened under a walkway in this case?

5. Where [Melkir’s] and [Erie’s] experts agree that the loss

occurred near but not on pavement, does the Policy provide

coverage because the “paved area” exclusion does not

apply?

6. Did the trial court commit an error of law when it granted

summary judgment to Erie … on the basis of unsupported

conjecture that repairing the loss would require interacting

with a paved portion of the property?

7. Is the damage which occurred to the insured building

covered by the [P]olicy?

8. Did the trial court commit an error of law by relying on non-

material facts that are not in the record when it granted

summary judgment to Erie … on the basis that Erie’s expert

could not exclude additional unnamed causes of the loss?

Melkir’s Brief at 4-5.3,4

____________________________________________

3 We reorder Melkir’s issues for ease of disposition.

4 We remind Melkir that the argument section of the appellant’s brief “shall be

divided into as many parts as there are questions to be argued[.]” See

Pa.R.A.P. 2119(a). The argument section of Melkir’s brief “is not divided into

appropriate subsections which correspond to the questions … raised on

appeal.” See Forrester v. Hanson, 901 A.2d 548, 551 n.2 (Pa. Super. 2006)

(citation omitted). Specifically, Melkir raises eight issues on appeal, but

divides its brief into four sections, with eight subsections therein.

Notwithstanding, “this defect does not substantially impair our ability to

review the issues presented,” and we will therefore address Melkir’s claims.

Id.

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Initially, we set forth our standard of review:

[I]n reviewing the grant of summary judgment, the following

principles apply. Summary judgment is appropriate only in those

cases where the record clearly demonstrates that there is no

genuine issue of material fact and that the moving party is entitled

to judgment as a matter of law. When considering a motion for

summary judgment, the trial court must take all facts of record

and reasonable inferences therefrom in a light most favorable to

the non-moving party. In so doing, the trial court must resolve

all doubts as to the existence of a genuine issue of material fact

against the moving party, and, thus, may only grant summary

judgment where the right to such judgment is clear and free from

all doubt. On appellate review, then, an appellate court may

reverse a grant of summary judgment if there has been an error

of law or an abuse of discretion. But the issue as to whether there

are no genuine issues as to any material fact presents a question

of law, and therefore, on that question our standard of review is

de novo. This means we need not defer to the determinations

made by the lower tribunals. To the extent that this Court must

resolve a question of law, we shall review the grant of summary

judgment in the context of the entire record.

Feleccia, 156 A.3d at 1209 (citations and original brackets omitted).

Moreover, we observe that:

Where an insurer relies on a policy exclusion as the basis for its

denial of coverage..., the insurer has asserted an affirmative

defense, and accordingly, bears the burden of proving such

defense. To determine whether [the a]ppellant has met its burden

of proof, we rely on well-settled principles of contract

interpretation.

The task of interpreting an insurance contract is generally

performed by a court rather than by a jury. The goal of that task

is, of course, to ascertain the intent of the parties as manifested

by the language of the written Instrument. Where a provision of

a policy is ambiguous, the policy provision is to be construed in

favor of the insured and against the insurer, the drafter of the

agreement. Where, however, the language of the contract is clear

and unambiguous, a court is required to give effect to that

language.

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Contractual language is ambiguous ‘if it is reasonably susceptible

of different constructions and capable of being understood in more

than one sense.’ This is not a question to be resolved in a vacuum.

Rather, contractual terms are ambiguous if they are subject to

more than one reasonable interpretation when applied to a

particular set of facts. We will not, however, distort the meaning

of the language or resort to a strained contrivance in order to find

an ambiguity.

The polestar of our inquiry, therefore, is the language of the

insurance policy.

Spece v. Erie Insurance Group, 850 A.2d 679, 682 (Pa. Super. 2004)

(internal brackets, quotations, citations, and formatting omitted).

We now turn to Melkir’s first issue. To begin, Melkir argues that “‘all-

risk’ insurance policies provide coverage for any and all losses unless the

insurance company can specifically identify and prove the applicability of a

specific written policy exclusion[.]” Melkir’s Brief at 4 (citations omitted). In

other words, “[w]here … an insurance company provides an ‘all-risk’ policy,

losses are presumed to be covered unless and until the insurance company

proves an exclusion applies.” Id. at 15.

We see no need to delve deeply into this issue, as neither the trial court

nor Erie seem to oppose this assertion. See TCO at 4 (“The policy at issue is

an ‘all[-]risk’ policy. … The burden of proof under an ‘all[-]risk’ policy shifts

to the insured only after the insurer has established some exclusion in the

policy[.]”); Erie’s Brief at 17-18 (“If an all-risks policy — one that covers all

loss except that which is specifically excluded — is at issue, however, the

insured need only prove that a loss occurred. Thereafter, the insurer must

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prove that the loss falls within a particular exclusion.”) (citations omitted).5

Accordingly, we apply the standard set forth supra. See Spece, 850 A.2d at

682 (“Where an insurer relies on a policy exclusion as the basis for its denial

of coverage..., the insurer has asserted an affirmative defense, and

accordingly, bears the burden of proving such defense.”).

In its second issue, Melkir contends that “[t]he loss occurred on a ‘walk’

which is covered through the ‘Extensions of Coverage’ [s]ection of the Policy.”

Melkir’s Brief at 21 (emphasis omitted). Specifically, Melkir argues that “[a]t

[s]ection I(B), labeled Property Not Covered, the Policy notes it does not cover

‘underground pipes, flues, or drains,’ ‘land,’ or ‘walks.’” Id. at 22. Yet, Melkir

goes on to point out that “‘walks’ and therefore the ‘land’ walks are composed

of, are added back into coverage at [s]ection VIII – Extensions of Coverage

at [subsection] A(3).” Id.

We examine the relevant portions of the Policy. It sets forth:

SECTION I – COVERAGES

INSURING AGREEMENT

____________________________________________

5 We acknowledge, however, that Erie also asserts that, “[a]lthough the Policy

affords coverage on an all-risks basis, it does not cover all property. Rather,

it unambiguously provides that it covers only that property which qualifies as

‘Covered Property,’ and defines that property that does and does not qualify

as such.” Erie’s Brief at 18 (citations omitted). It is unclear to us if Melkir

intended to challenge this specific proposition. To the extent that it did, we

find this claim waived. See, e.g., Wirth v. Commonwealth, 95 A.3d 822,

837 (Pa. 2014) (“Where an appellate brief fails to provide any discussion of a

claim with citation to relevant authority or fails to develop the issue in any

other meaningful fashion capable of review, that claim is waived. It is not the

obligation of an appellate court … to formulate [the] appellant’s arguments for

him [or her].”) (citation and original brackets omitted).

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We will pay for direct physical “loss” of or damage to Covered

Property at the premises described in the “Declarations” caused

by or resulting from any Covered Cause of Loss.

BUILDING(S) – COVERAGE 1

A. Covered Property

Building(s) means buildings described in the “Declarations”

and anything permanently attached.

***

B. Property Not Covered

Building(s) does not apply to:

***

4. Bridges, roadways, patios, or other paved surfaces;

***

6. The cost of excavations, grading, backfilling, or filling;

***

8. Underground pipes, flues, or drains;

9. Land (including land on which covered property is

located) or water; and

***

SECTION VIII – EXTENSIONS OF COVERAGE

A. Extensions of Coverage

We will pay the following “losses” at your option. Payments

under these Extensions are not an additional amount of

insurance and will not increase the total amount of

insurance available for the coverage involved.

***

3. Fences, Walks, Unattached Outbuildings, Tennis

Courts, and Inground Swimming Pools – Coverage 1.

We will cover “loss” to fences, walks, unattached

outbuildings, tennis courts, and inground swimming pools

caused by a peril insured against on the premises described

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in the “Declarations.” We will pay up to 10% of the

Building(s) – Coverage 1 limit but not to exceed $25,000 for

any one “loss.” If you are a tenant and no limit is shown for

Building(s) – Coverage 1, we will pay up to 10% of the

Business Personal Property and Personal Property of Others

– Coverage 2 limit (minimum of $1,000) but not to exceed

$25,000 for any one “loss”.

See Policy at 1, 13 (attached as Exhibit A to Erie’s Motion for Summary

Judgment).

In granting Erie’s motion for summary judgment and denying Melkir’s

motion for summary judgment, the trial court explained:

[Melkir] argues the area of the sinkhole is not excluded from

coverage because [Erie’s] adjuster, Michael Umpleby, agreed at

deposition the sinkhole was adjacent to, rather than in, the

parking lot. [Melkir] argues the terms “parking lot” and “area

adjacent to parking lot” are not listed as Property Not Covered

and, therefore, the sinkhole collapse is a covered loss. However,

Joseph Urban, of J.L. Urban Construction Services, who inspected

the sinkhole collapse on behalf of [Melkir], testified there was

grass and asphalt in the area of the sinkhole. He further testified

there was cracking in the parking lot; the whole pipe would have

to be replaced in addition to filling in the sinkhole; the pipe basin

would have to be enlarged or replaced; and the asphalt would

have to be cut two feet on either side of the pipe so that when the

excavation was performed the rest of the asphalt would not be

damaged. Asphalt clearly qualifies as a “paved surface.” The area

of the sinkhole and the work required to remediate it clearly fall

within subsection 4 [of section I(B), stating that bridges,

roadways, patios, or other paved surfaces are not covered

property under the Policy]. Further, if the sinkhole was adjacent

to the parking lot, it was excluded under subsection 9 [of section

I(B), stating that land (including land on which covered property

is located) or water are not covered property under the Policy].

In either instance, the plain language of the [P]olicy indicates the

sinkhole is not Covered Property. Furthermore, [Melkir] has failed

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to address [Erie’s] other assertions as to why the area of the

sinkhole is not Covered Property.[6]

TCO at 7 (footnotes omitted).

Although Melkir raised whether the area where the sinkhole occurred

could be considered a “walk” under section VIII(A)(3) in its brief in opposition

to Erie’s motion for summary judgment and at the summary judgment

hearing, the trial court did not specifically address that issue in its opinion.

See Melkir’s Brief in Opposition to Motion for Summary Judgment filed by Erie

at 4-6; N.T. Summary Judgment Hearing, 12/13/2016, at 20-21.7,8 Melkir

claims that the term “walks” as used in the Policy means “a passage for

walking[,]” and that “[t]he sinkhole opened under an area near the parking

lot used as a walkway.” Melkir’s Brief at 21, 22 (citations omitted; emphasis

in original). Moreover, it notes that “the Policy does not distinguish between

paved and unpaved walks.” Melkir’s Reply Brief at 5 (citations omitted).

On the contrary, Erie claims that the term walks “suggests an area that

is defined in some fashion as an area for walking, such as, for example, a

____________________________________________

6 Erie had also argued that the sinkhole was not Covered Property because it

involved excavations, backfilling, filling, and underground pipes. See Erie’s

Brief in Support of Motion for Summary Judgment at 28; see also section

I(B)(6), (8), supra. The trial court did not evaluate this argument.

7 Erie also does not suggest that Melkir has waived this issue.

8 The trial court did conclude that Melkir’s loss is not covered under section

IV(A)(4)(i), which applies to walks, roadways, and other paved surfaces. See

TCO at 10. However, in reaching that conclusion, it did not articulate if — let

alone why — the area where the sinkhole formed qualifies as a walk under the

Policy. Id.

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sidewalk, a concrete or stone pathway, or an elevated pathway.” See Erie’s

Brief at 43-44 (citations omitted). Erie further argues that “[d]espite

Melkir[’s] arguments to the contrary, pictures in this case indisputably show

that the collapsed earth formed in, and at the entrance of, a parking lot on

the Property[,]” and that “[t]he parking lot is not an area designated or

defined in some fashion for walking, but is an area specifically designated for

parking vehicles.” Id. at 44, 46. It adds that “[i]f the parties intended walks

to include land and other paved surfaces, there would be no need to explicitly

exclude land and other paved surfaces from the definition of ‘Covered

Property.’” Id. at 45.

Given that an issue exists that the trial court has not addressed, we

consider it appropriate to vacate the trial court’s order and remand this case

so that the trial court can determine in the first instance if the sinkhole formed

in a walk as contemplated in section VIII(A)(3) and, if so, whether the Policy

covers such a loss. See Branton v. Nicholas Meat, LLC, 159 A.3d 540, 562

n.21 (Pa. Super. 2017) (observing that the trial court did not address an issue

in its opinion granting summary judgment and therefore remanding the matter

so that the trial court could rule on the issue in the first instance). Despite

this disposition, however, we will address Melkir’s other issues in the interest

of judicial economy. See East Texas Motor Freight, Diamond Division v.

Lloyd, 484 A.2d 797, 800 (Pa. Super. 1984) (“Having found a new trial is

necessary, we nonetheless address the remaining contentions in the interest

of judicial economy and so as to give guidance to the trial court.”).

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In its third issue, Melkir raises whether sinkholes are covered by the all-

risk policy at issue here. Melkir’s Brief at 4. In particular, it states that, under

section III(A)(5)(d) of the Policy, “[w]hile ‘earth sinking’ is excluded from

coverage, sinkholes are specifically included in coverage without any

qualification or limitation.” Id. at 19 (emphasis in original; citation omitted).

Further, it asserts that “[s]inkholes are also covered under an exception to

the ‘collapse’ exclusion which appears at [s]ection III(B)(7).” Id. (citation

omitted).

The pertinent provisions of the Policy provide as follows:

SECTION III – EXCLUSIONS

A. Coverages 1, 2, and 3

We do not cover under Building(s) – Coverage 1 … “loss” or

damages caused directly or indirectly by any of the following.

Such “loss” or damage is excluded regardless of any cause or

event that contributes concurrently or in any sequence to the

“loss”:

***

5. Earth Movement

***

d. Earth sinking (other than sinkhole collapse), rising, or

shifting including soil conditions which cause settling,

crackling or other disarrangement of foundations, or

other parts of realty. Soil conditions include

contraction, expansion, freezing, thawing, erosion,

improperly compacted soil, and the action of water

under the ground surface.

This exclusion applies regardless of whether any of the

above, in Paragraphs 5.a. through 5.d., is caused by an

act of nature or is otherwise caused.

***

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B. Coverages 1, 2, and 3

We do not cover under Building(s) – Coverage 1 … “loss” or

damage caused:

***

7. By collapse, including any of the following conditions of

property or any part of the property:

a. An abrupt falling down or caving in;

b. Loss of structural integrity, including separation of

parts of the property or property in danger of falling

down or caving in; or

c. Any cracking, bulging, sagging, bending, leaning,

settling, shrinkage, or expansion as such conditions

relates to a. or b. above.

But if collapse results in a peril insured against at the

premises described in the “Declarations”, we will pay for

the “loss” or damage caused by the peril insured against.

Exclusion B.7. does not apply:

a. To the extent that coverage is provided in Section IV

– Additional Coverages, A. Collapse; or

b. To collapse caused by one or more of the following:

1) Fire;…sinkhole collapse….

Sinkhole collapse means “loss” caused by sudden

sinking or collapse of land into underground empty

spaces created by the action of water on limestone

or dolomite.

This peril does not include:

a) The cost of filling sinkholes; or

b) “Loss” or damage to property caused by or

resulting from the sinking or collapse of land

into man-made underground cavities.

***

SECTION IV – ADDITIONAL COVERAGES

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A. Collapse

The coverage provided under this Additional Coverage –

Collapse applies only to an abrupt collapse as described

and limited in A.1. through A.7.:

1. For the purpose of this Additional Coverage –

Collapse, abrupt collapse means an abrupt falling

down or caving in of a building or any part of a building

with the result that the building or part of the building

cannot be occupied for its intended purpose.

2. We will pay for direct physical “loss” or damage to

covered property, caused by abrupt collapse of a

building or any part of a building that is insured under

this Coverage Part or that contains Covered Property

insured under this Coverage Part, if such collapse is

caused by one or more of the following:

***

d. Use of defective material or methods in

construction, remodeling, or renovation if the

abrupt collapse occurs after the course of the

construction, remodeling, or renovation is

complete, but only if the collapse is caused in part

by:

***

2) Fire;…sinkhole collapse….

Sinkhole collapse means “loss” caused by sudden

sinking or collapse of land into underground

empty spaces created by the action of water on

limestone or dolomite.

This peril does not include:

a) The cost of filling sinkholes; or

b) “Loss” or damage to property caused by or

resulting from the sinking or collapse of land

into man-made underground cavities.

3) Water damage resulting from the accidental

discharge or leakage of water or steam as the direct

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result of the breaking apart or cracking of any part

of plumbing, heating, air conditioning, or other

equipment or appliances, but does not include

damage from a sump pump, sump pump well, or

any other system designed to remove subsurface

water which is drained from the foundation areas[.]

See Policy at 4, 5, 6, 7, 8-9.

As discussed above, the trial court initially determined that the area

where the sinkhole occurred was not covered property, and that the Policy did

not cover Melkir’s losses as a result. See TCO at 7, supra. It did not conduct

an alternative analysis as to whether the loss would be covered under the

Policy if that area were covered property.9

On the other hand, the trial court did determine that Melkir’s building,

which sustained damage, was covered property. Id. at 7-8. Nevertheless, it

concluded that the Policy excludes this loss. See id. at 8. As mentioned

above, in its motion for summary judgment, Erie alleged that the Policy does

not cover any damage to the building because of the Policy’s water exclusion

under section III(A)(6)(d)(1). See, e.g., Erie’s Brief in Support of Motion for

Summary Judgment at 19.10 To counter the water exclusion claimed by Erie

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9 As we explained previously, if the area is covered property because it

qualifies as a walk under section VIII(A)(3), the trial court would still have to

determine if the Policy covers Melkir’s loss.

10 The water exclusion states, in pertinent part:

SECTION III – EXCLUSIONS

A. Coverages 1, 2, and 3

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in its motion, Melkir first averred that “[i]n addition to the general, ‘all-risks’

coverage provided by the Policy, Melkir … also purchased certain coverage as

‘additional coverage,’ within which coverage for sinkhole collapses is

specifically provided.” See Melkir’s Brief in Support of Motion for Summary

Judgment at 12; Melkir’s Brief in Opposition to Motion for Summary Judgment

filed by Erie at 7. Relying on this additional coverage provided under section

IV(A)(2)(d)(2), set forth supra, Melkir claimed that “a pipe within a culvert

system which freely allows water to escape its enclosure is ‘defective’ for its

intended purpose. Therefore, such a system inarguably contains ‘defective

material or methods in construction.’” Melkir’s Brief in Support of Motion for

Summary Judgment at 14. The trial court disagreed, noting that the Collapse

coverage under section IV(A)(2)(d)(2) only “applies if there has been an

____________________________________________

We do not cover under Building(s) – Coverage 1 … “loss” or

damages caused directly or indirectly by any of the following.

Such “loss” or damage is excluded regardless of any cause or

event that contributes concurrently or in any sequence to the

“loss”:

***

6. Water

***

d. Water under the ground surface pressing on, flowing,

or seeping through:

***

1) Foundations, walls, floors, or paved surfaces[.]

See Policy at 4, 5.

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abrupt collapse of a building or a part thereof, which did not occur here.” TCO

at 9.

Next, Melkir tried to convince the trial court that the water exclusion did

not apply by making a concurrent causation argument. It claimed that

“[a]ccording to experts, the sinkhole collapse had the direct effect of causing

water to leak into the building foundation … because … the leaking of a

storm[]water line resulted in a sinkhole collapse.” Melkir’s Brief in Opposition

to Motion for Summary Judgment filed by Erie at 7 (footnote omitted). Thus,

Melkir reasoned that “[t]he cause of the sinkhole collapse adjacent to the

parking lot resulted in the damage to the building. Therefore, this was a

proximate cause of the loss and, hence, covered under the ‘all[-]risk’ policy.”

Id. Once again, the trial court disagreed, finding that the water exclusion

excludes such loss regardless of any cause contributing concurrently to the

loss, and that Melkir did not cite any provisions of the Policy in support of its

concurrent cause argument. See TCO at 16.

Now, on appeal, Melkir apparently attempts to overcome the water

exclusion precluding coverage for the building’s damage by (1) identifying an

exception to the water exclusion under section III(A)(6)(e)11; and (2) arguing

that the water exclusion does not preempt sinkhole coverage because its

____________________________________________

11 This exception provides that the water exclusion “does not apply to water

flowing or seeping from a broken water main where the break occurs on the

premises described in the ‘Declarations[.]’” See Policy at 4, 5.

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broad lead-in language stands in conflict with sections III(A)(5)(d) and

III(B)(7), thereby creating an ambiguity as to the Policy’s scope of coverage.

See Melkir’s Brief at 20; Melkir’s Reply Brief at 9-10. It appears, however,

that Melkir did not raise these arguments before the trial court.12 It is well-

established that appellants are not permitted to raise new arguments on

appeal. See Pa.R.A.P. 302(a) (“Issues not raised in the lower court are waived

and cannot be raised for the first time on appeal.”); Newman Development

Group of Pottstown, LLC v. Genuardi’s Family Market, Inc., 98 A.3d 645,

658 n.16 (Pa. Super. 2014) (“A new argument cannot be raised in support of

an issue on appeal if it was not first presented before the trial court. Thus,

this argument is waived.”) (citation omitted). Consequently, we find these

arguments waived, and conclude that — based on the arguments properly

preserved by Melkir — the Policy does not cover any loss to the building

stemming from the sinkhole due to the water exclusion raised by Erie.

Likewise, in Melkir’s fourth issue, it states that “[t]he ‘Additional

Coverages’ [s]ection of the [P]olicy specifically mentions the mechanism of

loss which occurred here and therefore also covers Melkir’s losses.” Melkir’s

Brief at 23 (unnecessary emphasis omitted). It explains:

Section IV, labeled Additional Coverages, provides coverage for

“defective material or methods of construction,” “sinkhole

collapse,” and[,]

____________________________________________

12 Further, in contravention of Pa.R.A.P. 2117(c), Melkir does not identify

where it preserved these arguments either. See Pa.R.A.P. 2117(c) (requiring

that the statement of the case include a statement of place of raising or

preservation of issues).

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water damage resulting from the accidental discharge or

leakage of water or steam as the direct result of the

breaking apart or cracking of any part of plumbing…[.]

Section IV(A)(2)(d)[(2),] (3) [of the Policy]. Again, this is an apt

description of the loss at issue here: a pipe broke apart, water

leaked, and the land collapsed forming a sinkhole which caused

damage to the building. The loss is covered.

Id. (internal citations to record omitted). Initially, it does not appear that

Melkir raised its argument relating to section IV(A)(2)(d)(3) below.

Notwithstanding, as addressed supra, section IV(A)(2) only provides coverage

for an abrupt collapse of an insured building or part thereof, which did not

occur here. Therefore, even if preserved, this argument lacks merit.

In its fifth issue, Melkir questions whether the “paved area” exclusion

applies where the parties’ experts agree that the loss occurred near but not

on pavement. See Melkir’s Brief at 4. It argues in full:

The sinkhole opened under an area near the parking lot used as a

walkway. While the parking lot itself may not be covered under

the Policy, areas near the parking lot cannot be encompassed by

this exclusion. Had Erie wanted to exclude areas near the parking

lot it could and should have so specified. It did not. Any argument

regarding coverage of the parking lot is a red herring as the

[p]arties agree the parking lot was not damaged.

Id. at 21 (internal citations and footnote omitted; emphasis in original).

We find Melkir’s argument confusing and off base. As Erie discerns,

“[t]he Policy … excludes more than just parking lots from the definition of

‘Covered Property.’ Rather, it specifically excludes ‘bridges, roadways, patios,

and other paved surfaces,’ and thus this provision applies to more than just

parking lots on its face.” Erie’s Brief at 19 (referring to section I(B)(4);

citations and original brackets omitted).

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To the extent Melkir intended to contest whether the area of the sinkhole

consisted of grass or a paved surface, we agree with the trial court that this

is somewhat of a distinction without a difference. As the trial court observes,

even if the area of the sinkhole were grass and not asphalt or a paved surface,

the Policy does not cover “[l]and (including land on which covered property is

located)….” See Policy at I(B)(9); see also TCO at 7. Thus, whether grassy

or paved, the area would be excluded either way. Notwithstanding, we

reiterate that the trial court did not address whether the area is a walk under

section VIII(A)(3) and, if so, whether a loss would be covered under the Policy.

Relatedly, in its sixth issue, Melkir avers that the trial court committed

an error of law when it granted summary judgment to Erie on the basis of

unsupported conjecture that repairing the loss would require interacting with

a paved portion of the parking lot. See Melkir’s Brief at 4. In particular, it

states that the trial court “mistakenly read into the Policy an exclusion related

to performing remedial work that touched on excluded portions of the

property.” Id. at 25 (citation omitted). Melkir insists that “nothing in the

Policy permits Erie to disclaim coverage of property or perils because the

remediation is expected to require interacting with a paved area.” Id.

In determining that the area of the sinkhole likely constituted a paved

surface and was therefore not covered property, the trial court observed that

Joseph Urban — who inspected the sinkhole on behalf of Melkir — testified

that, in order to remediate the sinkhole, “the asphalt would have to be cut

two feet on either side of the pipe so that when the excavation was performed

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the rest of the asphalt would not be damaged.” See TCO at 7 (footnote

omitted). As Erie persuasively acknowledges:

Although the court did rely upon [Mr.] Urban’s testimony

regarding the remediation of the collapsed earth, it did so in

concluding that the area of the collapsed earth consisted of

asphalt, and thus a paved surface. It noted [Mr.] Urban’s

testimony that the area surrounding the collapsed earth was

asphalt, as well as that regarding the additional remediation work

to repair the damage to the asphalt. … Contrary to Melkir[’s]

argument, the trial court never concluded that its losses were

excluded because remediation work would affect the parking lot.

Erie’s Brief at 51-52 (internal citations omitted). Accordingly, we do not

determine that the trial court committed an error of law on this basis.

Seventh, Melkir contests whether the Policy covers the damage to the

insured building. See Melkir’s Brief at 5. It argues that the trial court erred

by holding that “because the building itself did not collapse the Policy did not

provide any coverage for any part of the loss.” Id. at 26. Melkir declares that

“the Policy includes coverage for any ‘loss’ caused by sinkholes as well as

losses which result from ‘water flowing or seeping from a broken water main

where the break occurs on the premises…[,]’…or ‘water damage resulting from

the accidental discharge or leakage of water … resulting from the breaking

apart or cracking of any part of plumbing…[.]’” Id. (citing section III(A)(5)(d),

(6)(e); section IV(A)(2)(d)(3); and section VIII(A)(3); original brackets

omitted).

We believe we have already addressed these arguments. We reiterate

that, in its motion for summary judgment and brief in opposition to Erie’s

motion for summary judgment, Melkir challenged the applicability of the

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Policy’s water exclusion by raising a concurrent causation argument, and

pointing to additional coverage for collapse under section IV(A)(2)(d)(2)

(providing coverage for loss caused by the “abrupt collapse of a building or

any part of a building that is insured … or that contains Covered Property…” if

such collapse is caused by “[u]se of defective materials or methods in

construction…”). It did not raise below the applicability of section III(6)(e)

(stating that the water exclusion “does not apply to water flowing or seeping

from a broken water main where the break occurred on the premises…”) or

section IV(A)(2)(d)(3) (providing coverage for loss caused by abrupt collapse

of an insured building or part thereof, if such collapse is caused by “[w]ater

damage resulting from the accidental discharge or leakage of water or steam

as the direct result of the breaking apart or cracking of any part of

plumbing…”). Therefore, we repeat that Melkir has waived those arguments.

See Pa.R.A.P. 302(a) (“Issues not raised in the lower court are waived and

cannot be raised for the first time on appeal.”).13 Further, the trial court

considered that the building had not collapsed because Melkir had argued for

coverage under section IV(A)(2)(d)(2), which requires the abrupt collapse of

a building or part thereof. Based on the foregoing, we conclude that the Policy

does not cover the damage to Melkir’s building based on the arguments it

made before the trial court.

____________________________________________

13 In any event, as mentioned supra, section IV(A)(2)(d)(3) requires the

abrupt collapse of an insured building or part thereof in order to apply, and

such events did not occur here.

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J-A27013-17

Finally, in its eighth issue, Melkir insists that the trial court “erred by

granting summary judgment to Erie at least in part based on its finding that

Erie’s expert was unable to exclude alternative possible causes of Melkir’s

loss.” Melkir’s Brief at 27 (citation omitted). It claims that “[n]ot only is this

an overly charitable reading of [Erie’s expert’s] report … but this is not an

appropriate basis for the granting of summary judgment.” Id.

Specifically, Melkir seems to complain of the following discussion by the

trial court:

At page 7 of its brief in opposition to summary judgment, [Melkir]

argues as follows:

According to experts, the sinkhole collapse had the direct

effect of causing water to leak into the building foundation

according because of the leaking of a storm[]water line

resulted in a sinkhole collapse. [sic] The sinkhole[,] which

is a covered claim and had the effect of damaging the

building due to water infiltration, notwithstanding the water

exclusions. [sic] [W]hen there are two … or more causes

of loss, the policyholder’s claim is covered as long as the

immediate or proximate cause of the loss is covered by the

policy. The cause of the sinkhole collapse adjacent to the

parking lot resulted in the damage to the building.

Therefore, this was a proximate cause of the loss and,

hence, covered under the “all[-]risk” policy.

Record references, quotes, citations, and footnote omitted.

I cannot agree. As discussed above, the sinkhole was not a

covered loss under the [P]olicy. Furthermore, the experts did

not agree the sinkhole collapse had the “direct effect” of

causing water to leak into the building foundation. …

[Erie’s] expert only stated he did not find any visible

evidence that [Melkir’s] expert[’s] conclusions25 were

incorrect. However, he listed three other possible causes

of the water infiltration that could not be ruled out.

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J-A27013-17

25 The conclusions were that water from elevated

groundwater levels, resulting from the leaking storm water

line, infiltrated through the concrete masonry block of the

exterior walls of the exterior stairwell.

[Melkir] does not cite to any provisions of the [P]olicy in support

of its concurrent cause argument. Section III-EXCLUSIONS,

Section A. Coverages 1, 2, and 3, provides:

We do not cover under Building(s)-Coverage 1 …

“loss” or damage caused directly or indirectly by any

of the following. Such “loss” or damage is excluded

regardless of any cause or event that contributes

concurrently or in any sequence to the “loss”…[.]

***

The resolution of the instant motions for summary judgment [do]

not hinge on issues of proximate or concurrent causation. This

case involved a determination of the applicability of the exclusions

relied upon by [Erie] in denying coverage and whether the loss

sustained by [Melkir] fell within any of the coverages relied upon

by [Melkir]. The sinkhole was not a covered loss.

TCO at 15-17 (some emphasis added; footnote omitted).

To begin, the trial court did not grant summary judgment in favor of

Erie based, even in part, on its finding that Erie’s expert was unable to exclude

alternative possible causes of Melkir’s loss. See Melkir’s Brief at 27. Erie aptly

describes:

The trial court … only found that Melkir … ascribed too much to

[Erie’s expert’s] report in arguing that [Erie’s expert] agreed that

the collapsed earth directly caused water to leak into the building’s

foundation, noting that [Erie’s expert] stated only that he did not

find visible evidence that [Melkir’s expert’s] conclusions were

wrong and identified three other possible causes of loss. In the

end, the trial court concluded that no provisions of the [P]olicy

supported Melkir[’s] argument that the collapse of the earth was

the proximate cause of its loss, and that, therefore, the loss was

covered. In other words, the trial court concluded that, regardless

of the fact that [Erie’s expert] was unable to exclude other causes

of loss, coverage under the Policy did not exist.

- 26 -

J-A27013-17

Erie’s Brief at 54 (internal citations omitted).

As Erie points out, the trial court simply observed that Melkir seemed to

overstate the extent to which Erie’s expert agreed with its own expert.

Notwithstanding, as the trial court determined, Melkir points to no concurrent

causation language in the Policy that could overcome the water exclusion

raised by Erie under section III(A)(6)(d)(1).14 Here, the Policy excludes loss

or damage caused by the exclusions set forth in section III, “regardless of any

cause or event that contributes concurrently or in any sequence to the ‘loss….’”

See Policy at 4. This Court has interpreted a nearly identical clause to mean

that “if an exception, in its entirety, applies then the loss is excluded, even if

other events contributed to the loss.” Spece, 850 A.2d at 684. Erie explains

____________________________________________

14 Again, this provision sets forth, in relevant part:

SECTION III – EXCLUSIONS

B. Coverages 1, 2, and 3

We do not cover under Building(s) – Coverage 1…“loss” or

damages caused directly or indirectly by any of the following.

Such “loss” or damage is excluded regardless of any

cause or event that contributes concurrently or in any

sequence to the “loss”:

***

6. Water

***

d. Water under the ground surface pressing on, flowing,

or seeping through:

***

1) Foundations, walls, floors, or paved surfaces;

See Policy at 4, 5 (emphasis added).

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J-A27013-17

that “[t]he parties agree that the water that infiltrated the exterior stairwell

traveled underground until it backed up against the exterior wall of the

stairwell.” Erie’s Brief at 30 (citations omitted). Erie maintains that

“underground water that pressed on, flowed through, and/or seeped through

foundations and walls caused or contributed to Melkir[’s] loss to the exterior

stairwell, which is sufficient to exclude the losses to the exterior stairwell

[under section III(A)(6)(d)(1)] even if other covered causes of loss also

contributed.” Id. at 33. Therefore, even assuming that the sinkhole collapse

caused water to leak into the building’s foundation as Melkir alleges, Melkir

has not advanced a meritorious argument as to why section III(A)(6)(d)(1)

would not exclude the loss to Melkir’s building.

To summarize, we vacate the trial court’s order and remand for the trial

court to determine if the area of the sinkhole qualifies as a walk under section

VIII(A)(3). If the area qualifies as a walk under section VIII(A)(3), the trial

court must determine if the Policy covers Melkir’s loss. The other issues raised

by Melkir do not warrant relief.

Order vacated. Case remanded for further proceedings consistent with

this memorandum. Jurisdiction relinquished.

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J-A27013-17

Judgment Entered.

Joseph D. Seletyn, Esq.

Prothonotary

Date: 3/7/2018

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