                                                                                                                           Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


12-16-2005

515 Assoc LLC v. Travelers Indemnity
Precedential or Non-Precedential: Non-Precedential

Docket No. 03-4332




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                                                    NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT


                          No. 03-4332



                    515 ASSOCIATES LLC,
                                    Appellant

                               v.

        TRAVELERS INDEMNITY CO. OF ILLINOIS
                       t/a
       TRAVELERS PROPERTY CASUALTY GROUP




         On Appeal from the United States District Court
                  for the District of New Jersey
                     (D.C. No. 01-cv-02295)
          District Judge: Honorable William H. Walls



           Submitted Under Third Circuit LAR 34.1(a)
                      December 12, 2005


  Before: SLOVITER, SMITH, and STAPLETON, Circuit Judges.

                   (Filed: December 16, 2005)


                           OPINION
SLOVITER, Circuit Judge.

       515 Associates, LLC (“515 Associates”) appeals from the order of the District

Court granting summary judgment in favor of defendant Travelers Indemnity Company

(“Travelers”).1

                                              I.

       Appellant 515 Associates, LLC, owns and operates an apartment complex in

Newark, New Jersey, that is equipped with three Westinghouse elevators. The elevators

were installed in 1962, and are covered by a boiler and machinery insurance policy issued

by Travelers. The policy provides coverage for damage caused by an “accident” to an

“object.” App. at 105a. Under the policy, “accident” is defined as follows:

       “Accident” means a sudden and accidental breakdown of the “object” or part of
       the “object.” At the time the breakdown occurs, it must become apparent by
       physical damage that requires repair or replacement of the “object” or part of the
       “object.”

       None of the following is an “accident”:
       a.    Depletion, deterioration, corrosion, erosion, or wear and tear, unless a
             sudden and accidental breakdown ensues;
       b.    The breakdown of any structure or foundation; or
       c.    The functioning of any safety or protective device.

App. at 117a.

       The policy also contained a provision to resolve a dispute over damages by

appraisal, which states, in pertinent part:



                    1
                      The District Court had jurisdiction based on diversity of
             citizenship pursuant to 28 U.S.C. § 1332.

                                              2
          If we and you disagree on the value of the property, the amount of “business
          income” or the amount of loss, either may make written demand for an appraisal
          of the loss. In this event, each party will select a competent and impartial
          appraiser. The two appraisers will select an umpire. If they cannot agree, either
          may request that selection be made by a judge of a court having jurisdiction.

App. at 111a.

          On January 27, 1999, 515 Associates reported a loss due to a “major elevator

failure” having occurred on January 20, 1999. Less than a week before, on January 22,

1999, 515 Associates had issued a letter to residents of the building stating that “[d]uring

the past week we have experienced a series of different failures with the building’s

elevators that have caused the entire system to shut down,” and that an elevator

consultant advised 515 Associates that they “could continue to operate under our present

maintenance contract and repair the system each time a malfunction occurs . . . or . . .

replace the system with a new state of the art system.” Supp. App. at 1.

          515 Associates retained William Newby (“Newby”) of Newmont Elevator

Analysts, Inc., to inspect the elevator system. Newby, the consultant for 515 Associates,

shared with Travelers his opinion that the cause of the damage “appears to be electrical . .

. but it is virtually impossible to determine the direct cause.” App. at 25a. He further

stated:

          Heat, shorts and grounds within the system damaged approximately 30% of the
          controller and selector components. This condition, while most severe on
          controller #1, caused all three cars to fail initially. Only through an extraordinary
          effort by the elevator maintenance company, were they able to return Car #2 to
          automatic and Car #3 to manual operation.



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Id. He referred to “fire damage to [the] elevators,” App. at 25a, but 515 Associates

conceded thereafter that no fire had occurred. Instead, 515 Associates claimed that the

entire control system sustained electrical damage on January 14, 1999.

       Travelers retained David LaPointe of Crawford Technical Services to investigate

the claim. LaPointe noted the opinion of his assistant that “the damage occurring on

January 14th, 1999 are [sic] repairable at minimal costs.” App. at 28a. LaPointe’s

inspection revealed that only a few wires were damaged and troubleshooting could repair

them as other wires had been repaired in the past. Id. He observed that the equipment

was “very old and is in need of replacement,” and that it had “served out its useful life

and is breaking down due to its age.” Id.

       LaPointe further stated:

       We are not suggesting that the incident of January 14th, 1999 is excluded by the
       coverage afforded by the Travelers Property Casualty Corporation. We do suggest
       that the cost to repair the resultant damages are well below the applicable policy
       deductible and may, in fact, be repaired at no cost to the insured. We, therefore,
       are making no offer for “settlement” of that loss.

       Any action taken by the Travelers Property Casualty Corporation or [its]
       representatives in investigating the cause of loss, or investigating and ascertaining
       the amount of sound value, or the amount of loss and damage which occurred on
       or about January 20th - 25th, 1999, shall not waive or invalidate any of the terms
       or conditions of any policy or policies and shall not waive or invalidate any rights
       whatever of either of the parties to the policy. No act of the company done by
       way of investigation, defense or participation shall be construed as any admission
       of coverage under said policy.

Id.

       Travelers retained yet another consultant, Richard Ladroga (“Ladroga”), who


                                             4
agreed with LaPointe’s assessment. Ladroga reported that the “damage to the elevator

control system equipment is primarily age related,” and that there was “no evidence of

severe damage caused by any one specific accident or failure that would render the

system inoperable and beyond repair.” Supp. App. at 41. His report further stated that

the elevators were approximately 40 years old, and that the life expectancy for this type

of elevator is approximately 25 years.

       On December 27, 2000, 515 Associates filed suit against Travelers seeking

damages for the costs of repairing and replacing the elevator equipment. An appraisal

performed pursuant to the appraisal provision of the policy awarded $80,000. Travelers

moved for summary judgment and 515 Associates cross-moved for summary judgment.

The District Court determined that there was no genuine issue of material fact as to the

existence of an “accident” under the policy. App. at 11a. The court stated:

       Importantly, Plaintiff has failed to provide evidence to prove that the failure was
       an ‘accident’ under the policy. Plaintiff does not refute Defendant’s assertion that
       the failure was caused by the elevator’s age or offer an alternative theory.
       Plaintiff’s own expert, Mr. Newby, could say only that “it is virtually impossible
       to determine the direct cause” of the failure.

Id. Accordingly, the court granted summary judgment to Travelers and denied summary

judgment to 515 Associates. We have plenary review and apply the same standard as did

the District Court. Cantor v. Perelman, 414 F.3d 430, 435 n.2 (3d Cir. 2005).

                                            II.

       On appeal, 515 Associates argues that Travelers has admitted liability under the



                                             5
policy, relying on the statement made by Travelers’ claim investigator to 515 Associates

that “[w]e are not suggesting that the incident of January 14, 1999 is excluded by the

coverage . . . . We do suggest that the cost to repair the resultant damages are [sic] well

below the applicable policy deductible.” 515 Associates argues that the statement

constitutes an admission of liability under the policy. Appellant’s Br. at 7; App. at 28a.

       We see no basis upon which to accept 515 Associates’ position that the statement

is a binding admission of liability. First, nothing in the language admits liability. Stating

that one does not suggest that an incident is excluded does not logically imply that one

does suggest that the incident is included. At most, it can be read to mean simply that the

basis for denial of benefits at that time was not exclusion but rather the amount of

damages. The letter did not reach the issue of whether or not the incident would be

covered if the amount of damage assessed were greater than the deductible.

       Second, the letter included a paragraph directly following the quoted language

explicitly stating that Travelers does not waive any defenses or admit any liability under

the policy. Read together with the preceding paragraph, this disclaimer makes clear that

there was no affirmative admission. 515 Associates contends that the paragraph retaining

all rights under the policy was merely “boilerplate,” apparently suggesting that therefore

it can be disregarded. There is no evidence that it is “boilerplate,” but even if it were so,

it would not be ineffective.

       Finally, a waiver requires a clear and unequivocal relinquishment of a right, which



                                              6
the statement at issue did not nor is there any evidence that 515 Associates detrimentally

relied upon Travelers’ alleged waiver. There was no admission of liability.

                                            III.

       Turning to the issue whether the elevator break-down constituted an “accident”

under the policy, we must apply New Jersey law, under which insurance contracts are

interpreted by their plain meaning unless an ambiguity exists. Voorhees v. Preferred

Mut. Ins. Co., 607 A.2d 1255, 1260 (N.J. 1992). There is no ambiguity here.

       The policy in question covers an “accident,” defined as a “sudden and accidental

breakdown of the ‘object’ or part of the ‘object.’” App. at 117a. Travelers agrees that

the meaning of “sudden and accidental” is “unexpected and unintended” under New

Jersey law, as 515 Associates contends, see Morton Intern., Inc. v. General Acc. Ins. Co.

of America, 629 A.2d 831, 863 (N.J. 1993), and that the elevator is an “object” under the

policy. However, Travelers contends that the breakdown in question falls outside the

definition of “accident” because the policy states that an accident is not “[d]epletion,

deterioration, corrosion, erosion, or wear and tear, unless a sudden and accidental

breakdown ensues.” Appellee’s Br. at 15.

       515 Associates argues that the District Court erred when it interpreted the phrase

“unless a sudden and accidental breakdown ensues” that follows the exclusion of

“[d]epletion, deterioration, corrosion, erosion, or wear and tear.” 515 Associates

interprets said phrase to mean that “[i]f something wears out, it should be replaced. But



                                              7
if before replacement the Object breaks down, there is coverage.” Appellant’s Br. at 10.

It was the District Court’s interpretation that the clause only means that the existence of a

deterioration does not bar a claim if an unrelated unexpected and unintended breakdown

occurs, and that a breakdown due to natural deterioration cannot be “unexpected” from

the insured’s perspective. We agree.

       There was uncontested evidence that the elevators were the subject of chronic

failures attributed to their age. Ladroga reported that Mr. John Sweeney, President of

Jersey Elevator Company, told him that “the history of trouble calls and service at this

facility has been extensive, especially over the past 12-to-18 months,” that the control

system had experienced a “wide variety of problems,” and that the condition of the

control system was a function of the advanced age of the components. Supp. App. at 40.

Ladroga specifically stated in his initial report:

              The site inspection revealed that other wiring had been repaired in
              the past, as evidenced by soldered, crimped, and taped connections
              (Photograph #01, Attachment A). This equipment is indeed very old
              and in need of replacement, but it is my opinion that it has served
              out its useful life and is breaking down due to age.

Appellee’s Br. at 6.

       The situation described by the above-quoted language is precisely that which is

covered by the exclusion language. 515 Associates did not produce any countervailing

evidence. It follows that the District Court’s grant of summary judgment to Travelers

must be upheld. There is no genuine issue of material fact as to the cause of the



                                               8
breakdown. Travelers’ experts, LaPointe and Ladroga, identified the old and

deteriorating condition of the elevators as the cause of the breakdown, and stated that the

elevators had long-outlasted their life expectancy. 515 Associates does not argue in its

brief that there is another cause, and its own consultant, Newby, stated that it was

“virtually impossible” to identify the direct cause. Further, 515 Associates issued a letter

to its tenants stating that a series of failures caused the elevators to cease functioning,

which is consistent with the evaluation of Travelers’ experts. As there is no evidence

supporting a conclusion other than a finding that the cause of the failure was due to the

age and deterioration of the equipment and not to an “unexpected and unintended”

breakdown, 515 Associates cannot make out a claim under the Travelers policy.

                                             IV.

       Because there is no genuine issue of material fact, we will affirm the District

Court’s grant of summary judgment in favor of Travelers and denial of summary

judgment to 515 Associates.




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