                                                                                                                           Opinions of the United
2007 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


2-16-2007

Caldon Inc v. Peerless Ins
Precedential or Non-Precedential: Non-Precedential

Docket No. 05-2250




Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2007

Recommended Citation
"Caldon Inc v. Peerless Ins" (2007). 2007 Decisions. Paper 1609.
http://digitalcommons.law.villanova.edu/thirdcircuit_2007/1609


This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2007 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
                                                                  NOT PRECEDENTIAL

                        UNITED STATES COURT OF APPEALS
                             FOR THE THIRD CIRCUIT

                                        No. 05-2250


                                     CALDON, INC.,

                                                   Appellant
                                             v.

                PEERLESS INSURANCE, as successor in interest to
           GENERAL ACCIDENT INSURANCE COMPANY OF AMERICA
                        and as successor in interest to
                COMMERCIAL UNION INSURANCE COMPANY


                     On Appeal from the United States District Court
                        for the Western District of Pennsylvania
                                   (No. 05-cv-00113)
                      District Judge: Honorable Arthur J. Schwab

                       Submitted Under Third Circuit LAR 34.1(a)
                                     May 8, 2006

       Before: BARRY and SMITH, Circuit Judges, and DITTER,* District Judge


                                 (Filed: February 16, 2007)


                               OPINION OF THE COURT




       *
         Hon. J. William Ditter, Jr., Senior United States District Judge for the Eastern
District of Pennsylvania, sitting by designation.

                                             -1-
DITTER, District Judge.

       Caldon, Inc. appeals from a District Court order dismissing its declaratory

judgment suit against Peerless Insurance. We will affirm.


                         FACTS and PROCEDURAL HISTORY

       Caldon produces the LEFM Flow Measurement System (“LEFM”) which is used

by nuclear power plants. In order to construct the system, Caldon engaged Key

Technologies, Inc. to provide mechanical engineering and design, and Ionics Inc. to weld

the necessary tubing called flow elements. Caldon contracted with two electric

generating companies to supply the LEFM: Exelon Nuclear1 for its station in Delta,

Pennsylvania, and that of Progress Energy Service Company near Hartsville, South

Carolina.2

       During this time Caldon was insured by the defendant, Peerless Insurance, for

$2,000,000 under a commercial general liability policy and for $2,000,000 additional

coverage under a commercial umbrella policy. In the winter of 2002, a number of welds

on the flow elements failed causing damage in Exelon’s plant and that of Progress

Energy. Caldon submitted a letter to Peerless on May 19, 2003, providing notice that it


       1
        The complaint refers to both “Excelon Nuclear” and “Exelon.” Judge Schwab’s
opinions refer to the company as “Excelon.” However, the correct spelling is “Exelon”
and is used throughout this opinion.
       2
        At the times important in this matter, Progress Energy was known as Carolina
Power & Light Company. For the sake of simplicity we will refer to it as Progress
Energy.

                                            -2-
had a claim for damage to its equipment and property. On December 29, 2003, Peerless

denied the claim and explained its reasoning in a thirty-eight page letter. (App. 223-

260). In essence, Peerless said its insurance covered Caldon’s liability for damages to

others, but not Caldon’s damages to its own equipment. Caldon then filed suit against

Peerless (C.A. No. 04-1138, W.D. Pa. Nov. 5, 2004), seeking a declaration that the

Peerless policies provided coverage for damages to Caldon’s property. It also noted that

Caldon would incur additional repair and loss of generating capacity expenses although at

that time no claim or demand had been presented by either Exelon or Progress. (Compl.

at ¶ 40; App. 5)

       The District Court found that the policies did not cover Caldon’s claim for

damages to its own product or costs associated with fixing its own system and therefore

granted defendant’s motion to dismiss without prejudice. Caldon then filed a second

complaint for declaratory judgment stating that Exelon and Progress Energy had asserted

claims against it. Again, the District Court granted Peerless’ motion to dismiss, holding

that Caldon’s claim was premature because Caldon had failed to notify Peerless of the

third party claims of Exelon and Progress, a requirement of the Peerless policies. (App.

005). Caldon filed a timely appeal bringing the matter before us.

                                      DISCUSSION

       Caldon alleges in paragraph 43 of its complaint that insurance in the amount of

$2,000,000 was provided to it by a “Commercial General Liability”policy issued by



                                            -3-
Peerless. The Insuring Agreement of that policy states:

      We will pay those sums that the insured becomes legally obligated to pay
      as damages because of “bodily injury” or “property damage” to which this
      insurance applies. We will have the right and duty to defend the insured
      against any “suit” seeking those damages. However, we will have no duty
      to defend the insured against any suit seeking damages for “bodily injury”
      or “property damage” to which this insurance does not apply.3 (emphasis
      added).

      There is no allegation in the complaint that Caldon is legally obligated to pay any

damages to anyone.

      Paragraph 29 alleges that as a result of the deficiencies of Caldon’s subcontractors,

there was damage to Caldon’s and Exelon’s property. Although Paragraph 32 alleges that

Caldon and Exelon have repaired the damage at Exelon’s facility, Paragraph 31 asserts

that Exelon has demanded $2,868,278 for property damage it suffered.

      Paragraphs 33 through 39 and 41 detail how the defective welding performed by

Caldon’s subcontractor, Ionics, caused damage to Progress’ plant for which Caldon

assumes responsibility in Paragraph 42. Paragraph 40 sets forth that Progress has

demanded $368,000 from Caldon for the damages to the Progress facility.

      The fact remains, however, that there is no assertion that Caldon is legally




      3
        In Paragraph 44 of its complaint, Caldon alleges that the Peerless umbrella policy
provides an additional $2,000,000 in coverage. That policy has a similar insuring
agreement, i.e., “We will pay the sums that the “insured” becomes legally obligated to
pay as damages in excess of ‘underlying insurance’ . . . because of ‘bodily injury,’
‘property damage,’‘personal injury,’ or ‘advertising injury’ to which this insurance
applies.” (Emphasis added)

                                           -4-
obligated to pay the claim of either Exelon or Progress.

       Federal Rule of Civil Procedure 8(a)(2) requires a pleading to provide “a short and

plain statement of the claim showing that the pleader is entitled to relief.” The Supreme

Court clarified the purpose of the rule, noting the “Federal Rules reject the approach that

pleading is a game of skill in which one misstep by counsel may be decisive to the

outcome and accept the principle that the purpose of pleading is to facilitate a proper

decision on the merits.” Conley v. Gibson, 355 U.S. 41, 48 (U.S. 1957).

       In this Circuit we have explained:

       Just as a pleading must “be construed as to do substantial justice,” a
       plaintiff generally need not explicitly allege the existence of every element
       in a cause of action if fair notice of the transaction is given and the
       complaint sets forth the material points necessary to sustain recovery. This
       is especially so if the material deficiencies in the complaint stem from
       nothing more than inartful pleading – the precise sort of pleading as a
       highly developed form of art that the federal rules sought to abandon.

Menkowitz v. Pottstown Mem'l Med. Ctr., 154 F.3d 113, 124-25 (3d Cir. 1998)

(internal citations omitted).

       However, other courts have cautioned that “the liberal pleading standard set

forth in Federal Rule of Civil Procedure 8(a) does not invite plaintiffs to use clever

omissions and cynical pleading practices to overcome otherwise valid motions to

dismiss.” Sapiro v. Encompass Ins., 2004 U.S. Dist. LEXIS 22054, *17 (N.D. Cal.

Nov. 2, 2004) (internal quotations and citations omitted). Further, in discussing

the art of clever pleading in relation to removal jurisdiction, another District Court



                                          -5-
stated “(c)lever pleading, of course, is neither unethical nor illegal – it is, in fact,

good lawyering. But good lawyering should not defeat good judging, which

requires a court to call things as it sees them.” Linnin v. Michielsens, 372 F. Supp.

2d 811, 825 (E.D. Va. 2005).

       At best, this complaint amounts to a purposeful side-step by Caldon’s

attorneys, not a misstep to be overlooked by the rule of liberal pleading. Here, we

are presented with the same attorneys, the same parties, the same District Court

Judge, and the same occurrence as in Caldon’s first suit against Peerless. There,

the District Court dismissed Caldon’s claim, not only holding that the policy did

not cover claims for damages to Caldon’s own property but observing that “there is

no coverage at this time because the insured is not legally obligated to pay

damages now. If and when a claim is made by Excelon [sic] and [Progress

Energy] or another third party, the parties are free to take whatever legal action

they believe is legally appropriate at that time.”

       Having been put on notice by the District Court of the need to aver that

there was a legal obligation to pay damages, surely Caldon’s attorneys would have

alleged that duty had they been able to do so. If somehow they had overlooked the

vital “legally obligated” language, they would have amended their complaint.

Instead, to avoid stating what they apparently cannot, they have “artfully” written

the complaint to provide only an inference of a meritorious claim where no such a



                                            -6-
claim exists.

       The complaint is therefore fatally defective for failing to allege a condition

that is necessary for Caldon to prevail, namely that Caldon is legally obligated to

pay a third party.

       The District Court dismissed the complaint holding that Caldon’s failure to

provide notice of claims by Exelon and Progress Energy, a requirement of the

Peerless policy, rendered the case unripe. We base our holding on the ground that

Caldon has failed to state a claim for which relief may be granted. Fed. R. Civ. P.

12(b)(6). “[I]f the decision below is correct, it must be affirmed, although the

lower court relied upon a wrong ground or gave a wrong reason.” Helvering v.

Gowran, 302 U.S. 238, 245 (1937). See also Erie Telecomms. v. Erie, 853 F.2d

1084, 1089 (3d Cir. 1988) (citing Helvering and other cases). Therefore, although

we reach the same conclusion as did the District Court, we believe the result is

better explained in the terms of a simple failure to plead rather than in the more

complicated terms of ripeness.




                                         -7-
