In Rosewood, the court had to determine if a medical device bolted
into a building was business personal property or a "permanent" part
of the building. The difference between the two designations influenced almost
half-a-million dollars in coverage.
Background
The dispute began after a pipe burst in a facility occupied by Jefferson
Radiation Oncology Center, causing water damage to a Varian 2100c Linear
Accelerator. Commonly used in cancer treatment, a linear accelerator (or
"Linac") directs radiation at tumors wherever they may be located on
a patient's body. Neither Rosewood nor Jefferson owned the building.
Rosewood Cancer Care, Jefferson's general partner, had installed the
Linac following the failure of a similar model in 2008. Removal of the previous
device and installation of the new one took a specialized team of
workers—including a medical physicist—2 months and necessitated the use of
heavy equipment such as jackhammers and welding torches. The Linac was
connected to the building's water and electricity lines, secured in place
with bolts penetrating a foot of concrete, and housed in what Jefferson
referred to as the "vault": a room constructed specifically to
protect against radiation emitted by the device.
After assessing the damage, Rosewood and Jefferson sent a notice of loss to
their insurer, Travelers Indemnity Company. The parties disagreed about the
nature of the Linac. If the device was determined to be a permanent part of the
structure, it was covered for up to $559,620. If, on the other hand, the Linac
was "business personal property" because it was a "fixture"
or piece of "machinery or equipment," it was insured for no more than
$103,000.
The insurance company decided the Linac was business personal property
because it was a fixture brought onto the premises for a particular
trade—radiology. Travelers also noted that Jefferson and Rosewood's Linac
removal in 2008 established that the Linac was not permanently attached to the
building. Travelers also pointed out that the plaintiffs owned the device but
not the building.
The plaintiffs insisted the Linac should be covered as machinery and
equipment permanently attached to the building. They argued that, because of
the equipment and procedures involved, removal of the device would cause damage
to the underlying structure of the building. It was, therefore, permanently
attached. Moreover, in light of the "vault," plaintiffs asserted that
the building was constructed to accommodate a Linac, and, therefore, the device
serviced the building's "highest end use."
The court found merit in both arguments and both interpretations of the
policy. In keeping with established Pennsylvania law, where "[a]mbiguous
provisions in an insurance policy must be construed against the insurer and in
favor of the insured," the court granted partial summary judgment to the
plaintiffs.
Lessons Learned
This case underscores the importance of consistent, thorough communication
about the property covered in an insurance policy. A policy cannot anticipate
every possible issue, and clear dialogue among the policyholder, broker, and
underwriter is frequently necessary to make sure proper coverage is
obtained.
Both parties could have gained a better understanding of exactly what was
being insured before the claim was brought by examining the property together.
In circumstances involving highly specialized machinery, brokers would be wise
to ask the insured the questions necessary to determine the nature of the
property. Specialized equipment necessary to the business can be specifically
scheduled to eliminate any questions about what it is. Visits by insurance
company underwriters can also help alleviate problems and develop common ground
between the parties. However it is accomplished, everyone needs to be on the
same page about the nature of the property insured.