OSN
9 OCONNOR
September 24, 2019 Richard C. Mason
Direct Phone 215-685-2717
VIA CERTIFIED MAIL AND EMAIL DirectFex 215-701-2317
rmezon®cozen com
MKELLEY@SASLLP.COM
‘AKLEIN@SASLLP.COM
Michael R. Kelley, Esquire
Adam Klein, Esquire
‘Smigel, Anderson & Sacks
4431 N. Front Street
Harrisburg, PA 17110
Re: _ Participant/Named Insured under Federal Policy: Spring Village, LP
Certificate Number: 7993-89-00-42636
Federal Excess Policy No.: 7993-89-00
Underlying Firstline National Insurance Policy No.: 8159577
Claim: Howard and Monique Henry v. McFarland et al., 2017 CV 1940, Court of
‘Common Pleas, Dauphin County, Pennsylvania
Chubb Claim No: 040516029002
Dear Messrs. Kelley and Klein:
‘As you know, the undersigned is coverage counsel for Federal Insurance Company (“Federal”),
which issued the above-captioned excess policy (“Federal Policy"). The Federal Policy, subject to its
terms and conditions, provides liability insurance coverage excess of a policy issued by Firstline National
Insurance Company (“Firstline”). We write to you as personal counsel for McFarland, L.P., Spring Village
Apartments, Primavera Properties ("Primavera"), Isaac Dohany ("Dohany”), and Jacob Friedman
(“Friedman”) ("McFarland Defendants"), in order to state Federal's coverage position in this matter.
In short, subject to the discussion below, Federal confirms that the components of the
remediation plan for the “McFarland Stabilization,” “Soldier/Micro Pile Walls” and “Excavation of
Collapse” are eligible for coverage. Costs associated with “New Retaining Walls” and “Site Restoration”
of McFarland property are not eligible for coverage under the Federal Policy. Costs associated with
constructing a new, permanent retaining wall and restoring McFarland’s property are first-party
components. McFarland is not liable to any third party for these costs and thus, as Federal has
previously explained, those costs are not eligible for coverage under Federal’s third-party liability
insurance policy.
By way of background, Chubb North American Claims (“Chubb”) is the claims administrator for
Federal. By January 25, 2019 reservation of rights, Chubb acknowledged receiving a lawsuit filed by
Howard and Monique Henry against McFarland LP. (“McFarland”) and other defendants (“Henry
igation”). Federal issued a supplemental reservation of rights on May 23, 2019 following the Court's
issuance of its April 8, 2019 and May 13, 2019 injunctive orders. By July 18, 2019 letter, Federal agreed
to assume the defense of the McFarland Defendants under a complete reservation of rights.
LecaL\429s7048\
‘One libery Pace 1650 Marke Srest Suite 2800 Philedelphia, PA 19103
215.665.2000 800.523.2900 215.665.2013 Fax cozen.comMichael R. Kelley, Esquire
‘Adam Klein, Esquire
September 24, 2019
Page2
On July 1, 2019, the Court and the underlying parties approved the use of the Thornton
‘Tomasetti engineering firm (“Thornton”) to develop and propose a remediation plan for the collapse site
in accordance with the April and May Orders. Thornton submitted its report to the Court on August 2,
2019. Federal received a copy of the report on August 21, 2019. In my conversations with you, you have
‘opined that until all components of the Thornton Report are funded, including first-party elements
insured by Firstline, then the remediation cannot commence. We again urge that a mediation be
scheduled as a priority for this purpose.
Please allow this letter to supplement Federal's prior reservations in light of Thornton's report.
Federal incorporates the January 25, 2019, May 23, 2019, and July 18, 2019 reservation of rights letters
as if set forth fully herein.*
Thornton Tomasetti’s Report
Thornton submitted a report to the Court on August 2, 2019 (“August report"), which Federal
received on August 21, 2019. Thornton also made a Powerpoint presentation to the Court and the
parties during the August 28, 2019 hearing. The August report and Powerpoint set forth Thornton's
‘observations and conclusions relating to the collapse site, including the apartment Building, and
recommended that remediation occur in phases. Please note that by summarizing the August report,
below, Federal is not accepting the accuracy or validity of Thornton's observations, conclusions, or
recommendations
‘Thornton concluded that the Building could be stabilized (as opposed to demolished) prior to
excavating the site and removing the Wall’s debris. According to Thornton, this stabilization would
require restraining the building and isolating the structure from the remediation efforts to avoid any
overturning. Thornton recommended constructing a temporary retaining wall in order to isolate the
building during remediation. Thornton further recommended demolishing the Hoa T Le’s roof and
ing the Hoa T Le building through lateral restraints.
‘The August report and the Powerpoint further recommend work associated with building
McFarland a new, permanent wall to replace the collapsed structure, and ancillary work. This ancillary
work includes constructing a new concrete staging pad.
Coverage Position
This letter addresses coverage under the above-referenced Federal Policy. Please refer to the
Policy for its full terms and conditions. The Federal excess policy provides coverage that is limited to
covered “loss,” which is defined as “damages that the Insured becomes legally obligated to pay because
Of injury or damages.” Importantly, therefore, the Policy applies only to third-party liability, and that
liability must be on account of “damages” imposed upon the Insured. The Federal Policy is excess of $1
million in “loss.”
+ Federal understands that Erie Insurance Company, the Henrys carrer, paid the Henrys to repair and restore the tire shop and
warehouse. As such, Erie has the right af subrogation against the thd parties legally lable for those damages. Should the
[MeFatland defendants be found legally responsible for these damages, Federal wil indemnify the McFarland defendants
Lecau\sn997008\2Michael R. Kelley, Esquire
Adam Klein, Esquire
September 24, 2019
Page 3
In addition, coverage under the Policy is subject to the “Owned Property Exclusion” (Exclusion
“k") in the Firstline Policy. That Exclusion bars coverage with regard to “Property damage” to “Property
you own, rent or occupy, including any costs or expense incurred by you, or any other person,
organization or entity, for repair, replacement, enhancement, restoration or maintenance of such
property for any reason, including prevention of injury to a person or damage to another's property ..”
In light of the Policy provisions, we address coverage for the components of the proposed remediation
below.
‘The Components of Thornton's Proposed Remediation
Thornton’s Powerpoint includes proposed categories associated with stabilizing the Building,
excavation, and repairs at the site. Federal’s coverage position as to each element of this work, as stated
below, is based on Federal’s understanding of the facts to date and the meaning of the remediation
‘components included in Thornton's report.
Federal confirms coverage for all necessary costs for the following categories of work set forth in
‘Thornton’s Powerpoint: (1) McFarland Stabilization; 2) Soldier/Micro Pile Walls and (3) Excavation of
Collapse, which Federal understands includes digging out and removing of debris. Federal will distribute
oF pay over funding, once the $1 million of Firstline’s liability coverage has been exhausted, to Thornton
Tomasetti so it may proceed with the Remediation Plan,
The Thornton Tomasetti Powerpoint also includes costs for: (1) Overhead & Profit, (2) Design
Contingency, and (3) Bond and Insurance. The estimates included in these categories are calculated as a
percentage of Thornton's total estimated construction costs. The total construction costs include
amounts for first-party liability that are not covered by, and liability that is expressly excluded from, the
Firstline and Federal Policies. Accordingly, the percentages allocated for these categories are not
proportionate in light of the maximum third party liability potentially covered by the Firstline and
Federal Policies. Subject to this reservation of rights, Federal confirms coverage for an appropriate share
of these costs allocated to third party liability covered by the Firstline and Federal Policies.
The Powerpoint also identifies certain unallocated costs (“General Condition Allowances” and
“General Conditions.”). Federal confirms coverage for the portion of unallocated costs that pertain to
covered components of the Remediation Plan and required for those components to be carried out.
Last, Federal denies coverage for the two categories of work that are not covered under the
Federal Policy:
1. New Retaining Walls for McFarland. Federal understands this Involves the construction of a
new, permanent wall to replace McFarland’s collapsed property, including work to support
that construction, The Federal Policy does not provide coverage in light of the requirement
of a legal liability on the Insured’s part for such costs Owned Property exclusion, for costs
associated with replacing an insured’s property. These costs also do not qualify as a liability
that the McFarland Defendants are legally obligated to pay “as damages” as required by the
Federal Policy.
Lecat\a2997088\1Michael R. Kelley, Esquire
Adam Klein, Esquire
September 24, 2019
Page 4
2. Site Restoration of McFarland Property. Federal understands that these costs are aimed at
restoring the McFarland parking lot, and restoring the Eight-story Building to a habitable
state, The Federal Policy does not provide coverage, in light of the Owned Property
exclusion, for costs associated with restoring the insured’s property regardless of whether
the property owner or someone else incurs the attendant replacement costs. These costs
also do not qualify as a liability that the McFarland Defendants are legally obligated to pay
“as damages’ as required by the Federal P.
Reservation of Rights
Federal reserves the right to seek additional and/or clarifying information from Thornton, and to
supplement or amend this opinion upon receipt of such information. Federal also reserves the right to
address additional coverage issues as they may arise, based upon all the provisions, terms, conditions,
exclusions, endorsements, and definitions found in the Federal and Firstline Policies and additional facts
that may come to Federal's attention. Federal also reserves the right to subrogate to the McFarland’s
Defendants’ interests to recover all amounts paid on their behalf and to seek contribution from all
responsible parties.
Nothing stated herein and no further action taken by Federal or on its behalf should be
construed as a waiver of any of its rights under the Policies. On the contrary, by providing this or any
prior correspondence to the McFarland Defendants, engaging in any prior or future discussions with the
McFarland Defendants, or paying or agreeing to pay any amount to or on behalf of the McFarland
Defendants, Federal does not waive any rights that it has under the Federal Policy at law or in equity and
Understands the McFarland Defendants reserves its rights as well.
Sincerely,
COZEN O'CONNOR
By: Richard C. Mason
ce: Robert Kohn (via email and Regular Mail)
Director of Risk Management Services
Preferred Concepts, LLC
Email: rkohn@preferredconcepts.com
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