DON'T BE SO CAVALIER ABOUT YOUR CAVALIER

Commonwealth Of Pennsylvania v. Sanchez, 848 A.2d 977 (PA Super. 2004)

In the case of Commonwealth of Pennsylvania v. Sanchez, Mr. Sanchez was convicted of insurance fraud and theft by deception. He appealed the conviction on the basis that there was insufficient evidence to sustain the convictions. The case is of interest because it is one of the few cases that we see reported, respecting a conviction for insurance fraud. Mr. Sanchez also complained that the insurance fraud statute was unconstitutional as it was vague and overly broad. The court rejected all of these arguments.

For a defendant to be convicted of insurance fraud, he must:

Knowingly and with the intent to defraud any insurer or selfinsured, assist, abet, solicit or conspire with another to prepare or make any statement that is intended to be presented to any insurer or self-insured in connection with, or in support of, a claim that contains any false, incomplete or misleading information concerning any fact or thing material to the claim, including information which documents or supports an amount claimed in excess of the actual loss sustained by the claimant.

AIG insured a Chevrolet Cavalier on a policy issued to its insured, Ms. Goodwin. Her boyfriend at the time was Mr. Sanchez, the title owner to the vehicle because Ms. Goodwin could not purchase a vehicle on her own. Ultimately, Mr. Sanchez was also named as an additional driver on the AIG policy. Before securing this insurance, however, Ms. Goodwin was involved in an accident with the Chevrolet Cavalier at a time when the insurance had been canceled by her prior carrier, Allstate Insurance Company. Subsequent to the accident, Ms. Goodwin encouraged Mr. Sanchez to assist her in obtaining new insurance and to make a claim that the vehicle was damaged when the new insurance was in effect. Mr. Sanchez resisted being involved in this scheme by Ms. Goodwin, for a time. Ms. Goodwin ultimately obtained insurance through AIG and included the Cavalier on the policy. She submitted a claim to AIG, contending that the Cavalier was damaged in March, after the AIG policy went into effect. (In fact, the damage to the vehicle had occurred in February, before the policy was in effect.)

Mr. Sanchez was interviewed by an AIG representative about the Cavalier and was also asked to prepare and sign the odometer statement and a power of attorney form, in support of the claim. Because it was clear that Mr. Sanchez was very much aware that the damage, for which claim was being made, had occurred before the AIG policy went into effect, the court concluded that Mr. Sanchez had violated the Pennsylvania insurance fraud statute, as well as a statute related to theft by deception.

This was a case, even though Mr. Sanchez was not the named insured, but only an additional driver, on the AIG policy and was not the one that submitted the original claim.

The court also concluded that a conviction for theft by deception was appropriate; since it required one to "intentionally obtain or withhold property of another by deception." The court found that Mr. Sanchez obtained from the insurance company, the sum of $7,730.90, as a result of the filing of a false insurance claim. He then used this money to pay off the loan on the Cavalier so that Ms. Goodwin could purchase a motor vehicle. Even though he did not physically come into possession of the money, the court indicated that it was the legal equivalent of him receiving the money directly and then paying off the loan.

It should be pointed out that the entire scheme was revealed when Ms. Goodwin's ex-boyfriend, who still lived with Ms. Goodwin and Mr. Sanchez, reported the fraud to the insurance company. May I suggest that it is bad form to harbor your exboyfriend or girlfriend, if you intend to commit a crime in his or her presence?

BRING A CLEAN PAIR OF UNDERWEAR WHEN YOU DRIVE A CAR PURCHASED AT THE AUTO AUCTION

Salvatore v. State Farm, 205 Westlaw 357516 (Pa. Super. 2005)

In the case of Salvatore v. State Farm, 205 Westlaw 357516 (Pa. Super. 2005), Mr. Salvatore filed suit against State Farm, and others, arising out of a false arrest, on theories of negligence and violation of the Unfair Trade Practices and Consumer Protection Law. The circumstances of the lawsuit and the facts surrounding the same are described herein. Mr. Salvatore was the purchaser of a Mitsubishi Diamante vehicle, having purchased the same from P. & H. Auto Sales. P. & H. Auto Sales had purchased the vehicle at an auction, to which the car had been wholesaled by State Farm. State Farm had earlier become the owner of the vehicle on account of a payment which State Farm made on a stolen vehicle claim four years earlier. During a routine traffic check, Mr. Salvatore was stopped, while driving the vehicle in the Philadelphia area, and taken into custody, spending one night in jail. The reason for the stop was that Mr. Salvatore was in possession of the vehicle that was still listed as stolen. Unfortunately for Mr. Salvatore, the vehicle was never removed from the National Crime Information Center (NCIC) database.

At trial, the court acknowledged that State Farm had no ability, under the statute governing stolen and recovered vehicles to remove the same from the crime database. This could only be done by the police authorities. The trial court did find against State Farm, however, on the basis that it ¿owed a common law duty¿ to Mr. Salvatore to be certain that the police ultimately removed the Mitsubishi from the crime database, before placing the car in commerce.

The Superior Court disagreed with the lower court ruling, finding that State Farm had no duty whatsoever to be certain that the car was removed from the criminal database as it was not responsible, in the first instance, for having it placed therein. The court found, on the other hand, that the person or entity that created the risk was the police department, which was likewise responsible for removing the car from the NCIC. The court conceded that the harm may have been foreseeable by State Farm, but it had no duty. (One should point out that the vehicle was not located by the police until four years after the theft and payment by State Farm.) The court concluded its opinion by holding that:

The consequences of imposing a duty on the actor would be severe. Requiring insurers to expend additional time and resources to assure that every stolen car that is returned is properly removed from the NCIC would be costly and unnecessary. We find that it would be unnecessary because it would place insurers in an oversight position over this Commonwealth's Law enforcement. In other words, the insurers would be expending time and money to assure that police departments performed their statutorily obligated duty.

The court concluded its opinion by holding that the solution to this problem would be for police departments to do their job. I suppose one lesson to be learned from this case is to be careful of a vehicle purchased at the auto auction and always bring a clean change of underwear as you may be arrested and thrown in jail for the night.

DISCUSSION OF POWER INTERRUPTION EXCLUSION

Spece v. Erie Insurance Group, 2004 Pa.Super. 154 (2004)

On June 25, 2000, a transformer in Auburn, Pennsylvania was hit by lightning, resulting in a power outage to the surrounding area, including the home of the Spece family. The Speces contended that as a result of the power outage, their sump pump discontinued operation, resulting in interior water damage to their home. They made claim under a policy of homeowner¿s insurance that had been issued by Erie, which coverage was denied. Erie based its denial on the water damage exclusion and power interruption exclusion, as set forth below:

The relevant policy provisions in this case are as follows:

PERILS WE INSURE AGAINST

We pay for direct physical loss to property insured under the Dwelling, Other structures, and Personal Property Coverages, except as excluded or limited herein.

WHAT WE DO NOT COVER-EXCLUSIONS

Under the Dwelling, Other Structures, and Personal Property Coverages:

9. by water damage, meaning:

(b) water or sewage which backs up through sewers or drains or water which enters into and overflows from within a sump pump, sump pump well or any other system designed to remove subsurface water which is drained from the foundation area; or

10. by power interruption if the interruption takes place away from the residence premises. However, we will pay for loss to the contents of refrigerator or freezer units on the residence premises, from either power or mechanical failure (other than contents used for business purposes). If a loss from a peril covered under Perils We Insure Against happens on the residence premises we will cover only loss caused by that peril. We will pay for loss caused by a power interruption occurring on the residence premises.

The court reviewed both Exclusions 9 and 10. The court held that if it were simply a case where the homeowner¿s sump pump merely stopped functioning due to a mechanical failure or misuse and water entered the home, then the loss would be excluded. However:

As such, it is necessary to examine Exclusion 10, which discusses losses resulting from power interruption. Exception 10 initially states that loss occurring because of a power interruption taking place away from the residence is excluded, unless the loss relates to the contents of a refrigerator or freezer. However, the last two sentences of Exclusion 10 indicate that direct loss occurring because of a power interruption occurring on the residence premises is not excluded. Here, the power was interrupted on Appellees' premises, resulting in a direct loss to the dwelling's basement and its contents. There is nothing in Exception 10, or any of the other exceptions, indicating that lightning must strike Appellees' property directly in order for the loss to be covered.

The court found that because the sump pump stopped functioning because of a power outage due to lightning, albeit striking away from the home, it rejected the argument that lightning was ¿a remote cause.¿ The court then looked to Exclusion 10, relating to power interruption away from the premises. Because Exclusion 10 contained language in the last two sentences that a direct loss occurring because of power interruption occurring on the residence premises is not excluded, the provision was ambiguous and that coverage would apply. The court consequently construed the exclusion against the insurance company, Erie, and found in favor of the insured.

AGENT OBLIGATED TO INDEMNIFY CARRIER
FOR VIOLATION OF AGENCY AGREEMENT

Specialty Insurance v. Royal Indemnity Company, 324 F.Supp.2d 674 (Pa. 2004)

On July 1, 1988, Royal Indemnity Company, doing business as Royal Insurance, entered into an agreement with Specialty Insurance Agency, Inc. whereby Specialty would act as Royal¿s agent in an insurance program offered for the restaurant industry. The business relationship was governed by the terms of a Managing General Agency Agreement. In entering into the agreement, Specialty, as managing agent, had authority to solicit, underwrite, bind and issue policies in accordance with the underwriting guidelines or instructions which were issued by Royal, from time to time. Included in these guidelines were Royal¿s Restaurant Program Underwriting Guidelines. The guidelines contained specific provisions which precluded Specialty from binding insurance for businesses that were in financial distress. Specialty accepted two applications for coverage from another broker for a business known as Mama Maria¿s Restaurant, which applications represented, in part, that the restaurant and its owners had never been involved in a bankruptcy, taxing lien situation, or any adverse litigation. As it turned out, all of the information provided was untrue. Specialty neglected to obtain a Dun & Bradstreet, until sometime well after the coverage was bound. Of course, a substantial fire occurred in the interim. Because Royal was bound to the coverage, it made settlement with Mama Maria and then filed suit against Specialty, seeking return of the monies paid on the basis of breach of contract and negligence. Specialty filed a separate action in New Jersey and both of the cases were consolidated.

The Federal District Court concluded that Specialty very clearly failed to live up to its end of the bargain. It bound coverage with Mama Maria before getting a Dun & Bradstreet, in direct violation of the guidelines between the parties. Specialty attempted to contend that it was the standard in the industry to bind coverage, before receiving a D&B, however, even when Specialty obtained the D&B, it failed to act upon it when it was clear that Mama Maria was in serious financial trouble. Apparently, the insured had a bankruptcy, two judgments and a number of tax liens on the property.

The Court concluded that even though it may have been an industry standard to bind coverage without a D&B, the guidelines were very clear that that was not to occur here. Specialty¿s own expert conceded that it was recognized in the industry that poor financial health increased the likelihood that a business would be unable to maintain its property and to conduct its business activities in a safe manner. The expert went on to say ¿if you can¿t pay your bills, you don¿t do your maintenance. If you can¿t pay your bills, you don¿t clean the grills. If you can¿t pay your bills, you throw the stock down the stairs and if you can¿t pay your bills, your employees are working on tips and you are hoping that the employee doesn¿t steal too much from you.¿

Under the terms of the agreement, Specialty, and not Royal, had the authority to cancel the policy if it were to find material misrepresentation in the application. Although there were some issue as to whether or not there would have been sufficient time to cancel the policy when the fraud was discovered, the Court was not persuaded by that argument either, for the reason that Specialty essentially did nothing to investigate the financial condition of the insured and even when it discovered it, did nothing to act upon it.

The Court concluded that Specialty was obligated to pay back to Royal, all of the sums which Royal had paid to Mama Maria.

This is an interesting case to serve as a basis for discussion as to what can be claimed over against a negligent agent or broker. In this case, the entire payment by the carrier was the subject of the suit, whereas, in some cases, the amount to be recovered against a negligent agent may simply be the premium expense.

SOMETIMES BLOOD IS NOT THICKER THAN
WATER ¿ FIGURE THAT ONE OUT

Wisniski v. Brown & Brown Ins. Co. of PA (the agent) and EMC Insurance Company, 852 A.2d 1206 (Pa. Super. 2004)

In the Wisniski case, the court was faced with Motions for Summary Judgment filed by the insurance agent, Brown & Brown Insurance Co. of PA, Inc., including the agent, Donald Blood and a similar Motion filed by EMC Insurance Companies against a commercial insured, Saturn Surplus. The case involved a substantial flood to plaintiffs¿ business property, Saturn Surplus, a military surplus supply store. Subsequent to the flood, the plaintiffs sued the Brown Agency, Donald Blood, the agent that they had dealt with as well as a customer service representative and the insurance company, EMC. The contention by the plaintiffs was that they discovered, only after the flood, that they did not have flood insurance and that the agent neglected and failed to recommend the same.

The plaintiffs claimed that the defendants collectively did not inform them that their insurance plan contained an exclusion for property damage caused by a flood nor that flood insurance was available for an additional premium. For a four year period, the plaintiffs renewed their commercial insurance policy, without event. During the second year of coverage, an employee of EMC actually visited the property to conduct a risk analysis and observed that the property was located directly across the highway from the Susquehanna River and that a stream ran underneath the building located on the property. No recommendation, however, was made at that time to obtain flood insurance.

On September 7, 1999, plaintiffs suffered substantial damages due to a flood to the property. It was at that time that they learned that they did not have flood insurance. The lawsuit filed by the plaintiffs asserted that the defendants collectively breached their duty to "exercise the skill and knowledge normally possessed by members of the insurance profession in good standing in similar communities."

Initially, summary judgment was granted for the agency, Brown & Brown. On appeal, the Superior Court concluded that Saturn Surplus had presented sufficient facts to hold that Brown Agency had been negligent. These facts included one, that the Brown Agency did not inspect the premises before recommending an insurance package; and two, (the Brown Agency did not recommend or offer flood insurance to Saturn Surplus.) Saturn Surplus actually retained an expert who concluded, in part, that Brown & Brown should have visited the property, before recommending the coverage and that if it had done so, it should not and could not have ignored the necessity of flood insurance for this property. The Court concluded that based upon the facts of the case, combined with the expert¿s report, a genuine issue of fact existed as to whether the Brown Agency had breached its duty of care to Saturn Surplus. In a footnote, however, the Court indicated that "we express no opinion on whether an expert report is necessary in all cases such as this one. Nor do we express any opinion on the issue of whether Saturn Surplus will prevail at trial."

The Court was also very clear to indicate that it was not concluding, as a matter of law that an insurance agent always has a duty to inspect the property on which they offer coverage. The Court held that it was a matter of the facts and circumstances, on a case by case basis. It was for the jury to determine whether or not the agency acted negligently.

The Superior Court commented on the lower court¿s granting of summary judgment. In the granting of summary judgment, at the lower court level, the trial court concluded that agents and insurance companies do not have a continuing duty to explain the limits and exclusions in a policy, or to ¿explain every permutation possible from an insured¿s choice of coverage.¿ The Superior Court went on to state, however, that:

Treski and its progeny establish that once the insured has chosen an insurance policy, the insurer need not remind the insured of the coverage limits, or to explain every contingency under the policy in which coverage might not exist. Id. In contrast, the issue in this case is whether an insurance agent has a duty to inspect the property so as to become aware of a significant risk of flooding, and then to offer the insured this coverage option where the insured may not have been aware of the need for flood insurance in the first instance. Of course, this process of offering insurance options takes place before the parties enter into the contract itself.

Reading the record in the light most favorable to the non-moving party, Saturn Surplus was not aware of the need for flood insurance. Saturn Surplus relied on the Brown Agency to provide "full coverage" for the property, and relied on the Brown Agency to provide (or at least offer) this "full coverage." Given that Saturn Surplus is located near a river and in fact has a stream running under the property, one reasonable inference is that the Brown Agency should have inspected the property and offered flood insurance as part of a "full coverage" package. We are unwilling to declare as a matter of law that the contrary is true and that the Brown Agency is entitled to summary judgment.

The Court concluded that this was not a case where the parties had to prove a ¿breach of fiduciary duty,¿ but rather referred to it as a ¿garden variety¿ negligence claim.

THE SUPERIOR COURT REINFORCES INSURERS¿ RIGHT TO WITHHOLD DEPRECIATION PENDING ACTUAL REPAIR OR REPLACEMENT

Kane v. State Farm Fire & Casualty Company, 2003 Pa. Super 502, 841 A.2d 1038 (December 22, 2003), and Burton v. Republic Insurance Company, 2004 Pa. Super. LEXIS 258 (March 16, 2004).

¿Claimants should not be permitted to exploit their losses and use them as an opportunity to remodel their homes at the insurer¿s expense.¿ This quote, taken from one of two recent decisions by the Superior Court of Pennsylvania, illustrates that the Superior Court is willing to enforce policy restrictions on replacement cost recoveries following a loss. The cases are Kane v. State Farm Fire & Casualty Company, 2003 Pa. Super 502, 841 A.2d 1038 (December 22, 2003), and Burton v. Republic Insurance Company, 2004 Pa. Super. LEXIS 258 (March 16, 2004).

Both cases involved disputes over an insurance company¿s right to pay the depreciated or actual cash value of a loss and ¿hold back¿ the difference between actual cash value and repair or replacement cost until actual repair or replacement occurred. The Burton case also approved an insurer¿s enforcement of the requirement that damaged property be replaced with like kind for coverage to apply.

The Kane case involved an appeal from an order entered in the Berks County Court of Common Pleas dismissing the plaintiffs¿ amended complaint. The suit was filed as a class action against several insurance companies including Allstate, Erie, Metropolitan, One Beacon, and State Farm. As characterized by the Superior Court, the ¿core¿ of the dispute was over the meaning of the phrase ¿actual cash value¿ as used in the policies issued by the defendants. Plaintiffs asserted they had not received full indemnification under their replacement cost policies after sustaining partial losses because the defendants deducted depreciation from the actual cost to repair or replace the damaged portions of their buildings. They argued that, unless the phrase ¿actual cash value¿ was specifically defined in the policy of insurance to include depreciation, the policyholder was entitled to full repair or replacement cost, and depreciation was not to be included in the calculation of the amount to be paid. In response, defendants asserted that ¿the issue was one of timing¿, meaning simply that plaintiffs were entitled to replacement cost coverage, but must first undertake the repair or replacement of the damaged property before being fully compensated. Until repair or replacement occurred, plaintiffs could only recover the actual cash value of the loss, meaning repair or replacement cost less depreciation. The defendant insurance companies filed preliminary objections on this basis, seeking dismissal of the plaintiffs¿ suit. The Berks County Court agreed, granting the preliminary objections and dismissing the plaintiffs¿ complaint. An appeal to the Superior Court followed.

In its analysis of the relevant provisions of the policies issued by the defendant insurers, the Superior Court divided the policies into three groups. In the first group, the policies did not define the phrase ¿actual cash value¿, but directed that the companies would pay only the actual cash value of the loss until actual repair or replacement had been completed. The policies in the second group included a specific reference to depreciation as a deduction from actual cash value. For example, the Allstate policy directed that, if the insured did not repair or replace damaged property, payment would be ¿on an actual cash value basis [meaning] there may be a deduction for depreciation¿.¿ The third category of policies was limited to one issued by Erie Insurance Company, which defined actual cash value to include a deduction for depreciation, but appeared to limit such coverage to losses involving specific types of property, such as household appliances, cloth awnings, and personal property.

In its summary of previous appellate court analysis of the phrase ¿actual cash value¿, the Superior Court reviewed Fedas v. Insurance Company of Pennsylvania, 300 Pa. 555, 151 A. 285 (1930), and Farber v. Perkiomen Mutual Insurance Company, 370 Pa. 480, 88 A.2d 776 (1952), two decisions by the Supreme Court of Pennsylvania that have long been cited for the proposition that, ¿in partial loss situations, in the absence of clear language to the contrary, an insurer may not deduct depreciation from¿ replacement cost¿, and that the phrase ¿actual cash value¿ may not be interpreted as including a depreciation deduction, where such deduction would thwart the insured¿s expectation to be made whole.¿ Kane, 841 A.2d at 1047. The Superior Court reaffirmed this proposition, and noted that in London v. Insurance Placement Facility of Pennsylvania, 703 A.2d 45 (Pa. Super. 1997), it held that insurance companies could amend their policies to reach a different result, but that the policies must be clear in that regard. Id.

However, the Superior Court distinguished the Fedas, Farber, and London cases by noting that the claims involved in Kane did not arise from a denial of liability for replacement cost, but the timing of such compensation. The defendants had never denied liability or failed to guarantee reimbursement for repair or replacement of the property, but simply maintained that they were only liable for such costs once repair or replacement had been completed. The public policy consideration underlying the older cases ¿ that an insured should be made whole by receiving full replacement value ¿ therefore applied with less force. The Superior Court concluded that, with the exception of Erie Insurance Company, the defendant insurance companies had not breached their contracts of insurance by paying actual cash value and withholding depreciation until repair or replacement occurred. Although the policies of insurance comprising the first group did not define ¿actual cash value¿, they specifically stated that only ¿actual cash value¿ would be offered until or unless repair or replacement was made. Therefore, it was clear that the phrase ¿actual cash value¿ was not synonymous with replacement value, as plaintiffs argued. The same analysis applied to the policies in the second group. Further, because these policies defined ¿actual cash value¿ to include deduction for depreciation, the Superior Court found that the policies clarified the extent of intended coverage and ¿unambiguously allow[ed] the insurers to deduct depreciation until repair or replacement [was] made.¿ The Court affirmed the lower court¿s dismissal of the plaintiffs¿ complaint against the insurers issuing these policies.

The Superior Court reluctantly found it could not extend the same analysis and conclusion to the Erie policy, primarily because it found that the wording of the primary policy form and an endorsement created an ambiguity in the meaning of ¿actual cash value¿ as used in the policy. Notably, the single dissent in the Superior Court¿s opinion argued that the plaintiffs¿ claims against Erie should also have been dismissed.

The Burton case involved a fire loss claim at the Burtons¿ residence. Following the fire, Republic Insurance Company paid the actual cash value of the damage to the dwelling, representing replacement cost less depreciation. After plaintiffs completed repairs to their home, Republic paid a portion of the depreciation hold back, but not the full amount. A small portion of the depreciation was withheld because plaintiffs did not complete certain items included in the estimate of repair, and performed additional construction that was not included in the estimate. On the plaintiffs¿ personal property claim, Republic made a substantial actual cash value payment, and later paid most of the depreciation following replacement by the plaintiffs. However, Republic withheld $979.82 for property that plaintiffs could not demonstrate was replaced with ¿items of like kind and quality.¿ Plaintiffs then filed a class action complaint against Republic for themselves and other Republic insureds who were denied the difference between actual cash value of their residential or personal property and the replacement or repair cost of such property pending completion of the repair or replacement.

Under the policy of insurance issued by Republic, the company would pay the replacement cost of that part of the covered building that was damaged ¿for like construction and use on the same premises¿, and no more than the actual cash value of the damage until actual repair or replacement was complete. Under the personal property coverage afforded by the policy, Republic would not pay more than actual cash value until actual repair or replacement was complete. Plaintiffs contended that because the phrase ¿actual cash value¿ was not defined by the policy, it was ambiguous. In rejecting this argument, the Superior Court noted that it could not conclude ¿that an isolated phrase is ambiguous simply because [Republic] failed to define it specifically in the policy.¿ The policy was to be construed in its entirety to determine whether it unambiguously conditioned full replacement benefits upon the actual repair or replacement of the damaged property. The Superior Court concluded that the Republic policy did: ¿[a] routine reading of the policy and endorsement demonstrates that replacement benefits are conditioned upon complete repair or replacement.¿ Because the policy plainly set forth the procedure for recovering full replacement cost, the Superior Court found that the plaintiffs¿ argued interpretation was unreasonable.

The court also rejected plaintiffs¿ argument that Republic¿s practice of requiring insureds to rebuild damaged property with like construction using a line-item estimate, and replace damaged personal property with property of like kind, was a breach of the insurance contract because it was not expressly provided in the policy. When repairing their dwelling, plaintiffs had altered the original construction by removing an existing wall to enlarge their bedroom. Republic refused to pay the additional cost related to this modification because it was not ¿like construction¿ as contemplated by the line-item estimate prepared by it. The Superior Court agreed with the trial court¿s holding that ¿like construction means that a policyholder has to return the damaged structure as closely as possible to the condition it was in immediately prior to the loss.¿ The Superior Court held that Republic¿s practice of requiring a claimant to rebuild the structure as it was before the loss was reasonable, and did not constitute a breach of the insurance contract. This conclusion was supported by the language of the policy expressly directing that the company would provide coverage for the replacement cost of that part of the building damaged ¿for like construction¿. Further, because the section of the policy defining the insureds¿ duties after loss included a provision requiring the insureds to submit a sworn proof of loss setting forth (among other things) ¿specifications of damaged buildings and detailed repair estimates¿, Republic¿s practice of requiring claimants to set forth their cost using detailed line-item estimates was proper. This analysis led to the Superior Court¿s conclusion that, because insurance policies are based on principals of indemnity rather than enrichment, ¿claimants should not be permitted to exploit their losses and use them as an opportunity to remodel their homes at the insurer¿s expense.¿

These decisions appear to resolve an issue that has vexed the insurance industry during the last decade. See, e.g., London v. Insurance Placement Facility of Pennsylvania, supra, and Gilderman v. State Farm Insurance Company, 437 Pa. Super. 217, 649 A.2d 941 (1994). They clearly support the proposition that depreciation can be withheld pending actual repair or replacement, provided the language of the policy is consistent with those at issue in the Kane and Burton cases.

CAN¿T BIG HEALTH INSURERS JUST GET ALONG?

UPMC Health Systems v. Metropolitan Life Ins. Co., 2004 WL 2903683 (3d Cir. Pa. 2004)

When deciding to litigate a coverage issue, be mindful of the fact that the Federal District and Circuit Courts often times will look to what it refers to as the Pennsylvania Doctrine of Reasonable Expectations, when making a ruling in an insurance-related claim. The doctrine states that "[t]he reasonable expectations of the insured is the focal point of the insurance transaction ... regardless of the ambiguity, or lack thereof, inherent in a given set of documents." Collister v. Nationwide Life Ins. Co., 479 Pa. 579, 388 A.2d 1346, 1353 (1978). It is intended to protect against the inherent danger, created by the nature of the insurance industry, that an insurer will agree to certain coverage when receiving the insured's application, and then unilaterally change those terms when it later issues a policy. See, e.g., Tonkovic v. State Farm Mut. Auto. Ins. Co., 513 Pa. 445, 521 A.2d 920 (1987) ("We hold that where, as here, an individual applies and prepays for specific insurance coverage, the insurer may not unilaterally change the coverage provided, without an affirmative showing that the insured was notified of, and understood, the change, regardless of whether the insured read the policy.").

The importance of this doctrine is that it has been applied, even in cases where the policy was unambiguous, provided the insured reasonably expected certain coverage. The Court referred to such cases as a subsequent unilateral expansion of an exclusion, which was not otherwise explained to the insured. In other words, the Court found that an insurer may not make a unilateral change to an insurance policy unless it both notifies the policyholder of the change and ensures that the policyholder understood its significance.

In this particular case, UPMC entered into an agreement with Metropolitan to purchase certain dental and related coverage from Metropolitan. Into the first year fo the contract, Metropolitan realized that it was taking a severe financial hit and refused to guarantee its premium rate for the second year of coverage. The amounts involved were substantial and hence the lawsuit. The Court concluded as follows:

Neither any lack of ambiguity in the policy language nor UPMC's status as a sophisticated purchaser of insurance prevented application of the doctrine of reasonable expectations; indeed, the reasonablen expectations of UPMC are not even questioned here at least insofar as UPMC and MetLife negotiated and agreed upon the rate guarantee for the second year of coverage.

UPMC also asserted a claim for bad faith, however, the Court concluded that because Metropolitan never refused to pay any of the benefits but simply insisted on a higher premium rate, that it did not act in bad faith.

Do not be surprised to have this doctrine of reasonable expectation raised, even when the policy language is quite clear, any time the carrier changes the policy provisions and particularly exclusions in renewal policies. According to the courts, an insurer may not make a unilateral change to an insurance policy unless it both notifies the policyholder of the change and ensures that the policyholder understood its significance.

THE COURT FOUND THERE WAS NO DUTY TO DEFEND
FOR A CASE INVOLVING A DRUG OVERDOSE

Minnesota Fire and Casualty Company v. Greenfield, 855 A.2d 854 (Pa. 2004)

In this case, the homeowner¿s insurer sought declaratory judgment that it had no duty to defend or indemnify the insured homeowner against allegations that he caused the wrongful death of a guest in his home, who purchased heroin from him and died as result of an overdose.

We must decide today whether an insurance company owes a duty to defend or indemnify a homeowner for the wrongful death of his houseguest occasioned by his selling heroin to her. For the reasons that follow, we affirm the holding of the Superior Court, albeit on different grounds, that no such obligation exists.

At 8 p.m. on February 9, 1998, eighteen year-old Angela Smith (Smith) arrived at the home of Michael J. Greenfield (Greenfield) at 600 North Third Street, in Wormleysburg, hoping to obtain some heroin from him. Another young woman, Brook Broadwater (Broadwater), was with Smith. When they arrived, Greenfield had been drinking Mad Dog beer and was under the influence of marijuana and heroin.

Greenfield was no stranger to the use of heroin, having lost consciousness three times from it in the past.

In exchange for some marijuana and a small sum of money, Greenfield provided Smith with a bag of heroin, which was labeled "Suicide." At approximately 8:20 p.m., Smith voluntarily injected herself with the heroin. From that time until 10 p.m., Smith lay in a chair and communicated only when directly addressed. Greenfield put out some blankets for her, and she went to sleep on the floor. Greenfield left with Broadwater, returning to the house approximately 10:45 p.m. Id. at 131. Smith remained in the residence, and when Greenfield awoke around 6:30 a.m., he found Smith still on the floor. Id. at 132. When he left for work, he told Smith to lock the door if she left, and Smith groggily responded. Id.

When Greenfield came home from work later that day, he found Smith dead on the floor where he had left her that morning. Greenfield knew that she was dead because "she was pale and not breathing." Id. at 145. Autopsy results showed that Smith died from a heroin overdose. Greenfield called a friend, Robert Rollins (Rollins), who came to his residence. Id. at 147. Wearing gloves because he "didn't want to touch" Smith's dead body, Greenfield, with his friend, took the body and put it in a vehicle owned by Greenfield. Id. at 148. They drove around the area, and then dumped the body in York County near the Yellow Breeches Creek. Id. at 257. Greenfield then contacted the police and concocted a story to the effect that he had simply found a body near the creek. Rollins initially told the same story, but recanted and told the truth. The men were arrested later that same day.

Ironically, when Greenfield arrived home from work, the police chief was outside of his door because Greenfield had a broken headlight, and the chief "was checking to make sure [that he] fixed it." The police chief did not know that Smith was dead inside the house, and when Greenfield discovered her body, he did not call the police, explaining that he was scared "[b]ecause of drugs, being high and stuff. I didn't know what to do." Id. at 145-46. In reviewing the entire Record, there is not one scintilla of evidence to suggest that Greenfield felt remorse or personal responsibility for the death of Smith. He seems to have little conscience or regret for what transpired.

The insured, Greenfield was charged criminally for the death of Smith, having pled guilty to involuntary manslaughter, abuse of a corpse, and unlawful delivery of heroin. The insurance company filed its declaratory judgment action, claiming that it was not obligated to defend or indemnify Greenfield since all of the allegations in the Complaint arose out of the unlawful sale of heroin, a Controlled Substance I, by Greenfield to Smith. Minnesota Fire went on to argue that these allegations did not constitute ¿an occurrence,¿ rather the allegations were premised solely upon the intentional and criminal act of the insured of selling heroin, a controlled substance.

The Trial Court ruled that because there were allegations in the Complaint of negligence, and no averments that Greenfield actually intended to cause the death of Smith, Minnesota had a duty to defend Greenfield in the wrongful death action, until such time as it could prove that the claims for recovery were not within the scope of the policy. On appeal, the Superior Court reversed and determined that no coverage existed for the reason that the ¿inferred intent¿ rule, which had been previously applied in Pennsylvania only to cases involving child abuse, applied likewise to the sale of an unlawful drug which resulted in death; and also on the basis that the defense would be in violation of public policy. The Superior Court noted ¿compelling public policy reasons¿ to deny coverage, for, ¿in effect,¿ the courts are being asked to help provide insurance for heroin dealers ¿¿

The Supreme Court rejected the first argument of the Superior Court, i.e., that the inferred intent doctrine should be applied, wholesale, to cases involving Schedule 1 Controlled Substances. In other words, the Court found that the inferred intent doctrine did not apply to such a case and that the insurer was still bound to prove that the insured intended, by his act, to produce the damage or harm which did actually occur. The Court went on to accept, however, the proposition relating to public policy.

Our Commonwealth, from the legislature to the Secretary of Health, has made its policy on the illegality of heroin abundantly clear: "heroin has a high potential for abuse, has no accepted medical use within the United States, and ... is unsafe for use even under medical supervision."

Given this clear enunciation of public policy regarding Schedule I controlled substances, we find that the Insurance Company is not required to defend or indemnify against damages arising out of its insured's criminal acts where the voluntary participation of the victim in an illegal heroin-transaction caused her death.

CONCLUSION

The public policy in our Commonwealth, as articulated by the legislature, is clear: possession, sale, and use of heroin are illegal. Public policy does not allow recovery under an insurance contract where a willing and frequent participant in this type of criminalized activity dies as a result. This is true regardless of whether the victim intended to die or whether the criminal intended the death, for we will not countenance the turning of illegal activities regarding Schedule I controlled substances into money-making occasions. Although we reject the reasoning of the Superior Court that extended the doctrine of inferred intent to general liability policies, we affirm the Order of the Superior Court based on its articulation of public policy.

Doubtless, there will be cases where the sale of a substance one drug, with the intent or likely intent to cause death or serious bodily harm will come within the intentional act exclusion, or otherwise not be considered an occurrence under the policy. It appears, however, that the Supreme Court has enunciated a very bright line rule which indicates that no insurance coverage will exist for deaths arising out of these circumstances as it will be void, as against public policy.

THE COURT ORDERS ERIE TO DEFEND A BABYSITTER,
IN SPITE OF CONVICTION FOR DEATH OF CHILD

Erie Insurance Exchange v. Muff, 851 A.2d 919 (Pa.Super. 2004)

Erie Insurance Exchange appealed an Order of the Trial Court, requiring Erie to defend Trisha Muff in a civil action filed against the parents of a deceased child, which child had been in Mrs. Muff¿s care as a babysitter. Erie contended that Mrs. Muff¿s conviction for first degree murder of the Bierlings¿ infant daughter precluded the Bierlings from bringing a subsequent civil action against Mrs. Muff sounding in negligence. The Court concluded that Mrs. Muff¿s criminal convictions did not conclusively establish her intent regarding the specific negligent acts alleged in the Bierlings¿ Civil Complaint. The Court also refused to apply the inferred intent rule on the basis that it had not been extended to the situation before it, i.e., a Complaint alleging negligent care of a babysitter. This was in spite of the fact that the insured, Trisha Muff, had been convicted of first degree murder arising out of the death.

The relevant facts and procedural history of this case are as follows. On December 1, 1998, Mrs. Bierling dropped off her twelve month-old daughter, Madison Bierling, at the home of her babysitter, Mrs. Muff. Madison was in the sole care of Mrs. Muff for the entire day. When Mrs. Bierling returned to Mrs. Muff's residence to pick up her daughter later that day, she discovered Madison was in severe physical distress and immediately summoned an ambulance. Madison died on December 2, 1998.

Mrs. Muff was subsequently charged with Madison's death. On July 23, 1999, a jury convicted Mrs. Muff of first-degree murder, aggravated assault, and endangering the welfare of a child. On September 22, 1999, the court sentenced Mrs. Muff to a mandatory sentence of life imprisonment.

Subsequent to Mrs. Muff's criminal conviction and sentencing, the Bierlings, as individuals and as natural guardians of Madison, and Mr. Bierling, as administrator of Madison's estate, filed a civil action against Mrs. Muff. The trial court explained the nature of the Bierlings' complaint as follows:

The civil Complaint filed on their daughter's behalf by the [Bierlings] alleges that Mrs. Bierling delivered Madison to Mrs. Muff's residence for babysitting purposes at approximately 6:15 a.m. on Tuesday morning, December 1, 1998, and that from this time until Mrs. Bierling left the Muff residence at 6:45 a.m., the child had no physical injuries. The Bierlings contended that, at 9:30 a.m. that morning, Mrs. Muff took Madison and her own child to the back yard of the home. After witnessing Madison experience some difficulty breathing due to asthma, Mrs. Muff picked up both children and ran to the back door of the house, where she tripped and caused Madison Bierling to fall and hit her head twice on the concrete patio steps. The Bierlings claimed that Mrs. Muff neither called 911, nor otherwise sought medical attention for Madison, and that later the same day, while sitting in a recliner and attempting to feed Madison with a bottle, Mrs. Muff dropped the child to the floor "in an attempt to grab a cloth to clean milk off the infant child." The Bierlings further allege in their Complaint that, after Madison was dropped to the floor from the recliner, Mrs. Muff noticed that the child was in physical distress, but continued to avoid calling 911 and other appropriate professional medical personnel. The Bierlings' Complaint alleges that, "Tricia Muff phoned Madison Bierling's grandmother after the fall, but negligently failed to tell the grandmother of the incident", and, "[i]t was not until [Mrs.] Bierling returned to pick up her daughter at approximately 2:30 p.m. on December 1, 1998 that an ambulance was finally summoned at the insistence of [Mrs.] Bierling."

Paragraph 16 of the Bierlings' Civil action Complaint specifically avers that, "[a]s a direct and proximate result of the negligence, carelessness and recklessness actions and/or inactions of [Mrs.] Muff as aforesaid, or otherwise described within this [C]omplaint, Madison Bierling suffered serious, permanent, painful and fatal injuries...." The Bierlings again allege, in a section of their Complaint entitled, "Liability of the Defendant", that Madison's injuries were "the direct and proximate result of the negligent, careless, and/or reckless actions and/or inactions of [Mrs.] Muff which include, but are not limited, to the following:
A. Failing to take proper precautions by attempting to carry two infants at the same time.
B. Failing to follow basic standards of care, by running over hard surfaces and up stairs while attempting to carry two infants at the same time.
C. Failing to take proper precautions and prevent possible harm to [the Bierlings'] decedent Madison Bierling by running over ground that [Mrs.] Muff was aware was uneven.
D. Failing to take proper precautions and prevent possible harm to [the Bierlings'] decedent Madison Bierling by running up steps that [Mrs.] Muff was aware possessed a lip and presented a hazard.
E. Failing to take proper precautions and permitting [the Bierlings'] decedent Madison Bierling to fall from her grasp and strike the ground, while [Mrs.] Muff was running.
F. Failing to promptly notify the proper emergency medical services after [the Bierlings'] decedent Madison Bierling fell from her grasp and struck her head upon hard surfaces.
G. Failing to contact emergency medical services when [the Bierlings'] decedent, Madison Bierling, was in distress including being overly tired and was not breathing well.
H. Failing to obtain proper training in medical procedures, including knowing when to call for trained medical assistance.
I. Failing to promptly advise [Mrs. Bierling] that decedent Madison Bierling had fallen and struck her head. [Mrs.] Muff waited several hours after the fall to advise [Mrs.] Bierling of any problem with the child. Had [Mrs.] Muff sought immediate medical attention, the Decedent, Madison Bierling, would have survived her injuries.
J. Negligently dropping Madison Bierling on the floor in an effort to clean the infant.
K. Failure to provide adequate care to [the Bierlings'] decedent Madison Bierling, by placing her in a crib after known trauma without adequate medical attention, while the child had reduced movement and continued breathing difficulties.
L. Failure to provide adequate care to [the Bierlings'] decedent Madison Bierling, by ignoring signs of distress exhibited by the child, when [Mrs.] Muff went to wake her up from her nap.
M. Failing to provide an accurate description of the days [sic] events regarding the trauma to Madison Bierling to her mother and medical personnel in a timely manner so as to prevent further injury to the child.
N. Negligent care and supervision of the children and Madison Bierling. O. Such other acts of negligence, carelessness and/or recklessness as will be revealed during the course of discovery and throughout this litigation.

The Court indicated that it was obligated to ¿determine whether Mrs. Muff¿s intent regarding the acts alleged in the Bierlings¿ Complaint was independently litigated at her criminal trial so as to preclude re-litigation in this civil action.¿ The Court then went on to analyze the elements of a first degree murder charge. The Court agreed with Erie that Mrs. Muff¿s criminal convictions provided ¿independent¿ evidence that at some point on December 1, 1998, she intentionally caused the death of baby Madison. That said, the Court accepted the proposition that the Bierlings¿ allegations that Mrs. Muff was negligent both before and after the death was sufficient to plead a cause of action that remained within coverage. The Court concluded that:

Although the convictions provide independent evidence that on December 1, 1998, Mrs. Muff intentionally committed some act or omission which subsequently caused the death of Madison, the convictions themselves do not establish what this act or omission was, or whether it was one of the specific acts or omissions raised in the Bierlings' civil complaint.

We are mindful of the danger that an artfully-drafted pleading may attempt to circumvent the "expected or intended" personal injury limitation on a homeowner's insurance policy by "liberally sprinkling" the word negligence throughout the complaint. See Erie Ins. Exchange, supra; State Farm, supra at 204 n. 6. Consequently, the courts of this Commonwealth have put an emphasis on the actual factual averments contained in the underlying complaint. See id. Here, the Bierlings have articulated a negligence action based on specific, detailed, and clearly pled acts and omissions of Mrs. Muff. See id. We emphasize Appellant's duty as an insurer to defend against groundless, false, or fraudulent claims brought against its insured regardless of Appellant's ultimate liability to pay, so long as the claims are potentially within the scope of the policy. See Aetna, supra. In light of Appellant's broad duty to defend Mrs. Muff and our proper focus on the factual averments raised in the Bierlings' complaint, we conclude Mrs. Muff's criminal convictions do not preclude civil litigation of her intent regarding the acts alleged in the Bierlings' complaint.

The Court refused to adopt the inferred intent rule in anything other than a case involving alleged sexual abuse of a child. The counsel for Erie made other excellent arguments in support of the position that no duty to defend existed, however, the court seemed bent on permitting the case to proceed and dismissed the argument¿s of counsel.

The Muff case provides an interesting discussion on the law of intent in Pennsylvania. It also gives you a good sense of how a court, bent on coming up with a certain decision, will strain to do so.

THE INSURANCE COMPANY HAS NO DUTY TO
PROTECT THE PUBLIC ADJUSTER¿S FEES,
AFTER THE INSURED TERMINATES THE PUBLIC
ADJUSTER¿S CONTRACT

Insurance Adjustment Bureau, Inc. v. Allstate Insurance Co., 860 A.2d 1038 (2004)

In this case, the public adjuster brought an action against a property insurer to recover for breach of contract, conversion, and breach of assignment because of the insurer¿s refusal to pay the adjuster his commission, after the insured terminated its services and prior to settlement of the claim. The Superior Court was called upon to determine whether an assignee (in this case the public adjuster) may sue an insurer for a percentage of the insurance proceeds after the insured has terminated its relationship with the assignee and prior to settlement. There was also an issue of whether or not the assignee may recover on the basis of conversion. The Superior Court held that the public adjuster did not retain the right to sue Allstate because its services were terminated prior to settlement. The Court also held that the conversion claim was properly dismissed.

The relevant facts and procedural history are as follows. In June, 2002, Blane Stufflet and Mark Gust owned real property in Blandon, Pennsylvania. Allstate insured their property pursuant to a homeowner's policy. On June 5, 2002, a fire damaged the insureds' residence. On June 7, 2002, the insureds enlisted the services of IAB, a public adjusting firm, to assist in handling the losses from the fire. In accordance with this arrangement, the parties signed a contract, which read in pertinent part:

The insured agrees to pay [IAB] for such services, a fee of 10% of the amount paid or agreed to be paid by the insurance companies in settlement of the loss, and reasonable expenses, hereby assigning to [IAB] all monies due or to become due from the insurance companies. The fee shall be due after proofs of loss are sworn to and/or first proceeds issued. [IAB] hereby agrees to perform the said services and to receive therefore the consideration described above. This agreement contains the entire agreement between the parties and may not be changed, altered or amended except by a writing signed by all the parties hereto.

You, the insured may cancel this contract at any time prior to midnight of the fourth calendar day after the date of this contract.

Allstate subsequently issued a settlement check to the insured for losses sustained as a result of the fire but did not include the adjuster¿s name as a payee since the insured had already terminated its services. The Superior Court concluded that under the circumstances, the right of the public adjuster to sue Allstate was lost because of the fact that its services were terminated prior to settlement. This begs the question as to whether or not the public adjuster has a direct right against the insurer, prior to a termination of the agreement.

Allstate subsequently issued a settlement check to the insured for losses sustained as a result of the fire but did not include the adjuster¿s name as a payee since the insured had already terminated its services. The Superior Court concluded that under the circumstances, the right of the public adjuster to sue Allstate was lost because of the fact that its services were terminated prior to settlement. This begs the question as to whether or not the public adjuster has a direct right against the insurer, prior to a termination of the agreement.

INSURED¿S MISTAKE IN RELEASE BARS
RECOVERY UNDER THE INSURANCE CONTRACT

Roth v. Old Guard Ins. Co., 850 A.2d 651 (Pa. Super. 121 (2004)

This suit arises out of a contention by the Roths that they did not intend to release certain portions of their claim, when they executed a full release of claim. In other words, they maintained that a mistake was made when a general release was prepared and signed. The general release was prepared by the public adjuster for the insured and failed to indicate that there were open items with respect to the claim.

Despite the fact that the letter transmitting the release referenced open items and a response letter by the insurer likewise made reference to these items, the Court held that the general release, by its terms, barred any further recovery on the claim. The fact that Old Guard clearly expressed that it would not reconsider its past declination of the ¿loss of rents¿ claim likely figured into the Court¿s decision, however, there seems to be little doubt from reading the opinion that the parties at least recognized that there were items that remained in dispute. The Court concluded as follows:

As noted, the release sent to and ultimately received by Lambrecht was not ambiguous and it clearly and unequivocally released Defendant from all claims related to the fire. Upon receipt of the document the funds were distributed to Plaintiff thereby making the signed release an enforceable agreement.

Our review of the record in this matter finds no support for Plaintiff's claim of a mutual mistake. It is apparent that the release as drafted and signed did not convey Plaintiff's intent in accepting the loss rental claims. However, this unilateral mistake made by the drafting party cannot be the basis to ignore the unambiguous language of the release signed by Plaintiff and accepted by Defendant. This language releasing and discharging Defendant from all claims and demands arising from the fire, controls the outcome of this case and does not permit Plaintiff's recovery for rental value loss.

Based upon our ruling, any actions taken by Defendant following the execution of the release cannot support Plaintiff's bad faith claim. We further find support in the record for the trial court's conclusion that "the defendant's refusal to pay the lost rental claim was not frivolous, unfounded or the product of ill will." As to this claim we affirm on the basis of the trial court's opinion. The trial court applied relevant law to the specific facts of this case and properly concluded that Plaintiff failed to establish that Defendant's denial of the rental loss claim was unreasonable and that it engaged in bad faith conduct.

Undoubtedly, the fact that the release was prepared by the insured had some affect on the court¿s decision here. In addition, the fact that Old Guard had previously declined any payment of the loss of rents claim and continued to take that position, likely also influenced the Court¿s decision. It does seem somewhat harsh, however, under the circumstances. This is a good reminder that you, as the carrier representative, should be careful with any release that you may be asked to sign, as it may bar rights of subrogation or other valuable rights. In this case, it deleteriously affected the insured¿s right to proceed with the claim, however, it could also affect your rights, as the carrier¿s representative.

THE DUTY TO DEFEND AND INDEMNIFY WHERE
THE INSURED FAILS TO GIVE TIMELY NOTICE

Scottsdale Insurance Co. v. Bieber & Assiociates, Inc. 105 Fed Appx. 340, 2004 WL 1541134 (3d Cir. 2004)

In an unreported and non-precedential opinion, Scottsdale provided a comprehensive liability insurance policy to Bieber & Associates, Inc., a small private security agency. On August 27, 1995, Sparaney was injured by an unknown assailant in Lackawanna County, Pennsylvania, at a concert for which Bieber was providing security. Approximately two years later, Sparaney sued Bieber, the County of Lackawanna, the concert promoter, and the ski resort at which the concert was held, claiming that his injuries resulted from allegedly inadequate security at the concert. Bieber failed to respond to the lawsuit, and Sparaney successfully obtained a default judgment against it. Scottsdale, acting on behalf of Bieber, attempted unsuccessfully to open the default judgment. Subsequently it filed the complaint in this action, seeking to be absolved from its responsibility to provide coverage to Bieber because of Bieber's alleged failure to provide it with timely notice of the state court action.

¿Scottsdale had learned of the Sparaney claim in July 1996, when the concert promoter's insurer sent it a letter notifying it of Sparaney's alleged assault. Attached to the letter were a copy of a liability and damage evaluation submitted by Sparaney's attorney, a copy of the initial crime report describing the incident, and a demand for $175,000. Scottsdale entered into settlement discussions with Sparaney as early as November 1996 and settlement talks continued through August 19, 1997. Notes maintained by Scottsdale establish that Scottsdale was aware by at least July 1997 that the statute of limitations on Sparaney's claim would run on August 27, 1997. Sparaney filed his writ of summons in state court on August 22, 1997, and the writ was served on Bieber on or about September 4, 1997. The actual complaint was served on Bieber on or about April 20, 1998.¿

¿Bieber did not respond to the lawsuit, and default judgment was entered in favor of Sparaney on October 13, 1998. It is undisputed that Bieber never forwarded the writ of summons, complaint, or notice of intent to take a default judgment directly to Scottsdale. George Bieber, testifying in deposition on behalf of his company, initially stated that he did not recall ever having seen any of these documents. In a subsequent affidavit, however, Bieber claimed to have placed the writ of summons in an envelope and sent it to the firm of Jordan & Company ("Jordan"). Jordan had been hired by Scottsdale to investigate the claim, interview Bieber, and observe Bieber's security operations. The parties dispute whether Jordan acted in any sort of agency capacity throughout the settlement negotiations as a liaison between Scottsdale and Bieber.¿

¿Also in dispute is whether Scottsdale received actual notice of the lawsuit from Sparaney. Jeffrey Kornblau, Sparaney's counsel, filed an affidavit stating that "[s]ometime after the service of the Summons upon Bieber & Associates, Inc., I[ ] contacted [Scottsdale claims representative] Coreen Bogden to advise of the filing of the Summons and to further discuss that they settle the claim or proceed with the litigation. During our conversation, Ms. Bogden advised me that she was about to get married or that she had just gotten married and she would get to the file as soon as she could."

¿After receiving the notice of default, Bieber contacted Scottsdale. In February 1999, Scottsdale retained counsel to defend Bieber under a reservation of rights. Scottsdale's attempts to open the default judgment were unsuccessful, and the judgment was affirmed on appeal to the Commonwealth Court on October 5, 2001. Scottsdale then filed this action, seeking a declaration of rights under the terms of Bieber's insurance policy. Scottsdale and Sparaney filed cross-motions for summary judgment, and the District Court granted summary judgment in favor of Sparaney.¿

The Court referred to the case of Brakeman v. Potomac Insurance Company, which held that the insurance company must prove ¿that the notice provision was in fact breached and that the breach resulted in prejudice to its position.¿ Whereas the District Court found that because the insurance company was involved in investigating and attempting to settle the claim, it was not prejudiced, the Appellate Court disagreed with the District Court¿s holding. The Court referred, instead, to the specific language of the policy in the section entitled ¿Duties In The Event Of Occurrence, Claim Or Suit": which provided as follows:

a. You must see to it that we are notified as soon as practicable of an "occurrence" or an offense which may result in a claim. To the extent possible, notice should include:
(1) How, when and where the "occurrence" or offense took place;
(2) The names and addresses of any injured persons and witnesses; and
(3) The nature and location of any injury or damage arising out of the "occurrence" or offense.
b. If a claim is made or "suit" is brought against any insured, you must:
(1) Immediately record the specifics of the claim or "suit" and the date received; and
(2) Notify us as soon as practicable.
You must see to it that we receive written notice of the claim or "suit" as soon as practicable.
c. You and any other involved insured must:
(1) Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or "suit;"
(2) Authorize us to obtain records and other information; [and]
(3) Cooperate with us in the investigation, settlement or defense of the claim or "suit."

The Appellate Court concluded that there were three distinct instances or acts that must be performed by an insured in the event of an occurrence, suit or claim. Not only must the insured notify the insurer in the event of an occurrence, but it must also notify the insurer of a claim and of a subsequent lawsuit, if any is filed. The Court held that:

We note that common sense supports such a reading. Insurers cannot be expected to station agents in the clerk's office of every court which may or may not have jurisdiction over a potential claim, waiting until the statutes of limitation for all possible causes of action have elapsed. Not every occurrence for which an insured faces potential liability will result in the filing of a claim, and not every unresolved claim will result in the filing of a lawsuit. Continuing notice requirements such as the one reflected in subsections 'a' and 'b' acknowledge the fact that, however involved the insurer becomes in defending a claim, the insured remains the party with primary access to the information necessary to do so at each of the three relevant stages. Because the insured is the party in the best position to know when legal action has been taken against it, notifying the insurer of such action is similar in importance to but functionally different from providing notice of an occurrence or claim. While the facts of this case indicate that Scottsdale was aware of Sparaney's intent to file a lawsuit, therefore, we hold that this knowledge does not release Bieber from its obligation under the policy to provide Scottsdale with notice once Sparaney had done so.

The Court went on to find that it was not enough for the District Court to focus on Scottsdale¿s activities before the suit was filed, but rather, the Court ¿should have determined whether Scottsdale had actual or constructive knowledge of the lawsuit after it had been filed, and whether, therefore, Scottsdale was actually prejudiced by any failure of Bieber to provide notice in accordance with the policy.¿

This is a good case to review as to the insured¿s continuing obligation to cooperate with the insurance company in every stage of the investigation and handling of an occurrence, claim, and subsequent lawsuit. This case can be applied to late notice cases on first-party claims also, as Brakeman, referenced above, was actually a first-party claim for benefits.

INSURED¿S ACTIONS OF EVADING THE POLICE
IN A CAR CHASE, BY ITSELF, IS INSUFFICIENT
TO CONSTITUTE INTENTIONAL BODILY INJURY
OR PROPERTY DAMAGE UNDER A LIABILITY
POLICY EXCLUSION

Franklin Insurance Company v. Roberts v. State Farm (Intervenor),859 A.2d 492 Pa. Super. 2004)

This matter involved an appeal from an order denying Appellant, Franklin Insurance Company's, complaint for declaratory judgment and dismissing the action. Appellant sought to have the trial court declare it had no duty to indemnify or defend Chester Roberts for liability stemming from an automobile collision in which Roberts, while attempting to evade police, hit Shirley Longwell and Shirley Heffner. The case was submitted to the trial court on stipulated facts. The trial court found against Appellant.

Appellant issued an automobile insurance policy to Nancy Lane. Ms. Lane's son, Mr. Roberts, was operating her vehicle at the time of the collision. In its complaint for declaratory judgment, Appellant alleged it had no duty to defend or indemnify Roberts for claims arising from the collision with the Longwell/Heffner vehicle because the collision was not an accident and/or the conduct which caused the collision was excluded from coverage as intentional. The trial court rejected these allegations because Appellant failed to prove Roberts intended to cause harm to Longwell and Heffner. We agree.

On appeal, Appellant raised the following issue:

Whether the judge erred in applying the law applicable to an intentional act exclusion and improperly ignored the language of the policy that limited coverage in the first instance to an "auto accident" where Mr. Roberts' conduct of fleeing and eluding police was not an accident as a matter of law.

The relevant policy language is as follows:
We will pay damages for "bodily injury" or "property damage" for which any "insured" becomes legally responsible because of an auto accident.

We do not provide Liability Coverage for any "insured":
1. Who intentionally causes "bodily injury" or "property damage". Appellant's Policy at 2.

Our review of Appellant's claim is guided by the following: The interpretation of an insurance contract regarding the existence or non-existence of coverage is "generally performed by the court." "Where a provision of a policy is ambiguous, the policy provision is to be construed in favor of the insured and against the insurer .... Where, however, the language of the contract is clear and unambiguous, a court is required to give effect to that language." In light of the fact that the appropriate construction of the Policy poses a question of law, our standard of review is plenary.
Minnesota Fire & Cas. Co. v. Greenfield, --- Pa. ----, 855 A.2d 854, 861 (2004) (citations omitted).

Appellant initially claims the trial court failed to determine whether the collision was an "auto accident" covered by the policy. We disagree. The trial court made a specific finding: "we reject [Appellant]'s notion that the collision between Chester Roberts and Shirley Longwell was not an accident." Trial Court Opinion, 7/29/03, at 10.

The substance of Appellant's argument is that because Roberts was intentionally operating the insured vehicle in an effort to elude police at the time of the collision, there was no accident and thus no coverage. However, that argument does not reflect the proper test to be applied in "intentional act" situations. Pennsylvania law has consistently held that absent a specific intent to cause the harm that resulted, the event is an accident for purposes of insurance coverage. Eisenman v. Hornberger, 438 Pa. 46, 264 A.2d 673 (1970); United Services Auto. Ass'n v. Elitzky, 358 Pa.Super. 362, 517 A.2d 982 (1986). Conversely, where a specific harm *495 is intentionally caused, no coverage for accidental injury is available. State Farm Mut. Auto. Ins. Co. v. Martin, 442 Pa.Super. 442, 660 A.2d 66 (1995).

Appellant principally relies on Cardwell v. Chrysler Financial Corp., 804 A.2d 18 (Pa.Super.2002), to support its argument. In Cardwell, a driver was attempting to evade police and his vehicle sustained damage when it left the roadway and came to a stop during police pursuit. The policy at issue in that case provided for coverage for a "loss," defined as "direct and accidental" damage to the vehicle. Id. at 25. A panel of this Court found neither the insureds, nor their lienholder, were indemnified by the insurer where the driver's willful criminal conduct and the resulting loss were not accidental.

While we find Cardwell distinguishable from this case on its facts, we also believe the recent Pennsylvania Supreme Court decision in Minnesota Fire and Cas. Co. v. Greenfield, --- Pa. ----, 855 A.2d 854, 866 (2004), has limited, if not extinguished, Cardwell's viability. The Greenfield court was faced with the question of whether an insured's intentional and criminal act of selling heroin precluded insurance coverage for accidental events where a heroin buyer died in the insured's home as a result of the insured's actions. The court found that, as a matter of public policy, an insured's criminal acts with respect to Schedule I controlled substances, such as heroin, precluded coverage. However, the court went on to set forth the following law: [I]n cases that do not involve a criminal act by an insured with respect to a Schedule I controlled substance, our decision in Eisenman, reiterating the test traditionally required for an insurer to disclaim liability; i.e. the insurer must prove that the insured intended by his act to produce the damage which did actually occur, retains its validity. Greenfield, at 866.

Therefore, we hold, in order to avoid coverage, it must be established the insured acted with specific intent to cause the harm for which the claim is made. In this case, Roberts may have acted intentionally in his evasion of police, but he had no intent to collide with the Longwell/Heffner vehicle; accordingly, we find that collision was an accident for which coverage applies.

COURT APPLIES BUSINESS EXCLUSION UNDER
HOMEOWNER¿S POLICY TO FARM-RELATED ACTIVITIES

Old Guard Insurance Company v. Sherman, 866 A.2d 412 (Pa. Super. 2004)

This lawsuit arose out of the death of Joshua Spencer, who died while working on a farm in Tioga County, Pennsylvania, at the age of 15. He was operating a tractor when it slid into a manure pit where he died from asphyxiation. A lawsuit was filed by his parents against Old Guard¿s insureds, Mr. and Mrs. Sherman. The allegations of the Complaint maintain that Walter and Priscilla Sherman, the named insureds, were responsible for building, constructing and designing the manure pit and that even after they conveyed the land away to others, continued in their substantial involvement with the business.

The Old Guard insurance policy excluded coverage under the liability section for bodily injury:

Arising out of or in connection with a 'business' engaged in by an 'insured.' This exclusion applies but is not limited to an act or omission, regardless of its nature or circumstance, involving a service or duty rendered, promised, owed, or implied to be provided because of the nature of the 'business';

The Lower Court found in favor of Old Guard in its declaratory judgment action, finding that it had no duty to defend or indemnify the insureds. On appeal, the question to be considered by the Appellate Court was whether or not the business exclusion could be applied when the homeowners had ceased their involvement in the business, prior to the incident giving rise to the injury. It is interesting to note that the plaintiffs, the parents of the deceased boy, attempted to retract their Complaint, once they learned that their allegations affected the defendants¿ right for indemnification under the liability policy. The Court indicated, however, that it had an obligation to review the allegations of the Complaint to see if it came within the coverage exclusion. The Superior Court acknowledged that the Pennsylvania case law addressing the business pursuits exception in the homeowner¿s insurance policy was relatively limited.

Because we are reviewing a judgment on the pleadings, and because insurer has asserted an affirmative defense in the form of its policy exclusion, we have reviewed insureds' answer and new matter. As this court recently opined in a similar context, Pennsylvania case law addressing the business pursuits exception in homeowners' insurance policies is relatively limited. White v. Keystone Ins. Co., 775 A.2d 812, 814 (Pa.Super.2001), appeal granted, 567 Pa. 745, 788 A.2d 378 (2001). The White court therefore adopted the two-prong test the Third Circuit Court of Appeals announced in Soto and the District Court for the Eastern District of Pennsylvania applied in Fantozzi. Applying that test, the White court found that the business pursuits exception did not apply under the facts before it because the insured in White had not yet completed his purchase of the business establishment, a bar, at the time of the accidental shooting giving rise to the claim, even though the insured provided the bar's employees with the gun to protect the bar's assets. White, 775 A.2d at 814-815. Thus, insurer could establish neither continuity of the business nor a profit motive. Id. at 815. In reaching its conclusion, the White court distinguished Bullock v. Pariser, 311 Pa.Super. 487, 457 A.2d 1287 (1983) (finding the business exclusion applicable where the plaintiff was bitten by a security dog on insureds' business premises).

Thus, while the White court acknowledged that timing is an issue to be considered, we find cases from other jurisdictions more directly applicable to the timing issue in the case before us. In particular, we have reviewed Wickner v. American Rel. Ins. Co., 141 N.J. 392, 661 A.2d 1256 (1995), and Industrial Indemnity Co. v. Goettl, 138 Ariz. 315, 674 P.2d 869 (1983), and find their rationale both compatible with Pennsylvania law and compelling under the facts before us.

¿We recognize that we are not bound by these cases; however, we may use them for guidance to the degree we find them useful and not incompatible with Pennsylvania law." Trach v. Fellin, 817 A.2d 1102, 1115 (Pa.Super.2003) (en banc), appeal denied, 577 Pa. 725, 847 A.2d 1288 (2004).

In Wickner, for example, the supreme court of New Jersey upheld a business exclusion in the Wickners' homeowners' policy where the injured party tripped and fell on a sidewalk abutting a three-family residence the Wickners had sold less than one month earlier. Wickner, supra at 394-395, 661 A.2d at 1257. The injured party, Marina Avila, alleged in her complaint that the Wickners had negligently created, maintained, and failed to repair the dangerous condition while they owned the property. Avila also brought claims against the new owners and the builders.

In upholding the exclusion, the Wickner court, relying on prior New Jersey precedent, opined, " 'a predecessor in title who has created or maintained the dangerous sidewalk condition should remain liable to the injured pedestrian irrespective of the fact that the property had been conveyed.' " Id. at 397, 661 A.2d at 1258, quoting Cogliati v. Ecco High Frequency Corp., 92 N.J. 402, 456 A.2d 524 (1983). [FN3] Continuing, the Wickner court observed, "If the policy exclusions were found not to apply in this context, than [sic] we would be providing insureds with more insurance protection for having sold their property than would be attributable to them during the time they owned that property." Id. at 399, 661 A.2d at 1259. As the Wickner court averred, "That interpretation can be neither derived from the language of the policy, reasonably inferred from the intentions of the parties, nor imputed as their reasonable expectations." Id.

In addition to the business pursuits exclusion, the policies and the facts at issue in Cogliati and Wickner also involved an unlisted property exception, not an issue in this case.

In reaching its holding that "the insured's conduct creating the dangerous condition, rather than the insured's status at the time of the occurrence, is of primary significance[,]" the Wickner court cited Goettl, supra. Wickner, supra at 400, 661 A.2d at 1260. In Goettl, Billy Hartman fell through the roof of a warehouse belonging to his employer, McGraw- Edison, and sustained permanent quadriplegic injuries. The prior owners of the warehouse, Gust and Adam Goettl, had the warehouse constructed during the ten-year period in which they held an ownership interest in the property. In 1960, the Goettls sold their interest to McGraw-Edison, and in 1976, sixteen years later, Hartman fell through the warehouse roof. Goettl, 674 P.2d at 871.

The Goettls were named in the lawsuit Hartman filed, and sought defense/indemnification under several policies they had purchased when they owned the property and which were still in effect at the time of the accident. The insurers sought declaratory relief, and the trial court granted summary judgment in insurers' favor with regard to a homeowners' policy and a personal catastrophe policy based upon business pursuits exclusions similar to the exclusion at issue herein. Id. at 871-872. On appeal, the Court of Appeals of Arizona upheld the summary judgments, stating, "our finding that the exclusions in the [two policies] are applicable to the circumstances of this case enforces the respective contracts as made by the parties." Id. at 874. Quoting an Arizona supreme court case, the Goettl court observed:

[A homeowners'] policy is low premium protection designed to insure a homeowner against the hazards arising out of the operation and maintenance of his home. In this type of policy, certain risks are specifically excluded because they are not embraced within the course of a homeowner's normal activities. Business activities present additional risks over and beyond the ordinary and usual hazard to be found in the operation and maintenance of a home. Id., quoting Kepner v. Western Fire Ins. Co., 109 Ariz. 329, 330, 509 P.2d 222, 223 (1973) (citation omitted).

The Court found the reasoning of both Wickner and Goettl to be persuasive. The Court acknowledged that at the time of the Old Guard coverage, the Shermans¿ owned and then conveyed a farm to their son and daughter-in-law. It was clear under the facts that at the time of the homeowner¿s coverage, they operated a farming business. ¿All of the misfeasances and nonfeasances parents allege clearly have as their base the business of farming, not the ownership of a home.

The Court concluded that because the activity complained of in the Complaint clearly arose out of farming activity and during a time when the Shermans¿ owned the farm, (even though the accident occurred thereafter), the business exclusion applied to preclude coverage under the insurer¿s policy for any claims arising out of the farming business, while the policy was in effect. Interestingly enough, the Appellate Court affirmed the Trial Court¿s refusal to permit the plaintiffs to amend their Complaint.

Because we are faced with business exclusions in both first-party and third-party claims, this opinion is instructive on how the Pennsylvania courts will interpret such a provision.

DON¿T MESS WITH THE ZAMBONI!

USF&G v. Lehigh Valley Ice Arena, Inc., 121 Fed Appx. 976 (3d Cir. 2005) (unreported, non precedential)

On September 29, 2002, an intercollegiate hockey game was played at Lehigh Valley's facility, where it is alleged that 19 members of the Millersville University ice hockey team sustained serious pulmonary-related injuries as a result of the inhalation of carbon monoxide, nitrogen dioxide, and other gases emanating from the incomplete combustion of propane in a malfunctioning Zamboni machine. These gases allegedly passed through the ventilation system of the facility and were released into the locker room used by the Millersville players.

Eighteen members of the team, as well as one spouse, filed suit in the Philadelphia Court of Common Pleas on July 10, 2003, against Lehigh Valley. The remaining hockey player filed a separate action on November 19, 2003. While initially defending Lehigh Valley in both actions, on October 14, 2003, USF&G disclaimed all coverage under the "pollution exclusion" of its insurance agreement with Lehigh Valley, and informed Lehigh Valley that it would cease defending both actions as of December 14, 2003. USF&G filed a declaratory judgment action, seeking that the Court declare that it was not obligated to defend or indemnify Lehigh Valley in connection with the State Court action.

The policy of insurance in question contained the traditional pollution exclusion that one finds in a liability policy. The Court concluded that under the clear language of the policy, the disbursal or discharge of carbon monoxide and nitrogen dioxide at the Lehigh Valley ice rink constituted a pollution event and consequently no coverage existed under the policy of insurance in question.

ATV ACCIDENT COVERED UNDER HOMEOWNER¿S
LIABILITY INSURANCE POLICY

State Farm v. Macdonald, 850 A.2d 707 (Pa. Super. 2004)

The MacDonald¿s owned a residence in Eighty-Four, Pennsylvania and obtained a homeowner¿s policy through State Farm. During this time, the MacDonalds had 2, 4- wheel drive ATVs on their property, which was a little over ten acres in size. One of the ATVs was owned by the MacDonalds and the other by Mr. and Mrs. Ellis, their friends. The ATVs were used frequently on the MacDonalds¿ land as well as on an adjacent field. The Ellis¿ teenage daughter, Heidi, often times traveled to the MacDonalds¿ residence in order to ride ATVs on both the MacDonald¿s property and on the adjacent fields, as well. On one afternoon, an ATV carrying two children, collided with trees, resulting in the death of one of them, Zachary Booth.

State Farm maintained that there was no coverage under the policy as it excluded bodily injury or property damage arising out of the ownership of ¿a motor vehicle owned by any insured.¿ A motor vehicle was defined in the policy to mean ¿a motorized all-terrain vehicle owned by an insured and designed or used for recreational or utility purposes off public roads, while off an insured location.¿ The policy also defined insured location to include the residence premises and ¿the part of any other premises, other structures and grounds you acquire while this policy is in effect for your use as a residence; any premises used by you in connection with the premises included in 5.a. or 5.b.; Id. at 2. (boldface in original; italicization added).

The Court acknowledged that for the MacDonalds to have coverage under the policy, they must have ¿used¿ the adjacent field ¿in connection with¿ the residence premises in order for the adjacent field to qualify as an insured location. The Court observed that the word ¿use¿ or the phrase ¿in connection with¿ found in the definition of ¿insured location¿ where themselves, nowhere defined in the policy. State Farm argued that because the adjacent field where the accident occurred was used by the MacDonalds solely for recreational use, they were not entitled to coverage. The Court looked to other case law in Pennsylvania, including the case of Uguccioni v. USF&G, 408 Pa.Super. 411, 597 A.2d 149 (1991), wherein the Court was faced with an ATV accident which had occurred on a private road leading to the insured¿s residence. In that case, because of the broad definition of insured location, the Court concluded that it was ¿broad enough to include roads in a private development which are available for use in achieving access to the insured residence.¿

The Court in the MacDonald case acknowledged that the Uguccioni case was not controlling because it was factually distinguishable. One case occurred on a private road required to access the home and another in an adjacent field owned by a third party. The Court examined the common dictionary definition of the word ¿use¿ in relation to the facts as revealed in Mr. MacDonald¿s deposition. Essentially, the Court found that the definition of insured location was sufficiently broad to include the use of an adjacent field and consequently afforded coverage under the State Farm policy.

DENIAL BASED ON LEGAL THEORY NOT ADOPTED IN PENNSYLVANIA
CONSIDERED BAD FAITH¿OR BOWLING FOR DOLLARS CAN BE VERY
LUCRATIVE

Zimmerman v Harleysville Mutual Insurance Co., 2004 Pa. Super. 383, 860 A.2d 167 (2004)

The Zimmermans owned Frontier Lanes, a bowling alley housed in a building with an arched roof supported by laminated timber trusses. Aluminum grid work hung from the roof and supported a suspended tile ceiling. On June 28, 1993, ceiling tiles began falling. The Zimmermans immediately contacted a contractor who came out to inspect the roof and concluded that some of the trusses were beginning to separate due to heavy snow and ice the previous winter. He recommended that an engineer come look at the problem, although no immediate repairs were recommended. A little more than a month later, high winds caused the entire roof to collapse. Harleysville, who began insuring this property 2 days after the initial tiles fell, denied the claim on several grounds, alleging that the Zimmermans had concealed information regarding the condition of the roof when they applied for insurance, and also that the Zimmermans were made aware of the problem when the first tiles fell but failed to mitigate the damages by correcting the problem immediately. Harleysville further asserted that the claim was barred by the ¿loss in progress¿ doctrine, contending that if any carrier, the prior carrier, and not Harleysville, should be responsible for the entire loss.

The Zimmermans sued for coverage and were successful. They also sought damages for bad faith under 42 Pa C.S. A. 8317. The trial court held that Harleysville acted in bad faith in failing to pay the claim. Specifically, the court noted Harleysville¿s lack of diligence in investigating the claim and the lack of evidence supporting its reasons proffered for denial. Harleysville did not inspect the premises before issuing the policy, nor did it do any investigation or factual development after the loss, and it had no facts that supported its claim of failure to mitigate and failure to disclose. Further, the court noted that Pennsylvania courts had not adopted the ¿loss in progress¿ doctrine, and that it was bad faith to deny coverage pursuant to a legal theory not adopted in the Commonwealth. The Pennsylvania Superior Court upheld the trial court¿s decision.

The case is a bad faith case, but also contains a good discussion of which carrier must respond for coverage in a first-party claim, where the loss is progressive or has distinctive, but successive losses, all tied to the same cause.

EXTREME AND UNWARRANTED DELAY IN PROCESSING CLAIM AND
RESPONDING TO REQUESTS OF INSURED AND ADJUSTER IS BAD FAITH

Willow Inn, Inc. v. Public Service Mutual Insurance Company, 399 F.3d 224 (3d Cir. 2005)

In Willow Inn, Inc., the federal Third Circuit Court dealt with the issue of a claim for punitive damages arising out of the adjustment of a tornado loss. On June 1st, 1998, a tornado caused severe damage to the Willow Inn, a restaurant/bar. Willow Inn hired Assured Adjustment to handle the submission of the claim, and Public Service hired McShea Associates to adjust the claim. Assured Adjustment estimated the claim at $216,000 and McShea estimated it at $90,000. The court commented on how that was to be somewhat expected, with the public adjuster working on a commission and the independent adjuster wanting to give a low figure to secure more work from the carrier.

Public Service advanced $75,000 to the Willow Inn in September, and the two parties agreed to hire an independent contractor to give a neutral estimate. The parties eventually agreed to a $126,810 loss, which McShea recommended to Public Service in October. Public Service failed to respond to the recommendation for over a month, at which point the Willow Inn submitted a sworn Proof of Loss for the agreed upon amount. Public Service rejected the proof of loss and hired a new adjuster, who estimated damages at $91,312. Public Service offered this amount. Willow Inn rejected it and requested an appraisal, which was rejected because Public Service claimed no proper Proof of Loss existed, Willow having rejected the offer. Despite repeated requests, Public Service did not submit to an appraisal until a full year later, eventually agreeing to pay $117,000. The district court held that Public Service acted in bad-faith, citing unreasonable delays that were ¿extraordinarily unwarranted¿. They also noted the failure to respond to their own adjuster¿s requests, as well as waiting 8 months after initial requests to agree to an appraisal. The court finally noted the contrast between Willow Inn¿s conscientious efforts to reach a settlement, and Public Services obstructive and reckless actions. The court awarded $150,000 in punitive damages, as well as $135,000 in attorney¿s fees and costs.

TWO YEAR STATUTE OF LIMITATIONS APPLIES TO BAD FAITH ACTIONS

Ash v. Continental Ins. Co., 2004 PA Super 424; 861 A.2d 979 (2004)

Appellants purchased an insurance policy from Continental for property located in Lawrence County, Pennsylvania. On or about July 8, 2000, while the policy was in effect, the property was damaged by fire. Appellants filed a timely notice of loss, but Continental issued a letter to Appellants on November 21, 2000, whereby Continental denied the claim based on concealment or fraud. On May 3, 2002, Appellants filed a complaint against Continental seeking damages for breach of contract. Continental filed a motion for summary judgment, asserting that the one-year statute of limitations period provided for in the contract had expired. When the Appellants attempted to amend their complaint by adding a bad faith claim, Continental countered that any bad faith claim was barred by the two year statute of limitations applicable to tort. The trial court agreed and granted summary judgment on both counts, to which Appellants appealed.

On appeal, the Appellants did not dispute that their original claim for breach of contract was time-barred under the one-year statute of limitations set forth in the insurance contract, but instead claimed that the applicable statute of limitations for the bad faith claim was six years, and not two. The court, after an extensive analysis of Pennsylvania decisions regarding statute of limitations for bad faith actions, concluded that the two year statute was applicable. This is the first time that a Pennsylvania appellate court has finally seemingly resolved the issue that bad faith is to be governed by a two and not a four or six year statute of limitations.

INTENTIONAL OR BAD FAITH SPOLIATION RESULTS IN HARSHER REMEDY

Dashner v. Riedy, 2004 U.S. Dist. LEXIS 4379 (E.D.Pa. 2004)

Police officers executed a search warrant at a residential rental property. The decedent died as a result of gunshot wounds sustained in the incident. Plaintiffs' expert forensic pathologist testified that he discovered an additional bullet projectile and bullet fragment and bullet holes related to the projectile and fragment in the wall at the residence, which had not been found previously by anyone else, including the police. Plaintiffs did not reveal the discovery of this new evidence to defendants until the expert's testimony in plaintiffs' case-in-chief at trial. Plaintiffs subsequently removed the bullet fragments from the wall, in violation of the court's discovery order. The ¿fault¿ of plaintiffs and the prejudice suffered by defendants in this matter were great. Because the plaintiffs¿ acts were intentional and destructive, the court decided that a jury instruction regarding negative inferences would not be sufficient to counter the prejudice or punish the plaintiffs. Instead, the court precluded any evidence, including expert testimony, concerning a third burst of gunfire.