Preferred Contractors Ins. Co. v. Sherman , 193 A.3d 1009 ( 2018 )

J-A09033-18
2018 PA Super 215PREFERRED CONTRACTORS : IN THE SUPERIOR COURT OF
INSURANCE COMPANY, RRG, LLC : PENNSYLVANIA
:
Appellant :
:
:
v. :
:
: No. 1260 WDA 2017
MICHAEL SHERMAN D/B/A :
SHERMAN WOODCRAFT; AND KIRK :
WILLIAMS; AND JNJ HOLDINGS, :
LLC; AND RICHARD J. FRISCHOLZ, :
JR., ADMINISTRATOR OF THE :
ESTATE OF BRETT FRISCHOLZ, :
DECEASED, AS RECIPIENT OF AN :
ASSIGNMENT FOR THE RIGHTS OF :
MICHAEL SHERMAN D/B/A :
SHERMAN WOODCRAFT, AND IN :
HIS OWN RIGHT AND PREFERRED :
CONTRACTORS INSURANCE :
COMPANY, RRG, LLC :
v. :
:
:
JOHN M. BROWN INSURANCE :
AGENCY, INC. :
Appeal from the Judgment Entered August 17, 2017
In the Court of Common Pleas of Allegheny County Civil Division at
No(s): GD. No. 12-020228
BEFORE: BOWES, J., DUBOW, J., and MURRAY, J.
OPINION BY MURRAY, J.: FILED JULY 24, 2018
Preferred Contractors Insurance Company, RRG, LLC (PCIC) appeals
from the order denying its motion for summary judgment and granting the
motions for summary judgment of defendants Michael Sherman d/b/a
Sherman Woodcraft (Sherman), Kirk Williams (Williams), JNJ Holdings, LLC
J-A09033-18
(JNJ), Richard J. Frischolz, Jr., Administrator of the Estate of Brett Frischolz,
and the John M. Brown Insurance Agency, Inc. (Brown Agency). After careful
consideration, we affirm in part and vacate in part, and remand for further
proceedings consistent with this decision.
We summarize the relevant facts and procedural history of this case as
follows. Sherman is a general contractor who engages in home renovation.
On occasion, Sherman’s contracting business has involved renovating
residential roofs. In early 2011, Sherman orally agreed to work with Williams
on renovating a residential property located at 94 Estella Avenue in the Mount
Washington neighborhood of the City of Pittsburgh (Estella Avenue Project).
In preparation for this project, Sherman, originally from California,
obtained his Pennsylvania Contractor License and enlisted the help of his wife,
Kylee Sherman (Kylee), to help him procure a general liability insurance
policy. In April 2011, Kylee filled out an online form with the Brown Agency,
an Illinois insurance broker, seeking a quote for a general liability insurance
policy. On May 20, 2011, Arturo Coronel (Coronel), a representative of the
Brown Agency, contacted Kylee to discuss potential insurance policies. Based
on this conversation, Coronel chose PCIC to be the insurer for Sherman’s
general liability policy (Policy) and assisted Sherman in completing an
insurance application. The same day, Coronel emailed Sherman a certificate
of insurance, which confirmed the binding of coverage with PCIC. At no point
prior to the binding of coverage did Sherman inform PCIC that he engaged in
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roofing work. Although Sherman later allegedly completed a revised
application, PCIC claimed that it never received the revised version.
Importantly, after the binding coverage and prior to the events giving
rise to this lawsuit, PCIC never sent a copy of the Policy directly to Sherman.
Instead, PCIC uploaded the Policy to a shared electronic database to which
the Brown Agency had access so that the agency could forward the terms of
the Policy to Sherman.
After PCIC bound coverage on the Policy, Sherman signed a contract
with JNJ, a company owned by Williams, to perform contracting work on the
Estella Avenue Project. The contract indicated that the scope of the work for
the project included roofing, electrical, plumbing, HVAC, windows, framing,
drywall, external fascia, gutters, kitchen, bathrooms, painting, flooring, and
decking. As the Estella Avenue Project progressed, Sherman and Williams
realized that they would be unable to complete the project without
subcontracting the roofing work. While attempting to secure a subcontractor
to remove and replace the existing roof, Williams became concerned with the
high cost of the quotes that he and Sherman had received. Consequently,
Sherman and Williams agreed that Sherman would remove the existing roof
and limit the subcontractor’s work to constructing the new roof.
In the time leading up to the subcontractor beginning work on the roof,
Sherman and Brett Frischolz (Frischolz), a college student Williams allegedly
hired to assist Sherman with work on the Estella Project, began tearing out
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the shingles of the existing roof. On the morning of August 4, 2011, Sherman
and Frischolz were nearing completion of their work removing the existing
roof. During the course of that morning, Sherman asked Frischolz to help him
adjust the placement of plywood that the two had earlier situated against the
neighboring home. Sherman and Frischolz had erected these protective
plywood panels, in part, to prevent falling roof debris from damaging the
neighboring home given its close proximity to 94 Estella Avenue. In order to
move the protective panels, Sherman and Frischolz had to access a scaffold
from a second-floor window that was approximately 20 feet off the ground.
When Frischolz stepped on the scaffolding to move one of the protective
panels, he stepped on a wood plank that Sherman had failed to anchor to the
metal poles of the scaffold. The wood plank tipped suddenly and Frischolz fell
headfirst approximately 20 feet to the ground. Frischolz sustained
catastrophic brain injuries and died eight days later.
On October 18, 2011, Richard J. Frischolz, Jr., Administrator of the
Estate of Brett Frischolz (the Estate), filed a wrongful death action against
Sherman, Williams, and JNJ. On November 10, 2011, PCIC issued a
reservation of rights letter in which it informed Sherman that it would provide
him with a defense and indemnification in the wrongful death action subject
to a determination of whether it owed him coverage. In 2012, the Estate
reached a settlement agreement with Williams and JNJ.
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On October 22, 2012, PCIC filed a complaint pursuant to the Declaratory
Judgment Act, 42 Pa.C.S.A. § 7531, et seq., in which it sought, inter alia, a
declaration of rights under the Policy and a determination of whether it had a
duty to indemnify Sherman in the wrongful death action brought against him
by the Estate. PCIC alleged, inter alia, that it did not owe Sherman coverage
in the wrongful death action because Sherman made material
misrepresentations and omissions on Sherman’s insurance application relating
to the nature of Sherman’s contracting business (i.e., the application failed to
inform PCIC that Sherman did roofing work). PCIC further alleged that it did
not owe Sherman coverage because the Policy specifically excluded coverage
for any claims of bodily injury arising out of or relating to roofing operations.1
____________________________________________
1 The roofing operations exclusion reads as follows:
This insurance does not apply to:
* * *
q. Roofing Operations
Any claim for “bodily injury” or “property damage” that arises out
of, results from, is caused by, contributed to, or in any way related
to, in whole or in part, roofing operations performed by any
insured or any contractor or subcontractor working on behalf of
any insured. Roofing operations include, but are not limited to,
the removal or installation of any and all materials on a roof that
constitute a roof on any building, home or structure, including but
not limited to shakes, shingles, tar paper, felt paper, tiles,
decking, and other covering. Also excluded is any claim involving
repair work by any insured on a roof, or deck that also provides a
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In response, Sherman argued that he was not bound by the roofing operations
exclusion because PCIC never delivered the Policy to him.
On August 25 2014, the Estate filed a “Petition to Approve Consent
Judgment” in which it requested that the trial court enter judgment against
Sherman and in favor of the Estate for $3.5 million. The same day, the trial
court granted the petition and entered a judgment in favor of the Estate and
against Sherman for $3.5 million. On August 27, 2014, Sherman assigned all
of his rights under the Policy and any potential claims he had against PCIC for
its failure to indemnify him to the Estate.
On February 27, 2015, PCIC filed its first amended complaint. On July
13, 2015, PCIC filed a “Second Amended Complaint and Joinder Complaint” in
which it joined the Brown Agency as a third-party defendant. PCIC’s second
amended complaint included, inter alia, claims for declaratory relief, breach
of contract, breach of warranty, common law and contractual indemnification,
contribution, misrepresentation, and negligence. PCIC alleged that the Brown
Agency was negligent for failing to ensure it received an accurate insurance
application from Sherman and for failing to deliver the Policy to Sherman.
____________________________________________
covering over interior rooms of a building, home or structure,
including over a garage or storage area.
PCIC’s Motion for Summary Judgment, 11/18/16, Exhibit 5 (The Policy, §
(1)(2)(q)).
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On August 11, 2015, the Brown Agency filed preliminary objections. On
December 2, 2015, the trial court sustained the Brown Agency’s preliminary
objections, in part, based on a forum selection clause in the operating
agreement between PCIC and the Brown Agency that mandated that the
parties litigate any dispute arising out of their operating agreement in Los
Angeles County, California. The trial court dismissed PCIC’s claims against
the Brown Agency for declaratory relief, breach of contract, breach of
warranty, contractual indemnification, and misrepresentation. Following
preliminary objections, PCIC’s only remaining claims against the Brown
Agency were its claims of contribution, common law indemnification, and
negligence.
On November 18, 2016, upon the completion of discovery, PCIC filed a
motion for summary judgment. PCIC argued that Sherman was not entitled
to coverage relating to Frischolz’s death based on material misrepresentations
and omission in Sherman’s insurance application and certain coverage
exclusions. In the alternative, PCIC argued that if Sherman was entitled to
coverage, then PCIC was entitled to indemnification from the Brown Agency
for misrepresentations and omissions on Sherman’s insurance application and
for its failure to deliver the Policy to Sherman. The Estate and the Brown
Agency subsequently filed cross-motions for summary judgment.
The Estate argued that PCIC never delivered the Policy to Sherman and
consequently, PCIC could not rely on any of the coverage exclusions in the
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Policy. PCIC asserted that it electronically delivered the Policy to the Brown
Agency, and because the Brown Agency was Sherman’s agent, this constituted
delivery to Sherman. PCIC maintained that electronic delivery occurred in
May 2011 when it uploaded the Policy to a shared electronic database to which
the Brown Agency had access and sent the Brown Agency an automatically
generated email notification with a link to access the Policy. Although neither
PCIC nor the Brown Agency could produce a copy of the actual notification
email PCIC sent the Brown Agency regarding Sherman’s policy, 2 PCIC
contended that it was the regular course of its dealings with the Brown Agency
to electronically deliver policies by uploading them to the shared database and
sending the automatically generated email.
The Estate maintained that the Brown Agency was PCIC’s agent for
purposes of delivery and thus, even if PCIC had delivered the Policy to the
Brown Agency, it did not constitute delivery of the Policy to Sherman.
Additionally, the Estate argued that Sherman’s insurance application
contained no misrepresentations and thus, provided no legal basis for PCIC to
deny coverage.
The Brown Agency argued that it was entitled to summary judgment
because it owed no common law duty of care to PCIC with respect to the
insurance application and delivery of the Policy. Consequently, the Brown
____________________________________________
2 Both PCIC and the Brown Agency have indicated that they do not have any
emails saved dating back to 2011.
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Agency asserted that PCIC could not establish cognizable claims for
negligence, contribution, and common law indemnification.
On August 17, 2017, following argument by the parties, the trial court
issued a memorandum and order of court in which it denied PCIC’s motion for
summary judgment and granted the motions for summary judgment of the
Estate and the Brown Agency. The trial court concluded that PCIC could not
rely on the roofing operations exclusion in the Policy to deny Sherman
coverage because it had failed to deliver the Policy to him prior to the accident
resulting in Frischolz’s death. Trial Court Opinion, 8/17/17, at 3-5. With
respect to PCIC’s claim that it had no obligation to provide Sherman coverage
based on misrepresentations and omissions in his insurance application, the
trial court concluded that although Sherman’s insurance application was
“arguably[] incomplete[,]” he had satisfied his obligation to correct his
application by contacting Coronel at the Brown Agency to inform him of the
pertinent missing information. Id. at 7-9. The trial court further determined
that PCIC could not establish that the Brown Agency owed it a duty of care
and dismissed its remaining claims against the agency. Id. at 11-12.
On September 1, 2017, PCIC timely appealed to this Court. On
September 8, 2017, the trial court ordered PCIC to file a concise statement of
the errors complained of on appeal pursuant to Rule 1925(b) of the
Pennsylvania Rules of Appellate Procedure within 30 days of the date of the
order. On October 5, 2017, PCIC timely filed its Rule 1925(b) statement.
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On appeal, PCIC presents the following issues for review:
1) Did the court below err in failing to rule that the
misrepresentations in Sherman’s application for insurance and
breaches of the warranties in his application, which became part
of the Policy, preclude coverage or, at minimum, was a factual
issue to be decided by a jury?
2) Did the court below err in concluding that PCIC did not
deliver the Policy to Sherman through delivery to his agent or, at
minimum, that was a factual issue to be decided by a jury?
3) Did the court below err in not allowing PCIC to rely upon its
exclusions to coverage to deny any duty to indemnify?
4) Did the court below err in finding a breach of a duty to
indemnify and indicating that a judgment of at least $1 million
was in order?
5) By ruling in favor of Sherman, did the court below err in
granting the [Brown] Agency’s [m]otion and denying PCIC’s
Motion?
PCIC’s Brief at 3-4.
Our standard of review regarding a trial court’s decision to grant or deny
a motion for summary judgment is as follows:
A reviewing court may disturb the order of the trial court only
where it is established that the court committed an error of law or
abused its discretion. As with all questions of law, our review is
plenary.
In evaluating the trial court’s decision to enter summary
judgment, we focus on the legal standard articulated in the
summary judgment rule. Pa.R.C.P. 1035.2. The rule states that
where there is no genuine issue of material fact and the moving
party is entitled to relief as a matter of law, summary judgment
may be entered. Where the non-moving party bears the burden
of proof on an issue, he may not merely rely on his pleadings or
answers in order to survive summary judgment. Failure of a non[-
]moving party to adduce sufficient evidence on an issue essential
to his case and on which it bears the burden of proof establishes
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the entitlement of the moving party to judgment as a matter of
law. Lastly, we will view the record in the light most favorable to
the non-moving party, and all doubts as to the existence of a
genuine issue of material fact must be resolved against the
moving party.
Thompson v. Ginkel, 95 A.3d 900, 904 (Pa. Super. 2014).
Significant to the first four issues PCIC raises on appeal, each of which
stem from the insurance policy at issue, is the Policy choice of law provision
that states: “This Policy shall be governed and construed in accordance with
the laws of the State of Montana.” Brief in Support of the Estate’s Motion for
Summary Judgment, 11/18/16, Exhibit V (PCIC Policy Commercial General
Liability Conditions, p. 18 ¶ 16 “Governing Law.”). There is no dispute
between PCIC and the Estate that Montana law governs the first four issues
of this appeal.
In its first issue, PCIC argues that the trial court erred in failing to grant
summary judgment in its favor because Sherman made material
misrepresentations and omissions in his insurance application. PCIC contends
that under Montana law, an insured who makes material misrepresentations
or omissions in an insurance application is not entitled to coverage under the
policy. Specifically, PCIC asserts that it presented evidence demonstrating
that Sherman: (1) expressly acknowledged in his application that the Policy
would contain a roofing operations exclusion; (2) warranted that the
information he provided in the application was correct and complete and that
he agreed to notify PCIC of any material changes in the application; (3)
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described his contracting business as “Kitchen and Bath Remodeling for
residential homes”; and (4) omitted any reference to any of his past or
intended future roofing work. PCIC’s Brief at 23-24. PCIC maintains that this
evidence establishes misrepresentations and omissions in the insurance
application material to the risk of issuing an insurance policy with a roofing
operations exclusion. Thus, PCIC argues that the trial court wrongly concluded
that Sherman did not make any misrepresentations or omissions in his
insurance application that voided the Policy. In the alternative, PCIC contends
that at the very least, this evidence demonstrates a genuine issue of material
fact as to whether Sherman made material misrepresentations and omissions
on his insurance application for a jury to resolve.
In response, the Estate argues that Sherman’s application does not
preclude coverage because Sherman was unaware at the time he applied for
insurance that he would be doing roofing work on the Estella Avenue Project.
Additionally, the Estate asserts that the application did not inquire as to
whether Sherman intended to engage in roofing work and otherwise provided
no indication that the Policy would be void if he did engage in such work.
Consequently, the Estate asserts that whether Sherman intended to engage
in roofing operations was not material to the risk assumed by PCIC in issuing
the Policy to Sherman.
Section 33-15-403 of the Montana Code governs the statutory rescission
of an insurance contract, and provides, in pertinent part, as follows:
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(2) Misrepresentations, omissions, concealment of facts, and
incorrect statements do not prevent a recovery under the policy
or contract unless:
(a) fraudulent;
(b) material either to the acceptance of the risk or to the hazard
assumed by the insurer; or
(c) the insurer in good faith would either not have issued the
policy or contract or would not have issued a policy or contract
in as large an amount or at the same premium or rate or would
not have provided coverage with respect to the hazard
resulting in the loss if the true facts had been made known to
the insurer as required either by the application for the policy
or contract or otherwise.
Mont. Code Ann. § 33-15-403(2).
In interpreting Section 33-15-403(2), the Montana Supreme Court has
explained:
The requirement that a misrepresentation on an insurance
application be material either to the acceptance of the risk or to
the hazard assumed by the insurer in § 33–15–403(2)(b), MCA,
overlaps a great deal with the condition in § 33–15–403(2)(c),
MCA, that allows an insurer to deny coverage for a
misrepresentation if the insurer in good faith would not have 1)
issued the policy; 2) issued the policy in as large an amount; 3)
issued the policy at the same premium; or 4) provided coverage
with respect to the hazard resulting in the loss.
An omission or misrepresentation may be material if, had the truth
been known, the reasonable and prudent insurer would not have
issued the policy or would have issued it at a higher premium.
This definition of materiality incorporates the idea of subsection
(2)(c), that is, that the policy would not, among other things, have
been issued had the insured revealed the true state of affairs. The
primary difference between the two subsections is that (2)(b)
deals with an objective standard of materiality, reasonableness,
while (2)(c) refers to a subjective standard, good faith.
* * *
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The materiality of an insured’s misrepresentation is determined
by the extent the false answer initially influenced the insurer to
assume the risk of coverage . . . . . [T]he misrepresentation in
the insurance application may be material if it diminishes the
insurer’s opportunity to determine or estimate its risk. Thus, the
materiality of a misrepresentation generally is measured at the
time the insurer issues the policy[.]
The question of materiality is a question of fact.
Schneider v. Minnesota Mut. Life Ins. Co., 806 P.2d 1032, 1035-36 (Mont.
1991) (quotation and citations omitted).
In this case, there is no dispute that the Policy contained an exclusion
precluding coverage for any claims or losses incurred in roofing operations.
See PCIC’s Motion for Summary Judgment, 11/18/16, Exhibit 5 (The Policy, §
(1)(2)(q)). The record reflects that Sherman initialed the paragraph in his
insurance application that indicated the Policy would contain a “roofing
operations” exclusion and the paragraph stating that any false information
contained in the application would result in the nullification of the policy.
PCIC’s Motion for Summary Judgment, 11/18/16, Exhibit 1 (Insurance
Application, 5/20/11). Sherman’s insurance application contains no mention
that he intended to do roofing work and instead describes his contracting
business as “kitchen and bath remodeling for residential homes.” Id.
Thus, the insurance application: (1) demonstrates that Sherman was
aware the policy for which he was applying would contain a roofing operations
exclusion; and (2) contains no mention that he had previously conducted
roofing work or that he intended to engage in roofing work in the future. See
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id. Sherman’s and Williams’ deposition testimony, however, reveals that
Sherman had done roofing work in his general contractor business in the past
and that he knew doing such work was a distinct possibility, if not certainty,
for the Estella Avenue Project. Brief in Support of the Estate’s Motion for
Summary Judgment, 11/18/16, Exhibit B (Deposition of Sherman, 9/6/13, at
15, 24, 32, 35) and Exhibit C (Deposition of Williams, 6/5/12, at 28-32).
The Estate argues that whether Sherman intended to engage in roofing
operations was not material to the risk assumed by PCIC in issuing coverage
and that PCIC would have issued the Policy regardless of whether Sherman
had initially informed PCIC that he would possibly conduct roofing operations.
The Estate points out that Sherman’s insurance application did not specifically
inquire as to whether the he intended to engage in roofing work. See PCIC’s
Motion for Summary Judgment, 11/18/16, Exhibit 1 (Insurance Application,
5/20/11). Additionally, the Estate relies on the deposition testimony of PCIC’s
underwriter, Daniel Matteoni (Matteoni). Matteoni testified that much of the
work Sherman did on the Estella Avenue Project was the type of work PCIC
would expect a contractor to undertake while insured by the Policy. Brief in
Support of the Estate’s Motion for Summary Judgment, 11/18/16, Exhibit U
(Deposition of Matteoni, 6/10/16, at 49-54). Matteoni further testified that
PCIC operates with the expectation that a general contractor may undertake
work beyond that contained in the contractor’s business description in the
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insurance application and such action does not prevent PCIC from issuing
coverage. Id.
Therefore, on the one hand, based on the existence of a roofing
operations exclusion in the Policy and the insurance application’s indication
that the Policy would contain such an exclusion, representations as to whether
Sherman intended to engage in roofing operations would tend to be material
to PCIC in deciding whether to issue the Policy to Sherman. On the other
hand, the Estate has presented evidence indicating that the insurance
application never afforded Sherman the opportunity to inform PCIC that he
had or intended to do roofing work and evidence of whether Sherman engaged
in roofing work had little effect on PCIC’s decision to issue the Policy.
Accordingly, we conclude that this case contains genuine issues of
material fact for a jury to resolve as to whether Sherman made
misrepresentations or omissions in his insurance application that materially
affected PCIC’s decision to issue the Policy. The Montana Supreme Court has
“expressly” made clear that “questions of materiality and of good faith are
both questions of fact” for a jury to determine. Williams v. Union Fid. Life
Ins. Co., 123 P.3d 213, 220 (Mont. 2005). We therefore vacate the trial
court’s grant of summary judgment in favor of the Estate with respect to the
issue of whether the representations in Sherman’s insurance application
precluded coverage.
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Next, we address PCIC’s second and third issues together because they
are related. PCIC argues that the trial court erred in concluding that PCIC did
not deliver the Policy to Sherman. PCIC contends that the trial court further
erred in determining that because of its failure to deliver the Policy, PCIC could
not rely upon any of the Policy’s exclusions to preclude coverage in this case.
PCIC asserts that it provided evidence that it had electronically delivered the
Policy to the Brown Agency, Sherman’s agent, in May 2011, when it: (1)
uploaded it to a shared electronic database to which the Brown Agency had
access; and (2) sent the Brown Agency an automatically generated email
notification with a link to access the Policy. Although neither PCIC nor the
Brown Agency could produce a copy of the actual notification email PCIC sent
the Brown Agency regarding Sherman’s policy, PCIC maintains that it was the
regular course of its dealings with the Brown Agency to electronically deliver
policies by uploading them to the shared database and sending the
automatically generated email. In response, the Estate argues that under
Montana law, the Brown Agency was PCIC’s agent for purposes of delivery,
and thus, even if PCIC had delivered the Policy to the Brown Agency, it did
not constitute delivery of the Policy to Sherman.
Under Montana law, “[a]n insurance broker is usually regarded as the
agent of the insured.” Nautilus Ins. Co. v. First Nat. Ins., Inc., 837 P.2d
409, 411 (Mont. 1992). As set forth above, the Estate asserts that in Montana,
while an insurance agent acts for the insured in procuring the policy, the agent
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acts for the insurer in delivering the policy. Although the Montana Supreme
Court has not explicitly made this declaration, their relevant decisional
authority strongly suggests that to be the case. In Nautilus, the Montana
Supreme Court stated that negligence on the part of the broker while
performing the specific acts of “delivering the policy and in collecting and
remitting the premiums . . . may result in liability” on the part of the insurance
agent to the insurer. Id. The Court further explained that “the determination
of which party a broker is acting for as to a particular matter depends on which
party requested him to do the particular thing.” Id. at 411-12. Additionally,
the Montana Supreme Court has stated that “once an agency selects a
particular policy from an insurer, that agency becomes the agent of that
insurer.” Monroe v. Cogswell Agency, 234 P.3d 79, 88 (Mont. 2010).
We conclude that the trial court did not err in determining that PCIC
failed to deliver the Policy to Sherman prior to Frischolz’s accident. First, there
is no dispute that PCIC relied upon the Brown Agency to deliver the policy and
to inform the insured (in this case Sherman) of the terms and exclusions of
its insurance policies. See PCIC’s Brief at 33-34. The operating agreement
between PCIC and the Brown Agency expressly states that the agency “will
provide each insured with an explanation of the terms and provisions of the
policy of insurance including, but not limited to coverage being afforded and
also exclusions contained with the policy of insurance.” Second Amended
Complaint and Joinder Complaint, 7/13/15, Exhibit 9 (Limited Produce
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Agreement, ¶ 15). Second, logically speaking, delivery of an insurance policy
cannot occur until after the broker selects an insurance policy from the insurer.
Therefore, because PCIC requested the Brown Agency to deliver the
Policy and delivery could not occur until after the Brown Agency procured the
Policy, we hold that the Brown Agency was the agent of PCIC for purposes of
delivery. Furthermore, because PCIC’s delivery argument is based on the
erroneous assertion that the Brown Agency was Sherman’s agent for purposes
of delivery, PCIC cannot impute its alleged electronic delivery of the Policy to
the Brown Agency onto Sherman. Accordingly, we conclude that the trial court
did not err in determining that delivery did not occur.
Nevertheless, this does not end our inquiry. Importantly, in its third
issue, PCIC contends that all that is required under Montana law for an insurer
to rely on policy exclusions to deny coverage is for the insured to have notice
of those exclusions. Additionally, PCIC contends that it has, at the very least,
established a genuine issue of material fact as to whether it provided sufficient
notice of the roofing operations exclusion to Sherman.
We agree with PCIC’s position that, under Montana law, all that is
required for an insured to be subject to policy exclusions is for the insured to
have notice of those exclusions. While Montana law requires an insurer to
deliver an insurance policy to the insured “within a reasonable period of time
after its issuance,” Mont. Code Ann. § 33-15-412(1), the Estate has cited no
authority from the Montana Supreme Court that explains the consequences to
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an insurer for failing to deliver a policy to the insured. Likewise, our research
has not uncovered any Montana Supreme Court decisions that discuss the
implications of an insurer’s failure to deliver an insurance policy to an insured.
Thus, under Montana law, there is no authority holding that an insurer cannot
rely on the coverage exclusions in an insurance policy if the insurer fails to
deliver the policy to insured.
We agree with PCIC that this issue is governed by the Montana Supreme
Court’s decision in State v. Allendale Mutual Insurance Company, 154
P.3d 1233 (Mont. 2007). Allendale places the focus of the applicability of
coverage exclusions on the question of whether the insured had notice of
them. In Allendale, the insured specifically raised the argument that “if an
insurer does not timely deliver a policy to the insured, it may not rely on
exclusions within the undisclosed policy.” Id. at 1237. The Montana Supreme
Court disagreed, holding that “[e]ven if a policy is not delivered to an insured,
insurers may rely upon valid exclusions in their policies when the insured has
notice of those exclusions.” Id. at 1238. The Court explained:
The exclusions in the policies in question were communicated to
the [insured]. The policies the [insured] claims were not delivered
were renewals of existing policies and contained identical
coverage provisions and exclusions. It is undisputed that the
[insured] received a renewal binder from each insurer that listed
all applicable coverage forms, or otherwise expressly stated the
exclusions. The [insured] cannot reasonably claim that it was
unaware of the relevant terms and exclusions.
Id. at 1237-38.
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The Estate maintains that the Allendale decision is inapplicable to this
case. The Estate argues that Allendale is factually distinguishable because
it involved the renewal of a previously issued insurance policy, and
consequently, the insured in that case was already familiar with the terms and
exclusions of the policy.
In support of its position, the Estate cites Germain v. American
International Group., Inc., 2008 WL 11347705 (D. Mont. Sept. 8, 2008),
for the proposition that delivery is necessary for an insurer to deny coverage
based on policy exclusions. In Germain, the insured argued that its insurer
was estopped from relying on a coverage exclusion in his insurance policy to
deny coverage because the insurer had failed to deliver the policy to him prior
to his injury.
The United States District Court for the District of Montana explained:
[M]any states, including Montana, have enacted statutes requiring
that insurers deliver a copy of an insurance policy to the insured
“within a reasonable time after its issuance.” Mont. Code Ann. §
33–15–412(1). In such states, many courts have held that where
an insurer fails to comply with its statutory duty to deliver a copy
of the policy, and that “failure to comply has prejudiced the
insured, the insurer may be estopped from asserting an otherwise
valid coverage exclusion.”
Id. at *6 (quoting Brown Mach. Works & Supply, Inc. v. Ins. Co. of N.
Am., 951 F. Supp. 988, 994 (M.D. Ala. 1996)). The court further explained
that an insured is “typically” prejudiced “in cases where the insurer fails to
provide the insured with a copy of the policy before the insured suffers a loss,
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and the insurer then attempts to deny coverage based on a previously
undisclosed exclusion.” Id. at *7 (emphasis added).
The court in Germain acknowledged, however, that an insured could
receive notice of coverage exclusions by means other than delivery of the
policy. Id. at *7-*8. Ultimately, the court concluded that the record was
insufficient to make a finding as to whether the insurer in that case timely
disclosed the applicable exclusion to the insured, and declined to grant
summary judgment on the issue of coverage. Id.
Thus, even under the authority relied upon by the Estate, to obtain
summary judgment when arguing that an insurer cannot rely on coverage
exclusions in an insurance policy that the insurer did not deliver, the insured
must establish more than the insurer’s failure to deliver the policy. See id.
Pursuant to Germain, the insured must establish, in addition to the insurer’s
failure to deliver the policy, that the insurer never otherwise timely disclosed
the relevant coverage exclusions to the insured by means other than delivery
of the policy. See id.
Consonant with the foregoing, we conclude that the trial court erred in
deciding that PCIC was unable to rely on any of the exclusions in the Policy
based on its determination that PCIC failed to deliver the Policy to Sherman.
We agree with PCIC’s contention that Allendale is compelling and controlling
in this case. While Allendale is factually distinguishable from this case, there
is no language in the decision expressly limiting the holding (i.e., “Even if a
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policy is not delivered to an insured, insurers may rely upon valid exclusions
in their policies when the insured has notice of those exclusions.”) to the facts
of this case. Additionally, while delivery of an insurance policy would clearly
put the insured on notice of coverage exclusions contained in the Policy, both
Allendale and Germain make clear that exclusions may be applicable in
situations where the insurer provides notice of them to the insured by means
other than delivery of the policy. Moreover, we reiterate that Montana law on
this issue is sparse. In sum, we decline to conclude that delivery of the policy
is required for an insurer to rely on the exclusions in the policy.
PCIC further argues that the record demonstrates Sherman had
adequate notice of the roofing operations exclusion contained in the Policy
because he initialed the paragraph in his insurance application that indicated
the Policy would contain a “roofing operations” exclusion. See PCIC’s Motion
for Summary Judgment, 11/18/16, Exhibit 1 (Insurance Application,
5/20/11). Conversely, the Estate asserts that even though Sherman initialed
that paragraph, it only provided him with notice that the Policy would contain
exclusions that it would later explain and define. The Estate contends that
because Sherman never had knowledge of the precise terms of the roofing
operations exclusion prior to Frischolz’s accident, PCIC cannot rely on the
exclusion to preclude coverage.
Again, we conclude that the question of whether Sherman had notice of
the roofing operations exclusion in the Policy presents a genuine issue of
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material fact to be resolved by a jury. Accordingly, we vacate the trial court’s
order to the extent that it grants summary judgment in favor of the Estate on
the issue of coverage, based on its determination that PCIC failed to deliver
the Policy to either the Brown Agency or Sherman, as delivery of the policy is
not the full inquiry. Thus, to the extent the trial court determined on summary
judgment that PCIC could not rely on exclusions in the Policy based on its
conclusion that PCIC failed to deliver the Policy, we vacate the trial court’s
order in that respect. We remand this matter for a determination of whether:
(1) Sherman had sufficient notice of the relevant policy exclusions; and if so,
(2) factual findings as to whether those exclusions were applicable in this case
to deny coverage.
In its fourth issue, PCIC argues that the trial court erred in concluding
that it breached its duty to indemnify Sherman. PCIC contends that pursuant
to applicable Montana law, it did not violate its duty to indemnify Sherman
because it afforded him a defense in the underlying wrongful death action
brought by the Estate while it contested coverage through the instant
declaratory judgment action.
With respect to an insurer’s duty to defend and indemnify, the Montana
Supreme Court has explained:
The duty to defend arises when a complaint against an insured
alleges facts, which if proven, would result in coverage. Unless
there exists an unequivocal demonstration that the claim against
an insured does not fall within the insurance policy’s coverage, an
insurer has a duty to defend.
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* * *
[W]here an insurer refuses to defend a claim and does so
unjustifiably, that insurer becomes liable for defense costs and
judgments. [W]hen an insurer improperly abandons its insured,
the insured is justified in taking steps to limit his or her personal
liability. In other words, where an insurer refuses to defend its
insured, it does so at its peril.
If an insurer believes a policy exclusion applies, the
prudent course of action is to defend under a reservation
of rights and file a declaratory action to resolve the
coverage question.
J & C Moodie Properties, LLC v. Deck, 384 P.3d 466, 472 (Mont. 2016).
This is exactly what transpired in this case. There is no dispute that
PCIC defended Sherman in the Estate’s wrongful death action. PCIC, believing
one or more policy exclusions applies to preclude coverage, afforded its
defense under a reservation of rights, and filed a declaratory judgment action
to resolve the question of coverage. See id. This is what Montana law
demands. Moreover, as we have discussed, the issue of coverage remains
unclear. Accordingly, we conclude that the trial court erred in granting
summary judgment in favor of Sherman and the Estate on the issue of
whether PCIC breached its duty to indemnify.
Finally, PCIC argues that the trial court erred in denying its motion for
summary judgment with respect to its negligence and common law
indemnification claims against the Brown Agency. Specifically, PCIC contends
that the Brown Agency had a duty to provide it with an accurate insurance
application from Sherman and to the extent Sherman completed a corrected
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application, the agency had a duty to ensure PCIC received the updated
application. Additionally, PCIC asserts that the Brown Agency had a duty to
deliver the Policy to Sherman.
With respect to this issue, both PCIC and the Brown Agency agree that
Pennsylvania law is controlling. The Brown Agency asserts that the economic
loss doctrine bars PCIC’s negligence claim. “The Economic Loss Doctrine
provides that no cause of action exists for negligence that results solely in
economic damages unaccompanied by physical injury or property damage.”
Donaldson v. Davidson Bros., 144 A.3d 93, 101 (Pa. Super. 2016), appeal
denied, 169 A.3d 11 (Pa. 2017). “Purely [economic] loss, when not
accompanied with or occasioned by injury, is considered beyond the scope of
recovery even if a direct result of the negligent act.” Id. (quotations and
citations omitted).
We agree.3 In this case, PCIC argues that the Brown Agency is required
to indemnify it for any amount it is required to pay the Estate for its judgment
against Sherman. PCIC makes this claim based on its assertion that the Brown
Agency was negligent in its handling of Sherman’s insurance application and
in failing to deliver the Policy to Sherman, which PCIC alleges directly resulted
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3 We note that “[w]e are not bound by the rationale of the trial court and may
affirm on any basis.” Sw. Energy Prod. Co. v. Forest Res., LLC, 83 A.3d
177, 184 (Pa. Super. 2013) (quotations and citations omitted).
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in harm to PCIC.4 Thus, PCIC has asserted a claim for negligence in which it
alleges “purely economic loss.”5 See Donaldson, 144 A.3d at 101.
Accordingly, we affirm the trial court’s dismissal of PCIC’s negligence claim
against the Brown Agency. Because we affirm the trial court’s dismissal of
PCIC’s negligence claim against the Brown Agency, PCIC has no basis upon
which to support a common law indemnity claim. Therefore, we conclude that
the trial court did not err in granting summary judgment in favor of the Brown
Agency on PCIC’s claims of common law negligence and indemnification, and
dismissing all claims against the Brown Agency.6
In conclusion, we vacate the trial court’s order to the extent it
determined that Sherman did not make any material misrepresentations and
omissions in his insurance application to void the Policy. Although we affirm
____________________________________________
4 To the extent PCIC asserts that the Brown Agency’s actions with respect to
Sherman’s insurance application were false and misleading, the claim PCIC
raised in its complaint was only that of negligence. PCIC did not raise a claim
of fraud in its complaint against the Brown Agency.
5 Our Supreme Court held that “the economic loss rule does not apply to
claims of negligent misrepresentation brought under Section 552” of the
Restatement (Second) of Torts. Bilt-Rite Contractors, Inc. v. The
Architectural Studio, 866 A.2d 270, 288 (Pa. 2005). Although it appears
PCIC attempted to raise a claim for negligent misrepresentation in its second
amended complaint under “COUNT VII – MISREPRESENTATION,” see Second
Amended Complaint and Joinder Complaint, 7/13/15, at 44-47, the trial court
entered an order on December 2, 2015 dismissing that claim, which PCIC did
not appeal. See supra, p. 7.
6 We note that PCIC does not challenge the trial court’s dismissal of the Brown
Agency’s contribution claim.
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the trial court’s determination that PCIC failed to deliver the Policy to
Sherman, we further vacate the trial court’s order to the extent it concluded
that PCIC’s failure to deliver the Policy precluded PCIC from relying on the
Policy’s exclusions to deny coverage. We also vacate the trial court’s
determination that PCIC breached its duty to indemnify. We affirm the trial
court’s dismissal of all remaining claims against the Brown Agency.
Consequently, we remand this matter to the trial court – for trial – to
determine first whether Sherman made any material misrepresentations or
omissions in his insurance application that preclude coverage. If the jury
determines that Sherman has not made any such material misrepresentations
or omissions, it must then determine whether PCIC provided Sherman with
sufficient notice of the Policy’s exclusions to warrant their application to
preclude coverage. Finally, the jury shall determine whether any Policy
exclusions are factually applicable to this case.
Order affirmed in part vacated in part. Case remanded for further
proceedings consistent with this opinion. Jurisdiction relinquished.
Judge Dubow joins the opinion.
Judge Bowes concurs in the result.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
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Date: 7/24/2018
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