Selective Way Insurance v. Hospitality Group Services, Inc. , 2015 Pa. Super. 146 ( 2015 )

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2015 PA Super 146SELECTIVE WAY INSURANCE : IN THE SUPERIOR COURT OF
COMPANY, : PENNSYLVANIA
:
Appellant :
:
v. :
:
HOSPITALITY GROUP SERVICES, INC.; :
HOSPITALITY GROUP SERVICES, INC. :
t/d/b/a RAMADA INN; HOSPITALITY :
GROUP SERVICES, INC. t/d/b/a :
RAMADA OF LIGONIER; and :
HOSPITALITY GROUP SERVICES, INC. :
t/d/b/a RAMADA OF HISTORIC :
LIGONIER; ROGER N. ALMS; ROSE M. :
ALMS and TERRI NEMCHECK, :
INDIVIDUALLY AND AS :
ADMINISTRATRIX OF THE ESTATE OF :
SEAN M. NEMCHECK, DECEASED, :
:
Appellees : No. 1430 WDA 2013
Appeal from the Order August 8, 2013,
Court of Common Pleas, Westmoreland County,
Civil Division at No. 3543 of 2012
BEFORE: GANTMAN, P.J., FORD ELLIOTT, P.J.E., BENDER, P.J.E., PANELLA,
DONOHUE, SHOGAN, MUNDY, OLSON and OTT, JJ.
OPINION BY DONOHUE, J.: FILED JULY 07, 2015
Selective Way Insurance Company (“Selective”) appeals from the
August 8, 2013 order entered by the Westmoreland County Court of
Common Pleas granting the motions for summary judgment filed by the
appellees in this case. The trial court granted the motions for summary
judgment based on its conclusion that the statute of limitations barred
Selective’s request for a declaratory judgment regarding its duty to defend
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and indemnify Hospitality Group Services Inc., Hospitality Group Services,
Inc. t/d/b/a Ramada Inn, Hospitality Group Services, Inc. t/d/b/a Ramada of
Ligonier, Hospitality Group Services, Inc. t/d/b/a Ramada of Historic
Ligonier, Roger N. Alms and Rose M. Alms (collectively, “Hospitality Group”)
in a lawsuit filed by Terri Nemcheck, individually and as administratrix of the
estate of Sean M. Nemcheck, deceased (“the Nemcheck Action”).
Specifically, the trial court found that, as a matter of law, the statute of
limitations for an insurance carrier to file a declaratory judgment action
regarding its duty to defend and indemnify its insured begins to run at the
time the insurance company receives the civil complaint in an action against
its insured. Following our review of the law in this area, we conclude that
this is an incorrect statement. Instead, the statute of limitations for the
filing of a declaratory judgment action brought by an insurance company
regarding its duty to defend and indemnify begins to run when a cause of
action for a declaratory judgment arises. This requires a determination by
the trial court of when the insurance company had a sufficient factual basis
to support its contentions that it has no duty to defend and/or indemnify the
insured.1
1
As stated, we hold that the statute of limitations begins to run for the
filing of a declaratory judgment action by an insurance company regarding
its duty to defend and indemnify an insured in a third party’s action when
the insurance company has a sufficient factual basis for it to conclude that
the insurance policy does not provide coverage for any of the claims raised
in the third party’s action. The learned Dissent appears to agree with this
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A summary of the relevant facts and procedural history is as follows.
On February 19, 2006, the vehicle driven by seventeen-year-old Sean
Nemcheck left the road and struck a fence, causing debris to strike him in
the head. The vehicle ended up submerged in a six-foot-deep pond. He
died as a result of this accident. His blood alcohol level at the time of his
death was 0.14 g/ml. The accident occurred after he worked a shift in the
kitchen and banquet hall of the Ramada Inn in Ligonier. Sean Nemcheck’s
shift began at 11:00 a.m. on February 18, 2006 and lasted until 3:06 a.m.
on February 19, 2006. Sean Nemcheck consumed alcohol that he allegedly
obtained from the Ramada Inn during his sixteen-hour shift.
On August 1, 2007, Terri Nemcheck (“Nemcheck”) filed the complaint
to commence the Nemcheck Action, which sounded in negligence per se,
negligent supervision/management, and ordinary negligence, and included a
claim for punitive damages. Hospitality Group had previously sent a copy of
determination. See Diss. Op. at 2 (Ford Elliott, P.J.E., dissenting) (“the
statute of limitations for filing a declaratory judgment action begins to run
when the insurer is on notice of a coverage dispute, be it upon the review of
the complaint, the completion of discovery, the ultimate resolution of the
underlying lawsuit, or any other event which would provide actual notice”).
We and the Dissent appear to disagree only with respect to this Court’s
authority to make the factual determination as to when Selective in fact had
a sufficient factual basis to conclude that it did not have a duty to defend
and indemnify Hospitality Group in the Nemcheck Action, triggering the
running of the statute of limitations for Selective to file a declaratory
judgment action. See id. 6-7, 8. Although we typically would remand the
case for the trial court to analyze and decide when Selective had a sufficient
factual basis to trigger the running of the statute of limitations, we do not do
so in this case because, as stated infra, the case is technically moot based
upon the settlement reached in the Nemcheck Action.
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the complaint to Selective, through which Hospitality Group had three
policies of insurance at the time of Sean Nemcheck’s death – a general
liability policy, a liquor liability policy, and a commercial umbrella policy.
Selective provided a defense subject to a reservation of rights. In its
reservation of rights letter dated July 31, 2007, Selective advised Hospitality
Group that it was unsure whether it had a duty to defend and/or indemnify
Hospitality Group in the Nemcheck Action and that coverage counsel would
review the complaint and pertinent case law.
Selective filed a complaint on June 6, 2012, and an amended
complaint on October 29, 2012, seeking a declaration that it had no duty to
defend or indemnify Hospitality Group in the Nemcheck Action. Nemcheck
and Hospitality Group filed preliminary objections to the amended complaint
on November 14 and 15, 2012, respectively, which the trial court overruled
on February 14, 2013. Nemcheck and Hospitality Group each filed an
answer, new matter and counterclaim2 on March 1 and 6, 2013,
respectively, asserting therein, in relevant part, that the statute of
limitations barred Selective from obtaining the relief it sought. On March 22,
2013, Selective filed replies to the new matters, denying, inter alia, that the
applicable statute of limitations barred its declaratory judgment action.
2
The counterclaims filed by the appellees sounded in bad faith based upon
Selective’s handling of Hospitality Group’s claim. On March 15, 2013, the
parties stipulated to the discontinuance of the counterclaims.
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On May 31, 2013 and June 4, 2013, respectively, Hospitality Group
and Nemcheck filed motions for summary judgment on several bases,
including the running of the four-year statute of limitations applicable in
declaratory judgment actions. Selective filed its own motion for summary
judgment on June 4, 2013 and filed responses in opposition to the appellees’
motions for summary judgment on July 1, 2013. Nemcheck and Hospitality
Group filed responses to Selective’s motion for summary judgment on July 1
and 3, 2013, respectively.
On August 8, 2013, the trial court filed an opinion and order granting
the motions for summary judgment filed by the appellees based upon its
finding that the four-year statute of limitations began to run for the filing of
a declaratory judgment action regarding Selective’s duty to defend and
indemnify Hospitality Group in the Nemcheck Action “[a]t the moment
Selective became aware of the allegations in the [c]omplaint[.]” Trial Court
Opinion and Order, 8/8/13, at 3. It therefore found untimely Selective’s
complaint seeking a declaratory judgment, as it was filed nearly five years
after Selective received the Nemcheck complaint. The trial court further
stated that, “based upon this determination, we [sic] need not address
whether there is liability coverage for compensatory and punitive damages
or an obligation to defend Defendants Hospitality Group under the terms of
the insurance policy.” Id. at 4-5. Nonetheless, in its order granting
summary judgment in favor of Nemcheck and Hospitality Group, the trial
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court stated: “It is further ORDERED that the package of policies at issue in
the [c]omplaint for [d]eclaratory [j]udgment provide coverage for the claims
made [in the Nemcheck Action.]” Id. at 7 (emphasis in the original).
On September 5, 2013, Selective filed a notice of appeal and timely
complied with the trial court’s order for the filing of a concise statement of
errors complained of on appeal pursuant to Pa.R.A.P. 1925(b). On October
3, 2013, the trial court issued a statement in lieu of a written opinion
pursuant to Pa.R.A.P. 1925(a), stating that it adequately addressed in its
August 8, 2013 opinion and order all of the issues Selective raised on
appeal. On May 9, 2014, this Court sua sponte listed the case to be heard
before the Court en banc.
On appeal, Selective presents the following issues for our review:
[1.] Whether Selective Way’s complaint for
declaratory judgment is timely within the statute of
limitations?
[2.] Whether unambiguous policy exclusions relieve
Selective Way of its duty to defend and indemnify
Hospitality Group against claims made in the
Nemcheck Action?
Selective’s Brief at 5.
Prior to addressing the merits of the issues raised, we must first
determine whether the issues presented in the appeal before us are moot.
Following the filing of this appeal, but prior to oral argument before this
Court en banc, Selective reached a settlement in the Nemcheck Action,
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which Nemcheck and Hospitality Group contend renders the issues on appeal
before us moot and unreviewable. Nemcheck’s Supplemental Brief at 3-11;
Hospitality Group’s Supplemental Brief (Mootness) at 3-8. Selective
concedes that the settlement renders moot the issues raised on appeal.
Selective’s Supplemental Brief at 14. Selective asserts, however, that its
claim regarding the timeliness of its declaratory judgment action qualifies as
an exception to the mootness doctrine, permitting this Court to decide the
issue on its merits. Id. at 15-16. Selective makes no argument regarding
the reviewability of the second issue raised on appeal concerning its duty to
defend and indemnify Hospitality Group in the Nemcheck Action.
The mootness doctrine requires that there is an actual case or
controversy at all stages of review. Pilchesky v. Lackawanna Cnty., 88
A.3d 954, 964 (Pa. 2014). “[A]n issue may become moot during the
pendency of an appeal due to an intervening change in the facts of the
case[.]” Id. “An issue before a court is moot if in ruling upon the issue the
court cannot enter an order that has any legal force or effect.” Johnson v.
Martofel, 797 A.2d 943, 946 (Pa. Super. 2002). Appellate courts in this
Commonwealth have recognized three exceptions, permitting decision on an
issue despite its mootness: “1) the case involves a question of great public
importance, 2) the question presented is capable of repetition and apt to
elude appellate review, or 3) a party to the controversy will suffer some
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detriment due to the decision of the trial court.” In re D.A., 801 A.2d 614,
616 (Pa. Super. 2002) (en banc) (citations omitted).
Selective contends that the question of the running of the applicable
statute of limitations in this case satisfies all three of the exceptions, but
specifically concentrates on the third exception, maintaining that “Selective
will suffer a detriment in a collateral legal proceeding if the order of the trial
court remains in effect.” Selective’s Supplemental Brief at 15. According to
Selective, while this case was pending on appeal, Hospitality Group initiated
a lawsuit against Selective for breach of contract and bad faith (“the
Hospitality Group Action”).3 Id. at 10. Selective states that Hospitality
Group bases its action, in part, on Selective filing its declaratory judgment
action beyond the expiration of the applicable statute of limitations. Id. at
3
The certified record on appeal does not contain any information relating to
the Hospitality Group Action. Although Selective included in its
supplemental reproduced record the complaint and correspondence related
to the Hospitality Group Action, this does not allow us to consider the
documents in deciding the appeal, as we may not consider documents solely
included in the reproduced record. See Krafft v. Downey, 68 A.3d 329,
338 n.11 (Pa. Super. 2013), appeal denied, 83 A.3d 169 (Pa. 2013).
Hospitality Group, however, agrees that it filed the Hospitality Group Action
and that it alleges bad faith by Selective in its handling of Hospitality Group’s
claim regarding the Nemcheck Action. Hospitality Group’s Supplemental
Brief (Mootness) at 7. Hospitality Group further agrees that “one of the
allegations of bad faith […] is that Selective [] filed its [d]eclaratory
[j]udgment [a]ction after the expiration of the statute of limitations.” Id.As only the existence of the collateral legal proceeding in which Hospitality
Group raises this claim is necessary for us to decide whether Selective’s
claim satisfies an exception to the mootness doctrine, the absence from the
certified record of information associated with the Hospitality Group Action
does not hamper our review.
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10-11. Selective argues that “[i]f this appeal is not heard and the trial court
order stands, the issue of whether Selective untimely filed is declaratory
judgment action has been adjudicated and Selective may be liable to its
insureds for breach of contract and bad faith in the Hospitality Group
Action.” Id. at 15. Thus, Selective asserts that if the first issue it raises in
the instant appeal is dismissed as moot, “Selective would suffer detrimental
consequences in [the] collateral bad faith proceeding.” Id. at 15-16.
Hospitality Group and Nemcheck disagree that any of the exceptions to
the mootness doctrine apply to permit this Court to review the issues raised
by Selective on appeal. Hospitality Group acknowledges that its bad faith
action against Selective is pending and that it raises claims therein based
upon Selective filing the declaratory judgment action beyond the expiration
of the statute of limitations. Hospitality Group’s Supplemental Brief
(Mootness) at 7. It asserts, however, that by deciding the issue of whether
the trial court erred by finding that Selective filed its declaratory judgment
action out of time in this appeal, “this Court would be rendering an advisory
opinion for the [t]rial [c]ourt to follow in deciding this particular facet of the
bad faith claim.” Id. Hospitality Group does not directly address Selective’s
claim that it would suffer a detriment in the Hospitality Group Action absent
our review of the first issue raised in the instant appeal.
Nemcheck asserts that Selective will not suffer a detriment because of
the trial court’s decision, positing that Selective’s argument in this respect is
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“mere hyperbole.” Nemcheck’s Supplemental Brief at 10. Rather,
Nemcheck states that the declaratory judgment action and the Hospitality
Group Action are based on different sets of facts, governed by different legal
standards, and decided pursuant to different burdens of proof. Id. Thus,
the trial court’s decision in the Hospitality Group Action is not “dependent
upon” the trial court’s determination in the declaratory judgment action,
which, according to Nemcheck, is what case law discussing this exception to
the mootness doctrine requires. Id. (emphasis in the original).
Initially, we note that case law discussing the third exception to the
mootness doctrine expressly requires only that a party “will suffer some
detriment due to the trial court’s decision,” which can be “collateral legal
consequences of the court order.” In re L.Z., 91 A.3d 208, 212 (Pa. Super.
2014) (en banc) (emphasis added), rev’d on other grounds, 111 A.3d 1164(Pa. 2015). Although Nemcheck is correct that the Hospitality Group Action
differs in many respects from the declaratory judgment action in this matter,
the legal conclusion reached by the trial court in the declaratory judgment
action – that the statute of limitations expired prior to Selective filing its
complaint – would nonetheless be binding on the trial court in the Hospitality
Group Action. “Collateral estoppel, or issue preclusion, is a doctrine which
prevents re-litigation of an issue in a later action, despite the fact that it is
based on a cause of action different from the one previously litigated.”
Griffin v. Cent. Sprinkler Corp., 823 A.2d 191, 195 n.3 (Pa. Super. 2003)
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(quoting Balent v. City of Wilkes-Barre, 669 A.2d 309, 313 (Pa. 1995))
(internal citations omitted).
Collateral estoppel applies if (1) the issue decided in
the prior case is identical to one presented in the
later case; (2) there was a final judgment on the
merits; (3) the party against whom the plea is
asserted was a party or in privity with a party in the
prior case; (4) the party or person privy to the party
against whom the doctrine is asserted had a full and
fair opportunity to litigate the issue in the prior
proceeding and (5) the determination in the prior
proceeding was essential to the judgment.
Weissberger v. Myers, 90 A.3d 730, 733 (Pa. Super. 2014) (citation
omitted).
Here, the question of whether Selective filed its declaratory judgment
action out of time meets all of the elements of collateral estoppel. It is
uncontested that in the Hospitality Group Action, Hospitality Group bases
several allegations of bad faith in its complaint upon Selective filing its
complaint for declaratory judgment after the expiration of the statute of
limitations and that the expiration of the statute of limitations was the basis
for the dismissal of the declaratory judgment action. See Hospitality
Group’s Supplemental Brief (Mootness) at 7; Selective’s Supplemental Brief
at 10. The trial court finally decided the question of whether the applicable
statute of limitations ran prior to Selective filing its complaint in the
declaratory judgment action. Selective (the party against which collateral
estoppel would be asserted) was a party to the declaratory judgment action
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and had a full opportunity to litigate the statute of limitations issue at that
time. Selective fully briefed its arguments and does not contend on appeal
that it was somehow denied the opportunity to present its case on the issue.
See, e.g., Spisak v. Edelstein, 768 A.2d 874, 877-78 (Pa. Super. 2001)
(finding the appellant had a full and fair opportunity to litigate issue where
the issue was raised before the trial court in a prior action, the trial court
ruled on that issue, and the appellant failed to seek reconsideration of the
trial court’s decision or file an appeal). The trial court rendered a decision
on the merits of the statute of limitations question, which was
unquestionably essential to its decision, as it dismissed the declaratory
judgment action on that basis. Cf. Griffin, 823 A.2d at 195 (finding the
doctrine of collateral estoppel inapplicable on the question of whether the
statute of limitations had run as the prior order did not decide the statute of
limitations question on the merits; the court dismissed the appellants’
petition for failure to file a supporting brief).
As the doctrine of collateral estoppel applies to the statute of
limitations question, we conclude that Selective would suffer a detriment in
the Hospitality Group Action if we were to forego appellate review of the trial
court’s decision. Absent our review of this issue, the trial court’s finding that
Selective filed its complaint in the declaratory judgment action out of time
would be binding on the trial court in the Hospitality Group Action and could
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provide a basis of liability for bad faith, as Selective would be precluded from
re-litigating this question.
The second issue raised by Selective on appeal, regarding whether it in
fact had a duty to defend and/or indemnify Hospitality Group in the
Nemcheck Action, does not satisfy any of the exceptions to the mootness
doctrine. First, the great public importance exception is rarely invoked by
appellate courts to decide moot issues, see In re Gross, 382 A.2d 116, 122
(Pa. 1978), and in the absence of advocacy from Selective that this issue
somehow satisfies this exception to the mootness doctrine, we decline to so
find sua sponte.
Second, the substantive question as to whether or not Selective had a
duty to defend and/or indemnify Hospitality Group is not likely to evade
review such that the second exception to the mootness doctrine applies. To
the contrary, our research reveals that this Court has previously been able
to timely decide appeals from declaratory judgment actions concerning an
insurance company’s duty to defend a policyholder based upon the language
of the insurance policy at issue. See, e.g., State Farm Fire & Cas. Co. v.
DeCoster, 67 A.3d 40 (Pa. Super. 2013); Old Guard Ins. Co. v. Sherman,
866 A.2d 412 (Pa. Super. 2004). We note that the appellate timeline in this
case was unusually lengthy because of the certification for en banc review.
Lastly, Selective will not suffer a detriment if we do not decide the
coverage issue in this appeal. We observe that the trial court made
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contradictory statements in its opinion and order, first stating that because it
was dismissing the declaratory judgment action on timeliness grounds, the
trial court “need not address whether there is liability coverage for
compensatory and punitive damages or an obligation to defend [] Hospitality
Group under the terms of the insurance policy.” Trial Court Opinion and
Order, 8/8/13, at 4-5. In the same opinion and order, the trial court stated
that the insurance policies at issue “provide coverage for the claims made
[in the Nemcheck Action.]” Id. at 7. The doctrine of collateral estoppel is
inapplicable to this latter conclusion, however, because this determination
was not “essential to the judgment” in the declaratory judgment action.
See Weissberger, 90 A.3d at 733. The trial court dismissed the case based
upon its finding that the statute of limitations elapsed prior to Selective filing
its complaint. Thus, the trial court’s statement that the policies at issue
provide coverage for the claims made in the Nemcheck Action is not binding
upon the trial court in the Hospitality Group Action, providing us no basis to
review this otherwise moot question.4
Having found that the first issue on appeal is properly before us for
review, we now turn to address its merits. We review a trial court’s decision
4
In its appellate brief, Selective states that it only included argument on
the second issue in an abundance of caution to avoid a finding of waiver on
appeal. Selective’s Supplemental Brief at 25. In their briefs on appeal,
Hospitality Group and Nemcheck agree that the trial court did not decide the
substantive question of whether the insurance policies at issue provide
coverage for the claims raised in the Nemcheck Action. See Hospitality
Group’s Brief at 14; Nemcheck’s Brief at 29.
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to grant summary judgment for an abuse of discretion or error of law. PHH
Mortgage Corp. v. Powell, 100 A.3d 611, 616 (Pa. Super. 2014). Our
scope of review is plenary. Id.The trial court found that Selective filed its complaint for declaratory
judgment beyond the applicable four-year statute of limitations. Trial Court
Opinion and Order, 8/8/13, at 4. Relying on Aetna Cas. & Sur. Co. v. Roe,
650 A.2d 94, 100 (Pa. Super. 1994), the trial court stated that “an analysis
with respect to coverage is dependent upon the allegations in the
[c]omplaint, just as an analysis with respect to the insurer’s obligation to
defend is dependent upon the allegations in the [c]omplaint.” Trial Court
Opinion and Order, 8/8/13, at 4. The trial court thus concluded that the
statute of limitations began to run when Selective received the complaint in
the Nemcheck Action, as “that moment was Selective’s first opportunity to
‘compare the four corners of the insurance contract with the four corners of
the complaint,’” and that the declaratory judgment action, filed nearly five
years thereafter, was untimely. Id. at 3-4.
Selective asserts that this conclusion constitutes an error of law.
Selective contends that the trial court confused and combined the standards
for an insurer’s duty to defend an insured and the standard for the running
of the statute of limitations for a declaratory judgment action. Selective’s
Substituted Brief at 12. According to Selective, an actual controversy
regarding its duty to defend did not arise in this case when it received the
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complaint in the Nemcheck Action, as it provided a defense pursuant to its
reservation of rights letter. Id. at 14. “Rather, the logical triggering point
[for the running of the statute of limitations] is when the carrier denies
coverage to the insured.” Id. at 22.
Selective asserts that the denial of coverage also triggers the statute
of limitations for a declaratory judgment action regarding an insurance
company’s duty to indemnify. Id. Selective states that the trial court’s
finding that the statute of limitations had run on a declaratory judgment
action concerning Selective’s duty to indemnify Hospitality Group in the
Nemcheck Action was erroneous. Citing case law from the United States
District Court for the Western District of Pennsylvania, Selective states that
the duty to indemnify does not arise until “the insured is held liable for a
claim actually covered by the policy.” Id. at 21 (quoting USX Corp. v.
Adriatic Ins. Co., 99 F.Supp.2d 593, 611 (W.D. Pa. 2000), aff’d, 345 F.3d
190 (3d Cir. 2003)).
In the alternative, Selective argues that if this Court is inclined to find
that the triggering event for the running of the statute of limitations for the
filing of a declaratory judgment action on its duty to defend and indemnify
was when Selective was aware that the claims made in the Nemcheck Action
fell outside of the coverage provided under the insurance policies, then the
statute of limitations did not begin to run until February 13, 2009 – the date
of the deposition of Matthew White (“White”). Id. at 23. According to
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Selective, White’s testimony at his deposition “was the first record evidence
that placed this claim outside of the coverage afforded in the [p]olicy.” Id.
Hospitality Group agrees with the trial court’s determination regarding
when the statute of limitations began to run as to both Selective’s duty to
defend and indemnify Hospitality Group in the Nemcheck Action. Hospitality
Group’s Brief at 7-8. Hospitality Group asserts that from the standpoint of
an insurer, an actual controversy exists as to whether it has a duty to
defend and/or indemnify an insured once the insurer is aware “that certain
facts of the claim do not fit within the confines of the policy coverage
provisions.” Hospitality Group’s Supplemental Brief at 4. According to
Hospitality Group, in claiming that it did not have a duty to defend and/or
indemnify Hospitality Group in the Nemcheck Action, Selective relied upon
information contained in Nemcheck’s complaint and Selective’s own
reservation of rights letter. Hospitality Group’s Brief at 11-12. Thus,
Selective’s comparison of Nemcheck’s complaint and the insurance policies
at issue “should have enabled Selective to timely file its [d]eclaratory
[j]udgment [a]ction” within four years of receiving the complaint in the
Nemcheck Action, as an actual controversy arose at that time. Id. at 12.
Hospitality Group further asserts that the record belies Selective’s
contention that White’s deposition is an appropriate trigger for the running
of the statute of limitations on the declaratory judgment action in question.
Hospitality Group states that Selective paid the attorneys’ fees for counsel to
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represent Hospitality Group in the Liquor Code Enforcement proceeding, at
which White provided testimony that comported, in relevant part, with his
deposition testimony in the Nemcheck Action. Id. at 12-13. The Liquor
Code Enforcement hearing, the findings of fact by the administrative law
judge, the appeal to the Liquor Control Board, and the resolution of the de
novo appeal to the trial court all occurred more than four years prior to
Selective filing its complaint for declaratory judgment.5 Id. at 13. Thus,
Hospitality Group argues that to the extent this Court is inclined to find that
the complaint contained insufficient information to create an actual
controversy, Selective still had all of the information it claims to have
needed more than four years prior to the filing of its declaratory judgment
action, rendering Selective’s alternative argument meritless. Id.
Like Hospitality Group, Nemcheck agrees with the trial court’s
conclusion that the statute of limitations ran for the filing of a declaratory
judgment action concerning Selective’s duty to defend and indemnify
Hospitality Group in the Nemcheck Action. Nemcheck’s Brief at 33-35.
Nemcheck further asserts that although an actual controversy could arise
prior to an insurance company’s receipt of a civil complaint, thus triggering
the running of the statute of limitations for a declaratory judgment action,
5
We observe that while represented by the same counsel, Hospitality Group
further appealed this decision to the Commonwealth Court, which affirmed
the trial court’s decision in a memorandum opinion on June 18, 2009. See
Pennsylvania State Police v. Hospitality Grp. Servs., Inc., 2009 WL
9101457 (Pa. Commw. June 18, 2009).
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“the obligation of the insurer to determine whether the claim is covered
begins, at the very latest, on the date on which the complaint is received.”
Id. at 35-36 (emphasis in the original). According to Nemcheck, “[i]f the
basis for questioning the existence of coverage is apparent from the face of
the complaint, the ability of the insurer (or the insured) to file a declaratory
judgment action begins no later than on that date, as an actual controversy
exists.” Id. at 36; see also id. at 39 (“The filing of a complaint against the
insured is the specific time at which the Pennsylvania Appellate Courts
contemplate that an insurer will make a determination of coverage and, in
the face of uncertainty, file a declaratory judgment action. See, e.g.[,] Am.
& Foreign Ins. Co. [v. Jerry’s Sport Ctr., Inc.], 2 A.3d [526,] 541-542
[(Pa. 2010)].”). As Selective identified several bases that potentially
negated its duty to defend and/or indemnify Hospitality Group in the
Nemcheck Action in its July 31, 2007 letter, all of which were clearly
apparent on the face of the complaint, the statute of limitations for its filing
of a declaratory judgment action commenced on that date. Id. at 37.
The law is clear that when an insured who has been sued requests
coverage under a policy of insurance, the insurer is required to accept all of
the allegations contained in the third party’s complaint as true and provide a
defense if there is a chance that the injury alleged could potentially fall
within the scope of the policy. Am. & Foreign Ins. Co., 2 A.3d at 541.
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The question of whether a claim against an
insured is potentially covered is answered by
comparing the four corners of the insurance contract
to the four corners of the complaint. An insurer may
not justifiably refuse to defend a claim against its
insured unless it is clear from an examination of the
allegations in the complaint and the language of the
policy that the claim does not potentially come within
the coverage of the policy.
Id. (internal citations omitted). “[T]he duty to defend is not limited to
meritorious actions; it even extends to actions that are groundless, false, or
fraudulent as long as there exists the possibility that the allegations
implicate coverage.” Id. (citations and quotation marks omitted). “The
duty to defend persists until an insurer can limit the claims such that
coverage is impossible.” Lexington Ins. Co. v. Charter Oak Fire Ins.
Co., 81 A.3d 903, 911 (Pa. Super. 2013) (emphasis omitted).
Like the duty to defend, an insurance company’s duty to indemnify an
insured in a third party’s action “flow[s] from a determination that the
complaint triggers coverage.” Gen. Acc. Ins. Co. of Am. v. Allen, 692
A.2d 1089, 1095 (Pa. 1997). The substantive duty of an insurance company
to indemnify its insured in a third party’s action, however, “arises only when
the insured is determined to be liable for damages within the coverage of
the policy.” Regis Ins. Co. v. All Am. Rathskeller, Inc., 976 A.2d 1157,
1161 (Pa. Super. 2009) (citation omitted).
Although not required by law, a party may initiate a declaratory
judgment action for the court to make a determination of coverage of a
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claimed injury under an insurance policy. Aetna Cas. & Sur. Co., 650 A.2d
at 99. “Declaratory judgments are nothing more than judicial searchlights,
switched on at the behest of a litigant to illuminate an existing legal right,
status or other relation.” Wagner v. Apollo Gas Co., 582 A.2d 364, 365
(Pa. Super. 1990) (citation omitted). The Declaratory Judgments Act6
empowers courts “to declare rights, status, and other legal relations whether
or not further relief is or could be claimed,” and these declarations “have the
force and effect of a final judgment or decree.” 42 Pa.C.S.A. § 7532. To
bring a declaratory judgment action,
there must exist an actual controversy[, as]
[d]eclaratory judgment is not appropriate to
determine rights in anticipation of events which may
never occur. It is an appropriate remedy only where
a case presents antagonistic claims indicating
imminent and inevitable litigation.
Bromwell v. Michigan Mut. Ins. Co., 716 A.2d 667, 670 (Pa. Super.
1998).
This Court has held that the four-year catchall statute of limitations is
appropriate for declaratory judgment actions regarding the parties’ rights
and duties under a contract. Wagner, 582 A.2d at 366; see 42 Pa.C.S.A.
§ 5525(a)(8) (stating that a four-year statute of limitations applies to “[a]n
action upon a contract, obligation or liability founded upon a writing not
6
42 Pa.C.S.A. §§ 7531-7541.
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specified in paragraph (7), under seal or otherwise, except an action subject
to another limitation specified in this subchapter”).
The statute of limitations for a cause of action begins to run “from the
time the cause of action accrued.” 42 Pa.C.S.A. § 5502(a). “In
Pennsylvania, a cause of action accrues when the plaintiff could have first
maintained the action to a successful conclusion.” Fine v. Checcio, 870
A.2d 850, 857 (Pa. 2005). It is clear that the legislature intended for
declaratory judgments to be subject to a limitations period. See
42 Pa.C.S.A. 7538(a) (stating that “[j]udicial relief based on a declaratory
judgment or decree may be granted whenever necessary or proper subject
to Chapter 55 (relating to limitation of time)”). It provided no indication,
however, as to the appropriate limitations period for a declaratory judgment
action.
Pennsylvania case law on this issue is scarce and provides little
guidance in the matter before us.7 Although this Court in Wagner held that
7
Case law from other jurisdictions likewise sheds little light on the subject.
We agree with the assessment of the law provided by now-retired Judge
Charles E. Moylan, Jr., formerly of the Court of Special Appeals of Maryland,
that “[t]he case law throughout the country on this admittedly esoteric
subject is extremely skimpy.” Commercial Union Ins. Co. v. Porter
Hayden Co., 698 A.2d 1167, 1193 (Md. Ct. Spec. App. 1997). A case
decided by the California Supreme Court in 1944, followed by three of our
sister states, holds that the statute of limitations for a declaratory judgment
action begins to run when a breach occurs. Maguire v. Hibernia Sav. &
Loan Soc., 146 P.2d 673, 681 (Cal. 1944); see also Niles v. Eldridge, 828
N.W.2d 521, 526 (N.D. 2013); Commercial Union Ins. Co., 698 A.2d at
1193; W. Cas. & Sur. Co. v. Evans, 636 P.2d 111, 114-15 (Ariz. Ct. App.
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the four-year catchall statute of limitations contained in section 5525(a)(8)
applies to declaratory judgment actions concerning the parties’ rights and
duties under a written contract, the Wagner Court did not specify when the
statute of limitations for such an action begins to run. 8 In Wagner, both
parties allegedly breached the written contract concerning the Wagners’
provision of natural gas to Apollo – Apollo in 1974 and 1975, when it failed
to pay price increases, and the Wagners in 1975, when they ceased
providing gas to Apollo, and again in 1981, when they removed their gas
meter. Wagner, 582 A.2d at 365. The parties began to correspond with
one another in or around March of 1985 about resuming the sale of gas, but
could not agree on the terms. Id. at 366-67. The Wagner Court did not
find any of the aforementioned alleged breaches or the disagreement as to
the terms of the contract triggered the limitations period for a declaratory
judgment action, as it found “no indication that a controversy arose as to the
1981). The Maguire decision states that a declaratory judgment action can
be brought prior to a breach without triggering the running of the statute of
limitations if there exists an actual controversy. Id. This does not comport
with Pennsylvania law regarding the commencement of the limitations
period. See 42 Pa.C.S.A. § 5502(a) (“The time within which a matter must
be commenced under this chapter shall be computed … from the time the
cause of action accrued[.]”); Fine, 870 A.2d at 857 (“In Pennsylvania, a
cause of action accrues when the plaintiff could have first maintained the
action to a successful conclusion.”). Furthermore, we observe that
Maryland’s adherence to Maguire’s holding in this respect is questionable.
See Allied Inv. Corp. v. Jasen, 731 A.2d 957, 967 (Md. 1999).
8
Neither the trial court nor any party contends that the section 5525(a)(8)
four year catchall statute of limitations identified in Wagner is improper.
We therefore do not address this question.
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continued validity of the contract” at any of those times. Id. at 367.
Rather, without specifying a date or the triggering event, the Court found
that “the present controversy ripened into a cause of action for declaratory
judgment in 1987,” which was the same year the Wagners filed their
declaratory judgment action. Id.
The only other Pennsylvania appellate case to discuss (albeit briefly
and in a footnote) the triggering event for the running of the statute of
limitations for the filing of a declaratory judgment action is Zourelias v.
Erie Ins. Grp., 691 A.2d 963 (Pa. Super. 1997). In that case, Zourelias
suffered injuries in a car accident that occurred in 1986. Id. at 964. The
court dismissed his personal injury suit because his attorney filed it beyond
the applicable limitations period. Id. Zourelias then brought a legal
malpractice action against his former attorney and obtained a judgment of
$100,000 for the attorney’s professional negligence in 1995, but the
attorney did not have insurance coverage for professional negligence and
had no known assets. Id. Zourelias contacted his automobile insurance
carrier that was insuring him at the time of the accident seeking $50,000.00
in underinsured or $100,000.00 in uninsured motorist benefits. Id. The
insurance company denied coverage. Id. On May 31, 1996, Zourelias
commenced a declaratory judgment action asserting entitlement to
underinsured or uninsured motorist benefits from the insurance company.
Id. The insurance company contended that the statute of limitations had
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expired, but this Court disagreed. We stated that because a cause of action
for a declaratory judgment does not accrue until there is an actual
controversy, the statute of limitations did not begin to run in that case until
the insurance company denied the insured’s request for coverage. Id. at
964 n.2. We therefore found timely the declaratory judgment action filed
within four years of the insurance company denying coverage. Id.In the absence of a rule promulgated by our Supreme Court or a
statute stating otherwise, the statute of limitations commences to run, in
relevant part, when “the cause of action accrued.” 42 Pa.C.S.A. § 5502(a)-
(b). In light of this clear, unambiguous directive by the Pennsylvania
Legislature, we are unable to adopt an alternative trigger for the
commencement of the statute of limitations. See 1 Pa.C.S.A. § 1921(b)
(“When the words of a statute are clear and free from all ambiguity, the
letter of it is not to be disregarded under the pretext of pursuing its spirit.”).
For that reason, we disagree with Selective that Zourelias is
instructive in the case at bar and that the denial of coverage is the
appropriate point to begin the limitations period for a declaratory judgment
action filed by an insurance company. A cause of action for a declaratory
judgment accrues when an actual controversy exists between the parties.
Com., Office of Governor v. Donahue, 98 A.3d 1223, 1229 (Pa. 2014).
Our Supreme Court has stated that “[t]he court’s role in the declaratory
judgment action is to resolve the question of coverage to eliminate
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uncertainty. If the insurer is successful in the declaratory judgment action,
it is relieved of the continuing obligation to defend.” Am. & Foreign
Ins., 2 A.3d at 542 (emphasis added). Thus, according to our Supreme
Court, if an insurance company is uncertain about its duty to defend an
insured in a third party’s action, it is expected and anticipated that the
insurance company will bring a declaratory judgment action concerning its
duty to defend prior to denying coverage to an insured. The denial of
coverage certainly could be when an actual controversy arises between an
insurance company and an insured, warranting the filing of a declaratory
judgment action. See, e.g., Zourelias, 691 A.2d at 964; see also 42
Pa.C.S.A. § 7534 (“A contract may be construed [under the Declaratory
Judgments Act] either before or after there has been a breach thereof.”). It
cannot, however, be the only basis for finding an actual controversy exists
as Selective advocates. Such a holding (that the denial of coverage is the
point in time when an actual controversy arises) would eliminate an
insurance company’s ability to bring a declaratory judgment action prior to
denying or terminating the provision of a defense for an insured, which is in
direct contravention to the above-quoted statement by our Supreme Court.
Selective’s argument that the statute of limitations for it to file a
declaratory judgment action regarding its duty to indemnify an insured in a
third party’s action should not commence until it denies coverage fails for
the same reason. We agree with Selective that an insurance company’s
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substantive duty to indemnify an insured in a third party’s action does not
arise until there is a verdict. See Selective’s Substituted Brief at 21; Regis
Ins. Co., 976 A.2d at 1161. A declaration regarding an insurance
company’s duty to defend, however, is inextricably intertwined with its duty
to indemnify because both are based upon a determination of whether the
insurance policy in question provides coverage for the claims made. See
Gen. Acc. Ins. Co. of Am., 692 A.2d at 1095 (“Although the duty to defend
is separate from and broader than the duty to indemnify, both duties flow
from a determination that the complaint triggers coverage.”); Mut. Ben.
Ins. Co. v. Haver, 725 A.2d 743, 747 (Pa. 1999) (“[I]n determining
whether a carrier has a duty to defend or indemnify an insured we look to
the complaint filed against the insured.”). If an insurance company does not
have a duty to defend an insured in a third party’s action, it cannot have a
duty to indemnify. Am. Nat. Prop. & Cas. Companies v. Hearn, 93 A.3d
880, 884 (Pa. Super. 2014).
The question before a court in a declaratory
judgment action is not whether the insurer owes
indemnification in a specific amount, which would
be a premature inquiry absent a full resolution of the
underlying action. Instead, the question is whether
the insurer has a duty to indemnify the insured in
the event of liability in the underlying action. A
court can answer such a question because it is within
the scope of a court’s power pursuant to the
Declaratory Judgments Act.
Id. (emphasis in the original).
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The question of an insurance company’s duty to indemnify an insured
in a third party’s action is properly considered in a declaratory judgment
action at the same time as the court determines whether an insurance
company has a duty to defend. Id. at 1096. We acknowledge that a
declaration that an insurance company has a duty to defend will yield only “a
conditional obligation to indemnify in the event the insured is held liable for
a claim covered by the policy.” Gen. Acc. Ins. Co. of Am., 692 A.2d at
1095 (citation omitted). Nonetheless, for purposes of determining the
triggering event for the commencement of the statute of limitations to file a
declaratory judgment action, we cannot disentangle the duty to indemnify
from the duty to defend because both relate to the question of whether the
policy provides coverage. Id.
We also disagree with the trial court’s conclusion that the statute of
limitations for filing a declaratory judgment action necessarily began to run
on Selective’s duty to defend and indemnify Hospitality Group on the date
Selective received the complaint in the Nemcheck Action. There is no
antagonistic claim, actual controversy, or inevitable litigation from the
insurance company’s point of view until it concludes that the claims made in
a third party’s action are “confined to a recovery that the policy does not
cover.” See Am. & Foreign Ins. Co., 2 A.3d at 542; Bromwell, 716 A.2d
at 670. Until an insurance company has a sufficient factual basis to decline
to defend (and thus, decline to indemnify) its insured in a third party’s
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action, there is no justiciable controversy for the trial court to decide, and no
cause of action for declaratory judgment. See Donahue, 98 A.3d at 1229;
Bromwell, 716 A.2d at 670.
It is true that in some cases – including American & Foreign
Insurance Co. and Aetna Casualty & Surety Co., upon which the
appellees and the trial court rely – the receipt of the complaint by the
insurance company would trigger the running of the limitations period for
filing a declaratory judgment action regarding an insurance company’s duty
to defend and indemnify. Common to both American & Foreign
Insurance Co. and Aetna Casualty & Surety Co. is that the respective
insurance companies made a determination based solely on the complaint or
amended complaint that the defense and indemnification requests made
were for claims that the insurance policies did not provide coverage.9 Thus,
9
In American & Foreign, the insurance company provided the insured
with commercial liability and umbrella policies, which insured against, inter
alia, bodily injury. Am. & Foreign Insurance Co., 2 A.3d at 529. During
the coverage period, the insured was named as a defendant in a lawsuit filed
against numerous firearms wholesalers and distributers brought by the
National Association for the Advancement of Colored People and the National
Spinal Cord Injury Association. The complaint alleged that the defendants
caused bodily injury to association members and “sought injunctive relief
and monetary damages to establish a fund for the education, supervision
and regulation of gun dealers,” but not damages to compensate the
association members injured. Id. The insured sought defense and
indemnification, asserting that the complaint fell under the “bodily injury”
coverage provided. Id. The insurance company provided a defense
pursuant to a reservation of rights. Id. Several months later, following the
receipt of the fourth amended complaint in the underlying action, the
insurance company informed the insured that it did not believe it was under
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a comparison of the four corners of the complaints with the four corners of
the insurance policies in those cases promptly provided the insurers with a
basis to seek a declaration that the companies had no duty to defend or
indemnify the insureds. See Am. & Foreign Ins. Co., 2 A.3d at 529-31;
Aetna Casualty & Surety Co., 650 A.2d at 96-97, 100.
a duty to defend or indemnify and filed a declaratory judgment action for
such a declaration. Id. at 530. The trial court found that the insurance
company did not have a duty to defend – the insurance policy would
compensate a claimant for damages resulting from a physical injury, and the
complaint sought damages not for bodily injury but as a contribution to a
fund designed to educate, supervise and regulate gun dealers. Id. at 531.
As such, the trial court granted summary judgment in favor of the insurance
company, and this Court affirmed. Id.
In Aetna Casualty, the complaint at issue alleged that the insureds, a
teacher and her husband, committed unspeakable acts of sexual, physical
and mental abuse of three of the insured-wife’s four-year-old female
students. Aetna Casualty & Surety Co., 650 A.2d at 96. The victims and
their parents sought actual damages for money expended to treat the
physical and mental injuries sustained as a result of the insured’s intentional
conduct and punitive damages for the insureds’ “outrageous conduct in
wanton and reckless disregard of minor-plaintiffs’ rights.” Id. at 96-97. The
abuse allegedly occurred at the school and at the insureds’ home, and the
insureds thus sought coverage under their homeowner’s insurance policy
they had through the insurer. Id. at 97. The insurance company did not
provide a defense, and instead filed a declaratory judgment action seeking a
declaration based upon the allegations contained in the complaint. Id. at
97. After examining the insurance policy (which excluded medical payments
resulting from bodily injury expected or intended by the insured and
personal injury caused by a violation of the law) and the complaint (which,
as noted, sought actual damages for medical expenses resulting from the
insureds’ intentional conduct and punitive damages), the trial court granted
summary judgment in favor of the insurance company. Id. at 97; see also
id. at 100 (stating that as a matter of law, “an insurer owes no duty to
indemnify an insured on an award of punitive damages”). On appeal, this
Court affirmed. Id. at 100.
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Contrary to the trial court’s conclusion in the case at bar, however, the
receipt of the complaint does not ipso facto begin the four-year limitations
period for an insurance company to file a declaratory judgment action
regarding its duty to defend and indemnify an insured. Rather, the statute
of limitations for a declaratory judgment action brought by an insurance
company regarding its duty to defend and indemnify begins to run when a
cause of action for a declaratory judgment accrues. See 42 Pa.C.S.A. §§
5502(a), 7538(a). This requires a determination of when the insurance
company had a sufficient factual basis to present the averments in its
complaint for declaratory judgment that the insurance policy at issue does
not provide coverage for the claims made in the third party’s action. It is
possible for the insurance company to possess sufficient information at the
time it receives a complaint to cause the statute of limitations to begin to
run; or that may not occur until the case develops and the claim is
winnowed down to a recovery the insurance company believes is not covered
by the policy of insurance. This requires the trial court to determine when
the insurance company had a sufficient factual basis to support its
contentions (as set forth in its complaint for declaratory judgment) that it
has no duty to defend or indemnify the insured.
In this case, the trial court made no assessment of when Selective had
sufficient information for it to reach its conclusion that the policies in
question did not provide coverage for the claims made against Hospitality
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Group in the Nemcheck Action. The trial court decided that Selective filed its
declaratory judgment action out of time solely based upon the date Selective
received the complaint in the Nemcheck Action. See Trial Court Opinion,
8/7/14, at 3-4. The parties raise competing arguments regarding when
Selective had sufficient information to know that the policies of insurance did
not provide coverage for the claims raised in the Nemcheck Action. This is a
question of fact to be decided in the trial court in the first instance. We
therefore reverse the trial court’s order granting summary judgment on that
basis.10
We would be remiss if we failed to highlight the esoteric nature of this
decision. In the case before us, there was no determination on the merits of
whether Selective in fact had a duty to defend or indemnify Hospitality
Group in the Nemcheck Action. By finding that the statute of limitations had
run on Selective’s ability to file a declaratory judgment action, the trial court
simply foreclosed Selective from obtaining a predetermination of whether it
had a duty to provide a defense in the action or indemnification in the event
of a finding that Hospitality Group was liable. The trial court did nothing to
impair or affect Selective’s ability to decide on its own whether it had a duty
to defend and/or indemnify Hospitality Group in the Nemcheck Action.
10
As previously stated, we do not remand this case for the trial court to
make the necessary factual determination of when Selective had a sufficient
factual basis to trigger the running of the statute of limitations because the
case is technically moot. See supra, n.1.
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We reiterate that an insurance company is not required to file a
declaratory judgment action prior to withdrawing its defense or refusing to
defend or indemnify an insured in a third party’s action. As stated above, a
declaratory judgment action is simply a “judicial searchlight[]” to determine
whether or not there exists a legal right, status or duty. Wagner, 582 A.2d
at 365; 42 Pa.C.S.A. § 7532. While a judicial declaration constitutes a final
determination of the legal rights and duties of the parties arising under an
insurance policy, Gen. Acc. Ins. Co. of Am., 692 A.2d at 1094; 42
Pa.C.S.A. § 7532, a declaration that the insurance company owes no duty to
defend and/or indemnify an insured in a third party’s action does little more
than protect the insurance company from a later action sounding in breach
of contract or bad faith based upon the insurance company’s refusal to
defend and/or indemnify the insured. Thus, despite the trial court’s
conclusion that Selective filed its declaratory judgment action out of time,
Selective was free to withdraw its defense and/or refuse to indemnify
Hospitality Group in the Nemcheck Action if it determined that the insurance
policies in question did not provide coverage for the claims made.
Order reversed. Jurisdiction relinquished.
Gantman, P.J., Bender, P.J.E. and Judges Olson and Ott join the
Opinion.
Ford Elliott, P.J.E. files a Dissenting Opinion in which Judges Panella
and Shogan join and Mundy, J. concurs in the result.
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Mundy, J. files a Dissenting Opinion.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 7/7/2015
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