Professional Flooring Co. v. Bushar Corp.

J-A08026-16
2016 PA Super 274PROFESSIONAL FLOORING COMPANY, IN THE SUPERIOR COURT OF
INC. PENNSYLVANIA
v.
BUSHAR CORPORATION
APPEAL OF: ROSE LINE, INC. No. 1594 EDA 2015
Appeal from the Order Entered April 21, 2015
In the Court of Common Pleas of Montgomery County
Civil Division at No(s): 05-20924
BEFORE: BOWES, OLSON and STRASSBURGER,* JJ.
OPINION BY OLSON, J.: FILED DECEMBER 06, 2016
Appellant, Rose Line, Inc., appeals from the order entered on April 21,
2015, granting the “Motion for Order Directing Distribution of Certain Escrow
Funds Held by Class Action Counsel,” which was filed by The Brethren Mutual
Insurance Company (hereinafter “Brethren”). After careful consideration, we
affirm.
A previous panel of this Court summarized some of the facts that
underlie this appeal. We quote the well-written prior opinion and intersperse
certain facts that are relevant only to the current appeal:
[On] May 15, 2001[, a] fire [] destroyed a commercial
complex known as the Continental Business Center (the
“Business Center”) located in Bridgeport, Pennsylvania.
Over [70] commercial tenants[, including Appellant,] lost
their businesses and hundreds of individuals suffered
damages. . . .
[At the time of the fire, Brethren insured Appellant under a
business owner’s insurance policy. In accordance with the
*Retired Senior Judge assigned to the Superior Court.
J-A08026-16
insurance policy, Brethren paid Appellant a total of
$32,502.67 for losses Appellant sustained as a result of the
fire.
Under the insurance policy, Brethren was subrogated to the
rights of Appellant to “recover all or part of any payment
[Brethren] made under th[e] policy.” Commercial
Insurance Policy between Appellant and Brethren, from
1/19/02 to 1/19/03, at ¶ J. Further, when Appellant
received payment from Brethren, Appellant signed a
subrogation receipt which declared:
[Appellant] covenants and agrees to cooperate fully with
[Brethren] in the prosecution of all subrogation claims. .
. . It is understood and agreed by the parties hereto
that [Appellant] has not been fully indemnified by the
above payment and, therefore, will seek full
compensation of the damages sustained from third
parties responsible therefor. The subrogation rights of
[Brethren] are therefore subordinate to the right of
[Appellant] to be fully indemnified from the above
accident. [Brethren] therefore agrees not to pursue
third-party subrogation unless and until [Appellant] has
been fully indemnified by said third party. It is
specifically understood and agreed by the parties hereto
that [Brethren’s] subrogation right is subordinate to
[Appellant’s] right to seek third-party indemnification.
[Brethren] agrees not to enter into any settlement with
or to receive funds from any third party tortfeasor or
any other insurer without the prior written consent of
[Appellant].
Subrogation Receipt for Business Income Claims, 1/4/01, at
1; Subrogation Receipt for Business Personal Property and
Valuable Papers and Records Claims, 1/4/01, at 1.]
On May 24, 2001, six businesses affected by the fire,
Professional Flooring Co. (“Professional”), Limerick Carpet &
Flooring, Inc. (“Limerick”), [Appellant], Salmons Industries,
Inc. a/t/a Millie Switch (“Salmons”), Renu Electronics, Inc.
(“Renu”), and Purdy–Pak, Inc. [a/k/a] Tite Pak, Inc. and PPI
(“Purdy–Pak”), commenced a lawsuit in the Court of
Common Pleas of Montgomery County by filing a complaint
seeking to recover damages both on behalf of themselves
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and similarly-situated entities and individuals sustaining
damages in connection with the fire. The defendants
named in this 2001 complaint included various owners,
operators, and managers of the Business Center. After the
pleadings were closed, the six plaintiffs filed a motion: 1)
seeking class certification pursuant to Pa.R.C.P. 1702; 2)
requesting to be named as class representatives; and 3)
asking that “the law firms of Kline & Specter, P.C. and High
Swartz Roberts & Seidel, LLP be designated as counsel for
the class.” Memorandum Opinion and Order, 4/14/03, at 2.
After appropriate legal analysis, the trial court granted class
certification, designated the original six plaintiffs as the
class representatives, and held that “Kline & Specter, P.C.
and High, Swartz, Roberts & Seidel LLP are found to be
adequate and are designated as class counsel.” Id. at 11.
The court included within the class
All persons and entities who suffered losses resulting
from the fire that started on May 15, 2001 in the
Continental Business Center situate in Bridgeport,
Pennsylvania. Excluded from the class are defendants,
additional defendants which may be named later, and
their directors, officers, employees, affiliates and
subsidiaries, as well as government entities.
Id.
The court approved of a notice to each class member about
the pendency of the action and concerning each member’s
ability to opt out of the class action to pursue an individual
action for damages sustained in the fire. A packet
describing the class action was sent to each class member
with notice of their right to opt out of this litigation and to
file an individual lawsuit. None of the six original plaintiffs
elected to opt out of this action to pursue an individual
lawsuit.
Two years later, on May 14, 2003, Professional, Limerick,
[Appellant], Salmons, Renu, and Purdy–Pak commenced a
separate action in the Court of Common Pleas of
Montgomery County against various defendants who were
involved in the development, management, control,
maintenance, and operation of the Business Center. The
2001 and 2003 lawsuits were then consolidated at docket
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number 2005–20924, civil division, in the Court of Common
Pleas of Montgomery County.
...
In 2006, the class representatives obtained approval to file
an amended complaint that included other entities with
potential liability for the fire. On July 28, 2006, the class
representatives, on behalf of themselves and the class, filed
a “Consolidated Amended Class Action Complaint,” adding
more defendants. Consolidated Amended Class Action
Complaint, 7/28/06, at 1, 2. . . . After amendment, there
were [37] defendants included within the class action. This
lawsuit thereafter became captioned “In re: Bridgeport Fire
Litigation.” . . .
...
As trial approached, [17] defendants remained in th[e class]
action. . . . [Prior to trial, 15] defendants settled for $30
million. The trial court preliminarily approved this
settlement but deferred a hearing and final ruling as to that
matter. Trial against two remaining defendants commenced
in March 2008. During the course of trial, one of the
defendants settled for $4 million.
Trial continued for several weeks against the sole remaining
defendant, Universal Electric. The matter was submitted to
the jury, and during deliberations, the jury asked a question
that indicated that it had concluded that Universal Electric
was not liable. At that point, despite the tenor of the jury's
inquiry, class counsel [reached a settlement agreement
and] obtained another $1 million from Universal Electric.
Thus, the total settlement agreement reached with respect
to all defendants amounted to $35 million.
Notice of the settlement was distributed to class members,
and a fairness hearing was conducted on June 23, 2008,
where all class members were permitted to voice objections.
...
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In re: Bridgeport Fire Litigation, 8 A.3d 1270, 1273-1274, 1276-1277,
and 1280-1281 (Pa. Super. 2010) (internal footnotes and some internal
citations omitted).
The trial court approved the settlement between the class and the
settling defendants by order entered July 9, 2008. The trial court’s July 9,
2008 order further declared:
2. This Order expressly and permanently enjoins all Class
Members who have not validly excluded themselves from
filing, prosecuting or continuing any related claims or
additional lawsuits, claims or causes of action that were,
could have been or should have been asserted by the Class
against the Settling Defendants based upon or related to
damages incurred in connection with the May 15, 2001 fire
at the Continental Business Center.
...
4. All Class Members having previously been afforded the
opportunity to opt-out of the Class Action shall not be
permitted any further opportunity to opt-out of this
Settlement. . . .
5. In connection with the administration of the Settlement,
the Claims Administrator shall be required to:
a. review the claims forms and analyze the
completeness of the information contained therein;
b. analyze all documents submitted by Class Members in
support of their claims to ensure, among other things,
their authenticity and completeness;
c. determine whether the individual or entity submitting
the claim is entitled to recover funds from the
Settlement Fund as a Class Member;
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d. process and classify the claims forms, thereafter
tendering to Class Members the reimbursement to which
they are entitled by and from the Settlement;
e. report the results of processing all claims to Class
Counsel in a manner and time frame directed by Class
Counsel; and
f. file with the [trial c]ourt a full and complete
accounting of all funds distributed.
...
7. All determinations by the Claims Administrator shall be
final and non-appealable.
Trial Court Order, 7/9/08, at 1-2.
Following the trial court’s July 9, 2008 order, Appellant submitted a
claim form to the court-approved Claims Administrator. Appellant’s claim
form averred that the May 15, 2001 fire at the Continental Business Center
caused it to suffer a total of $378,416.98 in damages. Appellant’s Claim
Form, 8/29/08, at 1-2. Further, Brethren submitted a “subrogation interest
form” to the Claims Administrator, asserting a subrogation lien of
$32,503.00 from Appellant’s share of the settlement. See Letter from Class
Counsel to Appellant, 8/18/09, at 1-2.
On August 18, 2009, class counsel wrote a letter to Appellant,
informing Appellant:
Following a review and analysis of [Appellant’s] claim, the
Claims Administrator has awarded [Appellant] $91,099.99
as its net share of the settlement of the Bridgeport Fire
Litigation, minus the asserted net subrogation lien that is
being withheld, as explained more fully below.
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The Claims Administrator found that [Appellant’s] total
gross loss was $135,205. The sum of all gross awards
totaled $32,649,050. Because the total awarded was less
than the $35,000,000 settlement amount, $2,350,950
remained to distribute. The Claims Administrator allocated
this additional money to all class members proportionally
per the [trial c]ourt’s order. Each class member’s share of
this money was based upon the ratio of their gross award in
relation to the total amount awarded to all claimants.
The total fees and costs incurred in the prosecution and
administration of this case totaled $13,130,930.83. . . .
[Appellant’s] proportionate share of the fees and costs was
determined to be $54,377.31. . . .
In addition, interest has been accruing on the settlement
funds. . . . [Appellant’s] proportionate share of this accrued
interest is $1,559.00. This amount will be added to its net
share. . . .
[Appellant’s] insurance carrier, Brethren [], has already paid
to [Appellant] at least some of the damages it sustained in
the fire. [Brethren] has asserted a subrogation lien for
reimbursement of this amount, $32,503, from [Appellant’s]
share of the settlement. It is outside the scope of
responsibility of the Claims Administrator to determine what
amount, if any, [Brethren] is entitled to receive.
Accordingly, the Claims Administrator is withholding
$19,430.81, which is the amount of the subrogation lien
asserted less [Brethren’s] proportional share of the
[attorneys’] fees and costs. Please contact Brethren [] to
resolve this lien. Please understand that the Claims
Administrator is not permitted to assist [Appellant] in this
regard.
Enclosed is a Release. By signing the Release, [Appellant]
agrees to accept the Claims Administrator’s award as full
and final settlement of its claims. . . .
Letter from Class Counsel to Appellant, 8/18/09, at 1-2.
On August 20, 2009, Appellant signed the following release:
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I, Arnold Nadler, President of [Appellant,] accept the
amount of $91,099.99, plus $1,559.02 interest, as
determined by the Claims Administrator, as full and final
settlement of any and all claims arising out of the fire at the
Continental Business Center on May 15, 2001. I understand
that the Claims Administrator's determination is final and
non-appealable. [Appellant,] its principals, affiliates and
assigns, forever remise, release, discharge and waive its
right to pursue any and all claims, objections and appeals
relating to the Bridgeport Fire Litigation and the claims
administration process. I understand that $19,430.81 is
being withheld from distribution pending resolution of my
insurance carrier's subrogation lien.
See Letter from Class Counsel to Appellant, 8/18/09, at Attached Release;
see also In re: Bridgeport Fire Litigation, 8 A.3d at 1281.
On April 3, 2015, Brethren filed a “Motion for Order Directing
Distribution of Certain Escrow Funds Held by Class Action Counsel”
(hereinafter “Brethren’s Motion for Order Directing Distribution”). Within the
motion, Brethren claimed that it was entitled to the $19,430.81 that was
being held in escrow, as it paid Appellant $32,503.00 for losses Appellant
sustained in the fire and it, therefore, possessed a valid subrogation lien
over this portion of Appellant’s award. Brethren’s Motion for Order Directing
Distribution, 4/3/15, at 1-4.
Appellant responded to Brethren’s motion and argued that Brethren
was not entitled to the $19,430.81. According to Appellant, Brethren was
not entitled to the funds held in escrow because Appellant had not been
made whole by the class action payment – and Brethren was not entitled to
subrogation unless and until Appellant had been made whole for the losses
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Appellant sustained in the fire. Appellant’s Response to Brethren’s Motion,
4/13/15, at 2.
On April 17, 2015, the trial court held oral argument on Brethren’s
motion and, at the conclusion of the proceeding, the trial court granted
Brethren’s motion. The trial court’s written order, directing class counsel to
distribute the $19,430.81 to Brethren, was entered on April 21, 2015 and
Appellant filed a timely notice of appeal. See Trial Court Order, 4/21/15, at
1. Appellant raises three issues on appeal:
[1.] Whether the trial court erred in agreeing with Brethren
that it was a third party beneficiary to a settlement release
between Appellant [] and various third party tortfeasors
sued in the underlying litigation[?]
[2.] Whether the trial court, in granting [Brethren’s] Motion
for Order Directing Distribution . . . , committed an error of
law by disregarding Pennsylvania law, the law of this case,
and the contractual agreements of the parties in concluding
that [Appellant] was not required to be made whole before
Brethren was entitled to subrogation[?]
[3.] Whether the trial court erred in concluding that
[Appellant] was made whole when the settlement payments
it received did not cover its total loss and expenses incurred
by [Appellant] in litigating its claims[?]
Appellant’s Brief at 2-3.1, 2
____________________________________________
1
Within the trial court’s Rule 1925(a) opinion, the court declares that
Appellant did not serve the court reporter with notice to transcribe the April
17, 2015 oral argument on Brethren’s motion. According to the trial court, it
was “unable to prepare an opinion without the transcript” of the April 17,
2015 proceeding and, therefore, all of Appellant’s issues “should be deemed
waived” on appeal. Trial Court Opinion, 7/15/15, at 1-2. The trial court’s
(Footnote Continued Next Page)
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Before addressing the merits of this appeal, we must address
Brethren’s claim that Appellant waived its right to challenge the Claims
Administrator’s “award of funds” to Brethren. According to Brethren,
Appellant waived its right to challenge the “award of funds” because
Appellant did not opt out of the class action settlement and Appellant
“signed a release which expressly stated that [Appellant] accepted the
[C]laims [A]dministrator’s award and ‘waived its right to pursue any and all
claims . . . related to . . . the claims administration process.’” Brethren’s
Brief at 2. Brethren’s claim fails.
The meaning of an unambiguous written instrument presents a
question of law for resolution by the court and is subject to de novo review.
Seven Springs Farm, Inc. v. Croker, 801 A.2d 1212, 1216 (Pa. 2002).
When the words in a writing are unequivocal, the writing speaks for itself,
and a meaning cannot be given to it other than that expressed. Marcinak
v. S.E. Greene Sch. Dist., 544 A.2d 1025, 1027-1028 (Pa. Super. 1988),
_______________________
(Footnote Continued)
reasoning is mistaken, given that the April 17, 2015 proceeding on
Brethren’s motion constituted an oral argument and not a hearing; and,
since the parties did not present any evidence during the April 17, 2015 oral
argument, the trial court should not have needed a transcript to prepare a
proper Rule 1925(a) opinion. Further, we note that the April 17, 2015 oral
argument transcript is included in the certified record that was forwarded to
this Court.
2
For ease of discussion, we have re-numbered Appellant’s claims on appeal.
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quoting E. Crossroads Ctr., Inc. v. Mellon-Stuart Co., 205 A.2d 865 (Pa.
1965).
Moreover, principles of contract law govern the interpretation and
applicability of settlement agreements. See Pennsbury Vill. Assocs., LLC.
v. McIntyre, 11 A.3d 906, 914 (Pa. 2011). Questions of contract
interpretation are matters of law that we review de novo. Tuscarora
Wayne Mut. Ins. Co. v. Kadlubosky, 889 A.2d 557, 560 (Pa. Super.
2005). A court determines the effect of a release from its language, and we
give language its ordinary meaning unless the parties clearly intended a
different meaning. In re Estate of Bodnar, 372 A.2d 746, 748 (Pa. 1977).
“A release ordinarily covers only such matters as can fairly be said to have
been within the contemplation of the parties when the release was given.”
Id. We must read portions of contractual language interdependently,
considering their combined effects in the totality of the document.
Trombetta v. Raymond James Fin. Servs., 907 A.2d 550, 560 (Pa.
Super. 2006). Additionally, “specific language controls the general.” Id.As Brethren notes, the trial court’s July 9, 2008 order approved the
class settlement and declared:
5. In connection with the administration of the Settlement,
the Claims Administrator shall be required to:
a. review the claims forms and analyze the
completeness of the information contained therein;
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b. analyze all documents submitted by Class Members in
support of their claims to ensure, among other things,
their authenticity and completeness;
c. determine whether the individual or entity submitting
the claim is entitled to recover funds from the
Settlement Fund as a Class Member;
d. process and classify the claims forms, thereafter
tendering to Class Members the reimbursement to which
they are entitled by and from the Settlement;
e. report the results of processing all claims to Class
Counsel in a manner and time frame directed by Class
Counsel; and
f. file with the [trial c]ourt a full and complete
accounting of all funds distributed.
...
7. All determinations by the Claims Administrator shall be
final and non-appealable.
Trial Court Order, 7/9/08, at 1-2.
Further, on August 20, 2009, Appellant signed the following release:
I, Arnold Nadler, President of [Appellant] accept the amount
of $91,099.99, plus $1,559.02 interest, as determined by
the Claims Administrator, as full and final settlement of any
and all claims arising out of the fire at the Continental
Business Center on May 15, 2001. I understand that the
Claims Administrator's determination is final and non-
appealable. [Appellant,] its principals, affiliates and assigns,
forever remise, release, discharge and waive its right to
pursue any and all claims, objections and appeals relating to
the Bridgeport Fire Litigation and the claims administration
process. I understand that $19,430.81 is being withheld
from distribution pending resolution of my insurance
carrier's subrogation lien.
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See Letter from Class Counsel to Appellant, 8/18/09, at Attached Release;
see also In re: Bridgeport Fire Litigation, 8 A.3d at 1281.
According to Brethren, since Appellant did not opt out of the class, it
was bound by the trial court’s July 9, 2008 order that “[a]ll determinations
by the Claims Administrator [are] final and non-appealable.” See Brethren’s
Brief at 5 and 8; see also Trial Court Order, 7/9/08, at 1-2. Moreover,
since Appellant signed the release, Appellant agreed to “forever remise,
release, discharge and waive its right to pursue any and all claims,
objections and appeals relating to the Bridgeport Fire Litigation and the
claims administration process” – including, Brethren claims, the Claims
Administrator’s “award” of $19,430.81 to Brethren. See Brethren’s Brief at
8-9; see also Letter from Class Counsel to Appellant, 8/18/09, at Attached
Release; see also In re: Bridgeport Fire Litigation, 8 A.3d at 1281.
Brethren’s argument on appeal fails because, under the plain terms of
the release, the Claims Administrator did not “award” Brethren the
$19,430.81. Instead, the Claims Administrator “withheld” the $19,430.81
from distribution “pending resolution of [Brethren’s] subrogation lien.”
Letter from Class Counsel to Appellant, 8/18/09, at Attached Release
(emphasis added); see also In re: Bridgeport Fire Litigation, 8 A.3d at
1281. The wording of this release expressly contemplates a subsequent
resolution of Brethren’s subrogation claim through some independent
proceeding – and thus contradicts Brethren’s position that the Claims
Administrator had made a “determination[]” on Brethren’s subrogation
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claim. See Letter from Class Counsel to Appellant, 8/18/09, at Attached
Release; see also In re: Bridgeport Fire Litigation, 8 A.3d at 1281.
Therefore, under the plain terms of the release, the Claims
Administrator did not make a “determination[]” on the propriety of
Brethren’s subrogation claim and the release expressly contemplated that
future proceedings would occur, outside of the claims administration
process, to determine Brethren’s subrogation claim. As such, Brethren’s
argument that the Claims Administrator made a final and non-appealable
award of its entire subrogation claim by placing the value of the asserted
claim in escrow is unavailing. We now proceed to determine Appellant’s
issues on appeal.
Appellant’s first numbered issue on appeal declares that “the trial court
erred in agreeing with Brethren that it was a third party beneficiary to a
settlement release between Appellant [] and various third party tortfeasors
sued in the underlying litigation” and that “the settlement release did not
prevent [Appellant] from contesting Brethren’s lien.” Appellant’s Brief at
34-36. We have determined that the Claims Administrator did not make a
final determination regarding Brethren’s subrogation claim. Therefore, we
need not discuss Appellant’s first numbered claim further.
Appellant’s remaining issues on appeal are essentially singular and
may be summarized as follows: the trial court erred in concluding that
Appellant’s acceptance of its share of the class action settlement made
Appellant “whole” for the losses it sustained as a result of the May 15, 2001
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fire. Further, Appellant claims that, since it was not made whole, Brethren
was not entitled to subrogation and the trial court erred in distributing funds
to Brethren.
Our Supreme Court has explained the equitable doctrine of
subrogation as follows:
[the Pennsylvania Supreme Court has] repeatedly held that
subrogation is an equitable doctrine intended to place the
ultimate burden of a debt upon the party primarily
responsible for the loss. Subrogation allows the subrogee
(in this case the insurer) to step into the shoes of the
subrogor (the insured) to recover from the party that is
primarily liable (the third party tortfeasor) any amounts
previously paid by the subrogee to the subrogor. . . . As
well-stated by the Superior Court,
[W]hen an individual who has been indemnified for a
loss subsequently recovers for the same loss from a
third party, equity compels that the indemnifying party
be restored that which he paid the injured party;
thereby placing the cost of the injury upon the party
causing the harm while preventing the injured party
from profiting a “double recovery” at the indemnifying
party’s expense.
Jones v. Nationwide Prop. & Cas. Ins. Co., 32 A.3d 1261, 1270-1271
(Pa. 2011) (some internal citations omitted), quoting Allstate Ins. Co. v.
Clarke, 527 A.2d 1021, 1024 (Pa. Super. 1987).
Subrogation rights may arise by contract or by operation of law, but
those rights are always subject to considerations of equity and good
conscience. Jones, 32 A.3d at 1271. The underlying principle “is that the
burden of loss should rest on the party paid to assume the risk, and not on
an inadequately compensated insured, who is least able to shoulder the
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loss.” Id.; accord Wimer v. Pa. Employees Benefit Trust Fund, 939
A.2d 843, 853 (Pa. 2007) (subrogation is enforced to bring about substantial
justice, by placing the burden of a debt on the party who in good conscience
should pay it). Furthermore, “subrogation is not an inflexible legal concept”
but an exercise of equitable powers, and a court is to enforce subrogation
interests with “a proper equitable discretion” and “with a due regard for the
legal and equitable rights of others.” Daley-Sand v. W. Am. Ins. Co., 564
A.2d 965, 970 (Pa. Super. 1989).
To give effect to these equitable principles, the “made whole” doctrine
requires that an insured recover the full amount of its losses before an
insurer may pursue recovery under its subrogation rights. Heller v. Pa.
League of Cities & Municipalities, 32 A.3d 1213, 1219 n.12 (Pa. 2011).
Turning now to that doctrine,
COUCH ON INSURANCE describes the made whole doctrine as
follows: “where an insured is entitled to receive recovery for
the same loss from more than one source, e.g. the insurer
and the tortfeasor, it is only after the insured has been fully
compensated for all the loss that the insurer acquires a right
to subrogation, or is entitled to enforce its subrogation
rights.” 16 COUCH ON INSURANCE § 223:134 (3d Ed.)
(footnote omitted). Our courts have explained that the
made whole doctrine both ensures that the insured is fully
compensated for his or her injury before the insurer
recovers, in cases where there are insufficient funds to
satisfy both the insured and the insurer, and prevents the
insured from receiving dual recovery for the same loss from
both the tortfeasor and the insurer.
Jones, 32 A.3d at 1271 (some citations omitted).
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The “made whole” doctrine is controlling law in Pennsylvania. Id. at
1267 n.5 (“Pennsylvania has applied the ‘made whole’ doctrine repeatedly”).
As applied in this Commonwealth, “equity will not allow the subrogee’s claim
to be placed ahead of the subrogor’s.” Daley-Sand, 564 A.2d at 970.
In the instant case, Brethren agreed to subordinate any subrogation
claim to Appellant’s full recovery by an express term in two subrogation
receipts, which read:
[Appellant] covenants and agrees to cooperate fully with
said Insurance Company [Brethren] in the prosecution of all
subrogation claims, and to procure and furnish all papers
and documents necessary in such proceedings and to attend
court and testify if [Brethren] deems such to be necessary,
but it is understood that [Appellant] is to be saved harmless
from costs in such proceedings. It is understood and
agreed by the parties hereto that [Appellant] has not been
fully indemnified by the above payment and, therefore, will
seek full compensation of the damages sustained from third
parties responsible therefor. The subrogation rights of
[Brethren] are therefore subordinate to the right of
[Appellant] to be fully indemnified from the above accident.
[Brethren] therefore agrees not to pursue third-party
subrogation unless and until [Appellant] has been fully
indemnified by said third party. It is specifically understood
and agreed by the parties hereto that [Brethren’s]
subrogation right is subordinate to [Appellant’s] right to
seek third-party indemnification. [Brethren] agrees not to
enter into any settlement with or to receive funds from any
third party tortfeasor or any other insurer without the prior
written consent of [Appellant].
Subrogation Receipt for Business Income Claims, 1/4/01, at 1; Subrogation
Receipt for Business Personal Property and Valuable Papers and Records
Claims, 1/4/01, at 1.
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In this case, the “made whole” limitation on Brethren’s subrogation
interest thus arises both from an express, contractual declaration and by
implication under the common law, as a matter of equity and public policy.
See AAA Mid-Atlantic Ins. Co. v. Ryan, 84 A.3d 626, 634 (Pa. 2014);
Cerankowski v. State Farm Mut. Auto. Ins. Co., 783 A.2d 343, 347-348
(Pa. Super. 2001). For these reasons, the “made whole” doctrine is
controlling law in this case, and it requires that Appellant recoup the full
value of its losses before Brethren may recover. See Heller, 32 A.3d at
1219 n.12.
The question on appeal is whether Appellant has been “made whole”
by accepting its disbursement from the class settlement. With respect to
this issue, Appellant does not question the validity of the settlement, its
gross allocation from the settlement fund, or the process by which the
Claims Administrator made its allocation. Appellant’s Brief at 27-28.
Nevertheless, Appellant contends that the disbursement did not fully
compensate it for its losses because: 1) Appellant claimed that it suffered
$378,416.98 in losses from the fire, but the Claims Administrator only
conferred upon Appellant a gross award of $145,477.30 (plus interest)3 and
____________________________________________
3
Within Appellant’s brief to this Court, Appellant declares that the Claims
Administrator “awarded [Appellant] $135,205 out of the $35 million
settlement fund.” Appellant’s Brief at 5. Appellant is incorrect. As class
counsel’s letter to Appellant declares:
(Footnote Continued Next Page)
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_______________________
(Footnote Continued)
Following a review and analysis of [Appellant’s] claim, the
Claims Administrator has awarded [Appellant] $91,099.99
as its net share of the settlement of the Bridgeport Fire
Litigation, minus the asserted net subrogation lien that is
being withheld, as explained more fully below.
The Claims Administrator found that [Appellant’s] total
gross loss was $135,205. The sum of all gross awards
totaled $32,649,050. Because the total awarded was less
than the $35,000,000 settlement amount, $2,350,950
remained to distribute. The Claims Administrator allocated
this additional money to all class members proportionally
per the [trial c]ourt’s order. Each class member’s share of
this money was based upon the ratio of their gross award in
relation to the total amount awarded to all claimants.
The total fees and costs incurred in the prosecution and
administration of this case totaled $13,130,930.83. . . .
[Appellant’s] proportionate share of the fees and costs was
determined to be $54,377.31. . . .
In addition, interest has been accruing on the settlement
funds. . . . [Appellant’s] proportionate share of this accrued
interest is $1,559.00. This amount will be added to its net
share. . . .
Letter from Class Counsel to Appellant, 8/18/09, at 1-2.
Further, the release declares that Appellant “accept[ed] the amount of
$91,099.99, plus $1,559.02 interest, as determined by the Claims
Administrator, as full and final settlement of any and all claims arising out
the fire at the Continental Business Center on May 15, 2001.” See Letter
from Class Counsel to Appellant, 8/18/09, at Attached Release; see also In
re: Bridgeport Fire Litigation, 8 A.3d at 1281.
As the letter from class counsel makes clear, the Claims Administrator
determined that Appellant suffered a total gross loss of $135,205.00.
However, since the “sum of all gross awards totaled $32,649,050” – and the
total amount of the settlement was $35,000,000.00 – the Claims
Administrator still needed to award the additional $2,350,950.00 to the
class. The Claims Administrator did so by “allocat[ing the $2,350,950.00] . .
(Footnote Continued Next Page)
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2) even if the gross award established Appellant’s total loss, Brethren is still
not entitled to subrogation because “[t]he fees and costs assessed to
[Appellant] by the [Claims] Administrator far exceeded” the insurance
payment. Appellant’s Brief at 26-34. Both of Appellant’s claims fail.
The Pennsylvania Supreme Court has held that, for subrogation
purposes, where an insured brings suit against a tortfeasor for his “whole
loss,” “the verdict must be considered as representing the whole loss.”
Stoughton v. Mfr.’s Natural Gas Co., 30 A. 1001 (Pa. 1895); see also
Gallop v. Rose, 616 A.2d 1027, 1031 (Pa. Super. 1992) (“[t]hus, [the
insurer] had no equitable right to subrogation until [the insured’s] total
damages were ascertained and recouped, a condition precedent met when
the jury returned a verdict of $100,000.00”) (internal emphasis omitted). In
other words, where an insured sues his tortfeasor for the entirety of his loss
_______________________
(Footnote Continued)
. to all class members proportionally per the [trial c]ourt’s order.” Letter
from Class Counsel to Appellant, 8/18/09, at 1-2. The additional amount
allocated to Appellant from the remaining $2,350,950.00 was $10,272.30.
See [$91,099.99subnote.a – ($135,205.00subnote.b – $54,377.31subnote.c) =
$10,272.30]. Thus, the Claims Administrator provided Appellant with a total
gross award of $145,477.30 (plus interest). See [$135,205.00 +
$10,272.30 = $145,477.30].
subnote.a. $91,099.99 constitutes Appellant’s net share of the entire
settlement.
subnote.b. $135,205.00 constitutes Appellant’s total gross loss.
subnote.c. $54,377.31 constitutes the attorneys’ fees and costs
attributable to Appellant’s gross share of the entire settlement.
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and then receives a verdict or a decision in his favor, the amount of the
recovery, ipso facto, fully compensates the insured for his losses. Further,
since the insured is “made whole” and fully compensated by the verdict, the
indemnifying insurer is entitled to enforce its subrogation rights on the
recovery – so as to “prevent the insured from receiving dual recovery for the
same loss from both the tortfeasor and the insurer.” See Jones, 32 A.3d at
1271
In the case at bar, Appellant was a class member in the underlying
action and, following the $35,000,000.00 class settlement, the trial court
ordered Appellant to participate in a claims process whereby the Claims
Administrator would: review Appellant’s claims of loss; analyze the
documents supporting Appellant’s loss claims to ensure “their authenticity
and completeness;” and, determine whether and in what amount Appellant
was entitled to recover from the settlement fund. Trial Court Order, 7/9/08,
at 1-2. Appellant then submitted a claim to the Claims Administrator,
averring that it suffered a total of $378,416.98 in damages from the fire.
Appellant’s Claim Form, 8/29/08, at 1-2. Further, when Appellant submitted
its claim, it knew that “[a]ll determinations by the Claims Administrator shall
be final and non-appealable.” Trial Court Order, 7/9/08, at 1-2.
After reviewing Appellant’s claim and supporting documents, the
Claims Administrator came to the factual determination that Appellant’s
“total gross loss [from the fire] was $135,205.” Letter from Class Counsel
to Appellant, 8/18/09, at 1-2. Further, the Claims Administrator arrived at
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the factual determination that Appellant’s total losses were $135,205.00 –
and not $378,416.98 – even though the Claims Administrator was not
constrained by the total settlement amount. To be sure, the Claims
Administrator concluded that the sum of all gross awards from the class was
$32,649,050.00 – which was $2,350,950.00 less than the total settlement
amount. Letter from Class Counsel to Appellant, 8/18/09, at 1-2. As such,
had the Claims Administrator believed that Appellant’s total gross loss
exceeded $135,205.00, the Claims Administrator possessed sufficient
additional funds to compensate Appellant for the hypothetical, additional
loss.
In this case, Appellant was operating under a court-ordered claims
process where Appellant sought to recover its entire loss from the fire and
where a court-approved Claims Administrator arrived at a factual
determination that Appellant’s total gross loss from the fire was
$135,205.00. Appellant’s total loss has thus been ascertained, by the
factfinder, to be $135,205.00.
We see no reason to treat this situation any differently than where an
insured sues his tortfeasor for the entirety of his loss and then receives a
verdict or a decision in his favor. In either case (whether determined by a
Claims Administrator under a court-ordered claims process or by a
factfinder’s verdict or decision following trial), there has been a legally
binding determination that the insured suffered a certain, monetary amount
of damages – which “must be considered as representing the whole loss.”
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Stoughton, 30 A. at 1001. As such, in accordance with our Supreme
Court’s precedent, we conclude that the trial court did not err when it held
that the Claims Administrator’s determination in this case “must be
considered as representing [Appellant’s] whole loss.” Stoughton, 30 A. at
1001.4, 5
Appellant’s claim to the contrary fails.
____________________________________________
4
Certainly, since the Claims Administrator determined that Appellant’s total
gross loss from the fire was $135,205.00 (plus interest) and the Claims
Administrator ultimately declared that Appellant was entitled to a total gross
award of $145,477.30 (plus interest), it is apparent that Appellant was
more than fully compensated for its losses in this case.
5
We hold that, in this case, the Claims Administrator’s factual assessment of
Appellant’s total loss is akin to a factfinder’s verdict or decision following
trial. See Stoughton, 30 A. at 1001. Nevertheless, we also note that
Pennsylvania courts have held that, “when a subrogor settles instead of
pressing his suit against an alleged tortfeasor to verdict, he cannot defeat a
subrogee’s claim by asserting that his loss exceeded the settlement
recovery” and that “[w]hen a subrogor settles, he waives his right to a
judicial determination of his losses, and conclusively establishes the
settlement amount as full compensation for his damages.” See Associated
Hosp. Serv. of Phila. v. Pustilnik, 396 A.2d 1332, 1337-1338 (Pa. Super.
1979), vacated on other grounds, 439 A.2d 1149 (Pa. 1981). Further,
although our opinion in Pustilnik was vacated by the Pennsylvania Supreme
Court on other grounds, the principle espoused in Pustilnik stemmed from
our Supreme Court’s opinion in Illinois Automobile Insurance Exchange
v. Braun, 124 A. 691 (Pa. 1924), where, following settlement with the
tortfeasor, the insureds claimed that they were not made whole because
their losses exceeded the settlement amount. The Braun Court held:
“[w]hile it is true the amount claimed from the [tortfeasor] was greater than
the total [the insureds] received from [both the tortfeasor and insurer],
the[] [insureds] did not test out what their full loss was by pressing the suit
against the [tortfeasor] to verdict, and therefore cannot avail themselves of
the principle they seek to invoke. . . . It would never do in administering
such an equitable doctrine as subrogation to permit the insured to defeat
recovery of any sum from him by his insurer merely by making claim as to
his total loss without having his loss ascertained.” Id. at 693. Moreover, we
(Footnote Continued Next Page)
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Finally, Appellant claims that, even if the gross award established
Appellant’s total loss, Brethren is still not entitled to subrogation because
“[t]he fees and costs assessed to [Appellant] by the [Claims] Administrator
far exceeded” the insurance payment. Appellant’s Brief at 26-34. This claim
fails.
At the outset, Appellant has cited no binding precedent that would
support its claim that it is not responsible for the attorneys’ fees and costs
that were necessary to produce the class settlement and Appellant’s own
recovery from the tortfeasors.6 Moreover, we conclude that Appellant’s
proposed rule of law would be inequitable and would permit Appellant double
recovery. See Daley-Sand, 564 A.2d at 969-970 (“[s]ubrogation is an
equitable principle. . . . Thus, whatever the contractual language regarding
_______________________
(Footnote Continued)
note that, although the Supreme Court vacated our opinion in Pustilnik on
other grounds, the Supreme Court appeared to agree with our holding in
Pustilnik that the settlement amount constitutes “full compensation” for an
insured’s damages. See Associated Hosp. Serv. of Phila. v. Pustilnik,
439 A.2d 1149 (Pa. 1981) (vacating the Superior Court opinion, but
rejecting the insured’s claim that the Superior Court erred “in refusing to
reduce Blue Cross’s recovery by 50% to reflect the ‘doubtfulness’ of [the
insured’s] claim against [the tortfeasor], as the trial court had done;” the
Supreme Court held: “[the insured’s] contention was properly rejected as
meritless by the Superior Court, see Illinois Automobile Insurance
Exchange v. Braun, 124 A. 691 (Pa. 1924), and does not warrant further
discussion”); see also Allstate Ins. Co. v. Clarke, 527 A.2d 1021, 1023
(Pa. Super. 1987) (stated in dicta).
6
To support its claim, Appellant has cited to two non-binding opinions from
the courts of common pleas. See Nationwide Mut. Ins. Co. v. Butler, 28
Pa. D. & C. 3d 627 (Westmoreland Cty. 1983); Nationwide Mut. Ins. Co.
v. Kintz, 27 Pa. D. & C. 3d 164 (Cumberland Cty. 1983).
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subrogation, the equitable nature of subrogation is not altered”); Clarke,
527 A.2d at 1024 (subrogation is intended to “prevent[] the injured party
from profiting a ‘double recovery’ at the indemnifying party’s expense”).
The class in this case was defined as:
All persons and entities who suffered losses resulting from
the fire that started on May 15, 2001 in the Continental
Business Center situate in Bridgeport, Pennsylvania.
Excluded from the class are defendants, additional
defendants which may be named later, and their directors,
officers, employees, affiliates and subsidiaries, as well as
government entities.
In re: Bridgeport Fire Litigation, 8 A.3d at 1274.
Both Appellant and Brethren “suffered losses resulting from the [May
15, 2001] fire,” since Appellant suffered its losses directly from the fire and
Brethren suffered a monetary loss when it paid Appellant for the insured
damages under the policy. Thus, contrary to Appellant’s claims in its reply
brief, both Appellant and Brethren were members of the same class. See
also Trial Court Order, 9/22/04, at 1 (granting Appellant’s petition to strike
Brethren’s opt-out of the class); Trial Court Opinion, 12/9/04, at 1-14.7
Given that both Appellant and Brethren were part of the same class,
both Appellant and Brethren benefitted from class counsel’s work (and
____________________________________________
7
Not only does Brethren meet the class definition, but the trial court struck
Brethren’s attempt to opt-out of the class after Appellant opposed the effort.
Trial Court Order, 9/22/04, at 1 (granting Appellant’s petition to strike
Brethren’s opt-out of the class); Trial Court Opinion, 12/9/04, at 1-14.
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associated costs) in creating the $35,000,000.00 common fund – and in
creating the total gross award of $145,477.30 (plus interest) to Appellant,
subject to Brethren’s subrogation lien $32,503.00. See Estate of
Wanamaker, 460 A.2d 824, 825 (Pa. Super. 1983) (“[A] litigant or a lawyer
who recovers a common fund for the benefit of persons other than himself
or his client is entitled to a reasonable attorney’s fee from the fund as a
whole. . . . The common-fund doctrine reflects the traditional practice in
courts of equity . . . and it stands as a well-recognized exception to the
general principle that requires every litigant to bear his own attorney’s fees.
. . . The doctrine rests on the perception that persons who obtain the
benefit of a lawsuit without contributing to its cost are unjustly enriched at
the successful litigant’s expense”) (quoting The Boeing Co. v. Van
Gemert, 444 U.S. 472 (1980)). As such, the only equitable result was for
Appellant and Brethren to pay a pro rata share of the attorneys’ fees and
costs.8 Certainly, any other holding would necessarily result in Brethren
____________________________________________
8
As noted, the Claims Administrator conferred upon Appellant a total gross
award of $145,477.30 (plus interest) and Brethren asserted a total
subrogation lien of $32,503.00 from this share. Thus, after subtracting
Brethren’s lien, Appellant’s gross share was $112,974.30 (plus interest). In
ordering the net distribution of $19,430.81 to Brethren, the trial court
required that both Brethren and Appellant bear their proportional share of
the attorneys’ fees and costs that were attributable to the total gross award.
Thus, of the $54,377.31 in attorneys’ fees and costs attributable to the total
gross award of $145,477.30, Brethren paid $13,072.19 (which is
approximately 40% of its $32,503.00 gross share in attorneys’ fees and
costs) and Appellant paid $41,305.12 (which is approximately 36% of its
$112,974.30 gross share in attorneys’ fees and costs).
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paying Appellant’s share of the attorneys’ fees and costs that were
necessary to obtain the class settlement and Appellant’s own gross award –
which Brethren was neither statutorily nor contractually obliged to do. This
would, by definition, permit Appellant double recovery at the expense of the
indemnifying insurer and, thus, run contrary to the equitable principles that
underlie the doctrine of subrogation.
Therefore, since the equitable result required that Appellant and
Brethren pay their pro rata shares of the attorneys’ fees and costs – and
since “[s]ubrogation is an equitable principle” – we conclude that the trial
court properly rejected Appellant’s claim that it was not made whole because
“[t]he fees and costs assessed to [Appellant] by the [Claims] Administrator
far exceeded” the insurance payment.
Judgment affirmed. Jurisdiction relinquished.
Bowes, J., joins this Opinion.
Strassburger, J., files a Dissenting Opinion.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 12/6/2016
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