Opinion
Civil Action No. 97-1267.
March 2, 2005
MATTHEW STOOL, POST AND SCHELL, P.C., PHILA, PA.
WILLIAM A. RUBERT, CAMPBELL CAMPBELL EDWARDS CONROY, WAYNE, PA.
CHESTER F. DARLINGTON, MARSHALL, DENNEHEY, WARNER, COLEMAN GOGGIN, PHILA, PA.
KENNETH T. LEVINE, NELSON LEVINE DE LUCA HORST BLUE BELL, PA.
MICHAEL R. NELSON, NELSON, LEVINE, DELUCA AND HORST, LLC, BLUE BELL, PA.
CLAUDIA D. McCARRON, NELSON LEVINE DELUCA HORST BLUE BELL, PA, Attorneys for Plaintiffs ROYAL INDEMNITY COMPANY.
ARTHUR S. ALEXION, ARTHUR S. ALEXION, LLC, JENKINTOWN, PA.
ERIC J. SCHREINER, PHILADELPHIA, PA.
NEIL G. EPSTEIN, ECKERT, SEAMANS, CHERIN MELLOTT, LLC, PHILADELPHIA, PA.
STEVEN R. WAXMAN, ECKERT SEAMANS CHERIN MELLOTT LLC, PHILADELPHIA, PA, Attorneys for Defendant DELI BY FOODARAMA, INC.
JOSEPH D. DEAL, COOPER LEVENSON APRIL, NIEDELMAN WAGENHEIM, CHERRY HILL, NJ.
RUSSELL L. LICHTENSTEIN, COOPER, PERSKIE, APRIL, NIEDELMAN, WAGENHEIM AND LEVENSON, CHERRY HILL, NJ, Attorneys for Defendant, SPECIAL INSURANCE AGENCY, INC.
WILLIAM J. SCHMIDT, WHITE WILLIAMS LLP, PHILADELPHIA, PA, Attorneys for Defendant, FIRST NATIONAL FINANCIAL SERVICES, INC.
ROBERT J. WILSON, COMROE HING L.L.P., PHILADELPHIA, PA, Attorneys for Defendant, FIRST TRUST BANK, INC.
JEFFREY P. HLESCIAK, LAW OFFICES OF ROBERT A. STUTMAN, FT. WASHINGTON, PA, Attorneys for Defendants, LITO AND SONS CLEANERS, INC., HARLEYSVILLE MUTUAL INSURANCE COMPANY.
MEMORANDUM ORDER
Plaintiff Royal Indemnity Company ("Royal") brings its Motion for Partial Summary Judgment against Defendants Deli by Foodarama, Inc. ("Deli") and Glen Rosenwald ("Rosenwald"). Defendant Specialty Insurance Agency, Inc. ("Specialty") brings its Motion for Summary Judgment against Deli as well. Defendants Deli and Rosenwald bring their Motion for Summary Judgment against Royal and Specialty. For the reasons set forth below, the motions of Royal and Specialty are GRANTED and the motion of Deli and Rosenwald is DENIED.
I. BACKGROUND
A. Procedural background
This case arises out of a dispute between an insured party, Deli (represented by its President, Rosenwald); its insurance company, Royal; and the managing agent responsible for issuing the policy, Specialty. Royal is a Delaware corporation with its principal place of business in Charlotte, North Carolina. Specialty is a New Jersey corporation with its principal place of business in Manasquan, New Jersey. Deli is a Pennsylvania corporation with its place of business in Philadelphia, Pennsylvania. Royal and Specialty seek summary judgment on the grounds that Royal has no duty to provide coverage to defendants or to indemnify defendants for losses claimed by Deli and Rosenwald related to a May 28, 1996 theft and July 11, 1996 fire that damaged the insured property. Deli and Rosenwald for their part seek summary judgment to establish that Royal does have a duty to provide coverage and indemnification.
Defendants First National Financial Services, Inc., First Trust Bank, Lito and Sons Cleaners, Inc., and Harleysville Mutual Insurance Company were also joined as defendants but are no longer parties to the litigation.
On January 11, 2001, after a non-jury trial, the Honorable Jay Waldman found that Rosenwald "clearly made a material misrepresentation on which Specialty relied in binding coverage" in his valid insurance policy application. Royal Indemnity Company v. Deli by Foodarama, Inc., et al., 2001 WL 33162 at *5 (E.D. Pa. Jan. 11, 2001) ("Opinion"). When Rosenwald first attempted to obtain a quote for liability insurance in January 1996, he did not disclose the full extent of liability claims filed against Deli during the previous five years. Although Deli had submitted twelve claims to previous insurers in the past five years, Rosenwald indicated none of these. Judge Waldman determined that Royal "would have refused to issue the subject policy but for a material misrepresentation knowingly made by Mr. Rosenwald and attributable to Deli, and only to Deli." Id. at *6. Therefore, the court found that Royal was entitled to rescind or void the policy issued to Deli "unless it waived such right by continuing coverage with knowledge of Deli's misrepresentation. . . ." Id. Pursuant to the parties' stipulation and the court's Order of December 29, 1999, the issue of waiver alone was to be decided in a separate proceeding.
Judge Waldman's findings as to Rosenwald's material misrepresentation drew on the premise of the application's validity. This judge declines to review this premise as Deli and Rosenwald would have it do. See Opinion at 12.
Rosenwald met with a representative of First National Financial Services, Inc., the brokerage responsible for the insurance application, which is no longer a party to this litigation.
These twelve claims were submitted between January 1991 and January 1996 by Rosenwald on behalf of Deli. Six of the twelve were submitted to West American Insurance Company for losses that occurred between January 1995 and January 1996. Three of these claims were for losses exceeding $15,000.
This case was transferred from the calendar of the Honorable Jay Waldman to this Judge on May 9, 2003. On May 29, 2003, this court placed this case in civil suspense, pursuant to the District of New Jersey's Order of May 19, 2003 staying all pending litigation involving Specialty. See Defendant Specialty's Motion to Stay, 97-1267, No. 111, Exhibit A (May 28, 2003). The case was returned to active status as of October 4, 2004. This Stipulation was filed on January 11, 2005.
The relevant parties have since submitted a Comprehensive Stipulation of Facts ("Stipulation") on this issue of waiver, which arises because Specialty reinstated Deli's insurance policy on behalf of Royal after becoming aware of several pending lawsuits and a judgment against Deli listed in a Dun and Bradstreet ("DB") report. Upon consideration of the Stipulation, the parties' motions and the responses thereto, the court finds that Royal did not waive its right to void or rescind the policy. Royal and Indemnity are entitled to summary judgment against Deli and Rosenwald as to the issue of waiver.
The Stipulation incorporates Findings of Fact made by Judge Waldman.
Judge Waldman previously determined that entry of summary judgment against Deli for insurance fraud was not appropriate.Royal Indemnity Company v. Deli by Foodarama, Inc., et al., 1999 WL 1785343 at *6 (E.D. Pa. March 31, 1999).
B. Background concerning waiver
As a routine part of its underwriting investigation for restaurant businesses, Specialty orders reports from Dunn Bradstreet ("DB") to investigate the accuracy of the information received from newly insured parties. Stipulation 26. Specialty underwriters compare the DB reports with the insurance applications of such parties for any differences or discrepancies, and request explanations when such discrepancies arise. Stipulation 27, 28. After Specialty bound coverage for Deli on behalf of Royal on March 18, 1996, Specialty requested a DB report on Deli. Stipulation 24, 31. The DB report did not reveal the twelve insurance claims filed by Deli between 1991 and 1996, a pending lawsuit, or the fact that West American Insurance Company, Deli's previous insurer, had canceled Deli's policy due to the number of claims filed in 1995. The DB report did, however, reveal four lawsuits and a judgment against Deli. Specialty subsequently addressed these discrepancies with Rosenwald.
Peanuts Fashions, Inc. v. Deli by Foodarama, Inc., at December Term, 1993-No. 98 (Court of Common Pleas, Phila. County).
Potential insurance companies sometimes undertake "loss runs," data collection for losses that have been reported by to them by prior insurers of a party. Stipulation 29. Specialty generally requests loss runs for policies charging a premium greater than $50,000. Deli's premium was $9,150. Stipulation 24. Specialty did not order a loss run on Deli.
Upon discovering the discrepancies between Deli's application and its DB report, however, Specialty requested an explanation from Rosenwald, specifically as to the notations of four lawsuits and a judgment against Deli. After four such requests failed to produce a response, Specialty issued a cancellation notice effective July 8, 1996. Stipulation 33. At this point, Rosenwald contacted Specialty to inquire about getting the coverage reinstated. Specialty informed Rosenwald that it had cancelled the policy due to the unexplained information in the DB report. Rosenwald said he had lost his copy of the report and requested another, which he received from Specialty on May 14, 1996. Rosenwald then sat down in person with a Specialty representative who typed Rosenwald's explanations of the negative DB information. Rosenwald reviewed the resulting document and signed it. Specialty was satisfied with Rosenwald's responses and reinstated Deli's policy as of May 30, 1996. Stipulation 34.
Deli made claims to Royal for a theft loss occurring on May 12, 1996 and for damages due to a fire on July 11, 1996. Stipulation 35, 36. In the course of investigating these claims, Deli's extensive prior claim history came to light. Royal refused to indemnify Deli for its theft- and fire-related losses, citing its express policy provision that coverage would be void if the insured intentionally concealed or misrepresented any material fact in presenting a claim, as Judge Waldman found. Stipulation at 37.
II. DISCUSSION
A. Summary judgment standard
The court will grant a motion for summary judgment under Federal Rule of Civil Procedure 56(c) "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law." Parasco v. Pacific Indemnity Co., 920 F.Supp. 647, 652 (E.D.Pa. 1996). Here the parties agree that there is no genuine issue of fact regarding Deli's claim that Royal waived its right to void Deli's insurance policy because of material misrepresentations in Deli's application. The question remains whether as a matter of law Royal or Specialty were put on such notice of unreported property claims as to render the reinstatement of Deli's cancelled insurance policy a waiver of Royal's right to void the policy.
B. Waiver of insurance policy
The insurance policy issued by Royal to Deli is governed by the laws of Pennsylvania as it was issued in Pennsylvania. Travelers Ins. Co. v. Fantozzi, 825 F.Supp. 80, 84 (E.D. Pa. 1993). A waiver "is predicated upon acts or conduct of the insurer with knowledge of the breach tending to show a recognition of the policy, or an intent to relinquish the right to declare a forfeiture for the known breach." Glezerman v. Colombian Mut. Life Ins. Co., 944 F.2d 146, 153 (3d Cir. 1991). To establish a waiver under Pennsylvania law, "the evidence must show the acts of the insurance company constituted a voluntary, intentional relinquishment of a known right and the insurer had full knowledge of all pertinent facts." Wasilko v. Home Mutual Casualty Company, 210 Pa. Super. 322, 232 A.2d 60, 63 (1967);Campbell v. Allstate Ins. Co., 24 Pa. D. C. 728, 731 (1982);Samuel J. Marranca Gen. Contro. Co. v. Amerimar Cherry Hill Associates, 416 Pa. Super. 45, 49 (Pa.Super. 1992).
Neither Royal nor Specialty were aware of all the pertinent facts in the matter; the material misrepresentation of Deli's insurance application prevented them from knowing about Deli's history. Knowledge of that history, as Judge Waldman held, would have kept Royal and Specialty from insuring Deli. Without such knowledge, neither Specialty nor Royal voluntarily or intentionally relinquished Royal's right to rescind the policy according to its terms.
Under Pennsylvania law, "some knowledge by the insurance company of facts inconsistent with the policy does not always, in and of itself, preclude the defendant-company from asserting non-waiver under the policy," as waiver requires that "there must be sufficient knowledge disclosed to the insurer that there is some falsity in the statement by the insured or something of some significance which would put a reasonably prudent person on notice to make further inquiry." Matincheck v. John Alden Life Ins. Co., 93 F.3d 96, 102 (3d Cir. 1996) (citing First Pennsylvania Banking Trust Co. in City of New York, 421 F.2d 959, 963-64 (3d Cir. 1969). An insurance company may assert non-waiver in a situation in which the insurer knew of an inaccurate statement by the insured but was not aware of another inaccurate statement/nondisclosure on a different subject.Crawford v. Manhattan Life. Ins. Co., 208 Pa. Super. 150, 221 A.2d 877, 885 (1966). The information revealed by the DB report concerned Deli's liability history; the information which remained unknown to Specialty concerned Deli's insurance claim history. Judge Waldman noted that the application question "regarding litigation per se was addressed to personal or business litigation which could affect the stability of the restaurant, and not to insured liability claims which were addressed in another section of the application." Opinion at *6. Specialty's decision to renew the policy after learning of the misrepresentation regarding Deli's liability history did not constitute a waiver because it was unrelated to the material misrepresentation concerning Deli's claim history.
When an insurance company decides to investigate a claim, Pennsylvania law holds that the independent investigation does not deprive "the insurer of the right to rely upon misrepresentations made by the applicant" unless the investigation reveals "facts sufficient to expose the falsity of the representations of the applicant to put the insurer upon further inquiry." Crawford v. Manhattan Life Ins. Co., 221 A.2d at 886; see Franklin Life Ins. Co. V. Bieniek, 312 F.2d 365 (3d Cir. 1962). Specialty's investigation into Deli's liability history did not constitute a waiver because the explanation of the history based on further misrepresentations by Deli and its agent, First National, assured Specialty that Deli was a good risk. Therefore further inquiry was unnecessary. Also, the investigation concerning the liability history did not reveal any facts sufficient to expose Rosenwald's material misrepresentations of Deli's claim history. Once Specialty was satisfied as to whether Deli was a liability risk, it had no reason to question the separate issue of whether Deli was a claims risk.
Under Pennsylvania law, "the burden of proof is on the party asserting the waiver." Shane v. WCAU-TV. CBS Television Stations, Div. of CBS, Inc., 719 F. Supp. 353, 357 (E.D. Pa. 1989). The defendants have failed to prove that Royal waived its right to rescind or void the policy. Royal is not obligated to provide coverage to Deli for the theft loss of May 12, 1996 or the fire loss of July 11, 1996.
An appropriate order follows.
ORDER
AND NOW, this 2nd day of March, 2005, upon consideration of Motions for Summary Judgment by Plaintiff Royal Indemnity Company, Defendant Specialty Insurance Agency, Inc., and Defendants Deli by Foodarama, Inc., and the responses thereto, the Motions of Plaintiff Royal Indemnity Company and Defendant Specialty Insurance Agency, Inc. are GRANTED and the Motion of Defendants Deli by Foodarama, Inc. and Glen Rosenwald are DENIED as to the issue of waiver, as set forth in the foregoing memorandum.