decided: October 3, 1975.
THE GENERAL STATE AUTHORITY, APPELLANT,
PLANET INSURANCE COMPANY, APPELLEE
John L. Sweezy, Asst. Gen. Counsel, Gen. State Authority, Michael A. Madar, Gen. State Authority, Harrisburg, for appellant.
James F. Carl, Metzger, Wickersham, Knauss & Erb by James F. Carl and Edward E. Knauss, III, Harrisburg, for appellee.
Jones, C. J., and Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ.
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OPINION OF THE COURT
On October 1, 1967, The General State Authority [The Authority] entered into a contract of insurance, through
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the Pennsylvania Department of Property and Supplies [Department] as "broker",*fn1 with the Planet Insurance Company [Planet]. This policy was to insure a three-story stone structure known as St. John's Dormitory, against loss or damage by fire and extended coverage, to the extent of the actual cash value of the building for the term October 1, 1967, through October 1, 1970.
The building, located on the grounds of the Cresson State Hospital in Cresson, Cambria County, had been acquired in 1962 by The Authority from the Johnstown-Altoona Diocese of the Roman Catholic Church. Thereafter on August 11, 1962, The Authority leased this building to the Department under a thirty-year agreement. The Department then assigned its lease to the Pennsylvania Department of Public Welfare for the operation of a welfare facility.
On January 2, 1969, while the contract of insurance was in full force and effect, the Dormitory and its contents were totally destroyed by fire. However, The Authority was unaware of the loss until May 10, 1971, when an official of the Pennsylvania Department of Public Welfare informed The Authority's insurance coordinator concerning the fire. On May 11, 1971, The Authority gave Planet written notice of the loss and, on June 8, 1971, The Authority provided Planet with various fire reports and information pertaining to the claim. On September 29, 1971, Planet gave formal notice that it was denying all liability and payment on the claim by reason of The Authority's failure to meet certain time limitations set forth in the contract of insurance.
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Subsequently, on November 11, 1971, suit was commenced in the Commonwealth Court*fn2 by The Authority, to enforce the insurance policy. On March 2, 1973, the Commonwealth Court, in a per curiam memorandum opinion, entered judgment on the pleadings in favor of Planet because The Authority had failed to commence suit within twelve months after inception of the loss.*fn3 This appeal then followed.*fn4
The contract of insurance, a standard fire policy as required by law,*fn5 provided:
"No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with, and unless commenced within twelve months next after inception of the loss".
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The law is clear that such a clause, setting time limits upon the commencement of suits to recover on a policy, is valid and will be sustained.*fn6 Fratto v. New Amsterdam Page 166} Casualty Co., 434 Pa. 136, 252 A.2d 606 (1969); Lardas v. Underwriters Insurance Co., 426 Pa. 47, 231 A.2d 740 (1967); Abolin v. Farmers Amer. Mut. Fire Ins. Co. of Bucks County, 100 Pa. Super. 433 (1930). See also Commonwealth v. Transamerica Insurance Company, 462 Pa. 268, 341 A.2d 74 (1975); Selden v. Metropolitan Life Insurance Company, 354 Pa. 500, 47 A.2d 687 (1946); Watters v. Fisher, 291 Pa. 311, 139 A. 842 (1927); 44 Am.Jur.2d, Insurance, § 1906. As noted by this Court in Lardas v. Underwriters Insurance Co., supra, 426 Pa. at 51, 231 A.2d at 741-742, "This is not a statute of limitation imposed by law; it is a contractual undertaking between the parties and the limitation on the time for bringing suit is imposed by the parties to the contract."
Herein, there can be no dispute that The Authority instituted this suit beyond the policy's limitation period, a period which runs from the date of the occurrence of the destructive event or casualty insured against. See Lardas v. Underwriters Insurance Co., supra; Abolin v. Farmers Amer. Mut. Fire Ins. Co. of Bucks County, supra. See also Sager Glove Corporation v. Aetna Insurance Company, 317 F.2d 439 (7th Cir. 1963); Gremillion v. Travelers Indemnity Company, 256 La. 974, 240 So.2d 727 (1970); Proc v. Home Insurance Company, 17 N.Y.2d 239, 270 N.Y.S.2d 412, 217 N.E.2d 136 (1966); Boyd v. Bankers & Shippers Insurance Company, 245 N.C. 503, 96 S.E.2d 703 (1957); 24 A.L.R.3d 1007 § 16. Nevertheless, The Authority would have us excuse its noncompliance with the policy provision because of "the peculiar context of governmental relationships prevailing". The Authority contends its limited staff is so totally occupied with current construction administration, its primary function, that it is unable to keep completed projects under constant surveillance. Therefore, The Authority
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posits that, under these circumstances, the twelve month time limitation should be computed from the date it first became aware of the loss, i. e., May 10, 1971. Prior to this date, The Authority points out, there was no consciously realized option to commence litigation.*fn7
A similar argument was advanced and rejected by the Seventh Circuit Court of Appeals in Sager Glove Corporation v. Aetna Insurance Company, supra. In Sager the insured property owner had suffered damage from various acts of vandalism occurring between February 1, 1953, and January 14, 1955. The damage, however, was not discovered until January 14, 1955. On January 12, 1956, the insured property owner brought suit against the insurer to enforce its claim. The contract of insurance contained a "commencement of suit" provision identical to that herein involved and the insurer, based on this provision, denied liability for those acts of vandalism which had occurred prior to January 12, 1955. The insured contended, however, that all damage was recoverable since it had commenced suit within one year after discovery of the damage. The Seventh Circuit upheld the insurer's position stating that the term "inception of the loss": "has nothing to do with the state of
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mind of the insured. It deals with an objective fact . . . . The loss occurs and has its 'inception' whether or not the insured knows of it." Sager Glove Corporation v. Aetna Insurance Company, supra at 441. To the same effect see Harris v. Hanover Fire Insurance Company, 425 F.2d 1168 (5th Cir. 1970).
We adopt this reasoning. In so doing, we recognize the validity and binding nature of such "commencement of suit" provisions. However, we also recognize that if conduct or action on the part of the insurer is responsible for the insured's failure to comply in time with the conditions set forth, injustice is avoided and adequate relief assured by resort to traditional principles of waiver and estoppel.