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ACF PRODUCE, INC. v. CHUBB/PACIFIC INDEM. GROUP

March 28, 1978

ACF PRODUCE, INC.
v.
CHUBB/PACIFIC INDEMNITY GROUP, et al.



The opinion of the court was delivered by: HUYETT

 HUYETT, J.

 Plaintiff ACF Produce, Inc. (ACF) instituted this suit on December 10, 1975 against two insurance companies, an insurance broker and the broker's employee. The action is predicated upon an inland commercial marine policy, issued by Federal Insurance Co. (Federal), and an excess policy, issued by Fireman's Fund Insurance Co. (Fireman's). *fn1" Both Federal and Fireman's have filed motions for summary judgment asserting that plaintiff's claims are barred by several notice provisions and exclusions in their respective policies. Since we agree with defendants' contentions on only one front, we will grant partial summary judgment.

 Plaintiff ACF is a small, fresh and frozen food wholesaler. Plaintiff has no single physical structure which might be characterized as a warehouse since most of its product is transferred directly from delivery trucks onto ACF's trucks for distribution. ACF's limited storage facilities consist of seven 40-foot trailers located permanently on plaintiff's premises. To protect the contents of these trailers, plaintiff purchased policies of insurance from defendants through Mr. Seeger, an employee of W. S. Borden Co. All of plaintiff's contacts with defendants were through Seeger upon whom plaintiff allegedly relied in obtaining full and complete insurance covering all contingencies.

 In Count I of the complaint, plaintiff seeks to recover for meat stolen from the plaintiff's trailers between October 3, 1973 and June 30, 1974. Count III alleges a cause of action based upon defendants' failure to exercise good faith in settling the claim asserted in Count I. Finally, in Count II, plaintiff alleges that Federal failed to promptly settle a claim for losses arising out of a theft on or about September 5, 1974.

 With respect to the claims advanced in Counts I and III, there is no question that the policies were in effect on the dates in question. The sole issues, therefore, relate to the scope of coverage afforded by the policies and plaintiff's failure to comply with certain notice provisions.

 PROOF OF LOSS AND LIMITATION OF SUIT PROVISIONS

 Both defendants contend that they are entitled to summary judgment on Counts I and III because of plaintiff's failure to comply with proof of loss and limitation of suit clauses in their respective policies.

 The correctness of these dates is not in dispute. Therefore, unless the plaintiff is excused from complying strictly with the policy provisions, it may be barred from recovery. Plaintiff contends that neither the proof of loss nor the limitation of suit clauses may be invoked because: 1. the defendants have suffered no prejudice from the delay or 2. defendants, through their authorized agent, have waived any right to rely upon plaintiff's failure to comply with these clauses.

 First, plaintiff's lack of prejudice theory is based upon the recent Pennsylvania Supreme Court case of Brakeman v. Potomac Insurance Co., 472 Pa. 66, 371 A.2d 193 (1977). In Brakeman, the policy contained a clause requiring the insured to give the insurer written notice of an accident "as soon as practicable." Id. at 195. In accordance with prior Pennsylvania decisions, the insurer attempted to invoke this clause to bar the insured's recovery. The court, however, rejected its traditional contractual approach and joined the growing number of courts which "require the insurance company to prove not only that the notice provision was breached, but also that it suffered prejudice as a consequence." Id. at 195-96.

 To support its departure from precedent, the court cited a number of reasons. First, the court noted that insurance contracts are no longer negotiated agreements entered into following meaningful bargaining between the parties. Thus, the notice provision was not included in the policy by choice. Second, the court recognized that where the penalty suffered by the insured or accident victim is forfeiture, good reasons must exist to permit the insurer to escape its undertaking. Since the notice provision was designed to preserve the insurer's ability to defend the claim effectively, the court found that no good reason existed to allow the insurer to escape its liability where it could show no prejudice flowing from the lack of timely notice. The court concluded that "allowing an insurance company, which has collected full premiums for coverage, to refuse compensation to an accident victim or insured on the ground of late notice, where it is not shown that timely notice would have put the company in a more favorable position, is unduly severe and inequitable." Id. at 198.

 The Brakeman court's conclusion does not necessarily end our inquiry since in that case the court was confronted with a notice provision whereas in our case the insurers seek to invoke "sworn proof of loss" and "limitation of suit" clauses. This inquiry need not detain us long since we believe that the Brakeman court's analysis may be applied to both of these clauses.

 First, the Superior Court of Pennsylvania has already applied the Brakeman rationale to a limitation of suit clause. See Diamon v. Penn Mutual Fire Insurance Co., 247 Pa. Super. 534, 372 A.2d 1218, 1224-25 (1977). Accordingly, neither insurer may avail ...


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