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KELMO ENTERPRISES v. COMMERCIAL UNION INSURANCE COMPANY AND WILLIAM KITZMILLER (02/20/81)

filed: February 20, 1981.

KELMO ENTERPRISES, INC., GEORGE MOHANCO AND BRIAN KELLY
v.
COMMERCIAL UNION INSURANCE COMPANY AND WILLIAM KITZMILLER, ADMINISTRATOR OF THE ESTATE OF LEE CLARK KITZMILLER, DECEASED. APPEAL OF COMMERCIAL UNION INSURANCE COMPANY



No. 2324 October Term, 1978, Appeal from the Orders of the Court of Common Pleas of Luzerne County, Civil Action-Law, at No. 5920 of 1976.

COUNSEL

B. Todd Maguire, Wilkes-Barre, for appellant.

Donald H. Brobst, Wilkes-Barre, for Kelmo etc., appellees.

Charles A. Shea, III, Wilkes-Barre, for Kitzmiller, appellee.

Cercone, President Judge, and Watkins and Hoffman, JJ. Cercone, President Judge, files a concurring opinion. Watkins, J., files a dissenting opinion.

Author: Hoffman

[ 285 Pa. Super. Page 16]

Appellant contends: (1) that it had no duty to defend appellees in an underlying tort action because the insurance policy issued by appellant denied coverage; and (2) that the lower court erred in awarding appellees attorneys' fees in this declaratory judgment proceeding. We disagree with both contentions and, accordingly, affirm the order of the lower court.

Appellees owned and operated the Mr. Bojangles Bar in Wilkes-Barre, Pennsylvania. On June 3, 1974, the bartender, Robert Donnelly, and/or his brother, Richard, hosted a private party at the bar. The party was conducted without the knowledge or permission of appellees on a day on which the bar was not open for business. After the party, a guest, Lee Clark Kitzmiller, remained with the Donnellys to clean the bar. Subsequently, Kitzmiller left the premises and was killed when he lost control of his motorcycle and struck a utility pole. On August 2, 1974, the administrator of the Kitzmiller estate commenced an action in trespass against appellees by issuing a writ of summons. On August 5, appellees orally notified appellant, their insurer, of the service of the writ. By letter dated August 9, appellees gave formal notice and requested appellant to undertake defense of the underlying tort action.*fn1

[ 285 Pa. Super. Page 17]

The insurance policy issued by appellant provided coverage for all bodily injury and property damage "caused by an occurrence and arising out of the ownership, maintenance or use of the insured premises and all operations necessary or incidental thereto." Additionally, the policy provided that appellant "shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage . . . ." The policy contained an exclusion which purported to deny coverage for bodily injury arising from an illegal sale of alcohol, or from the sale to a minor or to a person under the influence of alcohol.*fn2 Notwithstanding the fact that no complaint had been filed, appellant denied coverage in a letter stating:

The allegations . . . set forth by the attorney for the Plaintiff in the action against you which has been filed by Writ of Summons in Trespass in the Luzerne County Courts, are that you are negligent by the serving of alcoholic beverages to a minor and serving of alcoholic beverages to a visibly intoxicated person.

The above mentioned policy which runs from the term of 7/8/73 to 7/8/74 does not provide any coverage regarding this claim.

[ 285 Pa. Super. Page 18]

I herewith return the Summons and respectfully decline any coverage under the aforementioned policy.

Because appellant repeatedly refused to undertake their defense, appellees engaged private counsel to defend the Kitzmiller action.

On June 17, 1976, while the Kitzmiller action was still pending, appellees filed a petition for declaratory judgment, seeking an adjudication of their rights under the policy and an award of counsel fees for the defense of the Kitzmiller action. On the basis of the pleadings and depositions, the lower court held that appellant was required to defend appellees.*fn3 After further proceedings, the lower court awarded appellees counsel fees and costs in the defense of the Kitzmiller action ($5,887.00) and in the prosecution of the declaratory judgment action ($12,024.25). This appeal followed.

Appellant contends that it had no duty to defend appellees in the Kitzmiller action because the policy excluded coverage for liability arising from the sale of alcohol to minors and persons under the influence of alcohol. Appellees argue, however, that even if the exclusion were applicable, appellant could not rely upon it because appellant failed to prove that appellees were aware of and understood the effect of the exclusion. We agree. In Hionis v. Northern Mutual Insurance Co., 230 Pa. Super. 511, 516-17, 327 A.2d 363, 365-366 (1974), we held that an insurer has the burden of establishing the insured's awareness and understanding of an exclusion regardless of the clarity or ambiguity of the policy language. Because the insurer in that case failed to prove that the insured, a restaurateur, was aware of and understood the effect of the exclusion in his fire insurance policy, we affirmed the order of the lower court directing a

[ 285 Pa. Super. Page 19]

    verdict for the insured. In Klischer v. Nationwide Insurance Co., 281 Pa. Super. 292, 422 A.2d 175 (1980), the lower court had instructed the jury that the insurer had the burden of proving its insured's awareness and understanding of an exclusion in an accidental death benefit rider. The jury returned a verdict for the beneficiary. In affirming, we stated:

We adhere to our view expressed in Hionis. The major premise upon which Hionis rests is the vast inequality of bargaining power between the insurer and the typical purchaser of insurance. As a direct result of that disparity, the insurer may dictate the terms and conditions of the policy. Whether the policy is clear and precise or whether it is oblique and ambiguous, the disparity between the parties remains the same. Moreover, the insured's primary interest, which is obtaining the maximum coverage for his insurance dollar, is no less valid when the policy is unambiguous than it is when the policy is obscure. The policies served by Hionis are particularly pertinent when, as here, the insured buys insurance expecting to be covered for certain risks . . . . Insurers are not unduly burdened by a requirement that they explain the exclusions of their policies to insureds so that the insured can make an informed decision either to assume the excluded risks or to obtain additional insurance to protect against them.

Id., 281 Pa. Super. at 299, 422 A.2d at 178.

We conclude that appellant failed to meet its burden of establishing appellees' awareness and understanding of the exclusion. The record amply demonstrates that appellees Mohanco and Kelly, laymen with no special expertise in insurance matters, sought insurance which would provide full coverage for any liability that might arise from their operation of a tavern business. Moreover, the uncontroverted testimony of the agent who sold the policy reveals that appellant did not even attempt to call the exclusion to the attention of the appellees. Therefore, we hold that appellant cannot rely upon the exclusion to escape its duty to defend appellees in the underlying tort action.

[ 285 Pa. Super. Page 20]

Appellant contends that the lower court erred in awarding to appellees attorneys' fees and costs in the declaratory judgment action.*fn4 Appellant first argues that the Declaratory Judgments Act*fn5 contains no specific authorization for an award of attorneys' fees. While that is true, the Act has been "declared to be remedial . . . and is to be liberally construed and administered." 42 Pa.C.S.A. ยง 7541(a). Moreover, the Act provides for supplemental relief:

Further relief, based on a declaratory judgment or decree, may be granted whenever necessary or proper. The application therefor shall be by petition to a court having jurisdiction to grant relief. If the application be deemed sufficient the court shall, on reasonable notice, require any adverse party, whose rights have been adjudicated by the ...


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