ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA
Before: ADAMS and GARTH,*fn* Circuit Judges and ACKERMAN, District Judge*fn**
Evelyn Vlastos appeals from a judgment denying her recovery on an insurance policy for a fire that occurred in a commercial building that she owned. Applying Pennsylvania law, the district court declared that Vlastos had unambiguously warranted that the third floor of her building was occupied exclusively as a janitor's residence. Based on this ruling by the court, the jury found that Vlastos had breached the warranty, and the court declined to set aside the jury verdict. Inasmuch as we hold that it was error to determine that the warranty clause in question is unambiguous, the order of the district court will be vacated and the case remanded for further proceedings.
Vlastos owned a 20" x 80" four-story building at 823 Pennsylvania Avenue, Pittsburgh, Pennsylvania. Prior to a fire on April 23, 1980, Vlastos and her son operated a luncheonette and a bar on the first floor of the building. The second and third floors were leased to Spartacus, Inc., which conducted a massage parlor on the second floor. Evidence was introduced at trial tending to show that the massage parlor also utilized at least a portion of the third floor. At the rear of the third floor there was a section variously described as a padlocked room or a section partitioned off from the remainder of the floor. It was in this area that Philip "Red" Pinkney, Vlastos' handyman and janitor, is alleged to have lived. Vlastos kept supplies on the fourth floor, and maintained a small office there as well. She occasionally remained overnight on the fourth floor rather than return to her residence. Vlastos was not staying there the night of the fire, but two friends of hers were residing there temporarily and were killed. A third person was also killed in the fire.
All of Vlastos' insurance matters were handled by her broker, John Mitchell. Mitchell obtained insurance for Vlastos from a group of European insurance companies through two sub-brokers. The policy in question, dated November 2, 1979, provided $345,000 of fire insurance with a $1,000 deductible provision. It contained a section, Endorsement No. 4, expressly incorporated into the policy, which stated in part: "Warranted that the 3rd floor is occupied as Janitor's residence."
After the building and its contents were destroyed by the fire, the insurers refused to pay the claim, citing an alleged breach of the warranty. Vlastos filed a complaint based on diversity jurisdiction.*fn1 The jury trial was bifurcated as to liability and damages; the parties agreed that Pennsylvania law is applicable. During the trial on liability, the district court ruled that the insurers were not required to produce evidence that the warranty was material to the risk insured against, holding that materiality was irrelevant. At the conclusion of the trial, the court denied Vlastos' motion for a directed verdict, and proceeded to charge the jury that the warranty regarding the third floor was breached if a massage parlor occupied any significant portion of the floor, regardless of whether the janitor had a residence there as well. The jury was also instructed that if the third floor was toally unoccupied this too would constitute a breach of the warranty. The sole question put to the jury was: "Have the defendants proved by a preponderance of the evidence that the plaintiff breached the warranty?" The jury answered affirmatively. Vlastos' motions for judgment notwithstanding the verdict or a new trial were denied in a memorandum opinion and order. Vlastos has appealed, raising numerous points, including the contention that the jury was incorrectly instructed that the warranty was unambiguous.
Vlastos objects that "no proof was offered that the provision in Endorsement No. 4 actually was a warranty, and the insured never conceded this point." Reply Br. 1. Although her brief does not specify an alternate characterization of the provision, presumably she means to assert that it was a representation. If, as Vlastos implies, it was a representation, then the insurers would be under an obligation to show that the provision was material to the risk insured against in order for the insurers to avoid their obligations under the contract.
A representation, unlike a warranty, is not part of the insurance contract but is collateral to it. If a representation is not material to the risk, its falsity does not avoid the contract. On the other hand, the materality of a warranty to the risk insured against is irrelevant; if the fact is not as warranted, the insurer may deny recovery. See Rittenhouse Foundation, Inc. v. Lloyds of London, 443 Pa. 161, 168-69, 277 A.2d 785 (1971); Karp v. Fidelity-Phenix Fire Insurance Co., 134 Pa. Super. 514, 517-18, 4 A.2d 529, 531 (1939); Lotman v. Security Mutual Life Insurance Co. of New York, 478 F.2d 868, 870 (3d Cir. 1973); Pugh v. Commonwealth Mutual Fire Insurance Co. of Pennsylvania, 195 F.2d 83, 85-6 (3d Cir. 1952). In case of doubt, courts normally construe a statement in an insurance contract as a representation rather than a warranty. See 12A V. Appleman & J. Appleman, INSURANCE LAW AND PRACTICE § 7342 (1981); 43 AM. JUR. 2D, Insurance §§ 1027, 1028 (1982). But no reason has been advanced for doubting that the provision in question here -- which by its terms "warrant[s]" a fact and is a part of the insurance contract -- is not a warranty. Accordingly, we cannot hold that it was improper for the trial judge to read this provision as a warranty. The district court therefore did not err in ruling that evidence of materiality would not have been relevant to the question whether Vlastos can recover on the policy.
The parties agree that the provision in question here concerned a fact existing at the time the contract was signed, and was not a promise that a janitor would occupy the third floor in the future. In other words, the provision is true if a janitor occupied the floor on November 22, 1979, the date the policy was issued, even if the situation had changed by the time of the fire several months later.*fn2 The district court erroneously instructed the jury on this issue at two points. It stated that Vlastos agreed that the floor "would be occupied as a janitor's residence" (App. 389, emphasis added), and that the warranty was breached if "at the time of the fire" a massage parlor occupied any significant portion of the floor (App. 390, emphasis added). If the district court on remand decides ...