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COUNTY OF ERIE v. AMERICAN STATES INS. CO.

October 20, 1983

COUNTY OF ERIE, Plaintiff
v.
AMERICAN STATES INSURANCE COMPANY, Defendant and 3rd Party Plaintiff v. PATRICIA ANN SANTAFEMIA, 3rd Party Defendant



The opinion of the court was delivered by: WEBER

 October 20, 1983

 The matter is before the court on defendant-third party plaintiff's motion for summary judgment.

 This dispute concerns the scope of coverage provided under two Public Employees Blanket Bonds issued to Erie County by American States. The action was originally filed in the Court of Common Pleas of Erie County in March 1983 and was removed to this court pursuant to 28 U.S.C. § 1441. Erie County seeks to recover under the Bonds for losses sustained by the acts of Patricia Ann Santafemia, third party defendant, who served at relevant times as the Director of the County's Tax Claim Bureau (hereinafter also referred to as Director). The question before the court is whether as a matter of law the acts of Santafemia were expressly excluded from coverage under the Bonds. American States filed a Motion for Summary Judgment with supporting affidavits and brief, and Erie County has responded in kind opposing the motion. The matter is now ripe for the court's consideration.

 I. FACTS

 A review of the facts reveals that on or about October 13, 1982, Santafemia confessed to County officials that she had stolen large sums of money from the Erie County Tax Claim Bureau Trust Account throughout her term of service as Director of that Bureau. The County repeatedly sought payment for the loss it sustained under two existing employee fidelity bonds which are substantially alike save for the periods of coverage provided under each. American States had issued to Erie County Public Employees Blanket Bond No. EX 396-215 (May 1, 1977 to May 1, 1981) and EX 480-480 (May 1, 1981 to present). *fn1" Both of the bonds contain the following exclusion in the definition section of the "conditions and limitations" clause --

 
'Employee' as used in Insurance Agreements 3 and 4 means a person while in the employ of the Insured during the Bond Period who is not required by law to furnish an Individual Bond to qualify for office and who is a member of the staff or personnel of the Insured but does not mean any Treasurer or Tax Collector by whatever title known.

 Prior to the issuance of the bonds, "application-questionnaires" were executed on behalf of Erie County by William O. Hill, Jr., first in 1977 in his capacity as County Commissioner, and in 1981 as Chairman of the Erie County Council. The printed form of each application-questionnaire contains a recital excluding automatically from coverage "Treasurers and Tax Collectors by whatever title known" and solicits from the insured through the questionnaire those personnel to be excluded. The applications executed by Hill answer this questionnaire by listing the excluded positions, including in abbreviated form, one "delinquent tax collector." Prior to Santafemia, the position of Director of the Erie County Tax Claim Bureau was held by Jerry Robbins (January 7, 1976 to March 26, 1979) for whom the County had obtained separate coverage under a Public Official Bond. The Bond was issued by Pennsylvania National Mutual Casualty Insurance Company on March 29, 1976 under instructions from the Erie County Commissioners and described Robbins as a "delinquent tax collector." Continuation certificates were issued on January 19, 1977 and January 11, 1978. We note that during the time Robbins served as Director of the Tax Claim Bureau, according to his affidavit, the County Commissioners were his immediate supervisors. After the adoption of the Home Rule Charter which became effective January 1, 1978, the Director of Finance, Joseph Schmitt, became supervisor of the position.

 For its part, Erie County contends that Ms. Santafemia was covered by the Public Employee Blanket Bonds. The County takes issue with the meaning of the language relied upon by American States to support an exclusion. It offers, by way of affidavit, the expert opinion of an insurance consultant who states that within the insurance industry, the phrase ". . . Tax Collector by whatever title known," as contained in the bonds, refers to elected tax collectors who obtain their own separate fidelity bonds and not to the appointed position of Director of the Tax Claim Bureau for which a separate fidelity bond is not required. While state law does not specifically require a bond for the Director of the Tax Claim Bureau nevertheless it provides that the:

 
"County Commissioners . . . shall have the power to require the director of the bureau of the county, and such employees and assistants of the bureau, as may by them be designated, to give bonds to the Commonwealth for use of the taxing districts . . . and for the use of any other person having a claim by reason of the act of such director . . . conditioned for the faithful performance of the duties of their office . . . and a strict accounting and payments over of all moneys collected or received by them under the provisions of this Act." 72 P.S. § 5860.203

 The agent, Mr. Matuszak, who wrote the bonds now concurs in this position of the County despite prior assertions to the contrary.

 The County objects to the use of the "application-questionnaire" documents in this proceeding because the applications were neither attached to the Bonds nor were copies provided Erie County. Pennsylvania statute provides that applications shall not be received in evidence in any controversy between the parties when not contained or otherwise attached to an insurance policy. 40 P.S. § 441. The County further contests the basis of the applications as executed by Councilman Hill. It relies on Article III of the Administrative Code of the County of Erie which provides that the purchase of insurance coverage was to be made by the County Executive or his designee, the Director of Purchasing, and not by any member of the Erie County Council.

 Finally, the County disagrees with the contention that it was independently aware of any exclusion based on the written or oral communications from Jerome Matuszak. First, the County contends it has no record of the letter from Matuszak to Joseph Schmitt, and, second, a review of the minutes of County Council meetings ...


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