The opinion of the court was delivered by: CONABOY
These actions, filed against Aetna Casualty & Surety Company ("Aetna") and Royal Indemnity Company ("Royal") on July 28, 1980 and March 4, 1981 respectively, seek recovery of insurance proceeds allegedly due under co-extensive policies.
On July 6, 1981 the cases were joined for administrative purposes. This Court, in reliance on Pennsylvania case law as it existed at the time, granted summary judgment to Royal against the Kellners on May 14, 1982. 605 F. Supp. 322. In the wake of that decision, Aetna, now the only party to whom the Kellners could look for indemnification, appealed to the United States Court of Appeals for the Third Circuit. The Court of Appeals, with benefit of a case determined by the Pennsylvania Supreme Court subsequent to this Court's decision in Kellner v. Royal, ordered the case remanded and consolidated with Kellner v. Aetna. The Court of Appeals further ordered that these cases be re-examined in light of potentially new precedent established by Giacobetti v. Insurance Placement Facility of Pa., 500 Pa. 447, 457 A.2d 853 (1983). We now consider cross-motions for summary judgment by the various parties. For the reasons set forth below, Plaintiff Kellners will prevail against Defendants Royal and Aetna. Also, Royal's motion to dismiss a cross-claim for indemnification brought against it by Third-Party Defendant Whamb Leasing, Inc. is granted.
It is, of course, well settled that for a moving party to prevail on a motion for summary judgment, he must show (a) that there is no genuine issue as to any material fact, and (b) that he is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); See WRIGHT & MILLER, FEDERAL PRACTICE AND PROCEDURE: CIVIL SECTION 2712. Thus, the Court cannot try issues of fact on a Rule 56 motion, but only is empowered to determine whether there are issues to be tried. Janek v. Celebrezze, 336 F.2d 828 (3rd Cir.1964). Finally, in determining whether an issue of material fact does exist, all inferences must be drawn against the moving party. See 6 MOORE'S FEDERAL PRACTICE para. 56.04.
Prior to Giacobetti, it was clearly the law in Pennsylvania that the fraudulent or intentionally destructive act of an insured would bar recovery by any co-insured even if said co-insured was totally innocent of complicity in the matter. Indeed, this had been the law in Pennsylvania since Bowers Co. v. London Assurance Corp., 90 Pa.Super. 121 (1926). This case of ancient lineage was controlling for some six decades.
The subject of insurance in Bowers was an automobile under a bailment lease the terms of which required the purchaser/lessee to maintain insurance during the life of the lease against loss or damage by fire. The automobile was destroyed by fire, a fire subsequently determined to have been caused by the purchaser. When the insurance company refused payment to the seller he successfully brought suit. However, the Superior Court, perhaps sensitive to the possibility of collusion between co-insureds in such a situation, reversed and established the principle of barring recovery to all insureds when any co-insured was culpable. This principle survived until Giacobetti and doubtless deprived many innocent insureds of benefits which they had every reason to expect to recover. Not yet armed with Giacobetti, this Court had no recourse but to rule for Royal the first time it was confronted by this matter.
As we have already intimated, Giacobetti has changed insurance law in Pennsylvania. The subject of insurance in Giacobetti was a building which was a portion of the corpus of a trust settled by a Louis Manusov in 1954 to function as a continuous source of income to himself and several members of his family. In 1974 after the death of Louis Manusov, his nephew, Harry Kracoff, assumed control of the trust property with consent of the other beneficiaries due to his superior knowledge of the grocery business conducted thereon. Harry Kracoff procured the fire insurance policy which came to be the focus of Giacobetti. The insurance policy named Harry Kracoff and the other income beneficiaries of the Manusov Trust as co-insureds. The building and inventory therein were destroyed by fire in April of 1975. The Philadelphia Court of Common Pleas determined in October of 1978 that Harry Kracoff had arranged the arson of the building and denied recovery as to him and, in accord with Bowers, the other beneficiaries under the policy as well. After affirmance by the Superior Court, the Supreme Court of Pennsylvania agreed to hear an appeal.
The Supreme Court reversed and, while still denying recovery to Harry Kracoff and his heirs, ordered the insurance company to make pro rata payments to the innocent insureds. The Supreme Court stated in pertinent part:
The implications of this statement by the Pennsylvania Supreme Court for Royal's cause are negative and obvious. Just as Harry Kracoff's co-insureds were innocent and, hence, allowed to recover, so, too, are George F. Heim, Jr.'s co-insureds innocent. How, then, should the Kellners be denied the insurance proceeds at issue in this case?
In its brief Royal cites several aspects of its relationship to the Kellners which, Royal urges, differentiate this situation from that in Giacobetti. Royal first makes much of the fact that the interests of the various Manusov beneficiaries in the trust property in Giacobetti were several while the interests of Heim (equitable title) and the Kellners (legal title) were joint. We see no magic in this distinction. Nowhere in the Giacobetti decision did the Supreme Court even infer that it was allowing the innocent co-insureds to recover on the policy for the reason that their interest was several and, hence, easily severable from that of the culpable party. Rather, the Supreme Court seemed intent on preventing the culpable party from profiting by his own wrong while avoiding the punishment of innocent parties. To reiterate, there is no indication that the Supreme Court considered the joint/several dichotomy crucial or even a factor in its decision. This Court, likewise, is unimpressed by its import. Even if the interests of Heim and the Kellners were joint in the technical sense, in reality their interests were disparate, perhaps even adverse. The relationship between the Kellners and Heim was an armslength buyer/seller scenario with the Kellners reserving the right to repossess the property should Heim default in the schedule of payments. To characterize their relationship as joint is legally correct but factually misleading. The public policy that is given effect by the rule in Bowers is the prevention of unjust enrichment of a fraudulent insured due to indemnification of a co-insured whose interests are closely related. This is decidedly not the type of relationship which exists between the Kellners and George Heim.
Another argument relied upon by Royal is that the conspicuous absence of reference to Bowers or its progeny in the Giacobetti opinion indicates that the Supreme Court did not intend to overrule Bowers and that Giacobetti is to be narrowly construed on its precise facts. We draw another inference and conclude that if the Supreme Court did not intend broad application of the principle espoused in Giacobetti it would have made an unequivocal statement to that effect.
Finally, on page seven (7) of the brief submitted to this Court by Royal on November 4, 1983, this statement concerning Giacobetti is made: "The only principle upon which the Court relied was that a trustee is not considered an agent of the beneficiary." Apart from the fact that the use of the word "only" makes this statement inaccurate, we fail to see its significance. Would Royal have this Court decide that because the Kellner/Heim contract allocated the task of procuring insurance to Heim that he had become the Kellners' agent? The logical next step would be to find that under the principle of respondeat superior the Kellners would be vicariously liable for Heim's acts and, thus, precluded from recovering on the policy issued by Royal. However, a close examination of the facts of Giacobetti reveals that Harry Kracoff, the culpable party therein, had been entrusted with far more responsibility by his co-trustees than the mere procurement of insurance. Yet, in the words of the Supreme Court, ". . . appellee has failed to establish that Harry Kracoff became the agent of any of the other beneficiaries for all purposes " (emphasis ours). Giacobetti, supra, 457 A.2d at 857. From this it becomes evident that the Pennsylvania Supreme Court is reluctant to deny recovery to innocent co-insureds ...