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decided: March 21, 1986.


Appeal from the Judgment entered December 12, 1984 in the Superior Court of Pennsylvania, at No. 1506 Philadelphia 1983, reversing the Judgment of the Court of Common Pleas of Bucks County, Civil, No. 79-7073-08-1. Pa. Super. ; Nix, C.j., and Larsen, Flaherty, McDermott, Hutchinson, Zappala and Papadakos, JJ. Nix, C.j., and Papadakos, J., concur in the result. Zappala, J., filed a dissenting opinion in which McDermott, J., joined.

Author: Flaherty

[ 510 Pa. Page 63]


The question in this case is whether a person who has contracted for increased and changed insurance coverage is entitled to reasonable assurance of the exact terms of the coverage, and if so, whether such assurance was provided in this case.

National Basic Sensors, Inc. (hereinafter "National") is a manufacturer of devices which measure high temperatures. In 1977, National was operating out of leased premises in Feasterville, Pennsylvania. Mears, Inc. is an independent insurance agency, representing, among others, American

[ 510 Pa. Page 64]

Policyholders Insurance Co., and is located in Cinnaminson, New Jersey.

In September of 1977, National purchased from Mears a multi-peril insurance policy underwritten by American Policyholders Insurance Co. covering the contents of its leased building and liability for injury to visitors. National received a three-year policy reflecting this coverage, and paid the first year's premium for coverage under this policy.

In January of 1978, National purchased a building in Churchville, Pennsylvania. Because National was moving from rented quarters to its own building, National asked Mears to add fire coverage to the existing policy. Mears inspected the building and suggested fire coverage in the amount of $160,000. National agreed, and in order to facilitate the closing, Mears provided a binder of temporary insurance, dated January 4, 1978, to National.*fn1

[ 510 Pa. Page 66]

In April of 1978, four months after moving to its new location, National requested that Mears increase the coverage on its building to $190,000 from $160,000. Mears agreed to do this, but he did not issue a temporary binder or any other document indicating that the changed and increased coverage was bound. As stated by Superior Court, the President of National "repeatedly requested that Mears furnish to National Basic additional evidence that the new property was insured and requested the issuance of a formal policy," but apart from verbal assurances that coverage was bound, Mears never furnished any written explanation of the exact terms of the increased coverage which he asserts was bound.

On September 1, 1978, National received a bill from Mears for increased and changed insurance coverage from January 5, 1978 (the date of moving to the new location) to September 1, 1978 (the one-year anniversary of the three-year original policy). The bill listed the insured premises as Feasterville, National's former location. On November 29, 1978, National cancelled the policy with American Policyholders and refused to pay the amount billed for increased and changed coverages. Neither a policy reflecting changed and increased coverage nor any endorsements for changed and increased coverage were issued until after National had already cancelled the insurance.*fn2

Mears then brought suit for the unpaid premiums for changed and increased coverage. A jury, sitting in the Court of Common Pleas of Bucks County, returned a verdict for National. The Court's instruction to the jury, in pertinent part, was that the insurance company had an obligation to issue ultimate insurance documents within a reasonable time, and that if the documents were not issued and the insured cancelled because of an unreasonable delay,

[ 510 Pa. Page 67]

    the insured was not liable for premiums. Mears then appealed to Superior Court, 337 Pa. Super. 284, 486 A.2d 1335 (1984), which ordered a new trial on the grounds that the trial court's instruction was an error of law.

Mears' arguments to Superior Court were: (1) that the trial court erred in its instruction to the jury that ultimate insurance documents must be delivered within a reasonable time after agreement or the insured is not liable for premiums; (2) that since there was an oral agreement to bind increased coverage from $160,000 to $190,000, the insurance company would have been required to pay claims by National had it incurred a loss, even though there was no binder or endorsement in existence, and National should, therefore, be required to pay for this coverage; and (3) that National was liable for premiums due from September 1, 1978 through November 29, 1978, the period between the last date billed for and the cancellation of the coverage.

Superior Court agreed with Mears' first claim that no policy or endorsement was required to be delivered. The court reasoned that since there was a temporary binder which, by its terms, bound coverage from January 5, 1978 to September 1, 1978, (See n. 1, supra), National was liable for the premium for this coverage.

Superior Court disagreed with the second contention, however, that premiums must be paid if increased coverage was bound solely by oral agreement. It held that even if increased coverage from $160,000 to $190,000 had been bound by oral agreement, since no writing confirming this agreement was issued, National was not liable for the premium on this increased coverage. National had bargained for "regular insurance coverage, not coverage which came with free litigation potential." In other words, according to Superior Court, even if the insurance company would have been obligated to pay a loss up to $190,000 on its oral contract for insurance, ...

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