Berle M. Schiller, with counsel, Lawrence J. Bunis, Astor, Weiss & Newman, Philadelphia, for petitioner.
Terrance A. Keating, Asst. Counsel, with him, Victoria A. Reider, Deputy Chief Counsel, and Linda J. Wells, Chief Counsel, for respondent.
Craig, Barry and Colins, JJ. Colins, J., dissents.
[ 129 Pa. Commw. Page 121]
Erie Insurance Exchange (Erie) appeals an order of the Insurance Commissioner of the Commonwealth of Pennsylvania affirming a determination by the Department of Insurance that Erie's cancellation of Frank S. Piehl, Jr.'s homeowners insurance policy violated the Unfair Insurance Practices Act.*fn1
The undisputed facts are that, on June 21, 1988, Erie cancelled Piehl's policy, initially issued on April 28, 1986, and twice renewed annually, because Erie concluded that a "substantial increase in hazard -- moral hazard" occurred when Piehl pleaded guilty on May 5, 1988, to possession with intent to distribute marijuana.
Piehl requested that the department review the legality of the cancellation, and on July 7, 1988, the department issued an "Investigative Report/Order," finding that the cancellation violated the Act because "the incident that is referred to in the cancellation notice happened before the inception date of April 28, 1986." The department then ordered Erie to reinstate Piehl's policy.
[ 129 Pa. Commw. Page 122]
Upon Erie's request, the department held a formal administrative hearing on September 13, 1988. At the hearing, Erie presented only the testimony of its counsel. The department did not introduce any evidence.
The commissioner reviewed the record and, on January 10, 1989, issued an order affirming the department's directive to reinstate Piehl's policy. The commissioner concluded that Piehl's "conviction for possession with intent to distribute has not substantially increased the risk that he will destroy, or permit to be destroyed, the premises insured," and that "[a]n insurer who cancels a homeowners policy without showing a substantial increase in hazard during the policy period violates Section 5(a)(9) of the Unfair Insurance Practices Act," 40 P.S. § 1171.5(a)(9).*fn2
Erie now appeals to this court, contending that it may cancel Piehl's policy, pursuant to section 5(a)(9), because his pleading guilty to drug trafficking charges constituted a substantial increase in the moral hazard assumed by the insurance company.
The issue for this court is whether a conviction for drug activity evidences an increased risk with respect to a ...