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MILLER v. S.T. GOOD INS.

January 30, 1997

RALPH MILLER, et al.
v.
S.T. GOOD INSURANCE, INC.



The opinion of the court was delivered by: BARTLE

 Bartle, J.

 January 30, 1997

 This diversity case emanates from a fire which totally destroyed the Falmouth Playhouse in Falmouth, Massachusetts.

 Plaintiffs Ralph Miller ("Miller") and Jade Curtain, Ltd. ("Jade"), the owners of the Falmouth Playhouse, as well as the Bucks County Playhouse and the Pocono Playhouse in Pennsylvania, instituted this diversity action against their insurance agent, S.T. Good Insurance, Inc. ("S.T. Good"). The defendant has now moved for judgment on the pleadings under Rule 12(c) of the Federal Rules of Civil Procedure or, in the alternative, for summary judgment under Rule 56. The material facts are not in dispute. See Celotex v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); Jablonski v. Pan American World Airlines, Inc., 863 F.2d 289, 290 (3d Cir. 1988).

 The complaint alleges that as a result of the defendant's efforts, Mt. Hawley Insurance Company ("Mt. Hawley") issued a policy to plaintiffs in 1993 which provided for fire insurance coverage for the three playhouses. The Falmouth Playhouse burned down in early 1994. The value of the destroyed property, as agreed by the insurance company, was $ 1,465,000. Mt. Hawley, however, denied coverage for two reasons: (1) the plaintiffs had concealed material facts about the plaintiff Miller's previous playhouse fire losses; and (2) Miller was involved in causing the fire. According to the complaint, Mt. Hawley filed a declaratory judgment action against Miller and Jade concerning coverage in the Massachusetts Superior Court which was removed to the United States District Court for the District of Massachusetts. Mt. Hawley Ins. Co. v. Miller, No. 95-12535 (D. Mass.). A few months later, Mt. Hawley and plaintiffs amicably resolved that dispute for $ 625,000. The settlement expressly reserved plaintiffs' right to pursue any claim against S.T. Good for the balance. Plaintiffs contend that S.T. Good is liable for negligence and negligent misrepresentation because it omitted mention of previous fire losses from the insurance application submitted to Mt. Hawley. Plaintiffs seek $ 840,000, which represents the difference between the $ 1,465,000 loss and the $ 625,000 received from Mt. Hawley.

 S.T. Good argues it is entitled to judgment on the pleadings or summary judgment because the insurance application was not attached to the Mt. Hawley insurance policy when it was issued. It relies on a Pennsylvania statute which provides that an application can be used to prove fraud or material misrepresentation only if it is attached to the policy when issued.

 The Pennsylvania statute in question reads as follows:

 
All insurance policies, issued ... by insurance companies ... doing business in this State, in which the application of the insured, ... form part of the policy or contract between the parties thereto, or have any bearing on said contract, shall contain, or have attached to said policies, correct copies of the application as signed by the applicant, ... and, unless so attached and accompanying the policy, no such application, ... shall be received in evidence in any controversy between the parties to, or interested in, the policy, nor shall such application, ... be considered a part of the policy or contract between such parties.

 Pa. Stat. Ann. tit. 40, § 441.

 The statute is "a prophylactic measure, enacted in the interest of fair dealing and designed to eliminate sharp practices by assuring that a policy holder has all of the documents that comprise the insurance contract." Horowitz v. Federal Kemper Life Assur. Co., 57 F.3d 300, 307 (3d Cir. 1995). Quoting Lenox v. Greenwich Ins. Co., 165 Pa. 575, 30 A. 940, 941 (Pa. 1895), the Court of Appeals in Horowitz observed:

 
It is well known that the evil aimed at in this legislation was the custom of insurance companies to put in their blank forms of application long and intricate questions or statements to be answered or made by the applicant, printed usually in very small type, and the relevancy or materiality not always apparent to the inexperienced, and therefore liable to become traps to catch even the innocent unwary. The general intent was to keep these statements before the eyes of the insured, so that he might know his contract, and if it contained errors, have them rectified before it became too late.

 57 F.3d at 305.

 Since it appears that the plaintiffs' application was not attached to the policy, S.T. Good argues that Mt. Hawley could not rely on the omission of prior fires from the application as a basis to prove material misrepresentation and thus to deny full coverage for plaintiffs' loss. If Mt. Hawley could not invoke the application, the argument goes, any negligence or negligent misrepresentation on the part of S.T. Good for failure to ...


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