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DONEGAL MUT. INS. CO. v. GROSSMAN

January 30, 2001

DONEGAL MUTUAL INSURANCE COMPANY, PLAINTIFF
V.
HARRY GROSSMAN, SUZY GROSSMAN, & PENNCO TRUCKING, INC., DEFENDANTS V. TRANSCO CO. OF INDIANA, THE MARK INSURANCE AGENCY, INC., AND UNITED STATES FIDELITY & GUARANTY INSURANCE CO., THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Kane, District Judge.

    MEMORANDUM AND ORDER

Before the Court are several motions filed by Third-Party Defendant United States Fidelity & Guaranty Insurance Co. ("USF & G"), and two motions filed by Third-Party Defendant The Mark Insurance Agency, Inc. ("Mark Insurance Agency"). The motions have been fully briefed and are ripe for disposition. For the reasons set forth below, USF & G's motion for summary judgment will be granted, USF & G's two motions in limine and motion for leave to file cross-claim will be denied as moot, Mark Insurance Agency's motion for summary judgment will be granted, and Mark Insurance Agency's motion in limine will be denied as moot.

I. Background

On June 28, 1995, Plaintiff Donegal Mutual Insurance Company ("Donegal") filed a six count complaint against Defendants Harry Grossman, Suzy Grossman and Pennco Trucking, Inc. ("Pennco"), a Pennsylvania based trucking company. Harry and Suzy Grossman, husband and wife, are the officers, directors and shareholders of Pennco.

This action arises out of a workers' compensation insurance policy issued by Donegal to Pennco. Prior to the issuance of the policy, Pennco had entered into a "leasing" arrangement with Transco Co. of Indiana ("Transco"), whereby all of Pennco's existing truck driving employees would be transferred to Transco and leased back to Pennco pursuant to the terms of an agreement which was executed on July 1, 1989. In conjunction with the leasing arrangement, Transco agreed to provide the truck drivers leased to Pennco with workers' compensation coverage. Furthermore, Transco provided Pennco with an engagement sheet to be executed by each truck driver entitled "Indiana Employee Extraterritorial Agreement." The form engagement sheet contained a choice of law clause pursuant to which Indiana's workers' compensation law would apply. The extraterritorial agreements were signed by Pennco's truck driving employees at the time the July 1, 1989 agreement was executed. For truck driving employees hired after July 1, 1989, Pennco agreed to have the driver execute the engagement sheet at the time of hire.*fn1

Donegal alleges that Pennco, through the Grossmans, entered into this arrangement with Transco so that its drivers could be recorded as operating out of Indiana in order to obtain the benefits of lower workers' compensation rates there. The arrangement was purportedly entered into to permit Pennco to designate on an application for insurance coverage that with respect to its operations in Pennsylvania it did not employ truck drivers. As a result of this plan, Donegal contends it has had to pay benefits for injured drivers for whom it never received premiums from Pennco. Specifically, four truck drivers filed workers' compensation claims and with respect to three of those truck drivers — Shaheem Burgh, Edison Wilt, and William Potter — a Pennsylvania workers' compensation judge determined that for purposes of workers' compensation coverage Pennco was their employer. As a result of those decisions Donegal by operation of Pennsylvania law became liable for the payment of workers' compensation benefits under the policy issued to Pennco by Donegal in the total amount of $127,922.32, and medical benefits in the total amount of $22,447.19. With regard to the fourth truck driver — John Young — on or about May 3, 1993, Donegal and Young entered into an agreement resolving Young's workers' compensation claim prior to the issuance of a decision by the workers' compensation judge. Young's workers' compensation benefits totaled $24,483.43 and his medical benefits totaled $13,752.60.

The initial application for insurance coverage submitted by Pennco was signed by Suzy Grossman as Secretary/Treasurer of Pennco on September 13, 1989. That application covered the period September 13, 1989, to September 13, 1990. The application states that she is a 50% shareholder of Pennco. That application requested coverage on behalf of Pennco for two sales employees with an estimated annual remuneration of $40,000.00, 10 clerical employees with an estimated annual remuneration of $320,000.00, and two employees who operated an apartment house with an estimated annual remuneration of $4200.00. The application was submitted to Donegal through The New Cumberland Insurance Agency, located in New Cumberland, Pennsylvania. The application states that the total estimated annual premium for the policy is $2,153.00. At the top of the application the name given for the applicant is "Pennco Trucking, Inc." Under the section of the application designated "Nature of Business/Description of Operations" is written "Administrative Offices for General Commodities Trucking Co." On the application, it was noted: "All truckdrivers hired through Transco, Inc. NOT the insured. See attached certificate of insurance." Attached to the application was a certificate of insurance which indicates that Transco had obtained a workers' compensation policy from USF & G purportedly covering Transco's truck drivers. The USF & G policy was obtained through the Mark Insurance Agency, Inc. ("Mark Insurance Agency"), located in Chinchilla, Pennsylvania.

Counts 1 through 3 of Donegal's complaint alleged claims pursuant to the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961-68. Count 4 alleged fraud; count 5 alleged breach of contract; and count 6 set forth a claim of unjust enrichment under state law. On August 25, 1995, Defendants filed a motion to dismiss the complaint. Count 1 of the complaint was dismissed by an order of the Honorable James F. McClure, Jr., issued on December 21, 1995.*fn2 In all other respects Defendants' motion to dismiss was denied.

The claims of Defendants against Transco, Mark Insurance Agency and USF & G are derivative of Donegal's claims against Defendants. That means that the potential liability of Transco, Mark Insurance Agency, and USF & G arises only upon Donegal's recovery of damages against the Defendants.

On June 11, 1999, Defendant Suzy Grossman, Third-Party Defendant Mark Insurance Agency and Third-Party Defendant USF & G filed motions for summary judgment. Shortly thereafter USF & G filed three additional motions: a motion for leave to file a cross-claim against Mark Insurance Agency, and two motions in limine. Defendant Mark Insurance Agency also filed a motion in limine.

On June 14, 2000, this Court reassigned the case to the Honorable Malcolm Muir for the purpose of deciding pending motions. On June 27, 2000, Judge Muir issued an Order granting Suzy Grossman's motion for summary judgment. That same order severed the third-party claims of Harry Grossman and Pennco against Transco, Mark Insurance Agency and USF & G for purposes of trial pursuant to Federal Rule of Civil Procedure 42(b), and denied USF & G and Mark Insurance Agency's motions without prejudice to refile. Thereafter, the Court set Donegal's claims against Harry Grossman and Pennco for trial in December 2000, and trial of the third-party claims for February 2001. By order dated November 17, 2000, the Court issued an order deeming USF & G and Mark Insurance Agency's motions refiled as of that date.

Shortly before jury selection and trial of the first-party claims, Donegal, Grossman and Pennco reached a settlement of Donegal's claims. Pursuant to that stipulated settlement, which was filed on January 24, 2001, Grossman and Pennco agreed to the entry of judgment against them on Donegal's claims, in an amount totaling approximately $480,000.00. The settlement further provides that in satisfaction of that judgment, Pennco and Grossman assign to Donegal all of their rights in the thirdparty claims they have asserted against Transco, Mark Insurance Agency, and USF & G, which remain pending in this case. Trial of those third-party claims remains scheduled for February 2001. Presently pending before the Court are: USF & G's motion for summary judgment, Mark Insurance Agency's motion for summary judgment, USF & G's motion for leave to file cross-claim, and motions in limine filed by USF & G and Mark Insurance Agency. Additional relevant facts will be set forth only as necessary in the discussion section below.

II. Discussion

A. Legal Standard.

Federal Rule of Civil Procedure 56 provides that summary judgment is proper when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." A factual dispute is "material" if it might affect the outcome of the suit under the applicable law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual dispute is "genuine" only if there is a sufficient evidentiary basis which would allow a reasonable fact-finder to return a verdict for the non-moving party. See id. at 249, 106 S.Ct. 2505. The court must resolve all doubts as to the existence of a genuine issue of material fact in favor of the non-moving party. See White v. Westinghouse Elec. Co., 862 F.2d 56, 59 (3d Cir. 1988).

Once the moving party has shown that there is an absence of evidence to support the claims of the non-moving party, the non-moving party may not simply sit back and rest on the allegations in its complaint; instead, it must "go beyond the pleadings and by [its] own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial." Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (internal quotations omitted). Summary judgment should be granted where a party "fails to make a showing sufficient to establish the existence of an element essential to that party's case and on which that party will bear the burden at trial." Id.

B. USF & G's Motion for Summary Judgment.

As noted above, the only claim asserted against USF & G in this case is count 3 of the amended third-party complaint, which is a negligence claim. In count 3, Defendants allege that: Mark Insurance Agency negligently misrepresented to Defendants that the drivers leased by Transco to Pennco were validly insured with workers' compensation insurance, and negligently failed to notify or advise Pennco that the policy of workers' compensation insurance provided to the drivers leased by Transco to Pennco excluded operations within the Commonwealth of Pennsylvania; Mark Insurance Agency was an authorized agent of USF & G; and Mark Insurance Agency was acting within the scope of its authority when it made the representations to Pennco. Accordingly, Defendants allege in count 3 that USF & G is liable for Mark's negligence on the theory of respondeat superior. USF & G sets forth several bases for its motion for summary judgment. Those bases will be addressed seriatim.

As an initial matter, USF & G requests that the Court examine the issue of its jurisdiction in this case. USF & G points out that the only federal claim in the third-party complaint is count 1, which asserted a RICO claim against Mark Insurance Agency, and that the Court granted Mark Insurance Agency's motion to dismiss that count on the ground that the claim was barred under the McCarran-Ferguson Act, 15 U.S.C. § 1012, by order dated June 23, 1997. USF & G further points out that the sole jurisdictional basis for Donegal's complaint in federal court is its RICO claims against Defendants. USF & G argues that the rationale of this Court's decision with regard to count 1 of the third-party complaint applies with equal force to the RICO counts in the original complaint, and that therefore, Donegal's RICO claims against Defendants should also be dismissed. USF & G argues that if those claims are dismissed, there would no longer be any federal claims pending in this case, and therefore, this Court would lack jurisdiction over this matter.

The Court first notes that, subsequent to the filing of USF & G's motion, Donegal and the Defendants reached a settlement of their claims, as discussed above. Accordingly, there are no longer any pending RICO claims in this case for the Court to dismiss. However, that fact raises the same issue identified by USF & G — there are no longer any federal claims present in this case. 28 U.S.C. § 1367(a) ...


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