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CRS Auto Parts, Inc. v. National Grange Mutual Insurance Co.

February 2, 2009

CRS AUTO PARTS, INC. PLAINTIFF,
v.
NATIONAL GRANGE MUTUAL INSURANCE COMPANY DEFENDANT,
TURLEY INSURANCE AGENCY, INC., THIRD-PARTY DEFENDANT.



The opinion of the court was delivered by: Buckwalter, S. J.

MEMORANDUM

Currently pending before the Court is a Motion for Partial Summary Judgment filed by Defendant National Grange Mutual Insurance Company ("National Grange") and the Response of Plaintiff CRS Auto Parts, Inc. ("CRS"). For the following reasons, the Court grants the Motion.

I. FACTUAL AND PROCEDURAL HISTORY

A. Factual Background

Defendant National Grange is a business entity insurer. (Compl. ¶ 2.) On March 19, 2001, National Grange entered into an Agency Agreement with Turley Insurance Agency, Inc. ("Turley") authorizing Turley to solicit insurance contracts, issue insurance binders, and collect premiums, all on behalf of National Grange. (Def.'s Mot. Summ J., Ex. 9(B) ("Third Party Compl."), ¶ I.) Under the Agency Agreement, Turley was prohibited from appointing any sub-agent or submitting business from any other producers without the knowledge of National Grange. (Id. ¶ XII(e).) In addition, Turley agreed to reimburse and hold National Grange harmless for "any loss, expense or damage sustained by reason of any violation of the provisions of this Agreement . . ." (Id. ¶ XI (b).)

In May or June 2003, Plaintiff contacted Russell Schaible of Caln Insurance Agency regarding its efforts to obtain commercial insurance coverage. (Compl. ¶ 9.) Upon obtaining policy information, vehicle lists, drivers lists, and lost run documents, Schaible referred Plaintiff to John Turley III of the Turley Insurance Agency. (Id. ¶¶ 12-13.) All of the accurate loss information needed by Defendant to do the proper policy underwriting was provided to Turley prior to June 30, 2003. (Id. ¶ 14); see also Nat'l Grange Mut. Ins. v. CRS Auto Parts, Inc., Civ. A. No. 06-3174, 2007 WL 4078728, at *1 (E.D. Pa. Nov. 16, 2007).

On June 30, 2003, Turley issued an insurance binder, purportedly on National Grange's behalf, to include, in part, worker's compensation and commercial auto liability coverage for CRS. (Compl ¶ 16.) Prior to issuing that binder, Turley was not advised that he lacked the authority to bind National Grange. In fact, on prior occasions, he had issued binders for National Grange. (Compl. ¶ 19); Nat'l Grange, 2007 WL 4078728, at *1. Moreover, the Agency Agreement granted Turley the authority to bind National Grange to insurance coverage. (Compl. ¶ 18); Nat'l Grange, 2007 WL 4078728, at *1.

On July 10, 2003, Christopher DiPietro and Richard Tilley, were involved in an automobile accident during the course of their employment with CRS. (Compl. ¶ 18; Def.'s Mot. Summ. J., Ex. 12, 8.) As a result of the accident, Mr. Tilley was killed and Mr. DiPietro was injured. (Id.) Plaintiff CRS timely contacted Turley and/or Defendant, on July 11, 2003, to inform it of the accident and advise that there would be workers' compensation claims. (Compl. ¶ 21; Def.'s Mot. Summ. J., Ex. 12.) Pending its investigation of the alleged worker's compensation insurance coverage, National Grange issued Notices of Temporary Compensation to DiPietro and the Tilley Estate. (Def.'s Mot. Summ. J., Ex. 13.) On August 26, 2003, however, National Grange, believing that it had not issued policies of insurance to CRS, sent Notices of Worker's Compensation Denials and Notices Stopping Temporary Compensation to DiPietro and the Tilley Estate. (Id. Ex. 14.) In these Notices, National Grange informed both DiPietro and the Tilley Estate that, "IF YOU BELIEVE YOU SUFFERED A WORK-RELATED INJURY, YOU WILL BE REQUIRED TO FILE A CLAIM PETITION WITH THE BUREAU OF WORKERS' COMPENSATION IN ORDER TO PROTECT YOUR FUTURE RIGHTS." (Id.) Via a Rescinder Letter of the same date, National Grange informed CRS, in part, as follows:

The Turley Insurance Agency did not have the authority to bind any insurance on behalf as the business was brokered. . . . * * * A review of the applications supporting material and additional investigative findings reveals that the applications were signed on a date well after the requested effective date indicated on the application and one day after the date of loss. You have acknowledged that you signed all of the applications on July 11, 2003. Regarding the application for Automobile Insurance you provided inaccurate and incomplete information of previous losses. We have verified over $65,000 in automobile claims that were not disclosed on your signed application. Your signed application also stated that CRS Auto Parts, Inc. had not had any policy declined, cancelled or non-renewed during the last 3 years. This was not true as your prior insurance carrier, Meridian, had notified you that they were non-renewing your Automobile policy. We consider the above inaccuracies to be material misrepresentations.

For the reasons stated above, we hereby rescind any insurance coverage intended to be put in force by your applications, including any binders that may have been issued to you or on your behalf. (Id. Ex. 15.) National Grange promptly returned CRS's deposit premium of $11,454.00. (Id.)

B. The Initial State Court Action

On July 11, 2005, CRS, along with its parent company, KSI Trading, filed an action against (1) Albert R. Schaible, Jr., Russell Schaible, and Caln Insurance Agency (collectively, the "Caln Defendants"), and (2) National Grange in the Montgomery County, Pennsylvania Court of Common Pleas ("the State Court Action"). In their Amended Complaint, filed July 1, 2006, CRS and KSI sought damages resulting from the Caln Defendants' failure to obtain insurance coverage from National Grange on CRS's behalf and from National Grange's alleged failure to honor its obligations under the purported policy of workers' compensation insurance. (Def.'s Mot. Summ. J., Ex. 1, Am. Compl., CRS Auto Parts, et al. v. Nat'l Grange Mut. Ins. Co., et al., No. 05-18198, ¶¶ 6-35 (Phila. C.P. Apr. 3, 2006) ("the State Court Complaint").) That failure purportedly exposed CRS to workers' compensation and general liability claims by Christopher DiPietro and the Estate of Richard Tilley.*fn1 (Id.)

The Caln Defendants filed preliminary objections to Plaintiffs' Amended State Court Complaint on March 11, 2008. (Def.'s Mot. Summ. J. ¶ 5.). In addition, they filed a joinder complaint against Turley, on May 23, 2006, claiming that Turley's conduct in assisting in the completion of CRS's application was a direct cause of National Grange's denial of coverage. Id. The state court sustained the preliminary objections and, in turn, dismissed the Caln Defendants' third-party claims against Turley. (Id. Ex. 2.) On February 29, 2008, National Grange filed its answer and new matter in state court and, concurrently, filed a joinder complaint against Turley, to which Turley filed preliminary objections. (Id. ¶ 5.)

C. The Declaratory Judgment Action

National Grange filed a Declaratory Judgment Action against CRS in federal court (the "Declaratory Judgment Action") on July 19, 2006. (Id. Ex. 3.) In that action, National Grange sought a finding (1) that the workers' compensation insurance policy purportedly issued by National Grange to CRS was not in effect at the time of the motor vehicle accident injuring DiPietro and Tilley, and (2) that National Grange was not the worker's compensation insurance carrier for CRS on the date of the motor vehicle accident and, thus, had no duty to indemnify DiPietro and Tilley for any medical benefits. (Id., Ex. 3, at 7.) Turley was not joined as a party to this action. (Id.)

Following a non-jury trial on July 30, 2007, this Court issued Findings of Facts and Conclusions of Law, dated November 16, 2007. In that opinion, the Court determined that: (1) CRS made no misrepresentations, at any time, to either Turley or National Grange; (2) that Turley, acting as an agent of National Grange, issued binders to CRS; and (3) that the insurance binders were in effect and provided coverage to CRS at the time of the accident. Nat'l Grange, 2007 WL 4078728, at *1-2. Consequently, the Court entered judgment in favor of CRS and against National Grange. Id. at *2. On November 28, 2007, National Grange filed a Notice of Appeal to the Third Circuit. That appeal currently remains pending.

Counsel for both CRS and National Grange attended a federal mediation on June 2, 2008, at which time they executed a Mediation Stipulation. In that Stipulation, CRS and KSI agreed to withdraw the State Court Action to allow the recently filed federal action to proceed. (Def.'s Mot. Summ. J., Ex. 6.) Additionally, the parties entered into "a tolling agreement with respect to any statute of limitations defenses limited to claims raised in the State Court action but not to any other claims (which would have otherwise been time barred even if the case remained in State Court)." (Id.) Accordingly, on June 6, 2008, CRS and KSI discontinued the state court action.

D. The Present Action

CRS initiated the current federal action against National Grange on April 28, 2008. In its Complaint, CRS alleges claims of breach of contract, bad faith, and fraud. (Compl. ¶¶ 25-42.) The Complaint further asserts that the acts and/or omissions of National Grange were done with intent, malice, and gross, willful, wanton, and reckless disregard for the rights of CRS. (Id. ¶ 39.) By way of its Answer and Affirmative Defenses, National Grange contends,among other things, that the Complaint fails to state a claim upon which relief may be granted, that CRS's claims are barred by the applicable statute of limitations, that CRS's allegations of fraud fail for want of specificity under Federal Rule of Civil Procedure 9(b), and that CRS's fraud claims are barred by the economic loss doctrine. (Id., Ex. 8.)

On June 27, 2008, National Grange filed a Third-party Complaint against Turley. (Id. Ex. 9.) Count I seeks common law indemnification on the grounds that Turley, not National Grange, engaged in fraud and/or misrepresentation during the placement of CRS's insurance policies. (Id. ¶¶ 23-25.) Count II asserts that Turley breached the agreement between National Grange and Turley by (a) relying on third-party information from the Caln Defendants to complete CRS's application for insurance, and (b) submitting CRS's application with multiple misrepresentations. (Id. ¶¶ 26-31.) Finally, Count III seeks contractual indemnity pursuant to the Agency Agreement between National Grange and Turley. (Id. ¶¶ 32-36.)

On July 25, 2008, Turley filed a Motion to Dismiss the Third-party Complaint, alleging that Counts I and II were barred by collateral estoppel and res judicata. Turley also contended that Count III was not ripe for judicial decision due to the pending appeal of the Court's November 16, 2007, decision in the Declaratory Judgment Action. By way of Memorandum and Order dated October 7, 2008, the Court denied this Motion. CRS Auto Parts, Inc. v. Nat'l Grange Mut. Ins. Co., Civ. A. No. 08-2022, 2008 WL 4559563, at *9 (E.D. Pa. Oct. 8, 2008).

Defendant filed the instant Motion for Partial Summary Judgment on November 22, 2008. The Court now turns to a discussion of the arguments raised by both parties with respect to that Motion.

II. STANDARD OF REVIEW

Summary judgment is proper "if 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." FED. R. CIV. P. 56(c). A factual dispute is "material" only if it might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). For an issue to be "genuine," a reasonable fact-finder must be able to return a verdict in favor of the non-moving party. Id.

On summary judgment, it is not the court's role to weigh the disputed evidence and decide which is more probative, or to make credibility determinations. Boyle v. County of Allegheny, PA, 139 F.3d 386, 393 (3d Cir. 1998) (citing Petruzzi's IGA Supermarkets, Inc. v. Darling-Delaware Co., Inc., 998 F.2d 1224, 1230 (3d Cir. 1993). Rather, the court must consider the evidence, and all reasonable inferences which may be drawn from it, in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing U.S. v. Diebold, Inc., 369 U.S. 654, 655 (1962)); Tigg Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3d Cir. 1987). If a conflict arises between the evidence presented by both sides, the court must accept as true the allegations of the non-moving party, and "all justifiable inferences are to be drawn in his favor." Anderson, 477 U.S. at 255.

Although the moving party bears the initial burden of showing an absence of a genuine issue of material fact, it need not "support its motion with affidavits or other similar materials negating the opponent's claim." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). It can meet its burden by "pointing out . . . that there is an absence of evidence to support the nonmoving party's claims." Id. at 325. Once the movant has carried its initial burden, the opposing party "must do more than simply show that there is some metaphysical doubt as to material facts." Matsushita Elec., 475 U.S. at 586. "There must . . . be sufficient evidence for a jury to return a verdict in favor of the non-moving party; if the evidence is merely colorable or not significantly probative, summary judgment should be granted." Arbruster v. Unisys Corp., 32 F.3d 768, 777 (3d Cir. 1994), abrogated on other grounds, Showalter v. Univ. of Pitt. Med. Ctr., 190 F.3d 231 (3d Cir. 1999).

III. DISCUSSION

A. Whether Plaintiff's Bad Faith Claim is Barred by the Statute of Limitations

Defendant National Grange first seeks summary judgment on Plaintiff's bad faith claim. In its Complaint, Plaintiff alleges that "Defendant, National Grange, intentionally, willfully, wantonly and recklessly denied the rightful insurance coverage it owed to Plaintiff, CRS, with the intention of avoiding payment of a claim which was properly covered in an attempt to further improve its profits." (Compl. ¶ 31.) The Complaint goes on to list a series of acts and omissions by National Grange, which are purportedly representative of its violation of its duty of good faith and fair dealing.*fn2 (Compl. ¶ 38.) National Grange now asserts that because this claim was not filed within either two or four years of the denial of coverage, it is untimely and thus barred by the statute of limitations. Having considered the parties' well-briefed arguments, together with the applicable jurisprudence, the Court grants judgment on this claim in favor of Defendant.

1. The Applicable Statute of Limitations

In resolving the timeliness issue, the Court must first determine the applicable statute of limitations and accrual date for a bad faith claim under state law. Pennsylvania law provides for two types of "bad faith" claims by an insured against an insurer. McPeek v. Travelers Cas. and Sur. Co. of Am., Civ. A. No. 06-114, 2007 WL 1875801, at *2 (W.D. Pa. Jun. 27, 2007) (citing The Birth Center v. St. Paul Co., 787 A.2d 376 (Pa. 2001) (Nigro, J., concurring)). The first consists of a statutory bad faith tort claim under 42 Pa.C.S. § 8371,*fn3 pursuant to which the insured may recover only the damages set forth in the statute, including punitives, attorney fees, court costs, and interest. Id. The second involves a contract claim for breach of the implied contractual duty to act in good faith, which is separate and distinct from the statutory bad faith claim. Haugh v. Allstate Ins. Co., 322 F.3d 227, 236 (3d Cir. 2003) (citing Birth Center, 787 A.2d at 386); McPeek, 2007 WL 1875801, at *2. Pursuant to this latter claim, an insured can recover traditional contract damages, including compensatory damages. Kakule v. Progressive Cas. Ins., Civ. A. No. 06-4995, 2007 WL 1810667, at *4 (E.D. Pa. Jun. 20, 2007). Notably, no common law tort remedy exists for bad faith by an insurer. Id. at *3; Meyer v. Cuna Mut. Group, Civ. A. No. 03-602, 2007 WL 2907276, at *14 (W.D. Pa. Sep. 28, 2007).

Prior to 2004, Pennsylvania courts applied various statutes of limitations ranging from two to six years for bad faith claims. Finally, in Ash v. Cont'l Ins. Co., 861 A.2d 979 (Pa. Super. 2004), the Pennsylvania Superior Court concluded that bad faith claims brought under 42 Pa.C.S. § 8371 are statutorily created tort actions subject to a two-year statute of limitations. Id. at 984. On appeal, the Pennsylvania Supreme Court affirmed the Superior Court's determination of a two year limitations period for actions under section 8371, holding that "the duty under section 8371 is one imposed by law as a matter of social policy, rather than one imposed by mutual consensus, and an action to recover damages for a breach of that duty derives primarily from the law of torts." Ash v. Cont'l Ins. Co., 932 A.2d 877, 885 (Pa. 2007).

The statute of limitations for a common law cause of action for breach of the duty to act in good faith presents a somewhat different analysis, as the Pennsylvania Supreme Court has not expressly addressed this issue. In The Birth Center v. St. Paul Cos., Inc., 787 A.2d 376 (Pa. 2001), the Pennsylvania Supreme Court acknowledged the distinction between a statutory bad faith claim under section 8371 and a common law bad faith claim, noting that "where an insurer acts in bad faith . . . it breaches its contractual duty to act in good faith and its fiduciary duty to the insured." Id. at 379 (emphasis added); see also Ash, 932 A.2d at 884 (reaffirming that an action under section 8371 "is distinct from the common law cause of action for breach of the contractualduty of good faith."). Thereafter, in Haugh v. Allstate Ins. Co., 322 F.3d 227 (3d Cir. 2003), the Third Circuit, analyzing the appropriate limitations for such a claim, remarked that because a common law bad faith claim sounds in contract, it is subject to the four year statute of limitations for contract actions, per 42 Pa.C.S. § 5525. Id. at 237. As no Pennsylvania court has since deemed Haugh incorrect, this Court is bound by its holding.

Given the two year statute of limitations for a bad faith claim under section 8371 and the four year statute of limitations for a common law bad faith claim sounding in contract, the Court must next ascertain the accrual date for each of these limitations periods. In Adamski v. Allstate Ins. Co., 738 A.2d 1033 (Pa. Super. 1999), the plaintiff raised a bad faith claim against the insurer on the basis of alleged separate and distinct acts of bad faith, including refusal to defend or indemnify, denial of liability protection without first seeking declaratory judgment, failure to settle, lack of adequate basis for denying protection, and failure to conduct a diligent investigation. Id. at 1038. The Pennsylvania Supreme Court remarked that "a claim accrues when a plaintiff is harmed and not when the precise amount or extent of damages is determined." Id. at 1042. "For purposes of applying Section 8371, one must look to the date on which the defendant insurance company first denied the insured's claim in bad faith." Id. at 1040. The court went on to reason that continuing denials of coverage after the initial denial of coverage do not give rise to separate acts of bad faith. Id. at 1040. To that end, an insured "may not separate initial and continuing refusals to provide coverage into distinct acts of bad faith." Id. at 1042. Thus, where ...


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