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Bruno v. Erie Ins. Co.

Supreme Court of Pennsylvania

December 15, 2014


Argued April 8, 2014

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Appeal from the Order of the Superior Court entered July 10, 2012 at No. 1154 WDA 2011, affirming in part and vacating in part the Order of the Court of Common Pleas of McKean County, entered June 27, 2011 at No. 1369 C.D. 2009, and remanding. Appeal allowed September 11, 2013 at 347 WAL 2012. Trial Court Judge: John H. Pavlock, President Judge. Intermediate Court Judges: Mary Jane Bowes, Judith F. Olson, William Platt, JJ.

For David Bruno and Angela Bruno, et al., APPELLANT: Gary Mitchell Davis, Esq.

For Pennsylvania Association For Justice, APPELLANT AMICUS CURIAE: Mark E. Milsop, Esq., Berger and Green, P.C.

For Erie Insurance Company, APPELLEE: Craig R. F. Murphey, Esq., MacDonald, Illig, Jones & Britton, L.L.P.

For Rudick Forensic Engineering Inc, APPELLEE: Mark Reilly, Esq., Law Offices of John DeMarco.

For PA Defense Institute and Insurance Federation of PA, Inc., APPELLEE AMICUS CURIAE: Louis C. Long, Esq.

For Theresa Pitcher, APPELLEE: Theresa Pitcher.

BEFORE: MADAME JUSTICE TODD. CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, STEVENS, JJ. Former Justice McCaffery did not participate in the decision of this case. Mr. Chief Justice Castille and Messrs. Justice Saylor, Baer and Stevens join the opinion. Mr. Justice Eakin files a concurring opinion in which Mr. Chief Justice Castille joins.


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In this interlocutory appeal, we consider two questions: (1) whether a negligence claim brought against an insurer by its insureds -- for alleged statements made by the insurer's adjuster, and an engineer the insurer had retained, that mold which the insureds discovered while performing home renovations was harmless and that they should continue their renovations -- was barred by the " gist of the action" doctrine on the grounds that the true gist or gravamen of the action was an alleged breach of the insurance contract, their homeowners' policy; and (2) whether the provisions of Pa.R.C.P. 1042.1 and 1042.3 required the insureds to obtain a certificate of merit in order for them to proceed with their negligence suit against the professional engineer employed by the insurer to evaluate the mold. After careful review, we hold that the insureds' negligence claim was not barred by the gist of the action doctrine, as the claim was based on an alleged breach of a social duty imposed

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by the law of torts, and not a breach of a duty created by the underlying contract of insurance. We additionally conclude that the insureds were not required to obtain a certificate of merit in order to proceed with their negligence suit against the professional engineer, since they were not patients or clients of the engineering company which employed him. Consequently, we reverse the order of the Superior Court and remand for further proceedings.

I. Factual and Procedural Background[1]

In September 2007, Appellants David and Angela Bruno (" Brunos" ), purchased a home in Bradford, McKean County from Appellees Theresa and Marc Pitcher, and obtained a policy of homeowner's insurance for it issued by Appellee, Erie Insurance Company (" Erie" ). The policy covered both themselves and their two minor children -- Appellants Anthony Gotti Bruno and McKayla Marie Blake -- and it also included a separate endorsement or rider covering physical loss to the property caused by " fungi," which the endorsement defined, inter alia, as " any type or form of . . . molds." See " Limited Fungi, Wet or Dry Rot or Bacteria Coverage Endorsement" (Exhibit B to Complaint) at 1. This rider obligated Erie to pay the Brunos up to $5,000 for " [d]irect physical loss" to the property caused by mold, or any " [n]ecessary increase in costs" they incurred to maintain their " normal standard of living" should their residence be rendered uninhabitable as the result of mold. Id. The rider also required Erie to pay the cost of testing the air and any part of the covered property in order " to confirm the absence, presence or level of" mold " to the extent there is a reason to believe" mold was present, and, if mold was present, it obligated Erie to pay for the cost of its removal, including the cost of tearing out any part of the property needed to gain access to the mold. Id.

On October 5, 2007, after the Brunos moved into their home, David Bruno, with the assistance of a contractor he had hired, began the process of renovating the basement, during which they removed a portion of the wood paneling which was completely covering the block walls of the basement. Once the paneling was detached, Mr. Bruno discovered two areas of black mold growing on the block walls underneath, which were in proximity to leaking water pipes.

Mr. Bruno promptly informed Erie of this discovery and, also, that he wished to initiate a claim under his homeowners' policy. In response, on October 6, 2007, Erie sent an adjuster to his home to view the mold. The adjuster took no action at that time, but, instead, returned on October 8, 2007 with an engineer employed by Appellee, Rudick Forensic Engineering Company (" Rudick" ), which had been retained by Erie to investigate the mold problem, determine its severity, and ascertain the extent to which remediation was required. After the adjuster and the engineer examined the mold growth, Mr. Bruno requested that the adjuster authorize payment of the policy limits -- $5,000 -- in order to have the mold tested. In response to Mr. Bruno's request, the adjuster and the engineer informed Mr. Bruno that " the mold was harmless and that they should continue tearing out the existing paneling [and] that health problems associated with mold were

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a media frenzy and overblown." Complaint, 8/30/10, at ¶ 19. The adjuster refused payment on the basis that he lacked authorization to pay the claim, and he additionally asserted that no determination as to coverage had been made.

Based on the assurances of the adjuster and engineer that the mold was not a health hazard, the Brunos continued to live in the house, and Mr. Bruno continued with the renovations. As the month of October progressed, Mr. Bruno and his contractor attempted to eradicate the mold which they had previously discovered, and they also removed additional sheets of paneling. These actions revealed more leaking pipes and additional areas of mold growing on the walls beyond that which was initially discovered.

Mr. Bruno informed Erie of these further discoveries, and Erie dispatched the same engineer employed by Rudick who had visited the premises previously, and the engineer visually inspected the newly-discovered areas of mold, but he did nothing else. Even though the engineer performed tests of the mold, he did not disclose those results to the Brunos, nor did he or the adjuster apprise the Brunos of the true hazard to human health posed by the mold, or indicate that it should be removed or remediated.

Meanwhile, during October, each member of the Bruno family began to suffer respiratory ailments which worsened in the months thereafter. By January 2008, Angela Bruno's physical condition had deteriorated to the point that she developed severe coughing, difficulty breathing and clearing her throat, and intense headaches. At this point, the Brunos elected to have the mold tested, at their own expense, which revealed that the mold was toxic in nature and hazardous to human health.

After receiving the test results in January 2008, the Brunos demanded payment from Erie of the full $5,000 for the purpose of eradicating the mold, and they also made a claim under other provisions of their policy for repair of the water damage caused by the leaking pipes. Erie informed them that the matter was still being investigated and a claim decision had not yet been made. Finally, in April 2008, Erie made a $5,000 payment under the mold endorsement of the homeowners' policy.

Angela Bruno was later diagnosed with cancer of the throat and esophagus, which her treating physicians attributed to her exposure to the toxic mold. Fearing for their safety, the Brunos subsequently vacated the house, which they were later forced to demolish, as the mold could not be eradicated.

On August 30, 2010, the Brunos filed a 12-count civil complaint against Erie, Rudick, and the Pitchers. Relevant to the specific question presented by the current appeal, in count 7 of this complaint, the Brunos asserted that Erie engaged in the following negligent acts and omissions which caused them damage and injury: " failure to recognize the nature and severity of the mold problem at the premises" ; " misleading [the Brunos] concerning the nature of the mold problem in general and as it related to their health and home" ; " minimizing the dangers and consequences of the mold infestation when it knew or should have known otherwise" ; and the " creation or exacerbation of a dangerous condition." Complaint, 8/30/10, at ¶ 91.[2][3]

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We will, hereinafter, refer to these allegations collectively as the Brunos' " negligence claim."

Additionally, in count 10 of their complaint, the Brunos raised a claim against Rudick for professional negligence, alleging, inter alia, that it was negligent for: delaying and then improperly conducting mold testing of the Bruno home; failing to properly read, interpret, and analyze the test results; delaying the reporting of the test results to the Brunos; failing to recognize and report to the Brunos the danger to their health and to the premises created by the mold; and minimizing the dangers and consequences posed by the mold infestation, when it knew or should have known otherwise. Id. at ¶ 111.

Both Erie and Rudick filed preliminary objections in the nature of a demurrer. The basis of Erie's demurrer was that the Brunos' negligence claim against it was barred by the " gist of the action" doctrine which, as discussed more fully herein, provides that an alleged tort claim against a party to a contract, based on the party's actions undertaken in the course of carrying out a contractual agreement, is barred when the gist[4] or gravamen[5] of the cause of action stated in the complaint, although sounding in tort, is, in actuality, a claim against the party for breach of its contractual obligations. Rudick grounded its demurrer on the contention that the Brunos' claim for professional negligence should be stricken due to their failure to file a certificate of merit within 60 days of the filing of their complaint, as required by Pa.R.C.P. 1042.3(a).

The trial court sustained Erie's preliminary objections, noting that, under the Superior Court's formulation of the gist of the action doctrine, the critical distinction between a breach of contract action and a tort action is that " the former arises out of 'breaches of duties imposed by mutual consensus agreements between particular individuals,' while the latter arises out of 'breaches of duties imposed by law as a matter of social policy.'" Trial Court Opinion, 5/24/2011, at 2 (quoting Erie Ins. Exchange v. Abbott Furnace Co. 2009 PA Super 88, 972 A.2d 1232, 1238-39 (Pa. Super. 2009)). The trial court reasoned that " [b]ut for the insurance policy, Erie would owe [the Brunos] no obligation as defined by larger social policies embodied by tort laws," Trial Court Opinion at 2; thus, it dismissed the Brunos negligence claim against Erie.

The trial court also granted Rudick's preliminary objections, interpreting our Court's decision in Bilt-Rite, supra (permitting suit by bidder on public construction contract against engineer who prepared technical specifications of bid for the school district under theory that engineer negligently furnished information, upon which the bidder justifiably relied, to proceed under Section 552 of the Restatement (Second) of Torts, " Information Negligently Supplied for the Guidance of Others," despite lack of contractual privity between bidder and engineering firm), as establishing that privity of contract is not a prerequisite for maintaining a negligence action

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against an engineer who supplies information which he intends or knows will likely be used by others. Thus, the court reasoned that, because privity of contract was not required in order for the Brunos to proceed on their professional liability claim against Rudick, they were obligated to file a certificate of merit within 60 days of filing their complaint and, since they did not do so, the court struck this claim from their complaint.[6]

Upon application of the Brunos, the court amended its order pursuant to Pa.R.A.P. 341(c) to include an express determination that an immediate appeal would facilitate the resolution of the entire case. Pursuant to this order, the Brunos took a direct appeal to the Superior Court, which affirmed in part and reversed in part in an unpublished memorandum opinion authored by Judge Olson and joined by Judges Bowes and Platt.[7] Bruno v. Erie Ins.,, No. 1154 WDA 2011, unpublished memorandum (Pa. Super. filed 7/10/2012) (hereinafter " Bruno" ). With respect to the question of whether the Brunos' negligence claim against Erie was properly dismissed under the gist of the action doctrine, the court, relying primarily on its published decisions in Erie Ins. Exch., supra, and Hart v. Arnold, 2005 PA Super 328, 884 A.2d 316 (Pa. Super. 2005), focused on whether the duties alleged to have been breached arose from the obligations imposed on the parties by the terms of their contract, or whether they were duties created by the larger social policies as embodied in the law of torts. The court found that " the gravamen of [the Brunos'] action against Erie Insurance sounds in contract -- not in tort." Bruno, at 15. The court determined that the Brunos' relationship with Erie " arose out of -- and is defined by -- the Homeowner's Insurance Policy." Id. at 16. The court noted that, after the Brunos discovered the mold, they took action under the terms of this policy by initiating a claim for mold and water damage, after which Erie, in accordance with its obligations under the terms of its policy, sent its adjuster and the engineer from Rudick to investigate. The court reasoned that if Erie improperly performed its investigation, then Erie breached its contractual duty to the Brunos under the policy. Id. Therefore, the court deemed the allegations against Erie made in the Brunos' negligence claim to involve breaches of Erie's contractual obligations and not breaches of a broader societal duty arising out of the social policies furthered by the law of torts. Id. Specifically, the court opined that " 'the nature of [the Brunos'] action [against Erie Insurance] as a whole' is a contractual one and any duty Erie Insurance owed to [the Brunos] was defined by the terms of the Homeowner's Insurance Policy." Bruno, at 18 (internal quotation and citation omitted).

The court additionally rejected the Brunos' argument that Erie's adjuster could be found negligent under Section 323 of the Restatement (Second) of Torts -- " Negligent Performance of Undertaking to Render Services" -- which permits the imposition of liability on an individual for any physical harm caused by the individual's

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negligent rendering of services to another, which the individual should recognize are " necessary for the protection of the other's person or things." Id. at 17. The court concluded that Section 323 was inapplicable to the instant matter because, in the court's view, the adjuster was performing services for Erie to determine if it was responsible for paying the claim under the policy, and, hence, he did not undertake to render any services to the Brunos.

As for the certificate of merit issue regarding the suit against Rudick, the court agreed with the trial court that the Brunos' assertion of professional negligence on the part of the engineering company required it to file a certificate of merit, since it interpreted the requirements articulated in Pa.R.C.P. 1042.3 as not limited to just those in privity of contract with the professional rendering the services, and so rejected the Brunos' argument that they did not need to file the certificate. The court, employing a policy-based analysis, determined that accepting the Brunos' contention would be " antithetical to the purpose behind the certificate of merit requirement" articulated by our Court, which was to " 'devise an orderly procedure that would serve to identify and weed non-meritorious malpractice claims from the judicial system efficiently and promptly.'" Id. at 23-25 (quoting Womer v. Hilliker, 589 Pa. 256, 908 A.2d 269, 275-76 (Pa. 2006)). The court noted that our Court in Bilt-Rite, supra, recognized that engineers may be found professionally liable to third parties when it is foreseeable that the information the engineers provide to a client will be used and relied on by the third party. Hence, the court considered it an absurd result to require that a party who is in direct contractual privity with the engineer provide a certificate of merit when bringing a claim predicated on the engineer's alleged provision of negligent advice, whereas a third party bringing a suit based on that very same advice would be relieved from filing such a certificate. The court found that these considerations, coupled with the plain language of Rule 1042.3, which applies to " any action based upon an allegation that a licensed professional deviated from an acceptable professional standard," mandated that third parties like the Brunos " must support their professional liability claims with a certificate of merit." Bruno, at 25 (quoting Pa.R.C.P. 1042.3).

We granted allowance of appeal to consider the following issues:

1. Does the " gist of the action" doctrine bar recovery on the Brunos' negligence claim against Erie Insurance Company (" Erie" or " Insurer" ) where their claim was not based on the underlying insurance contract or Erie's obligations thereunder, but instead upon independent, affirmative, and gratuitous acts and omissions of the Insurer and its expert agent/contractor when they summarily and without analysis or testing told Mr. Bruno that the mold infestation in the home was not dangerous and described the dangers of mold as a media exaggeration?
2. In promulgating Rule 1042.1 et. seq. of the Pennsylvania Rules of Civil Procedure, did this Honorable Court, by the plain language used, require that only patients or clients of a negligent professional be obligated to file a Certificate of Merit, and was it therefore error for the Courts below to dismiss the Brunos' professional negligence claim against Defendant, Rudick Forensic Engineering, Inc. (" Rudick" or " Contractor" ), because they were neither patients nor clients of Rudick?

Bruno v. Erie Ins. Co., 621 Pa. 132, 74 A.3d 1027, 1027-28 (Pa. 2013) (order).

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II. Propriety of the grant of a demurrer under the gist of the action doctrine.

The question presented in a demurrer is whether, on the facts averred, " the law says with certainty that no recovery is possible." MacElree v. Philadelphia Newspapers, Inc., 544 Pa. 117, 674 A.2d 1050, 1054 (Pa. 1996). If doubt exists concerning whether the demurrer should be sustained, then " this doubt should be resolved in favor of overruling it." Bilt-Rite, 866 A.2d at 274. Our Court's standard of review of a lower court's decision granting a demurrer is de novo. Bayada Nurses, Inc. v. Com., Dep't of Labor and Indus., 607 Pa. 527, 8 A.3d 866, 871 n.4 (Pa. 2010).

A. Arguments of the Parties

The Brunos begin their argument by addressing what they consider to be the present status of Pennsylvania law regarding the gist of the action doctrine. The Brunos note that federal district courts in Pennsylvania, the Third Circuit Court of Appeals, and the Superior Court all have claimed that our Court has, heretofore, not formally adopted the gist of the action doctrine, and that both the Third Circuit and the Superior Court have predicted we will.[8] The Brunos argue that, while our Court may not have formally adopted this doctrine, we have previously applied it, with opposing outcomes, in two venerable decisions discussed infra: Zell v. Arnold, 2 Pen. & W. 292, 1830 WL 3261 (Pa. 1830) (holding that the gist of a property owner's action against a millwright, whom he had contracted to build a clover mill and to level the adjacent streambed, was tortious since, although arising out of performance of the contract, was not for breach of the millwright's contractual duties, but rather for alleged negligence in performing the contracted tasks), and Horney v. Nixon, 213 Pa. 20, 61 A. 1088, 1089 (Pa. 1905) (holding that purported tort claim against theater by disappointed ticketholders whose seats were changed as a result of the theater being forced to reconfigure its seating arrangement at the request of the fire marshal was properly dismissed since theater's failure to provide the promised seating was merely a breach of its contractual duty, created by the issuing of the ticket, to furnish a particular seat).

The Brunos next review various decisions of the Superior Court, discussed at greater length herein, in which they assert that tribunal articulated and applied different formulations of a gist of the action analysis in determining whether a particular cause of action was contractual or tortious in nature. See Brunos' Brief at 16-18 (comparing Bash v. Bell Tel., 411 Pa.Super. 347, 601 A.2d 825 (Pa. Super. 1992) (viewing critical difference between tort and contract actions as dependent on whether duty breached was imposed by the agreement of the parties, or imposed by law as a matter of social policy, and holding that customer's negligence claim against telephone company for failing to print advertisement in yellow pages directory for which customer had contracted was properly dismissed under the gist of the action doctrine, as the duty allegedly breached was a private contractual one), and eToll Inc. v. Elias/Savion Adver., 2002 PA Super 347, 811 A.2d 10, 21 (Pa. Super. 2002) (holding that plaintiff's claims of fraudulent practices against the defendant were barred by the gist of the action doctrine since they either arose from the performance of the contractual relationship, or were grounded therein, and, thus, " not so tangential to the parties' relationship so as to make fraud the gist of

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the action," but rather, " inextricably intertwined with the contract claims." ).

The Brunos contend that eToll was " wrongly decided," and they assail its inquiry as to whether the acts in question were " tangential to the parties' relationship" as " a very murky and expansive test" of little guiding value to courts, and posit the application of this test will result in the wrongful dismissal of many valid tort claims. Brunos' Brief at 17. The Brunos proffer that the more relevant inquiry is that undertaken in Bash, which seeks only to determine whether the breach of duty alleged in a particular complaint is the breach of a private duty created by contracting parties, rendering it an action for breach of contract, or whether the breach of the duty alleged is that imposed by law as a matter of social policy, in which case the action must be regarded as sounding in tort.

Elaborating thereon, the Brunos argue that the fundamental question a court must answer in a gist of the action case is: " What's this case really about?" Brunos' Brief at 18. The Brunos note that a judicial assessment which focuses on the source of duty " will bar recovery if the duties underpinning the tort claim arose merely because the parties agreed to them. However, it will not prevent recovery when the wrongs alleged do not arise out of duties imposed by [the parties'] contract." Id. at 19. In the Brunos' view, the mere fact that a contractual relationship brought the tortious wrongdoer " in the door," so ...

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