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Skotnicki v. Insurance Department

Supreme Court of Pennsylvania

December 19, 2017

GREGORY G. SKOTNICKI, Appellant
v.
INSURANCE DEPARTMENT, Appellee

          SUBMITTED: August 25, 2017

         Appeal from the Order of the Commonwealth Court at No. 156 CD 2015, dated August 17, 2016 Affirming the PA Insurance Commissioner's Adjudication and Order dated January 15, 2015 at No. P14-07-019.

          SAYLOR, C.J., BAER, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.

          OPINION

          BAER JUSTICE

         Pursuant to the regulations that implement The Unfair Insurance Practices Act ("Act 205"), 40 P.S. §§ 1171.1-1171.15, an insured can appeal to the Insurance Commissioner ("Commissioner") of Appellee Pennsylvania Insurance Department ("Department") when an insurer decides to cancel or not renew the insured's homeowners' insurance policy.[1] 31 Pa.Code § 59.7. When an insured pursues such an appeal, the Commissioner, through the Department's Bureau of Consumer Services ("Consumer Services"), initially investigates the matter and issues an investigative report to the parties. 31 Pa.Code § 59.7(b) & (c). The parties then can submit written comments to the Commissioner or request a formal administrative hearing. Id. at § 59.7(c) & (d). Ultimately, the Commissioner disposes of the appeal by entering an order. Id. at § 59.7(f).

         This matter requires the Court to consider whether, in the context of such an appeal, an insurer is collaterally estopped from litigating issues that were previously discussed in an investigative report that Consumer Services supplied in an earlier and separate appeal involving the same parties, when the Commissioner never entered a final order in the earlier appeal. For the reasons that follow, we hold that, for purposes of the doctrine of collateral estoppel, an investigative report does not constitute a final adjudication on the merits of any issue. Accordingly, an insurer is not collaterally estopped from litigating issues in the scenario described above. Because the Commonwealth Court reached the proper result in this case, we affirm that court's order.

         The background underlying this matter can be summarized as follows.[2]Appellant Gregory G. Skotnicki ("Skotnicki") owns a home which he has insured since 2003 with a policy he purchased from Phoenix Insurance Company ("Phoenix").[3] In July of 2013, Skotnicki's dog bit a neighbor. Phoenix accepted liability for the neighbor's claim and paid $42, 500 in damages.

          In a notice dated April 22, 2014, Phoenix informed Skotnicki that his homeowners' policy would not be renewed effective May 29, 2014. The notice explained the reason for non-renewal as follows: "There is a substantial change or increase in hazard in the risk assumed by the company subsequent to the date the policy was first issued, as described below: There is an animal or pet that has bitten or injured." N.T., 9/30/2014, Exhibit S1. Skotnicki appealed the non-renewal, requesting that the Commissioner review the matter pursuant to the Regulations.

         On May 28, 2014, Consumer Services issued an "Investigation Report Order."[4]In the report, it found that Phoenix violated Act 205, declaring, in pertinent part, as follows:

It is our finding that the company, by its actions, is in violation of Act 205. The consumer provides a narrative explaining how this dog bite occurred. Phoenix did not comment on the circumstances surrounding this dog bite in the response dated May 12, 2014. Our Department requested the company's narrative and details of the claim on May 21, 2014 and to date we have no record of a response.
Based on the insured's narrative this appears to have been a provoked dog bite incident[.] As the company has not justifiably proven any increase in hazard, the company is directed to continue the policy with no lapse in coverage.

N.T., 9/30/2014, Exhibit S2, at 1.

         The report also informed Phoenix that, if it wished to dispute the determination, then Phoenix could request a formal administrative hearing within 10 days of the issuance of the report. Id. at 2; see 31 Pa.Code § 59.7 (c) & (d) (stating that, if the insurer or insured desires a formal administrative hearing, such request shall be made within 10 days of receipt of the investigative report). The footer on the second page of the report noted, "[B]e advised that this communication does not constitute an adjudication under the Administrative Agency Law." N.T., 9/30/2014, Exhibit S2, at 2.

         Phoenix requested a formal hearing with the Commissioner, and Melinda Fisher Kaufman was appointed to act as the presiding officer. However, a hearing did not occur. Instead, on June 19, 2014, Presiding Officer Kaufman entered an "order" stating that Phoenix requested to withdraw the appeal.[5] Presiding Officer Kaufman's "order" granted that request and further noted that the matter would be marked closed and discontinued.[6] No formal order thereafter was entered by the Commissioner.

         On June 18, 2014, Phoenix provided Skotnicki with a second notice, informing him that his homeowners' policy would be cancelled effective July 25, 2014 (as opposed to non-renewal of the policy, which was the gist of the initial proceedings between the parties).[7] This notice explained the reason for cancellation as follows: "There is a substantial change or increase in hazard in the risk assumed by the company subsequent to the date the policy was first issued, as described below: There is an animal or pet on the residence premises that has exhibited dangerous propensities by biting a person without provocation." N.T., 9/30/2014, Exhibit T-1. Skotnicki again appealed, requesting the Commissioner's review of the cancellation of his policy.

         On July 14, 2014, Consumer Services issued an investigative report, [8] addressing Skotnicki's second appeal which challenged Phoenix's cancellation of his policy. In this report, Consumer Services stated that, following its investigation, it determined that Phoenix met the requirements of Act 205 and that Phoenix, therefore, could cancel the policy. Investigative Report, 7/14/2014, at 1. The report informed Skotnicki that he could request a formal administrative hearing. Id. Further, like the report issued in response to Skotnicki's appeal involving the non-renewal of his policy, this report contained a footer stating, "[B]e advised that this communication does not constitute an adjudication under the Administrative Agency Law." Id. at 2.

         Skotnicki requested a formal administrative hearing, and the Commissioner again appointed Melinda Fisher Kaufman as the presiding officer. The hearing took place on September 30, 2014. At the hearing and in his subsequently submitted brief, Skotnicki presented several arguments in support of his position that Phoenix wrongfully cancelled his homeowners' policy. Relevant to the appeal currently before this Court, Skotnicki contended that the doctrine of collateral estoppel barred Phoenix from relitigating whether: (1) Phoenix violated Act 205; (2) the dog bite was provoked; and (3) an increase in hazard occurred. Skotnicki's Memorandum in Support of his Appeal for the Wrongful Termination of his Homeowners' Insurance Policy ("Skotnicki Memorandum"), 12/1/2014, at 9.

Skotnicki pointed out that the elements of collateral estoppel are:
(1) the issue decided in the prior adjudication was identical with the one presented in the later action; (2) there was a final judgment on the merits; (3) the party against whom the plea is asserted was a party or in privity with a party to the prior adjudication; and (4) the party against whom it is asserted has had a ...

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