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Preferred Contractors Insurance Company, RRG, LLC v. Sherman

Superior Court of Pennsylvania

July 24, 2018

PREFERRED CONTRACTORS INSURANCE COMPANY, RRG, LLC Appellant
v.
MICHAEL SHERMAN D/B/A SHERMAN WOODCRAFT; AND KIRK WILLIAMS; AND JNJ HOLDINGS, LLC; AND RICHARD J. FRISCHOLZ, JR., ADMINISTRATOR OF THE ESTATE OF BRETT FRISCHOLZ, DECEASED, AS RECIPIENT OF AN ASSIGNMENT FOR THE RIGHTS OF MICHAEL SHERMAN D/B/A SHERMAN WOODCRAFT, AND IN HIS OWN RIGHT AND PREFERRED CONTRACTORS INSURANCE COMPANY, RRG, LLC
v.
JOHN M. BROWN INSURANCE AGENCY, INC.

          Appeal from the Judgment Entered August 17, 2017 In the Court of Common Pleas of Allegheny County Civil Division at No(s): GD. No. 12-020228

          BEFORE: BOWES, J., DUBOW, J., and MURRAY, J.

          OPINION

          MURRAY, J.

         Preferred Contractors Insurance Company, RRG, LLC (PCIC) appeals from the order denying its motion for summary judgment and granting the motions for summary judgment of defendants Michael Sherman d/b/a Sherman Woodcraft (Sherman), Kirk Williams (Williams), JNJ Holdings, LLC (JNJ), Richard J. Frischolz, Jr., Administrator of the Estate of Brett Frischolz, and the John M. Brown Insurance Agency, Inc. (Brown Agency). After careful consideration, we affirm in part and vacate in part, and remand for further proceedings consistent with this decision.

         We summarize the relevant facts and procedural history of this case as follows. Sherman is a general contractor who engages in home renovation. On occasion, Sherman's contracting business has involved renovating residential roofs. In early 2011, Sherman orally agreed to work with Williams on renovating a residential property located at 94 Estella Avenue in the Mount Washington neighborhood of the City of Pittsburgh (Estella Avenue Project).

         In preparation for this project, Sherman, originally from California, obtained his Pennsylvania Contractor License and enlisted the help of his wife, Kylee Sherman (Kylee), to help him procure a general liability insurance policy. In April 2011, Kylee filled out an online form with the Brown Agency, an Illinois insurance broker, seeking a quote for a general liability insurance policy. On May 20, 2011, Arturo Coronel (Coronel), a representative of the Brown Agency, contacted Kylee to discuss potential insurance policies. Based on this conversation, Coronel chose PCIC to be the insurer for Sherman's general liability policy (Policy) and assisted Sherman in completing an insurance application. The same day, Coronel emailed Sherman a certificate of insurance, which confirmed the binding of coverage with PCIC. At no point prior to the binding of coverage did Sherman inform PCIC that he engaged in roofing work. Although Sherman later allegedly completed a revised application, PCIC claimed that it never received the revised version.

         Importantly, after the binding coverage and prior to the events giving rise to this lawsuit, PCIC never sent a copy of the Policy directly to Sherman. Instead, PCIC uploaded the Policy to a shared electronic database to which the Brown Agency had access so that the agency could forward the terms of the Policy to Sherman.

         After PCIC bound coverage on the Policy, Sherman signed a contract with JNJ, a company owned by Williams, to perform contracting work on the Estella Avenue Project. The contract indicated that the scope of the work for the project included roofing, electrical, plumbing, HVAC, windows, framing, drywall, external fascia, gutters, kitchen, bathrooms, painting, flooring, and decking. As the Estella Avenue Project progressed, Sherman and Williams realized that they would be unable to complete the project without subcontracting the roofing work. While attempting to secure a subcontractor to remove and replace the existing roof, Williams became concerned with the high cost of the quotes that he and Sherman had received. Consequently, Sherman and Williams agreed that Sherman would remove the existing roof and limit the subcontractor's work to constructing the new roof.

         In the time leading up to the subcontractor beginning work on the roof, Sherman and Brett Frischolz (Frischolz), a college student Williams allegedly hired to assist Sherman with work on the Estella Project, began tearing out the shingles of the existing roof. On the morning of August 4, 2011, Sherman and Frischolz were nearing completion of their work removing the existing roof. During the course of that morning, Sherman asked Frischolz to help him adjust the placement of plywood that the two had earlier situated against the neighboring home. Sherman and Frischolz had erected these protective plywood panels, in part, to prevent falling roof debris from damaging the neighboring home given its close proximity to 94 Estella Avenue. In order to move the protective panels, Sherman and Frischolz had to access a scaffold from a second-floor window that was approximately 20 feet off the ground. When Frischolz stepped on the scaffolding to move one of the protective panels, he stepped on a wood plank that Sherman had failed to anchor to the metal poles of the scaffold. The wood plank tipped suddenly and Frischolz fell headfirst approximately 20 feet to the ground. Frischolz sustained catastrophic brain injuries and died eight days later.

         On October 18, 2011, Richard J. Frischolz, Jr., Administrator of the Estate of Brett Frischolz (the Estate), filed a wrongful death action against Sherman, Williams, and JNJ. On November 10, 2011, PCIC issued a reservation of rights letter in which it informed Sherman that it would provide him with a defense and indemnification in the wrongful death action subject to a determination of whether it owed him coverage. In 2012, the Estate reached a settlement agreement with Williams and JNJ.

         On October 22, 2012, PCIC filed a complaint pursuant to the Declaratory Judgment Act, 42 Pa.C.S.A. § 7531, et seq., in which it sought, inter alia, a declaration of rights under the Policy and a determination of whether it had a duty to indemnify Sherman in the wrongful death action brought against him by the Estate. PCIC alleged, inter alia, that it did not owe Sherman coverage in the wrongful death action because Sherman made material misrepresentations and omissions on Sherman's insurance application relating to the nature of Sherman's contracting business (i.e., the application failed to inform PCIC that Sherman did roofing work). PCIC further alleged that it did not owe Sherman coverage because the Policy specifically excluded coverage for any claims of bodily injury arising out of or relating to roofing operations.[1]

         In response, Sherman argued that he was not bound by the roofing operations exclusion because PCIC never delivered the Policy to him.

         On August 25 2014, the Estate filed a "Petition to Approve Consent Judgment" in which it requested that the trial court enter judgment against Sherman and in favor of the Estate for $3.5 million. The same day, the trial court granted the petition and entered a judgment in favor of the Estate and against Sherman for $3.5 million. On August 27, 2014, Sherman assigned all of his rights under the Policy and any potential claims he had against PCIC for its failure to indemnify him to the Estate.

         On February 27, 2015, PCIC filed its first amended complaint. On July 13, 2015, PCIC filed a "Second Amended Complaint and Joinder Complaint" in which it joined the Brown Agency as a third-party defendant. PCIC's second amended complaint included, inter alia, claims for declaratory relief, breach of contract, breach of warranty, common law and contractual indemnification, contribution, misrepresentation, and negligence. PCIC alleged that the Brown Agency was negligent for failing to ensure it received an accurate insurance application from Sherman and for failing to deliver the Policy to Sherman.

         On August 11, 2015, the Brown Agency filed preliminary objections. On December 2, 2015, the trial court sustained the Brown Agency's preliminary objections, in part, based on a forum selection clause in the operating agreement between PCIC and the Brown Agency that mandated that the parties litigate any dispute arising out of their operating agreement in Los Angeles County, California. The trial court dismissed PCIC's claims against the Brown Agency for declaratory relief, breach of contract, breach of warranty, contractual indemnification, and misrepresentation. Following preliminary objections, PCIC's only remaining claims against the Brown Agency were its claims of contribution, common law indemnification, and negligence.

         On November 18, 2016, upon the completion of discovery, PCIC filed a motion for summary judgment. PCIC argued that Sherman was not entitled to coverage relating to Frischolz's death based on material misrepresentations and omission in Sherman's insurance application and certain coverage exclusions. In the alternative, PCIC argued that if Sherman was entitled to coverage, then PCIC was entitled to indemnification from the Brown Agency for misrepresentations and omissions on Sherman's insurance application and for its failure to deliver the Policy to Sherman. The Estate and the Brown Agency subsequently filed cross-motions for summary judgment.

         The Estate argued that PCIC never delivered the Policy to Sherman and consequently, PCIC could not rely on any of the coverage exclusions in the Policy. PCIC asserted that it electronically delivered the Policy to the Brown Agency, and because the Brown Agency was Sherman's agent, this constituted delivery to Sherman. PCIC maintained that electronic delivery occurred in May 2011 when it uploaded the Policy to a shared electronic database to which the Brown Agency had access and sent the Brown Agency an automatically generated email notification with a link to access the Policy. Although neither PCIC nor the Brown Agency could produce a copy of the actual notification email PCIC sent the Brown Agency regarding Sherman's policy, [2] PCIC contended that it was the regular course of its dealings with the Brown Agency to electronically deliver policies by uploading them to the shared database and sending the automatically generated email.

         The Estate maintained that the Brown Agency was PCIC's agent for purposes of delivery and thus, even if PCIC had delivered the Policy to the Brown Agency, it did not constitute delivery of the Policy to Sherman. Additionally, the Estate argued that Sherman's insurance application contained no misrepresentations and thus, provided no legal basis for PCIC to deny coverage.

         The Brown Agency argued that it was entitled to summary judgment because it owed no common law duty of care to PCIC with respect to the insurance application and delivery of the Policy. Consequently, the Brown Agency asserted that PCIC could not establish cognizable claims for negligence, contribution, and common law indemnification.

         On August 17, 2017, following argument by the parties, the trial court issued a memorandum and order of court in which it denied PCIC's motion for summary judgment and granted the motions for summary judgment of the Estate and the Brown Agency. The trial court concluded that PCIC could not rely on the roofing operations exclusion in the Policy to deny Sherman coverage because it had failed to deliver the Policy to him prior to the accident resulting in Frischolz's death. Trial Court Opinion, 8/17/17, at 3-5. With respect to PCIC's claim that it had no obligation to provide Sherman coverage based on misrepresentations and omissions in his insurance application, the trial court concluded that although Sherman's insurance application was "arguably[] incomplete[, ]" he had satisfied his obligation to correct his application by contacting Coronel at the Brown Agency to inform him of the pertinent missing information. Id. at 7-9. The trial court further determined that PCIC could not establish that the Brown Agency owed it a duty of care and dismissed its remaining claims against the agency. Id. at 11-12.

         On September 1, 2017, PCIC timely appealed to this Court. On September 8, 2017, the trial court ordered PCIC to file a concise statement of the errors complained of on appeal pursuant to Rule 1925(b) of the Pennsylvania Rules of Appellate Procedure within 30 days of the date of the order. On October 5, 2017, PCIC timely filed its Rule 1925(b) statement.

On appeal, PCIC presents the following issues for review:
1) Did the court below err in failing to rule that the misrepresentations in Sherman's application for insurance and breaches of the warranties in his application, which became part of the Policy, preclude coverage or, at minimum, was a factual issue to be decided by a jury?
2) Did the court below err in concluding that PCIC did not deliver the Policy to Sherman through delivery to his agent or, at minimum, that was a factual issue to be decided by a jury?
3) Did the court below err in not allowing PCIC to rely upon its exclusions to coverage to deny any duty to indemnify?
4) Did the court below err in finding a breach of a duty to indemnify and indicating that a judgment of at least $1 million was in order?
5) By ruling in favor of Sherman, did the court below err in granting the [Brown] Agency's [m]otion and denying PCIC's Motion?

PCIC's Brief at 3-4.

         Our standard of review regarding a trial court's decision to grant or deny a motion for summary judgment is as follows:

A reviewing court may disturb the order of the trial court only where it is established that the court committed an error of law or abused its discretion. As with all ...

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