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HomeMy WebLinkAbout98-0074 CivilFRANKLIN FEED & SUPPLY COMPANY, Plaintiff Vo PENNSYLVANIA MANUFACTURERS' ASSOCIATION INSURANCE COMPANY; and GARRY MARTIN and VICTORIA MARTIN, Individually and t/d/b/a CREEKSIDE FARMS, Defendants · IN THE COURT OF COMMON PLEAS OF · CUMBERLAND COUNTY, PENNSYLVANIA · CIVIL ACTION -- LAW · No. 98-74 CIVIL TERM IN RE: MOTIONS FOR SUMMARY JUDGMENT OF PLAINTIFF AND DEFENDANT PENNSYLVANIA MANUFACTURERS' ASSOCIATION INSURANCE COMPANY BEFORE HESS, OLER and GUIDO, JJ. ORDER OF COURT AND NOW, this 11th day of June, 1999, upon consideration of the motions for summary judgment of Plaintiff Franklin Feed & Supply Company and Defendant Pennsylvania Manufacturers' Association Insurance Company, and for the reasons contained in the accompanying opinion, it is ordered and directed as follows: 1. Plaintiff's motion is granted to the extent that Defendant Pennsylvania Manufacturers' Association Insurance Company is declared to have a duty to defend Plaintiff in the case of Martin v. Purina Mills, Inc., No. 3356 Civil 1993 (Cumberland County) under the commercial general liability policy issued to Plaintiff by Defendant; 2. Defendant's motion is denied; and 3. Any further relief requested by either party at this time is denied. Charles W. Rubendall, II, Esq. Donald M. Lewis, III, Esq. Keefer, Wood, Allen & Rahal 210 Walnut Street P.O. Box 11963 Harrisburg, PA 17108-1963 Attorneys for Plaintiff Charles E. Wasilefski, Esq. Peters & Wasilefski 2931 North Front Street Harrisburg, PA 17110 Attorney for Defendant Pennsylvania Manufacturers' Association Insurance Company Thomas J. Finucane, Esq. Wingerd & Long Room 500 14 North Main Street Chambersburg, PA 17201 Attorney for Defendants Garry Martin and Victoria Martin BY THE COURT, J~Vesley Oe~ J~., J. FRANKLIN FEED & SUPPLY COMPANY, Plaintiff Vo PENNSYLVANIA MANUFACTURERS' ASSOCIATION INSURANCE COMPANY; and GARRY MARTIN and VICTORIA MARTIN, Individually and t/d/b/a CREEKSIDE FARMS, Defendants · IN THE COURT OF COMMON PLEAS OF · CUMBERLAND COUNTY, PENNSYLVANIA · CIVIL ACTION -- LAW · No. 98-74 CIVIL TERM IN RE: MOTIONS FOR SUMMARY JUDGMENT OF PLAINTIFF AND DEFENDANT PENNSYLVANIA MANUFACTURERS' ASSOCIATION INSURANCE COMPANY BEFORE HESS, OLER and GUIDO, JJ. OPINION and ORDER OF COURT OLER, J., June 11, 1999. In this civil action, a company which sells animal feed has sued its liability insurance carrier. Plaintiff seeks (1) a declaration that the insurance company is obligated to defend a certain claim by purchasers that the feed harmed their dairy herd, and a declaration that any obligation of Plaintiff on the claim is covered under the policy, (2) an award of damages for breach of the contract of insurance by virtue of the insurer's failure to provide a defense thus far, and (3) an award of damages for bad faith on the part of the insurer pursuant to Section 8371 of the Judicial Code.~ In the count of Plaintiff's complaint seeking declaratory relief, the purchasers of the feed have been included as nominal defendants? Defendant insurance company has interposed a defense that a condition of the policy Plaintiff's Complaint, paragraphs 1-46. Id., paragraph 28. 1 requiring prompt notification of the claim was not complied with by Plaintiff and that prejudice accrued to the insurer as a result.3 The prejudice asserted by the insurer is that the possibility of a defense on the purchasers' claim has been foreclosed by the doctrine of collateral estoppel as a result of earlier litigation between Plaintiff and the purchasers.4 For disposition at this time are cross-motions for summary judgment filed by Plaintiff and Defendant insurance company. For the reasons stated in this opinion, Plaintiff's motion will be granted with respect to the insurer's obligation to defend, and the motions will be otherwise denied. STATEMENT OF FACTS Plaintiff is Franklin Feed & Supply Company, a Pennsylvania corporation having its principal place of business in Chambersburg, Franklin County, Pennsylvania? Defendant Pennsylvania Manufacturers' Association Insurance Company is a Pennsylvania insurance company.6 Plaintiff Franklin Feed & Supply Company is in the business of selling feed to farmers.7 It also provides nutritional services and tests forage for farmers,s Defendant Pennsylvania Manufacturers' Association Insurance Company issued a commercial general 3 Answer with New Matter of Defendant, Pennsylvania Manufacturers' Association Insurance Co. to Plaintiff's Complaint, paragraphs 47-61. 4 Id., paragraph 59. s Plaintiff's Complaint, paragraph 1; Answer with New Matter of Defendant, Pennsylvania Manufacturers' Association Insurance Co. to Plaintiff's Complaint, paragraph 1. 6 Plaintiff's Complaint, paragraph 2; Answer with New Matter of Defendant, Pennsylvania Manufacturers' Association Insurance Co., paragraph 2. 7 Stipulation of Facts, paragraph 2. 8 Id., paragraph 7. liability policy to Plaintiff, effective from November 1, 1991, to November 1, 1992.9 The policy generally provided coverage for property damage liability arising out of an accident; an accident, under the policy, included continuous or repeated exposure to substantially the same harmful conditions? Exclusions to this coverage generally excepted property damage liability assumed by reason of a contract or agreement, and property damage liability arising out of a defective product or breach of contract where the property was not physically injured. Il The policy also obligated the insurer to defend any suit seeking covered damages. Stipulation of Facts, Exhibit A (copy of policy). In addition, the policy contained a prompt notification provision. This provision read as follows: Duties In The Event Of Occurrence [Accident], Claim Or Suit. a. You must see to it that we are notified as soon as practicable of an "occurrence" or an offense which may result in a claim. To the extent possible, notice should include: (1) How, when and where the "occurrence" or offense took place; (2) The names and addresses of any injured persons and witnesses; and (3) The nature and location of any injury or damage arising out of the "occurrence" or offense. b. If a claim is made or "suit" is brought against any insured, you must: 9 Id., paragraph 5. ~o See id., Exhibit A (copy of policy). l~ Id' 3 (1) Immediately record the specifics of the claim or "suit" and the date received; and (2) Notify us as soon as practicable. You must see to it that we receive written notice of the claim or "suit" as soon applicable. (c) You and any other involved insured must: (1) Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or "suit;" (2) Authorize us to obtain records and other information; (3) Cooperate with us in the investigation, settlement or defense of the claim or "suit;" and (4) Assist us, upon our request, in the enforcement of any right against any person or organization which may be liable to the insured because of ... damage to which this insurance may also apply. (d) No insureds will, except at their own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent?' Finally, the policy provided that "[n]o person or organization has a right under [the coverage provisions of the policy t]o join us as a party or otherwise bring us into a 'suit' asking for damages from an insured ... or [t]o sue us on this Coverage Part unless all of its terms have been fully complied with." Stipulation of Facts, Exhibit A (copy of policy). Plaintiff sold feed, provided nutritional services, and tested forage for Defendants 12/d. 4 Garry and Victoria Martin, who conducted a dairy operation in Franklin County known as Creekside Farms? In March of 1992, Plaintiff learned that the Martins had experienced problems with dairy cows on their farm, and that at least three cows had died, which led to an inquiry as to the cause? Plaintiff later became aware that the Martins were alleging that the feed sold by Plaintiff was defective, and that they attributed the problems with their dairy herd to the feed? When Plaintiff attempted to collect on the invoices for the feed, a dispute arose and the Martins refused to pay for the feed.~6 On February 2, 1993, Plaintiff filed a lawsuit against the Martins in the Franklin County Court of Common Pleas, docketed at A.D. No. 1993060, to collect the unpaid invoices for the animal feed? On October 22, 1993, the Martins commenced a civil action against Plaintiff and the manufacturer of the feed in the Cumberland County Court of Common Pleas, docketed at No. 3356 Civil 1993, by filing a praecipe for writ of summons.~8 One of the writs was thereafter served upon Plaintiff.x9 Upon receiving the writ, Plaintiff did not notify Defendant Pennsylvania Manufacturers' Association Insurance Company at that time of the fact that a suit had been t3 Id., paragraphs 4, 7. 14 Id., paragraph 8. ~ Id., paragraph 9. ~6 Id., paragraph 10. ~? Id., paragraph 11. ~8 Id., paragraph 14. ~9 Id., paragraph 15. filed against Plaintiff? Meanwhile, the collection suit brought by Plaintiff in Franklin County proceeded to compulsory arbitration in that court, with hearings held by the board of arbitrators on February 7, 1995, April 6, 1995, and June 22, 1995.2~ An arbitration award was issued on June 22, 1995, in favor of the Martins? Plaintiff did not appeal this unsuccessful result in its collection suit? In October of 1995, Plaintiff received a written demand for settlement of the suit in Cumberland County brought against it by the Martins? Plaintiff forwarded a copy of the Martins' settlement demand letter to Defendant Pennsylvania Manufacturers' Association Insurance Company; this was the insurer's first notice of the lawsuit filed in 1993 in Cumberland County or the underlying allegations? Defendant proceeded to investigate the claim? In December of 1995, Defendant insurer retained defense counsel to enter an appearance in the Martin suit on PlaintiWs behalf? This action was taken subject to the insurer's reservation of a right to withdraw from the defense and disclaim coverage based upon further investigation? 20 Id., paragraph 16. 21 Id., paragraph 18. 22 Id., paragraph 20. 23 Id., paragraph 21. 24 ~[d., paragraph 22. 25 Id., paragraph 23. 26 Id., paragraph 24. 27 Id., paragraph 25. 28 Id. 6 On December 19, 1995, a complaint was filed against Plaintiff and the manufacturer of the feed in the Martin suit? By letter dated January 22, 1996, Defendant Pennsylvania Manufacturers' Association Insurance Company declined to provide further defense to the Plaintiff and denied coverage with respect to the Martins' claim.3° The action subjudice, relating to the obligation of the insurer to the seller of the feed in connection with the claim of the purchasers, was filed by the seller on January 7, 1998. This action was consolidated with the action of the purchasers against the seller, pursuant to an agreement of counsel, to facilitate the consideration of various related summary judgment motions? As noted previously, Plaintiff seller (Franklin Feed & Supply Company) and Defendant insurer (Pennsylvania Manufacturers' Association Insurance Company) have each filed motions for summary judgment in the present case. PlaintiWs motion requests that summary judgment be entered in its favor and against the insurer (and the purchasers) "on the issues of [PlaintiWs] right to a defense of the [purchasers'] action and insurance coverage under the [Defendant's policy] for any judgment that may be entered in that action.''32 Defendant's motion requests that the court "enter summary judgment against Plaintiff .... ,,33 In support of its motion for summary judgment, Plaintiff argues that PMA breached its duty to defend Franklin Feed by prematurely disclaiming any coverage obligation and by withdrawing from the defense of the Martin action. 29 lfd.' paragraph 26. 3o Id., paragraph 28, Exhibit G. 31 Order of Court, October 21, 1998 (Hess, J.). 32 Franklin Feed's Motion for Summary Judgment, claim for relief. 33 Motion for Summary Judgment of Defendant, Pennsylvania Manufacturers' Association Insurance Company, claim for relief. 7 PMA should be required to reimburse Franklin Feed for all attorney's fees and other defense costs it incurs in defending itself in the Martin suit, including all costs of appeal. PMA is obligated to indemnify Franklin Feed against any judgment for damages, interest, and Rule 238 delay damages that may be entered against Franklin Feed in the Martin suit. PMA should be required to reimburse Franklin Feed for all attorney's fees and other costs incurred in bringing this action to establish its right to a defense and potential indemnity under the policy, due to PMA's unreasonable and unfounded repudiation of its contractual obligations.34 In support of its motion for summary judgment, Defendant argues ... Franklin Feed clearly failed to give prompt and timely notice to PMA of the occurrence or offense that could rise and did rise to a claim for damages as required by the insurance policy as a prerequisite for coverage. As a result of the late notice, PMA was clearly prejudiced because the doctrine of collateral estoppel has application to the facts and circumstances of this case. Because Franklin Feed has failed to comply with the requirements of the insurance policy to the prejudice of PMA, it has forfeited the right to claim coverage under the policy? From the foregoing, it is apparent that the merits of the parties' positions on summary judgment in this case are largely dependent upon a ruling on the issue of collateral estoppel in the companion case, wherein the purchasers are suing the seller and manufacturer. In this regard, by an order, accompanied by an opinion, of even date herewith, the court has concluded that the earlier litigation did not resolve, for purposes of collateral estoppel, the factual issue of whether the feed sold by Defendant was harmfully defective. The order and 34 Brief in Support of Franklin Feed's Motion for Summary Judgment, at 13-27. 3s Brief of Defendant, Pennsylvania Manufacturers' Association Insurance Company, in Support of Motion for Summary Judgment, at 17-18. opinion in Martin v. Purina Mills, Inc., No. 3356 Civil 1993 (Cumberland County), are incorporated herein by reference. Pennsylvania Rule of Civil Procedure 1035.2 provides as follows with respect to summary judgment: After the relevant pleadings are closed, but within such time as not to unreasonably delay trial, any party may move for summary judgment in whole or in part as a matter of law (1) whenever there is no genuine issue of any material fact as to a necessary element of the cause of action or defense which could be established by additional discovery or expert report, or (2) if, after the completion of discovery relevant to the motion, including the production of expert reports, an adverse party who will bear the burden of proof at trial has failed to produce evidence of facts essential to the cause of action or defense which in a jury trial would require the issues to be submitted to a jury. In liability insurance law, the duty of an insurer to defend is, in general, separate from and broader than the duty to indemnify. See General Accident Ins. Co. of America, 547 Pa. 693,692 A.2d 1089 (1997). The usual undertaking of the insurer is "to defend the insured against any suits arising under the policy even if such suit is groundless, false or fraudulent." Erie Insurance Exchange v. Transamerica Insurance Company, 516 Pa. 574, 583,533 A.2d 1363, 1368 (1987) (citation omitted). Since the insurer thus agrees to relieve the insured of the burden of defending even those suits which have no basis in fact, our cases have held that the obligation to defend arises whenever the complaint filed by the injured party may potentially come within the coverage of the policy. Consequently, there may be an obligation to defend although no obligation to indemnify. Gedeon v. State Farm Mutual Automobile Insurance Co., 410 Pa. 55, 58-59, 188 A.2d 320, 9 321-22 (1963) (emphasis in original) (citations omitted). As a general rule, the determination of the issue of coverage, as opposed to the issue of duty to defend, is best deferred to the conclusion of the underlying action. See Heffernan & Co. v. Hartfordlnsurance Co., 418 Pa. Super. 326, 614 A.2d 295 (1992). Finally, with respect to liability insurance law, it is well settled that an insured's failure to comply with a prompt notification provision in a policy will not excuse performance on the part of the insurer in the absence of demonstrated prejudice to the insurer as a result of the delay. Brakeman v. Potomac Insurance Co., 472 Pa. 66, 76-77, 371 A.2d 193, 198 (1977). An application of the foregoing principles to the facts of the instant case, including the holding as to collateral estoppel in the companion case, results in a conclusion that (1) the liability insurance policy issued by Defendant insurer to Plaintiff at least potentially covers the claim of Defendant purchasers against Plaintiff for harmfully defective feed, (2) that the issue of whether the feed was harmfully defective remains litigable in the underlying case so as to negate Defendant insurer's claim of prejudice by reason of the doctrine of collateral estoppel, and (3) that it would be premature to adjudicate the issue of coverage at this time.36 For these reasons, the following order ~vill be entered: ORDER OF COURT AND NOW, this 1 lth day of June, 1999, upon consideration of the motions for summary judgment of Plaintiff Franklin Feed & Supply Company and Defendant Pennsylvania Manufacturers' Association Insurance Company, and for the reasons contained in the accompanying opinion, it is ordered and directed as follows: 1. Plaintiff's motion is granted to the extent that Defendant Pennsylvania Manufacturers' Association Insurance 36 The court is also of the view that a determination that the insurer has acted in bad faith can not be made as a matter of law at this time. 10 Company is declared to have a duty to defend Plaintiff in the case of Martin v. Purina Mills, Inc., No. 3356 Civil 1993 (Cumberland County) under the commercial general liability policy issued to Plaintiff by Defendant; 2. Defendant's motion is denied; and 3. Any further relief requested by either party at this time is denied. BY THE COURT, J. Wesley Oler, Jr. J. Charles W. Rubendall, II, Esq. Donald M. Lewis, III, Esq. Keefer, Wood, Allen & Rahal 210 Walnut Street P.O. Box 11963 Harrisburg, PA 17108-1963 Attorneys for Plaintiff Charles E. Wasilefski, Esq. Peters & Wasilefski 2931 North Front Street Harrisburg, PA 17110 Attorney for Defendant Pennsylvania Manufacturers' Association Insurance Company Thomas J. Finucane, Esq. Wingerd & Long Room 500 14 North Main Street Chambersburg, PA 17201 Attorney for Defendants Garry Martin and Victoria Martin 11