Opinion
Bankruptcy No. 01-12295DWS, Adversary No. 03-1005.
September 23, 2005
MEMORANDUM OPINION
This adversary proceeding was brought by the Debtor Asousa Partnership ("Debtor") against, inter alios, Defendants Chapel Ins. Associates, Inc. ("Chapel"), and Kaminsky Insurance Agency, Inc. ("Kaminsky") (collectively "CK"), seeking damages for CK's alleged errors and/or omissions as insurance agents with regard to a policy of insurance issued by Manufacturers Alliance Insurance Co. ("MAICO"). Pursuant to the parties' agreement, trial was bifurcated into liability and damage phases. After trial on the liability phase and submission of proposed findings of fact and conclusions of law, this matter is ripe for decision as to liability.
Debtor has since settled its claims against MAICO.
The following facts are either from the Amended Joint Pretrial Statement (the "Uncontested Facts"), were established at trial, or are facts of which I may take judicial notice.
The Debtor is a Pennsylvania general partnership that owns the land and building(s) located at 980 Glasgow Street, Pottstown, Montgomery County, Pennsylvania (the "Premises"). In or around May, 2000, the Debtor entered into a lease on the Premises (the "Lease") with Pennexx Foods, Inc., formerly known as Pinnacle Foods, Inc. ("Pinnacle"). Exhibit P-3. Pursuant to Lease obligations, Pinnacle procured insurance for the Premises from CGU (the "CGU Policy"), through defendant insurance agent CK. The CGU Policy period ran from September 1, 2000 through September 1, 2001. Exhibit P-11.
Kaminsky's sole shareholder, Edward Kaminsky, also has ownership in Chapel. Kaminsky places all its insurance through the Chapel entity. N.T. at 16. I have followed the practice of the parties of treating CK as a collective entity notwithstanding that Chapel may have been the actual placing agent.
On February 20, 2001, during the CGU Policy period, Debtor filed in this Court a voluntary petition under chapter 11 of the Bankruptcy Code. In March 2001, Debtor's bankruptcy counsel, Eric Frank, Esquire ("Frank"), asked Pinnacle to provide proof of insurance on the Premises. CK forwarded two forms: a "Certificate of Liability Insurance" and an "Evidence of Liability" insurance, which identified the CGU Policy number and the policy period. Exhibit P-11. These satisfied Mr. Frank that the Premises was adequately insured through CGU.
Pinnacle did not renew the CGU Policy when it expired on September 1, 2001. Instead, it obtained a new policy with a different insurer, i.e. MAICO Policy No. 820100-661-0-61-2 (the "MAICO Policy"), for the period from September 1, 2001 through September 1, 2002. Exhibit P-13. The MAICO Policy is a commercial package policy, providing both property insurance for the Premises and liability insurance for Pinnacle. It is the property insurance portion of the MAICO Policy that forms the basis of the Debtor's Complaint. CK was also the agent that obtained the MAICO Policy on behalf of Pinnacle. Uncontested Facts ¶ 11. At all times material hereto, Chapel had a written "Agent Agreement" with MAICO. Exhibit P-1; Uncontested Facts ¶ 12.
Debtor made no inquiries to Pinnacle or CK after expiration of the CGU Policy. Nevertheless, on October 10, 2001, Wayne McFarland ("McFarland"), an employee of Chapel, faxed to the Debtor on his own initiative documents titled Evidence of Property Insurance dated October 10, 2001 (the "Evidence of Property Insurance") and Certificate of Liability Insurance dated October 10, 2001 (the "Certificate of Liability Insurance" and collectively with the Evidence of Property Insurance, the "Certificates"). Uncontested Facts, ¶ 14; Exhibit P-16. The Certificates indicate that Debtor is an additional insured under the MAICO Policy. McFarland forwarded the Certificates because he was aware of Debtor's additional insured status on the CGU Policy and understood that Debtor should be similarly added to any future policy. N.T. 119, 127.
Debtor's principal, Thomas Asousa ("Asousa"), gave the Certificates only a cursory review before sending them on to Debtor's counsel, assuming the documents referred to a renewal of the CGU Policy. N.T. at 222-23. While Asousa testified that had he not received the Certificates, he would have taken affirmative action to protect the Premises by either seeking eviction of Pinnacle and/or obtaining insurance on his own, id. at 217, I do not find this testimony credible in light of the fact that he had not even requested the Certificates. Moreover, Debtor had already instituted an adversary action to evict Pinnacle due to its breach of the Lease. See Asousa Partnership v. Pennexx Foods, Inc. f/n/a Pinnacle Foods, Inc. (In re Asousa), Adv. No. 01-974 (filed September 25, 2001) ("Asousa I"). Finally, Asousa testified that Debtor's failure to get its own property insurance prior to Pinnacle's eviction was due to Debtor's financial difficulties. Id. at 219-20.
Specifically, Count II of the complaint in that action sought to regain possession of the Premises from Pinnacle. By order dated June 20, 2002, I grated summary judgment on Count II in favor of Debtor.
CK did not seek MAICO's approval or otherwise notify MAICO in advance that it would be issuing the Certificates. CK's principal, Mr. Kaminsky, testified that CK did not need MAICO's prior approval to issue the Certificates. N.T. at 92. However, CK also failed to subsequently notify MAICO once it had issued the Certificates. Uncontested Facts ¶¶ 17-18. Mr. Kaminsky conceded that an agent has a duty to notify the insurer when an additional insured is added to a policy, and he subsequently terminated McFarland's employment with CK because of his failure to do so here. N.T. at 99-100.
The outcome of this lack of communication is painfully predictable. Pinnacle vacated the Premises in July 2002, causing significant damage in its exodus and rendering the Premises unrentable. Debtor, after attempting to file a claim with CGU and learning that MAICO was in fact the insurer, submitted a claim with MAICO. Uncontested Fact ¶ 22. MAICO conducted an investigation of its records and informed Debtor that it was not listed as an additional insured under the MAICO Policy. N.T. 148-49. Asousa submitted copies of the Certificates to MAICO, N.T. at 230, but MAICO did not change its position. MAICO has at all times in the course of this litigation taken the position that Debtor is not an additional insured.
In Asousa I, Debtor also obtained a judgment against Pinnacle for damage to the Premises caused by Pinnacle (the "Property Damage").
MAICO's claim examiner, Ruth Hopkins ("Hopkins"), was assigned to the MAICO Policy after Debtor instituted this adversary action. N.T. 136. The claims examiner handling Debtor's claim before her was Paul Brown. N.T. 160. Asousa's testimony is that he submitted the Certificates to Mr. Brown, so it is clear that Debtor provided the certificates to prior to filing this adversary action.
Debtor thereafter instituted the present adversary action. Its claims against MAICO seek coverage as an additional insured under the MAICO Policy. Debtor's claims against CK are alternative theories, i.e. asserted only to the extent that Debtor is not additional insured. Having settled this adversary proceeding as to MAICO, Debtor now pursues those alternative claims against CK. DISCUSSION
A. Breach of Contract/Warranty of Agency
Count III of the Complaint is based upon the Restatement of Agency (Second) § 329, as adopted by Pennsylvania, which holds an agent liable to a party under a contract it makes with that party on behalf of a principal where the agent lacks authority to bind the principal. DiCicco v. Willow Grove Bank, 2004 WL 2150980, at *4 (E.D. Pa. Sept. 21, 2004);Hudock v. Donegal Mutual Insurance Company, 264 A.2d 668, 672 (Pa. 1970); Kribbs v. Jackson, 129 A.2d 490, 498 n. 2 (Pa.Super. 1957). Debtor's position is that CK lacked authority to bind MAICO by issuing the Certificates because CK did not take the necessary actions under the Agent Agreement, namely obtaining a quote beforehand and immediately notifying MAICO after it issued the Certificates. As a result, argues Debtor, CK should be liable under the MAICO Policy in MAICO's stead.
As both parties cite to Pennsylvania law, I assume that they are in agreement that Pennsylvania law governs this dispute.
Section 329 of the Restatement (Second) of Agency states in pertinent part:
A person who purports to make a contract, conveyance or representation on behalf of another who has full capacity but whom he has no power to bind, thereby becomes subject to liability to the other party thereto upon an implied warranty of authority, unless he has manifested that he does not make such warranty or the other party knows that the agent is not so authorized.
CK correctly asserts that essential to a § 329 claim is proof that MAICO was not bound by CK's conduct. Section 329 does not apply if the principal is in fact bound by the acts of the agent:
f. Where principal is bound. If an agent makes his principal a party to the transaction, the rule stated in this Section does not apply. Thus, if he acts in violation of orders but within his power to bind his principal (see §§ 159-178), the agent is not liable to the other party to the transaction since, if the principal becomes a party, the rights of the other party are not affected by the fact that the agent committed a wrong to his principal.
. . .
Illustration:
6. P authorizes A to sell a horse to T and so informs T. Soon afterwards P revokes A's authority, but fails to notify T. Disregarding the revocation, A makes a contract for the sale of the horse to T. P breaks his contract with T. A is not liable to T.
Comment f, Illustration 6, Restatement (Second) Agency § 329. Comment f cites to other sections of the Restatement (Second) of Agency, including § 159 (apparent authority) and § 160 (violation of secret instructions), as examples of an agent's power to bind his principal notwithstanding any violation of orders. If MAICO was bound under such maxims of Pennsylvania law, as alleged by CK, then § 329 is not applicable and cannot provide a basis for holding CK liable under the MAICO Policy. I therefore address CK's argument that this is the case here.
I will assume that CK exceeded its authority by issuing the Evidence of Insurance without obtaining MAICO's approval and/or failing to notify MAICO. Pennsylvania law holds a principal liable for the acts of its agent committed in the scope of its employment even though the principal did not authorize the specific act. Aiello v. Ed Saxe Real Estate, Inc., 499 A.2d 282 (Pa. 1985). While an agent's apparent authority generally requires some kind of action or words by the principal, e.g Hydraulics, Inc. v. Susquehanna Const. Corp., 606 A.2d 532, 534 (Pa.Super. 1991), "[w]here the principal places his agent in, or knowingly permits him to occupy, a position which, according to the ordinary experience and habits of mankind, it is usual for the occupant to have authority of a particular kind, anyone having occasion to deal with the agent is justified in inferring that he possesses such authority, unless the contrary shall be made known." Passarelli v. Shields, 156 A.2d 343, 347 (Pa.Super. 1959). This rule is equally applicable in the context of an independent insurance agent like CK which binds insurance for a number of companies: "One dealing with an insurance agent, and having no notice of any limitation on his or her powers, has the right to deal with him or her upon the faith of his or her ostensible powers." 3 Couch on Insurance 3d § 48:12 at 48-20.
Pennsylvania National Mutual Ins. Co. v. Ins. Commissioner of Pennsylvania, 551 A.2d 368 (Pa.Commw. 1988) is similar to the facts before me. In that case, an insurance agent had authority to bind insurance subject to certain restrictions pursuant to an agent agreement. The agent exceeded those restrictions by taking an application for a type of risk she was not authorized to bind under the agency agreement. She nevertheless orally assured the putative insured that they were in fact covered for that risk. The court held that the insurer was bound, rejecting the argument that its agent had exceeded her express authority: "undisclosed rules only known to the insurer and its agent cannot be invoked to defeat the very contract the agent had apparent authority to make." Id. at 373 (citing Serventi v. New York Fire Ins. Co., 253 F. Supp. 670 (W.D. Pa. 1966) (holding that an insurer was bound by agent's oral reinstatement of policy notwithstanding that agent lacked authority)). I similarly find it irrelevant that the Agent Agreement may have imposed certain restrictions upon CK that were not followed. A principal's liability is not limited when a restriction is not communicated to a third party. Id.; Industrial Molded Plastic Products, Inc. v. J. Gross Sons, Inc., 398 A.2d 695 (Pa.Super. 1979); Zager v. Gubernick, 208 A.2d 45, 48 (Pa.Super. 1965) (citing Restatement (Second) of Agency § 160)).
Moreover, CK's representation of Debtor's coverage went beyond mere oral assurance. The Evidence of Property Insurance, bearing the acronym "ACORD" in the upper left corner, Exhibit P-16 at Bates No. CK0274, is a form with specific meaning within the insurance industry. I take judicial notice of the fact that the ACORD is the Association of Cooperative Operations Research and Development, a nonprofit organization of insurance agents and companies that promulgates the "ACORD Forms Instructions Guide" containing insurance industry forms and instructions. See Margaret F. Black, Certificates of Insurance: A Means of Assuring Landlords of Appropriate Coverage Protection, 15 No. 6 Com. Leasing L. Strategy 1 (Nov. 2002); Barry S. Marks and Ken Weinberg, Insurance and Proof of Coverage: Are your Certificates of Insurance Worth Anything?, 20 No. 6 LJN's Equip. Leasing J. (June 2001). The Evidence of Property Insurance bears all of the following characteristics of the ACORD 27 form, also titled "Evidence of Property Insurance":
While a court may not take judicial notice sua sponte of facts contained in the debtor's file that are disputed, In re Augenbaugh, 125 F.2d 887 (3d Cir. 1942), it may take judicial notice of adjudicative facts "not subject to reasonable dispute . . . [and] so long as it is not unfair to a party to do so and does not undermine the trial court's factfinding authority." In re Indian Palms Assoc., 61 F.3d 197, 205 (3d Cir. 1995) (citing Fed.R.Evid. 201(f) advisory committee note (1972 proposed rules).
(1) The upper right hand corner states "[t]his is evidence that insurance as identified below has been issued, is in force and conveys all the rights and privileges afforded under the policy."
(2) In the bottom right-hand corner is a statement that "[s]hould the policy be terminated, the company will give the additional interest identified below ____ days' written notice, and will send notification of any changes to the policy that would affect that interest, in accordance with the policy provisions or in accordance with law."
(3) There are boxes in the lower right-hand corner where the lessor can be explicitly designated as "loss payee" and "additional insured" by the mere marking of a box.
Marks and Weinberg, supra; The Evidence of Property Insurance issued to Debtor by McFarland is unarguably an ACORD 27. Another commentator notes the purpose of the ACORD 27:
The ACORD 27 is, by definition, a form used by an agent or insurer to provide a statement of coverage for mortgagees, additional insureds and loss payees. Many lending institutions and loss payees accept this form in lieu of a complete policy. In the tenant context, the ACORD 27 (3/93) form may be used to extend the coverage provided to the tenant under the tenant's property insurance policy to cover the landlord as an additional insured or loss payee under the policy. The name of the landlord need not appear on the policy itself or on any endorsement attached to the policy: the ACORD 27 functions as a contract of insurance between the landlord and the insurer, although the landlord is subject to the terms of the underlying policy. The ACORD 27 form is sufficient to extend the policy's coverage to the landlord and to bind the insurance company to provide such coverage.
Black, supra (emphasis added). This interpretation is consistent with the ACORD Forms Instructions Guide itself:
The purpose of the ACORD Evidence of Property Insurance is significantly different from the Certificate of Property Insurance [ACORD 24]. Like the Certificate of Insurance the [Evidence of Property Insurance] summarizes coverages currently in force on a policy. However, it differs by conveying to the holder of the form all rights that go with the policy, including notice of cancellation.
Marks and Weinberg, supra (quoting ACORD Forms Instructions Guide) (alterations in original).
Compare the ACORD 24 form ("Certificate of Property Insurance"), from which the ACORD instructions distinguish the ACORD 27 form. That form is substantively identical to the ACORD 25 form used for liability insurance. Id. The distinction between an Evidence of Property Insurance form (ACORD 27) and a Certificate of Property/Liability Insurance (ACORD 24 and 25) is significant. The ACORD 24 and 25 forms contain the following characteristics, particularly disclaimers which are not found in the ACORD 27:
(1) The upper right-hand corner . . . contains a statement that "[t]his certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies below";
(2) [The] form contains an additional disclaimer about a third of the way down the page which reads, "[t]his is to certify that the policies of insurance listed below have been issued to the insured named above for the policy period indicated. Notwithstanding any requirement, term or condition of any contract or other document with respect to which this certificate may be issued or may pertain, the insurance afforded by the policies described herein is subject to all the terms, exclusions and conditions of such policies. Limits shown may have been reduced by paid claims";
(3) The bottom right-hand corner . . ., where the insurance company "promises" to notify the lessor if the policy is canceled, contains a disclaimer saying that the company "will endeavor to mail" the notice "[b]ut failure to mail such notice shall impose no obligation or liability of any kind upon the company, its agents or representatives"; and
(4) [Form] does not contain an explicit place for the certificate holder to be designated as "additional insured" and "loss payee" and, when present, such terms are usually placed in the box that describes the collateral or in the box that lists the certificate holder's name.
Marks Weinberg, supra. See also Bituminous Cas. Corp. v. Aetna Life Cas., 1998 U.S. Dist. LEXIS 23161 at *7 n. 3 (S.D. W.Va. Sept. 24,1998) (the ACORD 27 contains an unequivocal obligation to give notice and purports to convey all the privileges of the policy to the certificate holder); Total Mech. Heating Air Conditioning v. Employment Relations Div., 50 P.3d 108, 2002 (Mont. 2002) (ACORD 27 certificates do not contain the disclaimer found in ACORD 25 certificates and intend to convey all privileges of the policy to the certificate holder).
Notably, the Certificate of Liability Insurance, Exhibit P-16 at Bates No. CK0276, which bears the ACORD label and these identical disclaimers and characteristics, is unarguably an ACORD 25 form. The Evidence of Property Insurance, an ACORD 27, has none of these disclaimers. I find it significant that CK used these two different forms with respect to the liability and property insurance under the MAICO Policy. The unambiguous intent expressed by these forms is to extend coverage to Debtor with respect to property insurance, but merely to inform Debtor of the existence of liability insurance.
Given that Pennsylvania law will hold an insurer to the mere oral representations of its agents, Penn Nat'l, Serventi, supra, and given the explicit purpose of the ACORD 27 form to bind coverage of an existing policy to an additional party, I have no doubt that Pennsylvania law would find the Evidence of Property Insurance to be such an unequivocal assertion by CK so as to bind MAICO. Thus, even assuming CK exceeded its authority by issuing the Evidence of Property Insurance and failing to notify MAICO, Pennsylvania law would require MAICO to treat Debtor as an additional insured under the MAICO policy. This principle of law falls within an agent's binding authority as contemplated by § 329. Because MAICO was in fact bound by CK's representation via the Evidence of Property Insurance, § 329 cannot be used to hold CK liable in MAICO's stead.
B. Negligence Claim
Count IV of the Complaint asserts a claim for professional negligence. "It is axiomatic that in order to maintain a negligence action, the plaintiff must show that the defendant had a duty to conform to a certain standard of conduct; that the defendant breached that duty; that such breach caused the injury in question; and actual loss or damage." Wisniski v. Brown Brown Ins. Co., 852 A.2d. 1206, 1212 (Pa.Super. 2004) (quoting Phillips v. Cricket Lighters, 841 A.2d 1000, 1008 (2003)). Proof of the final two elements, actual injury and a causal connection between the negligence and the injury, have not been met here. The harm alleged in Debtor's negligence claim is that as a result of CK's negligence, Debtor was not an additional insured under the MAICO Policy at the time the Premises was damaged. Complaint ¶ 48; Debtor's Mem. ¶ 75 at 15. Such contention of harm is legally flawed. I have found that Pennsylvania law binds MAICO to treat Debtor as an additional insured, notwithstanding that CK may have exceeded its authority. Debtor was an additional insured under the MAICO Policy, in spite of CK's negligence.
Debtor's coverage was, of course, subject to all the terms and conditions of the MAICO Policy. Because Debtor has settled its claims with MAICO, I have not had to address whether any applicable exclusion would have precluded coverage under the MAICO Policy. In any event, MAICO's denial under a policy exclusion would not be attributable to CK's conduct.
Debtor also complains that MAICO's refusal to acknowledge Debtor as an additional insured which would be covered by the MAICO Policy was injurious. This injury was experienced without regard to whether Debtor could have ultimately enforced its right as an additional insured in a court of law. While MAICO's treatment of Debtor's claim was no doubt initially caused by CK's failure to notify MAICO of its undertaking, this record shows that Debtor provided the Evidence of Insurance to MAICO as part of its claim. Once MAICO became aware that this document was issued, MAICO was obligated to acknowledge Debtor's additional insured status. Any negligence by CK in failing to provide the notice to MAICO no longer was the cause of Debtor's injury. Rather the harm must be attributed to the unwarranted position MAICO took in contradiction to Pennsylvania law regarding the binding effect of the issuance of the Evidence of Insurance. While MAICO may have a claim for negligence against CK, the Debtor does not.
C. Negligent Misrepresentation
Count V asserts a claim for negligent representation, which requires proof of: (1) a misrepresentation of a material fact; (2) made under circumstances in which the misrepresenter ought to have known its falsity; (3) with an intent to induce another to act on it; and (4) which results in injury to a party acting in justifiable reliance on the misrepresentation. Bilt-Rite Contractors, Inc. v. The Architectural Studio, 866 A.2d 270, 277 (Pa. 2005).
Debtor has asserted that its negligent misrepresentation claim is governed by § 552 of the Restatement (Second) of Torts (Information Negligently Supplied for the Guidance of Others), which has more specific elements than the common law tort:
(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.
The Bilt-Rite court found that § 552 does not supplant the elements of Pennsylvania's common law tort, but would merely clarify those elements "as they apply to those in the business of supplying information to others for pecuniary gain." 866 A.2d at 280. Debtor failed to present any evidence or cite any authority in support of the proposition that an insurance agent meets this criteria. In any case, the difference is not relevant here, given that the elements I find lacking are found in both the common law and Restatement versions of the tort.
With respect to the threshold element, the misrepresentation of material fact alleged by the Debtor is CK's representation that Debtor had been added as an additional insured. Complaint ¶ 51; Debtor's Mem. ¶ 79 at 16. I have already found that the Evidence of Property Insurance was an unequivocal assertion that Debtor was a named insured. However, I agree with CK that it was not amisrepresentation. As a matter of Pennsylvania law, CK's transmittal of the Evidence of Property Insurance to the Debtor was sufficient to bind MAICO. Thus, CK's representation was truthful. That it may have disregarded the requirements of its Agent Agreement is an issue between it and MAICO and does not affect the binding nature of CK's act. See supra, § A. Absent a misrepresentation by CK, Debtor's claim of negligent misrepresentation must fail.
Even assuming CK's representation of Debtor's additional insured status was a misrepresentation, I find no evidence that Debtor relied upon the Evidence of Property Insurance except for Asousa's self-serving trial testimony that is belied by his other testimony and his actions at the relevant time. While the record shows that Debtor and its counsel were concerned with insurance in February and March of 2001, at the start of the bankruptcy case, nothing on this record indicates that Debtor followed up to ensure that the CGU Policy was renewed or replaced. There is no question that Debtor knew that the CGU Policy expired on September 1, 2001. Exhibit P-11. Asousa concedes that he did not request the Certificates that McFarland sent on October 10 and that he gave them little more than a cursory review. I find it therefore unbelievable that receipt of these documents affected Debtor's action or inaction with respect to insurance on the Premises. Moreover, Asousa testified that Debtor could not afford to get its own insurance for the Premises during this time period in any case. As Debtor has failed to prove either a misrepresentation or reliance, its negligent misrepresentation claim fails. CONCLUSION
Because I find no actual reliance by Debtor, I need not address CK's that any reliance by the Debtor was unjustified.
The Court finds that Debtor has failed to prove CK liable under any of Debtor's theories of recovery. As such, there is no need to proceed to a damages phase. For the foregoing reasons, judgment shall be entered in favor of CK and against Debtor.
Given this holding, I need not address CK's argument that the settlement between Debtor and MAICO operates as a release of any claim against CK.
An order consistent with this Memorandum Opinion shall issue.
ORDER
AND NOW, this 23rd day of September 2005, upon trial of the Complaint of Debtor/Plaintiff, Asousa Partnership ("Debtor"), and for the reasons stated in the accompanying Memorandum Opinion;
It is hereby ORDERED that Judgment is entered in favor of Defendant Chapel Insurance Associates, Inc. and Kaminsky Insurance Agency, Inc. As Debtor's claims against the remaining defendant, Manufacturers Alliance Insurance Co., have been settled, the Clerk shall close this adversary case ten (10) days after entry of this Order.