Opinion
Bankruptcy No. 01-12295DWS, Adversary No. 03-1005.
April 26, 2004
Steven M. Coren, Esquire, Philadelphia, PA, for Plaintiff.
James M. Wilson, Esquire, Philadelphia, PA, for Defendant, Manufactures Alliance Ins. Co.
Jeffrey B. McCarron, Esquire, Philadelphia, PA, for Defendants, Chapel Ins. Assoc., Inc. Kaminsky Ins. Agency, Inc.
Dave P. Adams, Esquire, Philadelphia, PA, United States Trustee.
MEMORANDUM OPINION
Before the Court is the Debtor's Motion for Partial Summary Judgment (the "Motion") seeking summary judgment against Defendants Manufacturers Alliance Insurance Co. ("MAICO"), Chapel Ins. Associates, Inc. ("Chapel"), and Kaminsky Insurance Agency, Inc. ("Kaminsky") (collectively the "Defendants"). For the reasons stated below, the Motion shall be denied. UNCONTESTED FACTUAL AND PROCEDURAL BACKGROUND
The above captioned adversary action has some shared factual background to a prior adversary action filed by the Debtor on September 25, 2001 against Pennexx Foods, Inc. f/n/a Pinnacle Foods, Inc. ("Pinnacle"), not a party to this action. See Asousa Partnership v. Pennexx Foods, Inc. f/n/a Pinnnacle Foods, Inc. (In re Asousa), Adv. No. 01-974 ("Asousa I"). Asousa I began as a dispute arising out of Pinnacle's rental of Debtor's property located at 980 Glasgow Street, Pottstown, Pennsylvania (the "Premises").
I shall take judicial notice of the docket entries in that adversary action as well as this one. Fed.R.Evid. 201, incorporated in these proceedings by F.R.Bankr.P. 9017. See Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194, 1200 n. 3 (3d Cir. 1991); Levine v. Egidi, 1993 WL 69146, at *2 (N.D. Ill. 1993); In re Paolino, 1991 WL 284107, at *12 n. 19 (Bankr. E.D. Pa. 1991); see generally In re Indian Palms Associates, Ltd., 61 F.3d 197 (3d Cir. 1995).
I will also rely upon certain stipulated background facts fromAsousa I, for "factual assertions in pleadings, which have not been superceded by amended pleadings, are judicial admissions against the party that made them. Larson v. Gross Bank. 204 B.R. 500, 502 (W.D. Tex. 1996) (statements in schedules). See also In re Musgrove, 187 B.R. 808 (Bankr. N.D. Ga. 1995) (same); In re Leonard, 151 B.R. 639 (Bankr. N.D.N.Y. 1992) (same).
Pinnacle vacated the Premises in July 2002. Joint Pretrial Statement in Asousa I, Statement of Uncontested Facts, ¶¶ 28-32. (Doc. No. 53). The Debtor, unhappy with the condition of the Premises vacated by Pinnacle, subsequently amended its complaint against Pinnacle in Asousa I to include a claim for damage to the Premises caused by Pinnacle (the "Property Damage"). After substantial discovery, the Debtor filed another summary judgment, which went unopposed by Pinnacle. Based upon the stipulated facts, and the affidavit of the Debtor's principal, Thomas Asousa, Jr. and attached exhibits, I entered an Order granting summary judgment in relevant part:
Debtor sought in Count II of the Asousa I complaint to regain possession from the Premises from Pinnacle due to Pinnacle's breach of the terms of the lease governing the Premises. By order dated June 20, 2002, I granted summary judgment on Count II in favor of the Debtor.
Judgment is hereby entered in favor of Debtor-Plaintiff Asousa Partnership and against [Pinnacle] in the amount of $1,624,290.12, which judgment arises out of, is comprised of and includes the following: (a) $686,430.31 on account of the damage caused by Pinnacle between March 7, 2002 and July 11, 2002 to the [Premises], which damage was caused by Pinnacle's negligence, misuse and/or abuse . . .
Order dated September 2, 2003 (the "Damages Order").
Of relevance here, Pinnacle had obtained an insurance policy with MAICO for a term of September 1, 2001 to September 1, 2002 (the "Policy"). Exhibit B to Appendix in Support of Debtor's Motion for Partial Summary Judgment ("Debtor's App."); Exhibit A to Response of Defendant MAICO to Debtor's Motion for Partial Summary Judgment ("MAICO Mem."). The Policy is a commercial package policy, providing property and liability insurance and containing numerous forms and endorsements. The property insurance portion of the Policy forms the basis of the Debtor's Complaint. Specifically, the "Building and Personal Property Form" states: "We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from Covered Cause of Loss." Exhibit B at Bates No. MAI00030. "Covered Property" is defined to include "Building, meaning the building or structure described in the Declarations." Id. The Commercial Property Coverage Part Declarations refer to "Building No. 1," which in turn is identified in the "Designation of Premises Schedule" as the Premises. Id. at Bates No. MAI00004, MAI00027-29.
All of the parties attached documents to their respective memoranda, including a copy of the Policy. No party has objected to the authenticity of the copy of the Policy in Debtor's Appendix. "As is true with other material introduced on a summary judgment motion, uncertified or otherwise inadmissible documents may be considered by the court if not challenged." 10A Charles A. Wright, Arthur R. Miller Mary K. Kane, Federal Practice and Procedure § 2722, at 384 (1998). Accord Johnson v. United States Postal Service, 64 F.3d 233, 237 (6th Cir. 1995) (ruling that the "failure to object to evidentiary material submitted in support of a summary judgment motion constitutes a waiver of those objections."); H. Sand Co., Inc. v. Airtemp Corporation, 934 F.2d 450, 454-55 (2d Cir. 1991) (Rule 56 does not require parties to authenticate documents "where appellee did not challenge the authenticity of the documents in the district court."); Dautremont v. Broadlawns Hospital, 827 F.2d 291, 294-95 (8th Cir. 1987) (affirming summary judgment where appellant failed to object in district court to its consideration of documents not in compliance with Rule 56 and failed to demonstrate that district court's consideration of documents constituted reversible error); Giovacchini v. Perrine (In re Giovacchini), 1995 WL 80102, at *3 n. 1 (E.D. Pa. Feb. 27, 1995) ( citing Federal Practice and Procedure § 2722) (holding that unauthenticated medical reports would be considered in ruling on motion for summary judgment since no objection was raised thereto).
Hereafter, all references to Exhibits shall be those found in the Debtor's Appendix, unless otherwise stated.
While the lease between Pinnacle and the Debtor required Pinnacle to "keep and maintain in full force at all times during the Term . . . an all-risk fire insurance policy . . . and naming . . . Landlord and any Mortgagee as additional insured parties and loss payees," the Debtor is not named as an insured anywhere within the Policy itself. Exhibit A ¶ 9. However, on or about October 10, 2001, the Debtor received a facsimile transmission from Wayne McFarland of Chapel Insurance Associates ("Chapel") that the Debtor relies upon as evidence that it is protected by the Policy as a named insured. The cover sheet states "Enclosed are Evidences of Property Coverage for Asousa Partnership Pa. Business Bank A Certificate of Insurance naming both as additional insureds." Exhibit C to Debtor's App.; Unsworn Declaration of Theodore C. Asousa, Jr. ("Asousa Dec.") ¶ 3. Attached to the facsimile cover page are two forms: (1) "Evidence of Property Insurance" and (2) "Certificate of Liability Insurance." As will be discussed in further detail below, both forms state that the Debtor is an additional insured under the Policy.
At the hearing on the Motion, Counsel for Chapel and Kaminsky objected to Exhibit C as insufficient to carry forth the Debtor's burden on summary judgment. In response, the Debtor has supplemented the record with the affidavit of Theodore C. Asousa, Jr., swearing that Exhibit C is a true and correct copy of a fax he received from Wayne McFarland of Chapel in response to Mr. Asousa's request for confirmation that the Premises was insured and that the Debtor was named as an additional Insured. Id. As discussed below, my job on a summary judgment motion is not to weigh this evidence, but to determine if there is a genuine issue for trial. Once a party moving for summary judgment has put forth evidence establishing no material issue of fact, the non-moving party cannot merely rest upon its pleadings. It must come forward with something other than the denials in its pleading — that is, if one can construe the pleading to deny the fact at issue. Here the Answer to the Complaint filed by Chapel and Kaminsky admits in part the Debtor's allegations pertaining to this facsimile, denying it only to the extent it is inconsistent with the facsimile attached to the Complaint. Complaint and Answer ¶ 14. I simply fail to understand counsel's objection to Exhibit C. In any case, Chapel and Kaminsky have provided no evidence or affidavit to counter the Debtor's assertion and declaration of Mr. Asousa that he received Exhibit C from Mr. McFarland For the purpose of deciding the Motion, I find there is no issue of fact that Exhibit C was sent by McFarland to Asousa, though the circumstances behind why it was issued are not yet fleshed out.
Chapel concedes only that it was the "producer" of the Policy and that Kaminsky is affiliated with Chapel. Defendants Chapel and Kaminsky's Memorandum of Law in Opposition to the Motion ("CK Mem") at 4. No objection was raised to, and there appears to be no issue of fact that there is an "Agent Agreement" between Chapel and MAICO, which authorizes Chapel, among other things, to:
A. Bind the Company for coverage but only after receiving a quotation from the Company. Coverage for risks not yet quoted by the Company cannot be bound without the express written authorization of the Company. Coverage cannot be bound on a quotation that is more than sixty (60) days old or which is backdated. After binding a coverage, the Agent must immediately notify the Company in writing of the Same.
Exhibit D at 2. There is no evidence on this record that Chapel ever submitted to or received a quotation from MAICO regarding the addition of the Debtor as an additional insured under the Policy.
The Agent Agreement designates Chapel as "Agent" and MAICO as "the Company." Id.
The Debtor subsequently instituted the present adversary action against the Defendants, asserting breach of contract and bad faith claims against MAICO arising out of the Policy, namely that MAICO has refused to acknowledge the Debtor as an insured and pay for the Property Damage. Additionally, the Complaint pleads breach of contract, negligence, and misrepresentation claims against defendants Chapel and Kaminsky.
Though this litigation is still in its early stages, the Debtor now seeks partial summary judgment. First, the Debtor seeks a determination that it is a named insured under the Policy. Second, the Debtor seeks to preclude MAICO, under the doctrine of collateral estoppel, i.e., issue preclusion, from litigating in this adversary action the issues of the causation of the loss and the amount of the Property Damage. The Debtor's position is that such issues were decided in Asousa I and are binding upon MAICO.
DISCUSSION
A motion for summary judgment is governed by Federal Rule of Civil Procedure 56, applicable in this proceeding pursuant to Federal Rule of Bankruptcy 7056, which states that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, and affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The party moving for summary judgment must overcome the initial burden of demonstrating the absence of a material question of fact.Celotex v. Catrett, 477 U.S. 317, 325 (1986). The substantive law will determine which facts are material. Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986). A court's function is not to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial. Id. at 255. A court must find that the motion alleges facts which, if proven at trial, would require a directed verdict. 6 J. Moore,Moore's Federal Practice, ¶ 56.26 (2d ed. 1988). If so, the respondent "must set forth specific facts showing there is a genuine issue for trial," and may not "rest upon the mere allegations or denials of the pleading." Fed.R.Civ.P. 56(e). If the non-movant's evidence "is merely colorable, or is not significantly probative, summary judgement may be granted.Anderson, 477 U.S. at 250.
However, as it is the moving party's burden to demonstrate the absence of genuine issues of material fact, even if the opposing party fails to file contravening affidavits or other evidence that establishes a genuine issue of material fact, summary judgment must still be warranted and will be denied where the movant's own papers demonstrate the existence of material factual issues. Drexel v. Union Prescription Centers, Inc., 582 F.2d 781, 790 (3d Cir. 1978) ( citing Adickes v. S.H. Kress Co., 398 U.S. 144, 159-61, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970) (citations omitted)). See Maldonado v. Ramirez, 757 F.2d 48, 51 (3d Cir. 1985). With this standard in mind, I address the arguments and evidence put forth by the Debtor.
I.
The Motion first seeks a summary judgment determination that Debtor is an additional insured under the Policy. As an initial matter the Debtor is named nowhere within the Policy. Exhibit B. Moreover, the Policy states that it may be "amended or waived only by endorsement issued by [MAICO] and made a part of this policy." Exhibit B at Bates No. MA100008 ("Common Policy Conditions," Form No. IL 00 17 11 98, at ¶ B). However, there is no record evidence of an endorsement to the Policy issued by MAICO naming Debtor as an additional insured.
Nevertheless, the Debtor bases its status as an additional insured upon Pennsylvania agency principles. Pennsylvania law recognizes four types of agency:
(1) express authority, which is that which is directly granted; (2) implied authority, which is the right and obligation to do all that is proper, usual, and necessary to the exercise of authority actually granted; (3) apparent authority, which arises where the principal holds one out to be an agent by the principal's conduct; or (4) agency by estoppel.
Donegal Mut. Ins. Co. v. Grossman, 195 F. Supp.2d 657, 665 (M.D. Pa. 2001). "Where one assumes to act as the agent of another, the burden of showing authority so to act lies on the person who avails himself of such acts in order to charge a third person as principal." Reifsnyder v. Dougherty, 152 A. 98, 100 (Pa. 1930). Here, the act which the Debtor is charging to MAICO is Chapel's issuance of the "Evidence of Property Insurance" and "Certificate of Liability Insurance" sent to it by Chapel on October 10, 2001. Exhibit C.
The Debtor asserts that Exhibit C endows it with coverage under the Policy because Chapel and Kaminsky had apparent authority to bind coverage. Debtor's Mem. at 41. As the Debtor notes, Pennsylvania law defines apparent authority as the:
power to bind a principal which the principal has not actually granted but which he leads persons with whom his agent deals to believe that he has granted. Persons with whom the agent deals can reasonably believe that the agent has power to bind his principal if, for instance, the principal knowingly permits the agent to exercise such power or if the principal holds the agent out as possessing such power.
Revere Press, Inc. v. Blumberg, 246 A.2d 407, 410 (Pa. 1968). The test for this type of authority has been stated as: "`whether a man of ordinary prudence, diligence and discretion would have a right to believe and actually believe that the agent possessed the authority he purported to exercise.'" Donegal, 195 F. Supp.2d at 666 ( quoting Apex Financial Corp. v. Decker, 369 A.2d 483, 486 (1976)).
The problem faced by the Debtor under this theory is the necessity of evidence of some kind of action by the principal which cloaks the agent with apparent authority or at least acquiescence by the principal of the purported agent's action toward the third person. See Donegal, Revere supra. See also Reading Co. v. Dredge Delaware Valley, 468 F.2d 1161, (3d Cir. 1972) ("[A]pparent authority to do an act is created as to a third person by written or spoken words or any other conduct of the principal") (citation omitted); Turner Hydraulics, Inc. v. Susquehanna Const. Corp., 606 A.2d 532, 534 (Pa.Super. 1991) (same). I find nothing in this record that establishes that MAICO gave Debtor cause to believe that Chapel was authorized to bind coverage.
The Debtor cites to Leidigh v. Reading Plaza General, Inc., 636 A.2d 666, 667-68 (Pa.Super. 1994) and Harris v. Sachse, 52 A.2d 375 (Pa.Super. 1947) for the proposition that apparent authority may be found, not only from acts of the principal, but from acts of the purported agent. Debtor's Mem. at 47-48. I respectfully disagree with this interpretation. TheLeidigh court held that the principal need not directly communicate to the third party, but nevertheless still reaffirmed the adage that "apparent authority exists where a principal, by words or conduct, leads people with whom the alleged agent deals to believe that the principal has granted the agent authority . . ." 636 A.2d at 667 ( quoting Turner Hydraulics, supra.) (emphasis added). In that case there was evidence of such indirect actions by the principal, including partial payment for the disputed contract. Id. at 667-68.
Similarly, in Harris, the issue was whether an employee of an insurance agency had apparent authority. His status as an employee was the determinative factor of apparent authority.Id. at 613-14. Such status, while not involving direct communication between principal and third-parties, necessarily involved the conduct of the principal that is apparent to third parties, i.e., its employment of the purported agent.
In short, a principal may engage in indirect conduct, observable to third parties, which may clothe its agent with apparent authority. But it is still nevertheless the actions of the the principal which determine the apparent authority.
The relevant window of time for the Debtor's apparent agency theory is when the "Evidence of Insurance" and "Certificate of insurance" were faxed by Chapel, the act which the Debtor imputes upon MAICO to create coverage. Debtor's argument that it was not aware of any limitation of Chapel's authority at this time misses the point. There is no evidence to indicate that the Debtor could have been aware of any relationship between MAICO and Chapel and Kaminsky when the facsimile was sent. The Debtor cannot rely upon the Agent Agreement because it appears that this document was first produced by MAICO during discovery in this adversary action. Unsworn Declaration of David Dormont, Esq. ¶ 3 (attesting that Exhibit D was produced by MAICO in discovery). There is simply no evidence of action or representations by MAICO which would support the Debtor's apparent authority theory.
The "Evidence of Property Insurance" and the "Certificate of Liability Insurance," which came from Chapel, do not provide evidence of Chapel's purported ability to bind coverage. As noted, apparent authority comes from the actions of the principal, not the agent. There is no evidence that MAICO knew that Chapel issued these forms or did anything which might be viewed as acquiescence. Moreover, the forms themselves do not indicate Chapel's authority to add the Debtor as an additional insured. The form titled "Evidence of Property Insurance" identifies the Debtor and Theodore Asousa in a box titled "Additional Interest" and contains two checked boxes: "loss payee" and "additional insured." Exhibit C at 2. However, the form is also headed with the following language:
THIS IS EVIDENCE THAT INSURANCE AS IDENTIFIED BELOW HAS BEEN ISSUED, IS IN FORCE, AND CONVEYS ALL THE RIGHTS AND PRIVILEGES AFFORDED UNDER THE POLICY.
Id. Thus, while the form states that the Debtor is an additional insured, it also defers to the Policy itself in terms of the rights afforded. Nowhere does it purport to amend the Policy or grant rights outside of the Policy itself.
The "Certificate of Liability Insurance" provided to the Debtor, while stating that "Asousa Partnership and Pennsylvania Business Bank are added as additional insureds as respects [the Premises]," id. at 3, nevertheless begins with strong disclaimers:
THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS COVERAGE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.
Id. Below that, the form further states:
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE . . . 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 POLIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES.
Id. In Donegal, supra, the court examined a "certificate of insurance" with these identical disclaimers. 195 F. Supp.2d at 669. In that case, third-party plaintiff Pennco leased drivers from Transco Co. ("Transco"). Transco had a worker's compensation policy for its employees with United States Fidelity Guaranty Insurance Co. ("USF G"), which it had obtained from its agent, Mark Insurance Agency. Like the Debtor, Pennco's subsequent assignee attempted to show that a "certificate of insurance" Mark produced to Pennco, and identical to the one here, represented Mark's apparent and/or implied authority to make representations on behalf of USF G as to the policy extending to the leased drivers. The court rejected that assertion, holding that there was no manifestation by USF G to Pennco of Mark's authority, and the clear disclaimer language on the certificate should have precluded Pennco from believing that Mark had authority to bind insurance on behalf of USF G. As noted by that court:
The plaintiff in this action was Pennco's insurer, Donegal Mutual Insurance Co., who objected to Pennco's practice of transferring its employee drivers to Transco and leasing them back so as to take advantage of the cheaper workers compensation rates in Transco's state of Indiana. Donegal settled with Pennco and was assigned Pennco's third-party claim against Transco, Mark and USF G.
Pennco's assignee was not seeking a declaration of insured status, but rather was trying to hold USF G liable for Mark's misrepresentation through agency principles.
With regard to apparent authority, Defendants have pointed to no evidence that would support a reasonable belief on Pennco's part that Mark Insurance Agency — through the issuance of certificates of insurance — had the authority to bind USF G to terms of coverage different than those expressed in the policy. As noted above, the certificates issued to Pennco specifically referenced the relevant insurance policy and expressly stated "[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," and "[n]otwithstanding any requirements, terms or conditions 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." . . .
The facts similarly fail to support a claim of "implied authority" to make representations regarding coverage contrary to those expressed in the policy. As noted above, "implied authority" is the right and obligation to do all that is proper and necessary to the exercise of authority actually granted. Here, any attempt to argue that the authority to issue certificates of insurance implies the authority to bind USF G to specific terms of coverage different than those contained in the insurance policy must fail. This is so because here the relevant certificates of insurance explicitly informed the recipient of the certificates that the certificates did not amend or extend the coverage afforded by the policy in any way, and referred to the policy for all applicable terms, conditions, and exclusions.
Id. at 669. In this case, the certificates produced by the purported agent — the act relied upon by the Debtor — referred to the Policy for all applicable terms and conditions, calling into question Chapel's authority to change the Policy terms by adding the Debtor as an insured. Donegal, supra.
Other cases cited by the Debtor only serve to distinguish the present facts. In Thompson v. Barrow, 1923 WL 3625 ( Pa. Super. 1922), an employee had clear authority to enter into contracts, from which the court was able to find "implied authority" to negotiate the terms of the contract. Id. at *2. Here, Chapel's ability to change the terms of the original Policy cannot be implied from the certificates in Exhibit C, both of which refer to the Policy itself. Donegal, supra. In Industrial Molded Plastic Products v. J. Gross Sons, 398 A.2d 695 (Pa. Super 1979), the president of the defendant corporation had expressed to the seller, the authority of the president's son to purchase seller's product, thus cloaking the son with apparent authority notwithstanding that the son exceeded the private instructions given to him by the president. Id. at 697. There was no such manifestation of Chapel's authority by MAICO to the Debtor.
The Debtor appears to imply that simply adding the Debtor to the existing Policy was not binding a new risk so as to require a quote from MAICO. Debtor's Mem. at 37. Not only does the Debtor fail to provide any authority, but the statement is counterintuitive. If, for example, the proposed additional insured had an arson conviction or history of property insurance losses, the addition of that party would clearly be an additional and significant risk.
Pa. Nat'l. Mutual Casualty Ins. Co. v. Insurance Commissioner, 551 A.2d 368 (Pa.Commw. 1988) and Serventi v. New York Fire Ins. Co., 253 F. Supp. 670 (W.D. Pa. 1966) both involved insureds who purchased their policies directly from insurance agents for the insurer, relying upon the admitted authority of the agent to bind insurance notwithstanding limitations unknown by the insureds. Here, a third-party is claiming insured status on a policy it played no part in obtaining. Its knowledge of the purported agent's authority is simply not clear on the record and the only documents it received from the purported agent refute the agent's ability to change the existing Policy.
The dearth of any factual record surrounding the facsimile transmission compels this result. At this point, I simply cannot tell what, if anything, the Debtor could have known about MAICO, much less MAICO's relationship with Chapel and/or Kaminsky. Viewed from the Debtor's perspective at the time Chapel faxed the certificates, there is no evidence of conduct by MAICO from which the Debtor can assert that it reasonably believed Chapel and/or Kaminsky had apparent authority to add the Debtor as an additional insured under the Policy. As it is the Debtor's summary judgment burden to show no material issue of fact on this issue, the Motion insofar as it seeks a declaration that Debtor is an additional insured must be denied.
II.
The Debtor also seeks a summary judgment determination that MAICO is precluded under the doctrine of collateral estoppel,i.e., issue preclusion, from litigating: (1) the "nature, extent (amount), timing and cause of" the Property Damage; (2) the fact that the Property Damage was caused by Pinnacle, and not by "ordinary wear and tear"; and (3) the amount of the Property Damage (collectively, the "Causation and Damages Issues"). The Debtor asserts that these issues were decided in the Damages Order issued in Asousa I and that order is binding upon MAICO. Debtor's Mem. at 20-21.
Claim preclusion acts to prevent a party from raising a claim that has already been decided and requires a showing that: "`(1) the identical issue was decided in a prior adjudication; (2) there was a final judgment on the merits; (3) the party against whom the bar is asserted was a party or in privity with a party to the prior adjudication; and (4) the party against whom the bar is asserted had a full and fair opportunity to litigate the issue in question.'" Delaware River Port Authority v. Fraternal Order of Police, 290 F.3d 567, 573 n. 10 (3rd Cir. 2002) ( quoting Board of Trustees of Trucking Employees of North Jersey Welfare Fund, Inc. v. Centra, 983 F.2d 495, 504 (3d Cir. 1992)). The parties focus on the third element. I take judicial notice that MAICO was not a party to Asousa I, but Debtor asserts and MAICO denies, that MAICO was in privity with Pinnacle.
As Asousa I was decided by a federal court, I apply federal principles of collateral estoppel. In re Docteroff, 133 F.3d 210, 214 (3d Cir. 1997).
Additionally, MAICO argues that the Damages Order, which simply held that the damage to the Premises was caused by Pinnacle's "negligence, misuse, and/or abuse" sometime between March 7 and July 11, 2002, is not sufficiently clear on the basis of the judgment to act as issue preclusion. In other words it is impossible to determine the first element, whether an identical issue is present. Given my decision below, I need not address this argument.
Privity simply means "`the relationship between one who is a party on the record and another is close enough to include the other within [issue preclusion]'" First Options of Chicago, Inc. v. Kaplan, 913 F. Supp. 377, 383 (E.D. Pa. 1996) (citations omitted). The Debtor has put forth a line of Pennsylvania cases holding that, for issue preclusion purposes, an insured is generally in privity with its insured. Debtor's Mem. at 22-23 ( citing Sphere Drake, Dally v. Pennsylvania Threshermen Farmers' Mut. Cas. Ins. Co., 97 A.2d 795, 796 (Pa. 1953);Renschler v. Pizano, 198 A.33, 35-36 (Pa. 1938)).
As with most general rules, this one is subject to an exception where in the prior adjudication, "the interests of the insured and insurer conflicted on that issue [subject to the preclusion motion]." Ranger Insurance Co. v. General Accident Fire and Life Assurance Corp., 800 F.2d 329, 331-32 (3d Cir. Pa. 1986).
MAICO counters that these cases are applicable only to liability insurance, also known as "third-party" insurance, whereas the property insurance portion of the Policy invoked by the Debtor is "first party" insurance. The distinction between the two forms of insurance is stated aptly by a recognized authority on the subject as follows:
• "First party" insurance . . . is a contract between the insurer and insured protecting the insured's own actual losses and expenses, such as property insurance, fidelity insurance, and medical/health insurance.
• "Third party" insurance, . . . is a contract to protect the insured from actual or potential monetary liability to a third party, such as liability insurance.
The most obvious distinction in the claims handling context is that first-party insurance . . . does not involve any need for, or duty to, defend the insured. . . .
. . .
More subtle distinctions exist as to the perceived nature of the relationship between the insurer and insured . . . There is a colorable argument to be made that the insurer and insured share a common interest more often and more widely in the third-party context, for example, . . .
14 Couch on Insurance § 198:3 (3d ed. 2003). The Third Circuit Court of Appeals has recognized this difference, using almost identical language:
The primary aim of third-party insurance is to defend and indemnify insureds against liability for claims made against them as a result of their own conduct. First-party coverage, on the other hand, protects against loss caused by injury to the insured's own property. Wholly different interests are protected by the two distinct forms of coverage.
Port Authority of New York and New Jersey v. Affiliated FM Ins. Co., 311 F.3d 226, 233 (3d Cir. 2002). The Court of Appeals also noted: "the parties to each form of insurance contract assume vastly different roles. In the third-party setting, the insurer and insured may generally be considered allies, but in the first-party context, the insured and carrier are placed in an adversarial position." Id. (emphasis added). Thus, argues MAICO, there is a presumption of an adversity of interest rather than privity between insurer and insured in the first-party insurance context. MAICO's argument has some logical appeal, but it provides no Pennsylvania authority recognizing the distinction between first and third party insurance for the purposes of issue preclusion.
Before reaching this issue of apparent first impression, I note that the Causation and Damages Issues become relevant only if the Debtor can show that it is entitled to coverage under the Policy in the first place. MAICO contests that the Debtor is a named insured, and the Debtor has not met its burden on this issue for summary judgment purposes. In addition, it appears that MAICO may assert that the lease between the Debtor and Pinnacle terminated as of November 7, 2000. As such, MAICO would argue that the Policy which was issued almost a year later, is void ab initio because Pinnacle had no insurable interest in the Premises. MAICO Mem. at 10 n. 3. Disposition of these issues in favor of MAICO would preclude coverage for the Debtor without regard to any act of Pinnacle. As such, the issue of whether to preclude litigation of the Causation and Damages Issues is premature. To render an opinion on whether MAICO is bound by the Damages Order on the Causation and Damages Issues would be to render an opinion on issues that may never arise in this litigation, i.e., an advisory opinion. See, e.g., Donovan ex rel. Donovan v. Punxsutawney Area School Bd., 336 F.3d 211, 217 n. 3 (3d Cir. 2003) (noting that advisory opinions contravene the Constitution's limitation of federal jurisdiction to actual cases and controversies).
MAICO has reserved its right to amend its Answer to the Complaint to assert this defense. Id.
Indeed, judicial economy may warrant bifurcating this adversary action to first adjudicate the issue of whether there is coverage for the Debtor under the Policy without reference to any conduct by Pinnacle against the Premises. This would not involve any inquiry into Pinnacle's conduct that may have been the subject of litigation in Asousa I, but rather would be limited to facts surrounding the issuance of the Policy. It appears that this first phase would also be the most appropriate one in which to address the alternative negligence claims against Chapel and Kaminsky, as these claims also involve facts surrounding the issuance of the Policy. If there is no coverage, there is no need to decide whether issue preclusion applies against MAICO as to the Causation and Damages Issues. I will contemporaneously schedule a conference with the parties to discuss this and other pretrial matters.
Finally, Chapel and Kaminsky in opposition of the Motion note that a motion to withdraw the reference to this adversary action is pending with the District Court for the Eastern District of Pennsylvania. They state that the basis of that motion is a lack of subject matter jurisdiction by this Court and/or the non-core nature of this proceeding. C K Mem. at 6-7. I see no merit in their position that this Court lacks subject matter jurisdiction. The potential recovery to the estate if the Debtor is successful in this litigation brings this action within the Court's "related to" jurisdiction. Morever, the fact that the action may be a non-core proceeding and Chapel and Kaminsky do not consent to a final order by this Court, provides no basis for deferral of action in this Court. I am still empowered to hear this proceeding and make proposed findings of fact and conclusions of law to the District Court. 28 U.S.C. § 157(c)(1). Until such time as the District Court withdraws the reference, I not only have the right but the obligation to administer this adversary case.
A proceeding is related to bankruptcy if "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." In re Marcus Hook Development Park, Inc. 943 F.2d 261, 264 (3d Cir. 1991 ( quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984) (emphasis in original)).
An Order consistent with this Memorandum Opinion shall issue.
ORDER
AND NOW, this 26th day of April, 2004, upon consideration of Debtor's Motion for Partial Summary Judgment (the "Motion"), and the responses thereto, and for the reasons stated in the accompanying Memorandum Opinion;
It is hereby ORDERED and DECREED that the Motion is DENIED;
And it is further Ordered that a conference call shall be held on May 12, 2003 at 9:30 a.m. Counsel for the Debtor shall initiate the call.