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observing that the duty to defend and the duty to indemnify are separate duties which may arise at different times
Summary of this case from Piazza v. YoungOpinion
No. 1430 WDA 2013
07-07-2015
SELECTIVE WAY INSURANCE COMPANY, Appellant v. HOSPITALITY GROUP SERVICES, INC.; Hospitality Group Services, Inc. t/d/b/a Ramada Inn; Hospitality Group Services, Inc. t/d/b/a Ramada of Ligonier; and Hospitality Group Services, Inc. t/d/b/a Ramada of Historic Ligonier ; Roger N. Alms; Rose M. Alms and Terri Nemcheck, Individually and as Administratrix of the Estate of Sean M. Nemcheck, Deceased, Appellees.
Jeffrey H. Quinn, Philadelphia, for appellant. Ronald J. Bergman, Greensburg, for Alms and Hospitality Group, appellees. Christopher T. Hildebrandt, Pittsburgh, for Estate of Nemcheck and Nemcheck, T., appellees.
Jeffrey H. Quinn, Philadelphia, for appellant.
Ronald J. Bergman, Greensburg, for Alms and Hospitality Group, appellees.Christopher T. Hildebrandt, Pittsburgh, for Estate of Nemcheck and Nemcheck, T., appellees.
BEFORE: GANTMAN, P.J., FORD ELLIOTT, P.J.E., BENDER, P.J.E., PANELLA, DONOHUE, SHOGAN, MUNDY, OLSON and OTT, JJ.
Opinion
OPINION BY DONOHUE, J.:
Selective Way Insurance Company (“Selective”) appeals from the August 8, 2013 order entered by the Westmoreland County Court of Common Pleas granting the motions for summary judgment filed by the appellees in this case. The trial court granted the motions for summary judgment based on its conclusion that the statute of limitations barred Selective's request for a declaratory judgment regarding its duty to defend and indemnify Hospitality Group Services Inc., Hospitality Group Services, Inc. t/d/b/a Ramada Inn, Hospitality Group Services, Inc. t/d/b/a Ramada of Ligonier, Hospitality Group Services, Inc. t/d/b/a Ramada of Historic Ligonier, Roger N. Alms and Rose M. Alms (collectively, “Hospitality Group”) in a lawsuit filed by Terri Nemcheck, individually and as administratrix of the estate of Sean M. Nemcheck, deceased (“the Nemcheck Action”). Specifically, the trial court found that, as a matter of law, the statute of limitations for an insurance carrier to file a declaratory judgment action regarding its duty to defend and indemnify its insured begins to run at the time the insurance company receives the civil complaint in an action against its insured. Following our review of the law in this area, we conclude that this is an incorrect statement. Instead, the statute of limitations for the filing of a declaratory judgment action brought by an insurance company regarding its duty to defend and indemnify begins to run when a cause of action for a declaratory judgment arises. This requires a determination by the trial court of when the insurance company had a sufficient factual basis to support its contentions that it has no duty to defend and/or indemnify the insured.
As stated, we hold that the statute of limitations begins to run for the filing of a declaratory judgment action by an insurance company regarding its duty to defend and indemnify an insured in a third party's action when the insurance company has a sufficient factual basis for it to conclude that the insurance policy does not provide coverage for any of the claims raised in the third party's action. The learned Dissent appears to agree with this determination. See Diss. Op. at 1052 (Ford Elliott, P.J.E., dissenting) (“the statute of limitations for filing a declaratory judgment action begins to run when the insurer is on notice of a coverage dispute, be it upon the review of the complaint, the completion of discovery, the ultimate resolution of the underlying lawsuit, or any other event which would provide actual notice”). We and the Dissent appear to disagree only with respect to this Court's authority to make the factual determination as to when Selective in fact had a sufficient factual basis to conclude that it did not have a duty to defend and indemnify Hospitality Group in the Nemcheck Action, triggering the running of the statute of limitations for Selective to file a declaratory judgment action. See id. 1054–55, 1055. Although we typically would remand the case for the trial court to analyze and decide when Selective had a sufficient factual basis to trigger the running of the statute of limitations, we do not do so in this case because, as stated infra, the case is technically moot based upon the settlement reached in the Nemcheck Action.
A summary of the relevant facts and procedural history is as follows. On February 19, 2006, the vehicle driven by seventeen-year-old Sean Nemcheck left the road and struck a fence, causing debris to strike him in the head. The vehicle ended up submerged in a six-foot-deep pond. He died as a result of this accident. His blood alcohol level at the time of his death was 0.14 g/ml. The accident occurred after he worked a shift in the kitchen and banquet hall of the Ramada Inn in Ligonier. Sean Nemcheck's shift began at 11:00 a.m. on February 18, 2006 and lasted until 3:06 a.m. on February 19, 2006. Sean Nemcheck consumed alcohol that he allegedly obtained from the Ramada Inn during his sixteen-hour shift.
On August 1, 2007, Terri Nemcheck (“Nemcheck”) filed the complaint to commence the Nemcheck Action, which sounded in negligence per se, negligent supervision/management, and ordinary negligence, and included a claim for punitive damages. Hospitality Group had previously sent a copy of the complaint to Selective, through which Hospitality Group had three policies of insurance at the time of Sean Nemcheck's death—a general liability policy, a liquor liability policy, and a commercial umbrella policy. Selective provided a defense subject to a reservation of rights. In its reservation of rights letter dated July 31, 2007, Selective advised Hospitality Group that it was unsure whether it had a duty to defend and/or indemnify Hospitality Group in the Nemcheck Action and that coverage counsel would review the complaint and pertinent case law.
Selective filed a complaint on June 6, 2012, and an amended complaint on October 29, 2012, seeking a declaration that it had no duty to defend or indemnify Hospitality Group in the Nemcheck Action. Nemcheck and Hospitality Group filed preliminary objections to the amended complaint on November 14 and 15, 2012, respectively, which the trial court overruled on February 14, 2013. Nemcheck and Hospitality Group each filed an answer, new matter and counterclaim on March 1 and 6, 2013, respectively, asserting therein, in relevant part, that the statute of limitations barred Selective from obtaining the relief it sought. On March 22, 2013, Selective filed replies to the new matters, denying, inter alia, that the applicable statute of limitations barred its declaratory judgment action.
The counterclaims filed by the appellees sounded in bad faith based upon Selective's handling of Hospitality Group's claim. On March 15, 2013, the parties stipulated to the discontinuance of the counterclaims.
On May 31, 2013 and June 4, 2013, respectively, Hospitality Group and Nemcheck filed motions for summary judgment on several bases, including the running of the four-year statute of limitations applicable in declaratory judgment actions. Selective filed its own motion for summary judgment on June 4, 2013 and filed responses in opposition to the appellees' motions for summary judgment on July 1, 2013. Nemcheck and Hospitality Group filed responses to Selective's motion for summary judgment on July 1 and 3, 2013, respectively.
On August 8, 2013, the trial court filed an opinion and order granting the motions for summary judgment filed by the appellees based upon its finding that the four-year statute of limitations began to run for the filing of a declaratory judgment action regarding Selective's duty to defend and indemnify Hospitality Group in the Nemcheck Action “[a]t the moment Selective became aware of the allegations in the [c]omplaint[.]” Trial Court Opinion and Order, 8/8/13, at 3. It therefore found untimely Selective's complaint seeking a declaratory judgment, as it was filed nearly five years after Selective received the Nemcheck complaint. The trial court further stated that, “based upon this determination, we [sic] need not address whether there is liability coverage for compensatory and punitive damages or an obligation to defend Defendants Hospitality Group under the terms of the insurance policy.” Id. at 4–5. Nonetheless, in its order granting summary judgment in favor of Nemcheck and Hospitality Group, the trial court stated: “It is further ORDERED that the package of policies at issue in the [c]omplaint for [d]eclaratory [j]udgment provide coverage for the claims made [in the Nemcheck Action.]” Id. at 7 (emphasis in the original).
On September 5, 2013, Selective filed a notice of appeal and timely complied with the trial court's order for the filing of a concise statement of errors complained of on appeal pursuant to Pa.R.A.P. 1925(b). On October 3, 2013, the trial court issued a statement in lieu of a written opinion pursuant to Pa.R.A.P. 1925(a), stating that it adequately addressed in its August 8, 2013 opinion and order all of the issues Selective raised on appeal. On May 9, 2014, this Court sua sponte listed the case to be heard before the Court en banc.
On appeal, Selective presents the following issues for our review:
[1.] Whether Selective Way's complaint for declaratory judgment is timely within the statute of limitations?
[2.] Whether unambiguous policy exclusions relieve Selective Way of its duty to defend and indemnify Hospitality Group against claims made in the Nemcheck Action?
Selective's Brief at 5.
Prior to addressing the merits of the issues raised, we must first determine whether the issues presented in the appeal before us are moot. Following the filing of this appeal, but prior to oral argument before this Court en banc, Selective reached a settlement in the Nemcheck Action, which Nemcheck and Hospitality Group contend renders the issues on appeal before us moot and unreviewable. Nemcheck's Supplemental Brief at 3–11; Hospitality Group's Supplemental Brief (Mootness) at 3–8. Selective concedes that the settlement renders moot the issues raised on appeal. Selective's Supplemental Brief at 14. Selective asserts, however, that its claim regarding the timeliness of its declaratory judgment action qualifies as an exception to the mootness doctrine, permitting this Court to decide the issue on its merits. Id. at 15–16. Selective makes no argument regarding the reviewability of the second issue raised on appeal concerning its duty to defend and indemnify Hospitality Group in the Nemcheck Action.
The mootness doctrine requires that there is an actual case or controversy at all stages of review. Pilchesky v. Lackawanna Cnty., 624 Pa. 633, 88 A.3d 954, 964 (2014). “[A]n issue may become moot during the pendency of an appeal due to an intervening change in the facts of the case [.]”Id. “An issue before a court is moot if in ruling upon the issue the court cannot enter an order that has any legal force or effect.” Johnson v. Martofel, 797 A.2d 943, 946 (Pa.Super.2002). Appellate courts in this Commonwealth have recognized three exceptions, permitting decision on an issue despite its mootness: “1) the case involves a question of great public importance, 2) the question presented is capable of repetition and apt to elude appellate review, or 3) a party to the controversy will suffer some detriment due to the decision of the trial court.” In re D.A., 801 A.2d 614, 616 (Pa.Super.2002) (en banc) (citations omitted).
Selective contends that the question of the running of the applicable statute of limitations in this case satisfies all three of the exceptions, but specifically concentrates on the third exception, maintaining that “Selective will suffer a detriment in a collateral legal proceeding if the order of the trial court remains in effect.” Selective's Supplemental Brief at 15. According to Selective, while this case was pending on appeal, Hospitality Group initiated a lawsuit against Selective for breach of contract and bad faith (“the Hospitality Group Action”). Id. at 10. Selective states that Hospitality Group bases its action, in part, on Selective filing its declaratory judgment action beyond the expiration of the applicable statute of limitations. Id. at 10–11. Selective argues that “[i]f this appeal is not heard and the trial court order stands, the issue of whether Selective untimely filed is declaratory judgment action has been adjudicated and Selective may be liable to its insureds for breach of contract and bad faith in the Hospitality Group Action.” Id. at 15. Thus, Selective asserts that if the first issue it raises in the instant appeal is dismissed as moot, “Selective would suffer detrimental consequences in [the] collateral bad faith proceeding.” Id. at 15–16.
The certified record on appeal does not contain any information relating to the Hospitality Group Action. Although Selective included in its supplemental reproduced record the complaint and correspondence related to the Hospitality Group Action, this does not allow us to consider the documents in deciding the appeal, as we may not consider documents solely included in the reproduced record. See Krafft v. Downey, 68 A.3d 329, 338 n. 11 (Pa.Super.2013), appeal denied, 623 Pa. 757, 83 A.3d 169 (2013). Hospitality Group, however, agrees that it filed the Hospitality Group Action and that it alleges bad faith by Selective in its handling of Hospitality Group's claim regarding the Nemcheck Action. Hospitality Group's Supplemental Brief (Mootness) at 7. Hospitality Group further agrees that “one of the allegations of bad faith [...] is that Selective [ ] filed its [d]eclaratory [j]udgment [a]ction after the expiration of the statute of limitations.” Id. As only the existence of the collateral legal proceeding in which Hospitality Group raises this claim is necessary for us to decide whether Selective's claim satisfies an exception to the mootness doctrine, the absence from the certified record of information associated with the Hospitality Group Action does not hamper our review.
Hospitality Group and Nemcheck disagree that any of the exceptions to the mootness doctrine apply to permit this Court to review the issues raised by Selective on appeal. Hospitality Group acknowledges that its bad faith action against Selective is pending and that it raises claims therein based upon Selective filing the declaratory judgment action beyond the expiration of the statute of limitations. Hospitality Group's Supplemental Brief (Mootness) at 7. It asserts, however, that by deciding the issue of whether the trial court erred by finding that Selective filed its declaratory judgment action out of time in this appeal, “this Court would be rendering an advisory opinion for the [t]rial [c]ourt to follow in deciding this particular facet of the bad faith claim.” Id. Hospitality Group does not directly address Selective's claim that it would suffer a detriment in the Hospitality Group Action absent our review of the first issue raised in the instant appeal.
Nemcheck asserts that Selective will not suffer a detriment because of the trial court's decision, positing that Selective's argument in this respect is “mere hyperbole.” Nemcheck's Supplemental Brief at 10. Rather, Nemcheck states that the declaratory judgment action and the Hospitality Group Action are based on different sets of facts, governed by different legal standards, and decided pursuant to different burdens of proof. Id. Thus, the trial court's decision in the Hospitality Group Action is not “dependent upon” the trial court's determination in the declaratory judgment action, which, according to Nemcheck, is what case law discussing this exception to the mootness doctrine requires. Id. (emphasis in the original).
Initially, we note that case law discussing the third exception to the mootness doctrine expressly requires only that a party “will suffer some detriment due to the trial court's decision,” which can be “collateral legal consequences of the court order.” In re L.Z., 91 A.3d 208, 212 (Pa.Super.2014) (en banc) (emphasis added), rev'd on other grounds, ––– Pa. ––––, 111 A.3d 1164 (2015). Although Nemcheck is correct that the Hospitality Group Action differs in many respects from the declaratory judgment action in this matter, the legal conclusion reached by the trial court in the declaratory judgment action—that the statute of limitations expired prior to Selective filing its complaint—would nonetheless be binding on the trial court in the Hospitality Group Action. “Collateral estoppel, or issue preclusion, is a doctrine which prevents re-litigation of an issue in a later action, despite the fact that it is based on a cause of action different from the one previously litigated.” Griffin v. Cent. Sprinkler Corp., 823 A.2d 191, 195 n. 3 (Pa.Super.2003) (quoting Balent v. City of Wilkes–Barre, 542 Pa. 555, 669 A.2d 309, 313 (1995) ) (internal citations omitted).
Collateral estoppel applies if (1) the issue decided in the prior case is identical to one presented in the later case; (2) there was a final judgment on the merits; (3) the party against whom the plea is asserted was a party or in privity with a party in the prior case; (4) the party or person privy to the party against whom the doctrine is asserted had a full and fair opportunity to litigate the issue in the prior proceeding and (5) the determination in the prior proceeding was essential to the judgment.
Weissberger v. Myers, 90 A.3d 730, 733 (Pa.Super.2014) (citation omitted).
Here, the question of whether Selective filed its declaratory judgment action out of time meets all of the elements of collateral estoppel. It is uncontested that in the Hospitality Group Action, Hospitality Group bases several allegations of bad faith in its complaint upon Selective filing its complaint for declaratory judgment after the expiration of the statute of limitations and that the expiration of the statute of limitations was the basis for the dismissal of the declaratory judgment action. See Hospitality Group's Supplemental Brief (Mootness) at 7; Selective's Supplemental Brief at 10. The trial court finally decided the question of whether the applicable statute of limitations ran prior to Selective filing its complaint in the declaratory judgment action. Selective (the party against which collateral estoppel would be asserted) was a party to the declaratory judgment action and had a full opportunity to litigate the statute of limitations issue at that time. Selective fully briefed its arguments and does not contend on appeal that it was somehow denied the opportunity to present its case on the issue. See, e.g., Spisak v. Edelstein, 768 A.2d 874, 877–78 (Pa.Super.2001) (finding the appellant had a full and fair opportunity to litigate issue where the issue was raised before the trial court in a prior action, the trial court ruled on that issue, and the appellant failed to seek reconsideration of the trial court's decision or file an appeal). The trial court rendered a decision on the merits of the statute of limitations question, which was unquestionably essential to its decision, as it dismissed the declaratory judgment action on that basis. Cf. Griffin, 823 A.2d at 195 (finding the doctrine of collateral estoppel inapplicable on the question of whether the statute of limitations had run as the prior order did not decide the statute of limitations question on the merits; the court dismissed the appellants' petition for failure to file a supporting brief).
As the doctrine of collateral estoppel applies to the statute of limitations question, we conclude that Selective would suffer a detriment in the Hospitality Group Action if we were to forego appellate review of the trial court's decision. Absent our review of this issue, the trial court's finding that Selective filed its complaint in the declaratory judgment action out of time would be binding on the trial court in the Hospitality Group Action and could provide a basis of liability for bad faith, as Selective would be precluded from re-litigating this question.
The second issue raised by Selective on appeal, regarding whether it in fact had a duty to defend and/or indemnify Hospitality Group in the Nemcheck Action, does not satisfy any of the exceptions to the mootness doctrine. First, the great public importance exception is rarely invoked by appellate courts to decide moot issues, see In re Gross, 476 Pa. 203, 382 A.2d 116, 122 (1978), and in the absence of advocacy from Selective that this issue somehow satisfies this exception to the mootness doctrine, we decline to so find sua sponte.
Second, the substantive question as to whether or not Selective had a duty to defend and/or indemnify Hospitality Group is not likely to evade review such that the second exception to the mootness doctrine applies. To the contrary, our research reveals that this Court has previously been able to timely decide appeals from declaratory judgment actions concerning an insurance company's duty to defend a policyholder based upon the language of the insurance policy at issue. See, e.g., State Farm Fire & Cas. Co. v. DeCoster, 67 A.3d 40 (Pa.Super.2013) ; Old Guard Ins. Co. v. Sherman, 866 A.2d 412 (Pa.Super.2004). We note that the appellate timeline in this case was unusually lengthy because of the certification for en banc review.
Lastly, Selective will not suffer a detriment if we do not decide the coverage issue in this appeal. We observe that the trial court made contradictory statements in its opinion and order, first stating that because it was dismissing the declaratory judgment action on timeliness grounds, the trial court “need not address whether there is liability coverage for compensatory and punitive damages or an obligation to defend [ ] Hospitality Group under the terms of the insurance policy.” Trial Court Opinion and Order, 8/8/13, at 4–5. In the same opinion and order, the trial court stated that the insurance policies at issue “provide coverage for the claims made [in the Nemcheck Action.]” Id. at 7. The doctrine of collateral estoppel is inapplicable to this latter conclusion, however, because this determination was not “essential to the judgment” in the declaratory judgment action. See Weissberger, 90 A.3d at 733. The trial court dismissed the case based upon its finding that the statute of limitations elapsed prior to Selective filing its complaint. Thus, the trial court's statement that the policies at issue provide coverage for the claims made in the Nemcheck Action is not binding upon the trial court in the Hospitality Group Action, providing us no basis to review this otherwise moot question.
In its appellate brief, Selective states that it only included argument on the second issue in an abundance of caution to avoid a finding of waiver on appeal. Selective's Supplemental Brief at 25. In their briefs on appeal, Hospitality Group and Nemcheck agree that the trial court did not decide the substantive question of whether the insurance policies at issue provide coverage for the claims raised in the Nemcheck Action. See Hospitality Group's Brief at 14; Nemcheck's Brief at 29.
Having found that the first issue on appeal is properly before us for review, we now turn to address its merits. We review a trial court's decision to grant summary judgment for an abuse of discretion or error of law. PHH Mortgage Corp. v.
Powell, 100 A.3d 611, 616 (Pa.Super.2014). Our scope of review is plenary. Id.
The trial court found that Selective filed its complaint for declaratory judgment beyond the applicable four-year statute of limitations. Trial Court Opinion and Order, 8/8/13, at 4. Relying on Aetna Cas. & Sur. Co. v. Roe, 437 Pa.Super. 414, 650 A.2d 94, 100 (1994), the trial court stated that “an analysis with respect to coverage is dependent upon the allegations in the [c]omplaint, just as an analysis with respect to the insurer's obligation to defend is dependent upon the allegations in the [c]omplaint.” Trial Court Opinion and Order, 8/8/13, at 4. The trial court thus concluded that the statute of limitations began to run when Selective received the complaint in the Nemcheck Action, as “that moment was Selective's first opportunity to ‘compare the four corners of the insurance contract with the four corners of the complaint,’ ” and that the declaratory judgment action, filed nearly five years thereafter, was untimely. Id. at 3–4.
Selective asserts that this conclusion constitutes an error of law. Selective contends that the trial court confused and combined the standards for an insurer's duty to defend an insured and the standard for the running of the statute of limitations for a declaratory judgment action. Selective's Substituted Brief at 12. According to Selective, an actual controversy regarding its duty to defend did not arise in this case when it received the complaint in the Nemcheck Action, as it provided a defense pursuant to its reservation of rights letter. Id. at 14. “Rather, the logical triggering point [for the running of the statute of limitations] is when the carrier denies coverage to the insured.” Id. at 22.
Selective asserts that the denial of coverage also triggers the statute of limitations for a declaratory judgment action regarding an insurance company's duty to indemnify. Id. Selective states that the trial court's finding that the statute of limitations had run on a declaratory judgment action concerning Selective's duty to indemnify Hospitality Group in the Nemcheck Action was erroneous. Citing case law from the United States District Court for the Western District of Pennsylvania, Selective states that the duty to indemnify does not arise until “the insured is held liable for a claim actually covered by the policy.” Id. at 21 (quoting USX Corp. v. Adriatic Ins. Co., 99 F.Supp.2d 593, 611 (W.D.Pa.2000), aff'd, 345 F.3d 190 (3d Cir.2003) ).
In the alternative, Selective argues that if this Court is inclined to find that the triggering event for the running of the statute of limitations for the filing of a declaratory judgment action on its duty to defend and indemnify was when Selective was aware that the claims made in the Nemcheck Action fell outside of the coverage provided under the insurance policies, then the statute of limitations did not begin to run until February 13, 2009—the date of the deposition of Matthew White (“White”). Id. at 23. According to Selective, White's testimony at his deposition “was the first record evidence that placed this claim outside of the coverage afforded in the [p]olicy.” Id.
Hospitality Group agrees with the trial court's determination regarding when the statute of limitations began to run as to both Selective's duty to defend and indemnify Hospitality Group in the Nemcheck Action. Hospitality Group's Brief at 7–8. Hospitality Group asserts that from the standpoint of an insurer, an actual controversy exists as to whether it has a duty to defend and/or indemnify an insured once the insurer is aware “that certain facts of the claim do not fit within the confines of the policy coverage provisions.” Hospitality Group's Supplemental Brief at 4. According to Hospitality Group, in claiming that it did not have a duty to defend and/or indemnify Hospitality Group in the Nemcheck Action, Selective relied upon information contained in Nemcheck's complaint and Selective's own reservation of rights letter. Hospitality Group's Brief at 11–12. Thus, Selective's comparison of Nemcheck's complaint and the insurance policies at issue “should have enabled Selective to timely file its [d]eclaratory [j]udgment [a]ction” within four years of receiving the complaint in the Nemcheck Action, as an actual controversy arose at that time. Id. at 12.
Hospitality Group further asserts that the record belies Selective's contention that White's deposition is an appropriate trigger for the running of the statute of limitations on the declaratory judgment action in question. Hospitality Group states that Selective paid the attorneys' fees for counsel to represent Hospitality Group in the Liquor Code Enforcement proceeding, at which White provided testimony that comported, in relevant part, with his deposition testimony in the Nemcheck Action. Id. at 12–13. The Liquor Code Enforcement hearing, the findings of fact by the administrative law judge, the appeal to the Liquor Control Board, and the resolution of the de novo appeal to the trial court all occurred more than four years prior to Selective filing its complaint for declaratory judgment. Id. at 13. Thus, Hospitality Group argues that to the extent this Court is inclined to find that the complaint contained insufficient information to create an actual controversy, Selective still had all of the information it claims to have needed more than four years prior to the filing of its declaratory judgment action, rendering Selective's alternative argument meritless. Id.
We observe that while represented by the same counsel, Hospitality Group further appealed this decision to the Commonwealth Court, which affirmed the trial court's decision in a memorandum opinion on June 18, 2009. See Pennsylvania State Police v. Hospitality Grp. Servs., Inc., 2009 WL 9101457 (Pa.Cmwlth. June 18, 2009).
Like Hospitality Group, Nemcheck agrees with the trial court's conclusion that the statute of limitations ran for the filing of a declaratory judgment action concerning Selective's duty to defend and indemnify Hospitality Group in the Nemcheck Action. Nemcheck's Brief at 33–35. Nemcheck further asserts that although an actual controversy could arise prior to an insurance company's receipt of a civil complaint, thus triggering the running of the statute of limitations for a declaratory judgment action, “the obligation of the insurer to determine whether the claim is covered begins, at the very latest, on the date on which the complaint is received.” Id. at 35–36 (emphasis in the original). According to Nemcheck, “[i]f the basis for questioning the existence of coverage is apparent from the face of the complaint, the ability of the insurer (or the insured) to file a declaratory judgment action begins no later than on that date, as an actual controversy exists.” Id. at 36; see also id. at 39 (“The filing of a complaint against the insured is the specific time at which the Pennsylvania Appellate Courts contemplate that an insurer will make a determination of coverage and, in the face of uncertainty, file a declaratory judgment action. See, e.g.[,] Am. & Foreign Ins. Co. [v. Jerry's Sport Ctr., Inc., 606 Pa. 584], 2 A.3d [526,] 541–542 [ (2010) ].”). As Selective identified several bases that potentially negated its duty to defend and/or indemnify Hospitality Group in the Nemcheck Action in its July 31, 2007 letter, all of which were clearly apparent on the face of the complaint, the statute of limitations for its filing of a declaratory judgment action commenced on that date. Id. at 37.
The law is clear that when an insured who has been sued requests coverage under a policy of insurance, the insurer is required to accept all of the allegations contained in the third party's complaint as true and provide a defense if there is a chance that the injury alleged could potentially fall within the scope of the policy. Am. & Foreign Ins. Co., 2 A.3d at 541.
The question of whether a claim against an insured is potentially covered is answered by comparing the four corners of the insurance contract to the four corners of the complaint. An insurer may not justifiably refuse to defend a claim against its insured unless it is clear from an examination of the allegations in the complaint and the language of the policy that the claim does not potentially come within the coverage of the policy.
Id. (internal citations omitted). “[T]he duty to defend is not limited to meritorious actions; it even extends to actions that are groundless, false, or fraudulent as long as there exists the possibility that the allegations implicate coverage.” Id. (citations and quotation marks omitted). “The duty to defend persists until an insurer can limit the claims such that coverage is impossible.” Lexington Ins. Co. v. Charter Oak Fire Ins. Co., 81 A.3d 903, 911 (Pa.Super.2013) (emphasis omitted).
Like the duty to defend, an insurance company's duty to indemnify an insured in a third party's action “flow[s] from a determination that the complaint triggers coverage.” Gen. Acc. Ins. Co. of Am. v. Allen, 547 Pa. 693, 692 A.2d 1089, 1095 (1997). The substantive duty of an insurance company to indemnify its insured in a third party's action, however, “arises only when the insured is determined to be liable for damages within the coverage of the policy.” Regis Ins. Co. v. All Am. Rathskeller, Inc., 976 A.2d 1157, 1161 (Pa.Super.2009) (citation omitted).
Although not required by law, a party may initiate a declaratory judgment action for the court to make a determination of coverage of a claimed injury under an insurance policy. Aetna Cas. & Sur. Co., 650 A.2d at 99. “Declaratory judgments are nothing more than judicial searchlights, switched on at the behest of a litigant to illuminate an existing legal right, status or other relation.” Wagner v. Apollo Gas Co., 399 Pa.Super. 323, 582 A.2d 364, 365 (1990) (citation omitted). The Declaratory Judgments Act empowers courts “to declare rights, status, and other legal relations whether or not further relief is or could be claimed,” and these declarations “have the force and effect of a final judgment or decree.” 42 Pa.C.S.A. § 7532. To bring a declaratory judgment action,
42 Pa.C.S.A. §§ 7531 –7541.
there must exist an actual controversy[, as] [d]eclaratory judgment is not appropriate to determine rights in anticipation of events which may never occur. It is an appropriate remedy only where a case presents antagonistic claims indicating imminent and inevitable litigation.
Bromwell v. Michigan Mut. Ins. Co., 716 A.2d 667, 670 (Pa.Super.1998).
This Court has held that the four-year catchall statute of limitations is appropriate for declaratory judgment actions regarding the parties' rights and duties under a contract. Wagner, 582 A.2d at 366 ; see 42 Pa.C.S.A. § 5525(a)(8) (stating that a four-year statute of limitations applies to “[a]n action upon a contract, obligation or liability founded upon a writing not specified in paragraph (7), under seal or otherwise, except an action subject to another limitation specified in this subchapter”).
The statute of limitations for a cause of action begins to run “from the time the cause of action accrued.” 42 Pa.C.S.A. § 5502(a). “In Pennsylvania, a cause of action accrues when the plaintiff could have first maintained the action to a successful conclusion.” Fine v. Checcio, 582 Pa. 253, 870 A.2d 850, 857 (2005). It is clear that the legislature intended for declaratory judgments to be subject to a limitations period. See 42 Pa.C.S.A. 7538(a) (stating that “[j]udicial relief based on a declaratory judgment or decree may be granted whenever necessary or proper subject to Chapter 55 (relating to limitation of time)”). It provided no indication, however, as to the appropriate limitations period for a declaratory judgment action.
Pennsylvania case law on this issue is scarce and provides little guidance in the matter before us. Although this Court in Wagner held that the four-year catchall statute of limitations contained in section 5525(a)(8) applies to declaratory judgment actions concerning the parties' rights and duties under a written contract, the Wagner Court did not specify when the statute of limitations for such an action begins to run. In Wagner, both parties allegedly breached the written contract concerning the Wagners' provision of natural gas to Apollo—Apollo in 1974 and 1975, when it failed to pay price increases, and the Wagners in 1975, when they ceased providing gas to Apollo, and again in 1981, when they removed their gas meter. Wagner, 582 A.2d at 365. The parties began to correspond with one another in or around March of 1985 about resuming the sale of gas, but could not agree on the terms. Id. at 366–67. The Wagner Court did not find any of the aforementioned alleged breaches or the disagreement as to the terms of the contract triggered the limitations period for a declaratory judgment action, as it found “no indication that a controversy arose as to the continued validity of the contract” at any of those times. Id. at 367. Rather, without specifying a date or the triggering event, the Court found that “the present controversy ripened into a cause of action for declaratory judgment in 1987,” which was the same year the Wagners filed their declaratory judgment action. Id.
Case law from other jurisdictions likewise sheds little light on the subject. We agree with the assessment of the law provided by now-retired Judge Charles E. Moylan, Jr., formerly of the Court of Special Appeals of Maryland, that “[t]he case law throughout the country on this admittedly esoteric subject is extremely skimpy.” Commercial Union Ins. Co. v. Porter Hayden Co., 116 Md.App. 605, 698 A.2d 1167, 1193 (Md.Ct.Spec.App.1997). A case decided by the California Supreme Court in 1944, followed by three of our sister states, holds that the statute of limitations for a declaratory judgment action begins to run when a breach occurs. Maguire v. Hibernia Sav. & Loan Soc., 23 Cal.2d 719, 146 P.2d 673, 681 (1944) ; see also Niles v. Eldridge, 828 N.W.2d 521, 526 (N.D.2013) ; Commercial Union Ins. Co., 698 A.2d at 1193 ; W. Cas. & Sur. Co. v. Evans, 130 Ariz. 333, 636 P.2d 111, 114–15 (Ct.App.1981). The Maguire decision states that a declaratory judgment action can be brought prior to a breach without triggering the running of the statute of limitations if there exists an actual controversy. Id. This does not comport with Pennsylvania law regarding the commencement of the limitations period. See 42 Pa.C.S.A. § 5502(a) (“The time within which a matter must be commenced under this chapter shall be computed ... from the time the cause of action accrued[.]”); Fine, 870 A.2d at 857 (“In Pennsylvania, a cause of action accrues when the plaintiff could have first maintained the action to a successful conclusion.”). Furthermore, we observe that Maryland's adherence to Maguire's holding in this respect is questionable. See Allied Inv. Corp. v. Jasen, 354 Md. 547, 731 A.2d 957, 967 (1999).
Neither the trial court nor any party contends that the section 5525(a)(8) four year catchall statute of limitations identified in Wagner is improper. We therefore do not address this question.
The only other Pennsylvania appellate case to discuss (albeit briefly and in a footnote) the triggering event for the running of the statute of limitations for the filing of a declaratory judgment action is Zourelias v. Erie Ins. Grp., 456 Pa.Super. 775, 691 A.2d 963 (1997). In that case, Zourelias suffered injuries in a car accident that occurred in 1986. Id. at 964. The court dismissed his personal injury suit because his attorney filed it beyond the applicable limitations period. Id. Zourelias then brought a legal malpractice action against his former attorney and obtained a judgment of $100,000 for the attorney's professional negligence in 1995, but the attorney did not have insurance coverage for professional negligence and had no known assets. Id. Zourelias contacted his automobile insurance carrier that was insuring him at the time of the accident seeking $50,000.00 in underinsured or $100,000.00 in uninsured motorist benefits.Id. The insurance company denied coverage. Id. On May 31, 1996, Zourelias commenced a declaratory judgment action asserting entitlement to underinsured or uninsured motorist benefits from the insurance company. Id. The insurance company contended that the statute of limitations had expired, but this Court disagreed. We stated that because a cause of action for a declaratory judgment does not accrue until there is an actual controversy, the statute of limitations did not begin to run in that case until the insurance company denied the insured's request for coverage. Id. at 964 n. 2. We therefore found timely the declaratory judgment action filed within four years of the insurance company denying coverage. Id.
In the absence of a rule promulgated by our Supreme Court or a statute stating otherwise, the statute of limitations commences to run, in relevant part, when “the cause of action accrued.” 42 Pa.C.S.A. § 5502(a–b). In light of this clear, unambiguous directive by the Pennsylvania Legislature, we are unable to adopt an alternative trigger for the commencement of the statute of limitations. See 1 Pa.C.S.A. § 1921(b) (“When the words of a statute are clear and free from all ambiguity, the letter of it is not to be disregarded under the pretext of pursuing its spirit.”).
For that reason, we disagree with Selective that Zourelias is instructive in the case at bar and that the denial of coverage is the appropriate point to begin the limitations period for a declaratory judgment action filed by an insurance company. A cause of action for a declaratory judgment accrues when an actual controversy exists between the parties. Com., Office of Governor v. Donahue, 626 Pa. 437, 98 A.3d 1223, 1229 (2014). Our Supreme Court has stated that “[t]he court's role in the declaratory judgment action is to resolve the question of coverage to eliminate uncertainty. If the insurer is successful in the declaratory judgment action, it is relieved of the continuing obligation to defend. ” Am. & Foreign Ins., 2 A.3d at 542 (emphasis added). Thus, according to our Supreme Court, if an insurance company is uncertain about its duty to defend an insured in a third party's action, it is expected and anticipated that the insurance company will bring a declaratory judgment action concerning its duty to defend prior to denying coverage to an insured. The denial of coverage certainly could be when an actual controversy arises between an insurance company and an insured, warranting the filing of a declaratory judgment action. See, e.g.,
Zourelias, 691 A.2d at 964 ; see also 42 Pa.C.S.A. § 7534 (“A contract may be construed [under the Declaratory Judgments Act] either before or after there has been a breach thereof.”). It cannot, however, be the only basis for finding an actual controversy exists as Selective advocates. Such a holding (that the denial of coverage is the point in time when an actual controversy arises) would eliminate an insurance company's ability to bring a declaratory judgment action prior to denying or terminating the provision of a defense for an insured, which is in direct contravention to the above-quoted statement by our Supreme Court.
Selective's argument that the statute of limitations for it to file a declaratory judgment action regarding its duty to indemnify an insured in a third party's action should not commence until it denies coverage fails for the same reason. We agree with Selective that an insurance company's substantive duty to indemnify an insured in a third party's action does not arise until there is a verdict.See Selective's Substituted Brief at 21; Regis Ins. Co., 976 A.2d at 1161. A declaration regarding an insurance company's duty to defend, however, is inextricably intertwined with its duty to indemnify because both are based upon a determination of whether the insurance policy in question provides coverage for the claims made. See Gen. Acc. Ins. Co. of Am., 692 A.2d at 1095 (“Although the duty to defend is separate from and broader than the duty to indemnify, both duties flow from a determination that the complaint triggers coverage.”); Mut. Ben. Ins. Co. v. Haver, 555 Pa. 534, 725 A.2d 743, 747 (1999) (“[I]n determining whether a carrier has a duty to defend or indemnify an insured we look to the complaint filed against the insured.”). If an insurance company does not have a duty to defend an insured in a third party's action, it cannot have a duty to indemnify. Am. Nat. Prop. & Cas. Companies v. Hearn, 93 A.3d 880, 884 (Pa.Super.2014).
The question before a court in a declaratory judgment action is not whether the insurer owes indemnification in a specific amount, which would be a premature inquiry absent a full resolution of the underlying action. Instead, the question is whether the insurer has a duty to indemnify the insured in the event of liability in the underlying action. A court can answer such a question because it is within the scope of a court's power pursuant to the Declaratory Judgments Act.
Id. (emphasis in the original).
The question of an insurance company's duty to indemnify an insured in a third party's action is properly considered in a declaratory judgment action at the same time as the court determines whether an insurance company has a duty to defend. Id. at 1096. We acknowledge that a declaration that an insurance company has a duty to defend will yield only “a conditional obligation to indemnify in the event the insured is held liable for a claim covered by the policy.” Gen. Acc. Ins. Co. of Am., 692 A.2d at 1095 (citation omitted). Nonetheless, for purposes of determining the triggering event for the commencement of the statute of limitations to file a declaratory judgment action, we cannot disentangle the duty to indemnify from the duty to defend because both relate to the question of whether the policy provides coverage. Id.
We also disagree with the trial court's conclusion that the statute of limitations for filing a declaratory judgment action necessarily began to run on Selective's duty to defend and indemnify Hospitality Group on the date Selective received the complaint in the Nemcheck Action. There is no antagonistic claim, actual controversy, or inevitable litigation from the insurance company's point of view until it concludes that the claims made in a third party's action are “confined to a recovery that the policy does not cover.” See Am. & Foreign Ins. Co., 2 A.3d at 542 ; Bromwell, 716 A.2d at 670. Until an insurance company has a sufficient factual basis to decline to defend (and thus, decline to indemnify) its insured in a third party's action, there is no justiciable controversy for the trial court to decide, and no cause of action for declaratory judgment. See Donahue, 98 A.3d at 1229 ; Bromwell, 716 A.2d at 670.
It is true that in some cases—including American & Foreign Insurance Co. and Aetna Casualty & Surety Co., upon which the appellees and the trial court rely—the receipt of the complaint by the insurance company would trigger the running of the limitations period for filing a declaratory judgment action regarding an insurance company's duty to defend and indemnify. Common to both American & Foreign Insurance Co. and Aetna Casualty & Surety Co. is that the respective insurance companies made a determination based solely on the complaint or amended complaint that the defense and indemnification requests made were for claims that the insurance policies did not provide coverage. Thus, a comparison of the four corners of the complaints with the four corners of the insurance policies in those cases promptly provided the insurers with a basis to seek a declaration that the companies had no duty to defend or indemnify the insureds. See Am. & Foreign Ins. Co., 2 A.3d at 529–31 ; Aetna Casualty & Surety Co., 650 A.2d at 96–97, 100.
In American & Foreign, the insurance company provided the insured with commercial liability and umbrella policies, which insured against, inter alia, bodily injury. Am. & Foreign Insurance Co., 2 A.3d at 529. During the coverage period, the insured was named as a defendant in a lawsuit filed against numerous firearms wholesalers and distributors brought by the National Association for the Advancement of Colored People and the National Spinal Cord Injury Association. The complaint alleged that the defendants caused bodily injury to association members and “sought injunctive relief and monetary damages to establish a fund for the education, supervision and regulation of gun dealers,” but not damages to compensate the association members injured. Id. The insured sought defense and indemnification, asserting that the complaint fell under the “bodily injury” coverage provided. Id. The insurance company provided a defense pursuant to a reservation of rights. Id. Several months later, following the receipt of the fourth amended complaint in the underlying action, the insurance company informed the insured that it did not believe it was under a duty to defend or indemnify and filed a declaratory judgment action for such a declaration. Id. at 530. The trial court found that the insurance company did not have a duty to defend—the insurance policy would compensate a claimant for damages resulting from a physical injury, and the complaint sought damages not for bodily injury but as a contribution to a fund designed to educate, supervise and regulate gun dealers. Id. at 531. As such, the trial court granted summary judgment in favor of the insurance company, and this Court affirmed. Id.
In Aetna Casualty, the complaint at issue alleged that the insureds, a teacher and her husband, committed unspeakable acts of sexual, physical and mental abuse of three of the insured-wife's four-year-old female students. Aetna Casualty & Surety Co., 650 A.2d at 96. The victims and their parents sought actual damages for money expended to treat the physical and mental injuries sustained as a result of the insured's intentional conduct and punitive damages for the insureds' “outrageous conduct in wanton and reckless disregard of minor-plaintiffs' rights.” Id. at 96–97. The abuse allegedly occurred at the school and at the insureds' home, and the insureds thus sought coverage under their homeowner's insurance policy they had through the insurer. Id. at 97. The insurance company did not provide a defense, and instead filed a declaratory judgment action seeking a declaration based upon the allegations contained in the complaint. Id. at 97. After examining the insurance policy (which excluded medical payments resulting from bodily injury expected or intended by the insured and personal injury caused by a violation of the law) and the complaint (which, as noted, sought actual damages for medical expenses resulting from the insureds' intentional conduct and punitive damages), the trial court granted summary judgment in favor of the insurance company. Id. at 97 ; see also id. at 100 (stating that as a matter of law, “an insurer owes no duty to indemnify an insured on an award of punitive damages”). On appeal, this Court affirmed. Id. at 100.
Contrary to the trial court's conclusion in the case at bar, however, the receipt of the complaint does not ipso facto begin the four-year limitations period for an insurance company to file a declaratory judgment action regarding its duty to defend and indemnify an insured. Rather, the statute of limitations for a declaratory judgment action brought by an insurance company regarding its duty to defend and indemnify begins to run when a cause of action for a declaratory judgment accrues. See 42 Pa.C.S.A. §§ 5502(a), 7538(a). This requires a determination of when the insurance company had a sufficient factual basis to present the averments in its complaint for declaratory judgment that the insurance policy at issue does not provide coverage for the claims made in the third party's action. It is possible for the insurance company to possess sufficient information at the time it receives a complaint to cause the statute of limitations to begin to run; or that may not occur until the case develops and the claim is winnowed down to a recovery the insurance company believes is not covered by the policy of insurance. This requires the trial court to determine when the insurance company had a sufficient factual basis to support its contentions (as set forth in its complaint for declaratory judgment) that it has no duty to defend or indemnify the insured.
In this case, the trial court made no assessment of when Selective had sufficient information for it to reach its conclusion that the policies in question did not provide coverage for the claims made against Hospitality Group in the Nemcheck Action. The trial court decided that Selective filed its declaratory judgment action out of time solely based upon the date Selective received the complaint in the Nemcheck Action. See Trial Court Opinion, 8/7/14, at 3–4. The parties raise competing arguments regarding when Selective had sufficient information to know that the policies of insurance did not provide coverage for the claims raised in the Nemcheck Action. This is a question of fact to be decided in the trial court in the first instance. We therefore reverse the trial court's order granting summary judgment on that basis.
As previously stated, we do not remand this case for the trial court to make the necessary factual determination of when Selective had a sufficient factual basis to trigger the running of the statute of limitations because the case is technically moot. See supra, n.1.
We would be remiss if we failed to highlight the esoteric nature of this decision. In the case before us, there was no determination on the merits of whether Selective in fact had a duty to defend or indemnify Hospitality Group in the Nemcheck Action. By finding that the statute of limitations had run on Selective's ability to file a declaratory judgment action, the trial court simply foreclosed Selective from obtaining a predetermination of whether it had a duty to provide a defense in the action or indemnification in the event of a finding that Hospitality Group was liable. The trial court did nothing to impair or affect Selective's ability to decide on its own whether it had a duty to defend and/or indemnify Hospitality Group in the Nemcheck Action. We reiterate that an insurance company is not required to file a declaratory judgment action prior to withdrawing its defense or refusing to defend or indemnify an insured in a third party's action. As stated above, a declaratory judgment action is simply a “judicial searchlight[ ]” to determine whether or not there exists a legal right, status or duty. Wagner, 582 A.2d at 365 ; 42 Pa.C.S.A. § 7532. While a judicial declaration constitutes a final determination of the legal rights and duties of the parties arising under an insurance policy, Gen. Acc. Ins. Co. of Am., 692 A.2d at 1094 ; 42 Pa.C.S.A. § 7532, a declaration that the insurance company owes no duty to defend and/or indemnify an insured in a third party's action does little more than protect the insurance company from a later action sounding in breach of contract or bad faith based upon the insurance company's refusal to defend and/or indemnify the insured. Thus, despite the trial court's conclusion that Selective filed its declaratory judgment action out of time, Selective was free to withdraw its defense and/or refuse to indemnify Hospitality Group in the Nemcheck Action if it determined that the insurance policies in question did not provide coverage for the claims made.
Order reversed. Jurisdiction relinquished.
GANTMAN, P.J., BENDER, P.J.E. and Judges OLSON and OTT join the Opinion.
FORD ELLIOTT, P.J.E. files a Dissenting Opinion in which Judges PANELLA and SHOGAN join and MUNDY, J., concurs in the result.
MUNDY, J., files a Dissenting Opinion.
DISSENTING OPINION BY FORD ELLIOTT, P.J.E.:
I respectfully dissent. Under the circumstances of this case, I agree with the trial court that the four-year statute of limitations for filing a declaratory judgment action began to run no later than August 1, 2007, when the plaintiffs in the underlying lawsuit filed a formal complaint. I disagree that the trial court ipso facto determined that the statute begins to run on all coverage disputes at the time of the filing of the complaint. I agree with the analysis of the Majority in defining the purpose of declaratory judgment actions. I also agree that the actual controversy triggering the statute can be a moving target that must be decided by the facts of any given case. Certainly, Wagner v. Apollo Gas Co., 399 Pa.Super. 323, 582 A.2d 364 (1990), and its unique facts established as much. Legislatively created limitations periods are based on a policy of fairness to a defendant, as well as to prevent stale claims and to require a reasonable time to enforce rights. See Aivazoglou v. Drever Furnaces, 418 Pa.Super. 111, 613 A.2d 595, 597 (1992) ( “The Pennsylvania Supreme Court has repeatedly emphasized the important purposes which are served by statutes of limitation. They not only serve to give prompt notice to defendants that claims are being made against them, but they prevent stale claims and thus promote finality and stability.”) (citations omitted). To hold as Selective advocates that the trigger for the statute is when the carrier denies coverage to the insured would in effect allow the limitations period to begin when the insurer says it should begin thereby thwarting legislative intent. Rather, I would decide that the statute of limitations for filing a declaratory judgment action begins to run when the insurer is on notice of a coverage dispute, be it upon the review of the complaint, the completion of discovery, the ultimate resolution of the underlying lawsuit, or any other event which would provide actual notice.Here, Selective was aware there was a coverage issue; in fact, it had already sent Hospitality a reservation of rights letter on July 31, 2007. Selective was also aware of the Liquor Code Enforcement proceedings in which the sworn testimony of Matthew White, Sean Nemcheck's co-worker, was introduced to establish that Nemcheck obtained alcohol from the premises while unsupervised and without Hospitality's knowledge or permission. Selective argues that because Nemcheck took and consumed alcohol without Hospitality's knowledge or permission, there is no Liquor Liability Coverage. Yet, for whatever reason, Selective waited to file a declaratory judgment action until June 6, 2012, nearly five years later.
In Zourelias v. Erie Ins. Group, 456 Pa.Super. 775, 691 A.2d 963 (1997), appeal denied, 550 Pa. 721, 706 A.2d 1214 (1998), this court found that the statute of limitations did not begin to run until Erie denied the appellant's request for coverage.Id. at 964 n. 2. However, as Hospitality points out, the plaintiff in the declaratory judgment action in Zourelias was the insured, not the insurer. (Supplemental brief of appellees at 6.) Obviously, in that case, an “actual controversy” would not arise regarding interpretation of the insurance policy at issue until the insurer actually denied coverage. An insured would have no reason to file a declaratory judgment action before then. Here, however, Selective knew in 2007 simply by comparing the factual allegations in the Nemcheck complaint with the coverage exclusions in the policy that there was a basis for denial of coverage.
President Judge Emeritus Ford–Elliott, in her dissenting opinion, does not address the mootness issue.
In determining whether an insurance company is responsible to defend its insured, we observed in Gene's Restaurant Inc. v. Nationwide Ins. Co., 519 Pa. 306, 308, 548 A.2d 246, 247 (1988) that:
[a]n insurer's duty to defend an action against the insured is measured, in the first instance, by the allegations in the plaintiff's pleadings.... In determining the duty to defend, the complaint claiming damages must be compared to the policy and a determination made as to whether, if the allegations are sustained, the insurer would be required to pay resulting judgment.... [T]he language of the policy and the allegations of the complaint must be construed together to determine the insurers' obligation.
Therefore, “a carrier's duties to defend and indemnify an insured in a suit brought by a third party depend upon a determination of whether the third party's complaint triggers coverage.” Mutual Benefit Ins. Co. v. Haver, 555 Pa. 534, 538, 725 A.2d 743, 745 (1999).
Donegal Mutual Ins. Co. v. Baumhammers, 595 Pa. 147, 938 A.2d 286, 290–291 (2007). “[W]e focus primarily on the duty to defend because it is broader than the duty to indemnify. If an insurer does not have a duty to defend, it does not have a duty to indemnify. However, both duties flow from a determination that the complaint triggers coverage.” American Nat. Property and Cas. Companies v. Hearn, 93 A.3d 880, 884 (Pa.Super.2014), quoting Indalex Inc. v. National Union Fire Ins. Co. of Pittsburgh, 83 A.3d 418, 421 (Pa.Super.2013) (citations and quotation marks omitted).
As our supreme court stated in General Accident Ins. Co. of America v. Allen, 547 Pa. 693, 692 A.2d 1089, 1095–1096 (1997) (emphasis in original):
The question before a court in a declaratory judgment action is not whether the insurer owes indemnification in a specific amount, which would be a premature inquiry absent a full resolution of the underlying action. Instead, the question is whether the insurer has a duty to indemnify the insured in the event of liability in the underlying action. A court can answer such a question because it is within the scope of a
court's power pursuant to the Declaratory Judgments Act. 42 Pa.C.S. § 7532 (courts have the power to declare rights, status and other legal relations whether or not further relief is or could be requested). Indeed, the Superior Court has held that the duty to defend and the duty to indemnify may be resolved in a declaratory judgment action. [Erie Ins. Exchange v. Claypoole, 449 Pa.Super. 142, 673 A.2d 348 (1996) ] (duty to defend and duty to indemnify may be resolved in declaratory judgment action); Harleysville Mutual Insurance Company v. Madison, 415 Pa.Super. 361, 609 A.2d 564 (1992) (insurer can seek determination of obligations to insured before conclusion of underlying action); see also, Uguccioni v. United States Fidelity & Guaranty Company, 408 Pa.Super. 511, 597 A.2d 149 (1991).
See also Baumhammers, 938 A.2d at 291 (“To determine whether Donegal is obligated to defend and potentially indemnify parents in the instant case requires review of the factual allegations contained in the complaint.”). Hence, the duties owed by an insurer under the policy are uniquely a matter for declaratory judgment.
As supported by Allen, the relief of a declaratory judgment in insurance coverage disputes between an insurance company and its insured must be viewed in the context of a duty analysis. Under any policy of insurance, there is a duty of good faith and fair dealing imposed on the insurer to investigate claims and resolve coverage disputes with its insured in a timely manner. See Berg v. Nationwide Mut. Ins. Co., Inc., 44 A.3d 1164, 1170 (Pa.Super.2012), appeal denied, 619 Pa. 719, 65 A.3d 412 (2013) (“The duty of good faith originates from the insurer's status as a fiduciary for its insured under the insurance contract, which gives the insurer the right, inter alia, to handle and process claims.”) (citation omitted). This duty rests on the foundation that the prejudice to the insured can be great if a defense and coverage is denied. Furthermore, an insurer and its insured are not on equal footing; and in my view, where an insurer is put on notice of a coverage issue, i.e., by comparing the factual allegations in the underlying complaint with the terms of the policy, it should promptly seek a judicial determination of whether or not it has a duty to defend/indemnify its insured in order to avoid prejudice to the insured. There would be little question that if the four corners of a complaint in a given case established that a duty to defend and indemnify was clearly excluded, then the insurer would be estopped from waiting to file for declaratory relief following the resolution of the underlying action. The result is no different instantly when Selective waited until the eve of trial.
As of July 31, 2007, when Selective sent a reservation of rights letter, and August 1, 2007, when the complaint was filed, Selective was aware of a potential coverage issue. Selective was well aware of all the pertinent facts more than four years prior to filing the declaratory judgment action. By the time the complaint was filed, Selective knew that Nemcheck was an employee of Hospitality; that he died in a one-vehicle accident while driving home; that he was a minor; and that he had a BAC of .14. These facts were alleged in the complaint in the underlying lawsuit and summarized by Selective in its reservation of rights letter. As a result of the Liquor Code Enforcement proceeding, Selective also knew that Nemcheck took and consumed alcohol without Hospitality's knowledge or permission. Substantially the same facts are set forth in Selective's complaint for declaratory judgment to support its contention that coverage is precluded under the policy. A simple comparison of the factual allegations in the Nemcheck complaint with the terms of the policy should have enabled Selective to timely file a declaratory judgment action. Despite knowing all the salient facts upon which it relies in its declaratory judgment action, Selective waited until the eve of trial to seek a judicial determination of non-coverage.
When an insurance company or its representative is notified of loss occurring under an indemnity policy, it becomes its duty immediately to investigate all the facts in connection with the supposed loss as well as any possible defense on the policy. It cannot play fast and loose, taking a chance in the hope of winning, and, if the results are adverse, take advantage of a defect in the policy. The insured loses substantial rights when he surrenders, as he must, to the insurance carrier the conduct of the case.
Malley v. American Indemnity Corp., 297 Pa. 216, 146 A. 571, 573 (1929). See also Babcock & Wilcox Co. v. American Nuclear Insurers, 76 A.3d 1, 13 (Pa.Super.2013), appeal granted in part, 624 Pa. 214, 84 A.3d 699 (2014), quoting Mid–Century Ins. Co. v. McKelvey, 666 S.W.2d 457, 459 (Mo.Ct.App.1984) (“Nothing chills one's zeal for a defense so much as the belief that, even if he loses, it will cost him nothing....”). In the meantime, had Hospitality been informed of Selective's actual intention to deny coverage, it could have engaged separate counsel and managed its own defense. See Brugnoli v. United National Ins. Co., 284 Pa.Super. 511, 426 A.2d 164, 168 n. 6 (1981) (“consent of the insured is necessary if the insurer is to retain control of defense of the action and at the same time reserve the right to disclaim liability under the policy”), quoting 14 G. Couch, Cycopedia of Insurance Law § 51:84 (2nd ed. 1965); Babcock & Wilcox Co., 76 A.3d at 12 (an insured has the option to decline a defense tendered subject to a reservation of rights and furnish its own defense, either pro se or through independent counsel retained at the insured's expense). Although Selective did send a protective reservation of rights letter, Hospitality could be forgiven for assuming Selective had decided to waive any coverage issue when it had still not filed a declaratory judgment action five years later.
For these reasons, I would hold that the statute of limitations begins to run when an insurer is put on notice of a coverage dispute on a claim. In this case, that was no later than August 1, 2007, when the underlying complaint was filed. It was at that time that Selective was aware of an actual coverage controversy. Therefore, I would find that the limitations period to file a declaratory judgment action expired on August 1, 2011, and Selective's complaint was filed ten months too late, on June 6, 2012. As such, I respectfully dissent.
Judges PANELLA and SHOGAN join this dissenting opinion.
Judge MUNDY concurs in the result.
DISSENTING OPINION BY MUNDY, J.:
I conclude the instant appeal is moot and not subject to an exception to our rule that “courts generally will not decide a moot case because the law requires the existence of an actual controversy.” Assoc. of Pa. State Coll. and Univ. Faculties v. Pa. Labor Relations Bd., 607 Pa. 461, 8 A.3d 300, 305 (2010). I, therefore, respectfully dissent.
On March 18, 2014, during the pendency of this appeal, Appellees, Hospitality Group Services, Inc. and related parties (Hospitality Group), filed a bad faith claim against Appellant, Selective Way Insurance Co. (Selective). Subsequently, the parties settled the underlying liability action brought by Appellee, Terri Nemcheck, Executrix, and entered a praecipe to settle and discontinue on July 17, 2014. Selective's declaratory judgment action, and the instant appeal based thereon, therefore, was rendered moot.
[Insurer] effectively acquiesced to [declaratory judgment] decrees with regard to [insured defendants] by virtue of its execution of the non-waiver agreement and eventual settlement with the plaintiffs. Therefore, no effect could be given to our resolution of [Insurer's appeal from the declaratory judgments] if we were to render one and it is moot.
Erie Ins. Exch. v. Claypoole, 449 Pa.Super. 142, 673 A.2d 348, 354 (1996).
The Majority recognizes the consequential mootness of this appeal but concludes that an exception to the mootness doctrine applies.1 The Majority cites our precedent identifying three exceptions.
Appellate courts in this Commonwealth have recognized three exceptions, permitting decision on an issue despite its mootness: “1) the case involves a question of great public importance, 2) the question presented is capable of repetition and apt to elude appellate review, or 3) a party to the controversy will suffer some detriment due to the decision of the trial court.” In re D.A., 801 A.2d 614, 616 (Pa.Super.2002) (en banc ) (citations omitted).
Majority Opinion at 1040–41. The Majority concludes that the third exception applies in this case, as Selective could be collaterally estopped from challenging the trial court's statute of limitations ruling, rendered in its declaratory judgment action, in Hospitality Group's pending bad faith case. Id. at 1042–43. The Majority concludes this is sufficient detriment to trigger the exception. Id. at 1042–43.
I acknowledge that Our Court has consistently listed the cited exceptions as three distinct bases to review a mooted claim. See e.g. Orfield v. Weindel, 52 A.3d 275, 278 (Pa.Super.2012), In Re D.A., supra. I believe our listing of the third exception as an independent basis for review is at variance with our Supreme Court's articulation of the available exceptions to the mootness doctrine. Rather, our Supreme Court articulates two exceptions, treating the existence of some detriment suffered by a party as an additional aspect of the class of exceptions where an issue is likely to recur but escape review.
This Court has repeatedly recognized twoexceptions to the mootness doctrine: (1) for matters of great public importance and (2) for matters capable of repetition, which are likely to elude review. See Rendell v. State Ethics Com'n, 603 Pa. 292, 983 A.2d 708, 719 (2009). Moreover, we have found this exceptionapplicable where a case involves an issue that is important to the public interest or where a party will suffer some detrimentwithout a court decision. Com., Dept. of Environmental Protection [v. Cromwell Twp., Huntingdon, Cnty., 613 Pa. 1], 32 A.3d [639,] 651–652 [ (2011) ].
Pilchesky v. Lackawanna Cnty., , 88 A.3d 954, 964–965 (Pa.2014) (emphasis added). Accordingly, the fact that a party may suffer some detriment is relevant only where the issue is first deemed capable of repetition and likely to evade review. To hold otherwise, in my view risks creating an exception that could subsume the rule. Nevertheless, regardless of which articulation of the exception we employ, I conclude, for the reasons noted infra, that its application in this case is unwarranted.
Initially, we note that case law discussing the third exception to the mootness doctrine expressly requires only that a party “will suffer some detriment due to the trial court's decision, ” which can be “collateral legal consequences of the court order.” In re L.Z., 91 A.3d 208, 212 (Pa.Super.2014) (en banc ) [ ], appeal
granted on other grounds, 96 A.3d 989 (Pa.2014).
Id. at 1041–42 (emphasis by Majority omitted, current emphasis added).
Instantly, Selective will not suffer detriment from the trial court's decision so much as from its own election to settle the Nemcheck Action. As noted by Nemcheck, “the issue will elude appellate review in this case only because Selective has chosen to moot the issue.” Nemcheck's Supplemental Brief on the Issue of Mootness at 1–2. As a sophisticated party, Selective was well aware of the collateral implications of its decision to settle. Further, the settlement agreement is not before us, and we have no way of evaluating the terms of the agreement or how such collateral implications were weighed by the respective parties in their decision to settle on those terms. It was well within the rights and capabilities of the parties, as part of the settlement, to waive the collateral estoppel effect of issues in the declaratory judgment case. They could have agreed to reserve Selective's right to litigate the statute of limitations issue in Hospitality Group's collateral bad faith case but chose not to do so. Whether applicable as a defense, or offensively to preclude a defense, the doctrine of collateral estoppel can be waived if not asserted. See Pa.R.C.P. 1030, 1032. “Res judicata and collateral estoppel are affirmative defenses which must be pleaded in an answer as new matter. Pa.R.C.P. 1030. A defense not so raised is waived. Pa.R.C.P. 1032.” Hopewell Estates, Inc. v. Kent, 435 Pa.Super. 471, 646 A.2d 1192, 1194 (1994).
As noted by the Majority, Hospitality Group's bad-faith complaint, the settlement agreement, and parties' correspondence is not part of the certified record in this case. Majority Opinion at 1041, n.3. In its brief, Selective acknowledges its counsel discussed the collateral impact of the settlement on the bad faith claim with Hospitality Group's counsel, demonstrating it was well aware of the ramifications of the settlement it voluntarily entered. Selective's Supplemental Brief on the Issue of Mootness at 11.
“Under the doctrine of collateral estoppel, ... the second action is upon a different cause of action and the judgment in the prior suit precludes relitigation of issues actually litigated and necessary to the outcome of the first action. ... [A] litigant ... may ... use collateral estoppel offensively in a new suit against the party who lost on the decided issue in the initial case.”
In re Stevenson, 615 Pa. 50, 40 A.3d 1212, 1222 (2012) (internal quotation marks, citations, and footnote omitted). “A judgment is deemed final for purposes of ... collateral estoppel unless or until it is reversed on appeal.” Shaffer v. Smith, 543 Pa. 526, 673 A.2d 872, 874–875 (1996) (citations omitted).
The Majority's decision to invoke an exception to the mootness doctrine on these facts allows Selective to “have its cake and eat it too.” The decision to review the moot issue essentially changes the terms of the settlement agreement relative to its effect on collateral matters and the need for the respective parties to expend additional resources in proceeding with this appeal. I conclude, under the facts of this case and Selective's voluntary acquiescence in its current position, that no exception to our prohibition against deciding moot issues applies.See Easton Theatres, Inc. v. Wells Fargo Land and Mortg. Co., 498 Pa. 557, 449 A.2d 1372, 1373 (1982) (holding willful inaction by party to maintain the status quo pending appeal, precludes party from invoking exception to subsequent mootness of appeal); Consolidation Coal Co. v. Dist. 5, United Mine Workers of America, 336 Pa.Super. 354, 485 A.2d 1118, 1124 (1984) (holding, “[w]hen a party attempts to bring a claim arising out of a cause of action that was previously settled, that claim is merged in the previous agreement of settlement”) (citation omitted); Weney v. W.C.A.B. (Mac
Sprinkler Systems, Inc.), 960 A.2d 949, 954–955 (Pa.Cmwlth.2008) (applying res judicata, where claimant in workers' compensation case entered into stipulation to add an injury to original review hearing, to bar subsequent claim and review hearing for an additional injury that could have been included in the stipulation), appeal denied, 601 Pa. 691, 971 A.2d 494 (2009).
Although Commonwealth Court opinions do not bind this Court, we may consult them for their persuasive value. Petow v. Warehime, 996 A.2d 1083, 1088 n. 1 (Pa.Super.2010), appeal denied, 608 Pa. 648, 12 A.3d 371 (2010).
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For these reasons, I would dismiss the instant appeal as moot.