J.C. Penney Life Ins. Co. v. Pilosi, 02-4204.

• Citation: 393 F.3d 356
• Decision Date: 28 December 2004
• Docket Number: No. 02-4298.,No. 02-4204.,02-4204.,02-4298.
• Parties: J.C. PENNEY LIFE INSURANCE COMPANY, Appellant, v. Christian J. PILOSI; James C. Pilosi, Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

393 F.3d 356

J.C. PENNEY LIFE INSURANCE COMPANY, Appellant, v. Christian J. PILOSI; James C. Pilosi, Appellants.

No. 02-4204.

No. 02-4298.

United States Court of Appeals, Third Circuit.

Argued September 22, 2004.

Filed December 28, 2004.

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James D. Crawford (Argued), Schnader, Harrison, Segal & Lewis, Philadelphia, PA, Brian J. Cali, Dunmore, PA, Daniel T. Brier, Donna A. Walsh, Myers, Brier & Kelly, Scranton, PA, for Christian J. Pilosi, James C. Pilosi.

Arthur F. Fergenson (Argued), Piper Rudnick, Baltimore, MD, Ronald P. Schiller, Piper Rudnick, Philadelphia, PA, for J.C. Penney Life Ins. Co.

Before McKEE, ROSENN, and WEIS, Circuit Judges.

ROSENN, Circuit Judge.

This litigation has its genesis in an optimistic gambling junket to Atlantic City and a return flight that ended tragically in death. The ill-fated flight was part of a bi-weekly shuttle operated by Executive Airlines ("EA") on behalf of Caesars Casino ("Caesars"). Elaine Pilosi, a passenger on the junket, lost her life when the EA airplane in which she was traveling crashed. Mrs. Pilosi left two sons who were the beneficiaries of an accidental death insurance policy that she had purchased from the defendant, J.C. Penney Life Insurance Company ("J.C. Penney Life" or "the Insurer"). The policy had three categories of losses, two of which are pertinent in this litigation. Part I provided benefits of $1 million for accidental death in "a public conveyance ... operated by a duly licensed common carrier for regular passenger service." Part II provided for payment of $100,000 for accidental death in a private passenger automobile. And Part III provided for the payment of $50,000 for all other injuries.

J.C. Penney Life paid $50,000 under Part III of the policy and rejected the claim of the Pilosi brothers ("Pilosis" or "Insured") for $1 million under Part I. The Insurer sued for a declaratory judgment pursuant to 28 U.S.C. § 2201 in the United States District Court for the Middle District of Pennsylvania seeking a determination that the Pilosis were not entitled to the $1 million benefit. The Pilosis responded and also raised affirmative defenses asserting, inter alia, that J.C. Penney Life's claim is barred by the doctrine of waiver and/or estoppel, by its own bad faith, and by the doctrine of frustration of the purpose of the contract. In addition, the Pilosis counterclaimed for breach of contract and bad faith denial of their claim under 42 Pa.C.S.A. § 8371.¹ The District Court, in a carefully considered opinion of a difficult case, entered summary judgment for the Pilosis in the sum of $1 million but rejected their claim under Pennsylvania law for bad faith damages. The Pilosis timely appealed the entry of summary judgment in favor of J.C. Penney Life on the bad faith claim, and J.C. Penney Life cross-appealed the entry of summary judgment awarding $1 million coverage. We affirm in part and reverse the summary judgment against J.C. Penney Life.

I.

The District Court had subject matter jurisdiction under 28 U.S.C. § 1332(a), as the diversity and amount-in-controversy requirements were met.² This Court has jurisdiction under 28 U.S.C. § 1291, as an appeal from a final judgment that disposed of all parties' claims.

"Disposition of an insurance action on summary judgment is appropriate, when, as here, there are no material underlying facts in dispute." McMillan v. State Mut. Life Assurance Co. of Am., 922 F.2d 1073, 1074 (3d Cir.1990). The only contested issue in the instant case involves the interpretation of the scope of coverage of the insurance contract. "The interpretation of the scope of coverage of an insurance contract is a question of law properly decided by the court, a question over which [this court] exercise[s] plenary review." Med. Protective Co. v. Watkins, 198 F.3d 100, 103 (3d Cir.1999); McMillan, 922 F.2d at 1074.

Summary judgment is appropriate only where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). In reviewing the record, this Court must view the inferences to be drawn from the underlying facts in the light most favorable to the party opposing the motion. Haugh v. Allstate Ins. Co., 322 F.3d 227, 230 (3d Cir.2003).

Where federal jurisdiction is based on diversity of citizenship, as it is here, we apply the choice of law rules of the state in which the District Court sat. St. Paul Fire & Marine Ins. Co. v. Lewis, 935 F.2d 1428, 1431 n. 3 (3d Cir.1991) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)). This action was instituted in the Middle District of Pennsylvania. Under Pennsylvania choice of law rules, an insurance contract is governed by the law of the state in which the contract was made. Crawford v. Manhattan Life Ins. Co., 208 Pa.Super. 150, 221 A.2d 877, 880 (1966); McMillan, 922 F.2d at 1074. "An insurance contract is `made' in the state in which the last act legally necessary to bring the contract into force takes place." Crawford, 221 A.2d at 880. "In most cases, this last act is delivery of the policy to the insured and the payment of the first premium by him." Ruhlin v. N.Y. Life Ins. Co., 106 F.2d 921, 923 (3d Cir.1939).

In the instant case the policy makes no mention of insurance coverage being contingent upon delivery of the policy. However, the policy provided that coverage "will become effective on the Certificate Effective Date shown on the Schedule Page provided [that J.C. Penney Life] receive[s] the initial premium within 21 days of the Certificate Effective Date and while you are alive." The Certificate Effective Date was two days after Mrs. Pilosi orally accepted J.C. Penney Life's telephone solicitation offering three months of coverage at no cost and no obligation to continue. Payment of the first three monthly premiums was made by Mrs. Pilosi's credit card company as part of a promotion that it offered in conjunction with J.C. Penney Life. Because the first three premium payments were automatically triggered upon Mrs. Pilosi's oral acceptance, the last act legally necessary to bring the contract into force was Mrs. Pilosi's telephonic acceptance of the policy. This occurred at her residence in Pennsylvania. Therefore, Pennsylvania law governs construction of the terms of the insurance policy.

A. "Public Conveyance"

The threshold issue is whether the EA airplane in which Mrs. Pilosi died qualifies as a "public conveyance." Counsel for the Pilosis strenuously argue that, much like a taxicab, the airplane was a public conveyance. Although Caesars controlled who was allowed to board this particular flight, the Pilosis assert that the airplane was available for any member of the public at-large to charter before and after the Caesars flight. On the other hand, the Insurer contends that the airplane was not a public conveyance because members of the public at-large were not free to purchase tickets for the flight.

Unfortunately, the policy does not define "public conveyance." However, the record reveals that the carrier was, indeed, a public conveyance. The airplane in which Mrs. Pilosi was traveling was owned and operated by an air carrier licensed by the Federal Aviation Administration to conduct common carriage. The airplane belonged to a company that was engaged in the business of hiring out airplanes for general public use.

More importantly, EA made its services available to the general public. According to the deposition of EA's CEO, Michael Peragine, EA was open to "anyone who had money who wanted to fly." Thus, EA could be hired by anyone with the ability to pay, either before or after the Caesars flight. Analogous to a public taxicab, which the Pennsylvania Supreme Court has held to be a "public conveyance," Primrose v. Cas. Co., 232 Pa. 210, 81 A. 212, 214 (1911), "[t]he use of no one of [EA's] machines was limited to any particular person, but anyone able to pay the price and privilege of riding in it ... could do so." Id. at 213.

J.C. Penney Life challenges the taxicab analogy. It disputes the Pilosis' reliance on the holding in Terminal Taxicab Co., Inc. v. Kutz, 241 U.S. 252, 255, 36 S.Ct. 583, 60 L.Ed. 984 (1916). The issue in Terminal Taxicab was whether a taxicab company that offered its services to hotel guests pursuant to a contract with the hotel still retained its public character. The Court held that the taxicab company retained its public character even though it served primarily hotel guests. The Court noted that "[n]o carrier serves all the public. His customers are limited by place, requirements, ability to pay and other facts...." Id.

J.C. Penney Life's efforts to distinguish Terminal Taxicab are unpersuasive. J.C. Penney Life distinguishes the Terminal Taxicab taxi from the EA airplane on the ground that anyone could access the taxis stationed in front of the hotel, while the airplane was restricted to Caesars passengers. J.C. Penney Life's insistence that a vehicle must be available for "walk-up passengers" in order to qualify as a "public conveyance" misses the point.

As both the Terminal Taxicab and Primrose Courts articulate, passenger limitations imposed by any particular customer with regard to any particular taxi ride — i.e., designating the passengers, the destination, and the schedule of the trip — do not negate the public character of the conveyance. Terminal Taxicab, 241 U.S. at 255, 36 S.Ct. 583; Primrose, 81 A. at 213-14; see also Brill v. Indianapolis Life Ins. Co., 784 F.2d 1511, 1514 (11th Cir.1986) (holding that hiring a helicopter on a particular occasion limited the helicopter's "operation; however these limitations as to time, place and passengers were no different than those imposed on the taxi service discussed in Terminal Taxicab Co. For purposes of the one flight ..., the decedent and his employer had the exclusive use of the helicopter as to contents,...