United Nat. Ins. Co. v. J.H. France Refractories Co.

• Decision Date: 27 July 1992
• Citation: 612 A.2d 1371,417 Pa.Super. 614
• Parties: UNITED NATIONAL INSURANCE COMPANY, Appellant, v. J.H. FRANCE REFRACTORIES CO., the Van Brunt Company, Mineral Industries, Inc. and Green Point Fire Brick Company, Appellees.
• Court: Pennsylvania Superior Court

Page 1371

612 A.2d 1371

417 Pa.Super. 614

UNITED NATIONAL INSURANCE COMPANY, Appellant, v. J.H. FRANCE REFRACTORIES CO., the Van Brunt Company, Mineral Industries, Inc. and Green Point Fire Brick Company, Appellees.

Superior Court of Pennsylvania.

Argued Jan. 28, 1992.

Filed July 27, 1992.

Elizabeth W. Fox, Philadelphia, for appellant.

Mark D. Turetsky, Norristown, for appellees.

Before CIRILLO, DEL SOLE and KELLY, JJ.

KELLY, Judge:

In this opinion we are called upon to determine whether the trial court, sitting in equity, may properly enter a compulsory non-suit based on a statute of limitations defense; and if so, whether the trial court applied the proper limitations period. We find, first, that a trial court may apply a statute of limitations to determine the timeliness of an equitable action for rescission of a fraudulently obtained insurance policy. We also find that the trial court correctly applied a two-year limitations period, rather than a six-year limitations period. Therefore, we affirm.

The relevant facts and procedural history are as follows. J.H. France Refractories Company, The Van Brunt Company, Mineral Industries, Inc., and Green Point Fire Brick Co. (hereinafter, collectively referred to as "the insured") manufacture refractory products, particularly fire brick and related items. In May of 1982, the insured's officer, the person responsible for obtaining insurance coverage, contacted its agent and directed him to seek $5,000,000 worth of additional ¹ liability insurance coverage from a new carrier (rather than increasing coverage under an existing policy). At the time, the insured's agent knew that:

(i) [the insured] had been sued by one Temple in 1979, who had alleged injury due to [the insured's] asbestos-containing product; that Temple had mesothelioma; and that Allstate Insurance Company had refused to defend the action on the ground that asbestos-related conditions were not covered by its policy;

(ii) as a result of the lawsuit filed by Temple, ... France had produced [between 1968 and 1972,] a cement which contained 26 percent of asbestos fiber [, and] that [the insured's] asbestos was alleged to be a hazardous substance which caused severe and even lethal injury to persons exposed to it;

(iii) [the insured] had brought a declaratory judgment action in 1980 or 1981 against Allstate Insurance Company because of its refusal to defend the Temple case;

(iv) at least twelve actions had been brought against [the insured] alleging injury due to exposure to [its] asbestos-containing product. One of these actions involved six plaintiffs and another named 24 plaintiffs. Each action demanded compensatory damages in excess of $10,000 and many sought damages in excess of $1,000,000.

(Tr.Ct.Op. of 1/4/90 at 2). The insured's agent contacted, through another agent (the intermediary agent), a third agent (the insurer's agent) who issued policies of United National Insurance Company (the insurer).

In order to issue the policy, the insurer's agent requested and obtained, from the insured's agent (who obtained his information from the insured's officer), information regarding asbestos. In response to the insurer's agent's questions, and on the application for insurance, the insured's agent answered (at the insured's officer's direction) that there were no incidents indicating exposures, such as noxious fumes or waste discharges, defective or recalled products, etc., which occurred prior to the date of this application which could cause injuries to persons or property during the period of coverage requested hereunder.

(Tr.Ct.Op. of 1/4/90 at 3). The insured revealed, however, that there were two $10,000 lawsuits involving its products. Based on this information, the insurer's agent issued an excess ² insurance policy on behalf of the insurer. (Tr.Ct.Op. of 1/4/90 at 3). The policy at issue covered the period from June 3, 1982 through June 3, 1983.

Approximately one month after the policy became effective, the insurer's agent asked the intermediary agent for additional information on the lawsuits mentioned on the insurance application. The insured's agent advised the insurer's agent that the first lawsuit involved

[a] claim ... against Bethlehem Steel by an employee for Workers Comp and Liability Coverage for some sort of lung condition. The employee ended up suing Bethlehem Steel and all the suppliers of any product to the steel. The insured in this case didn't feel he was doing business with Bethlehem Steel.

(Tr.Ct.Op. of 1/4/90 at 4). The insured's agent responded, with regard to the second lawsuit, that

[t]he second loss was very similar to the first loss. Again, [the insured] was enjoined [sic] with 20 other defendants. No verdict or evidence that they are involved has been proven to date.

(Tr.Ct.Op. of 1/4/90 at 4).

The policy remained in effect until June 3, 1983. The insured sought to renew the policy, and the insurer's agent requested additional information on a "short form." From information contained on the short form, and supplied by the insured's agent, the insurer's agent learned, on June 3, 1983, that: the insured had three (not two, as earlier reported) products liability cases involving $10,000; and the insured had produced, from 1968 to 1972, a cement containing 26 percent asbestos fiber, but it discontinued manufacturing this product in 1973. (Tr.Ct.Op. of 1/4/90 at 4). Based on this information, the insurer forwarded to the insured a $15,000,000.00 umbrella policy, covering the period from June 3, 1983 through June 3, 1984, which contained an asbestos and occupational disease exclusion. The insured refused to accept this policy.

On September 12, 1983, the insurer received notice of a claim against the insured based on exposure to the insured's asbestos-based product. On October 28, 1983, the insurer's president wrote to the insured's president that the insurer considered the policy covering the period from June 3, 1982 through June 3, 1983 "void ab initio," due to the insured's "material misrepresentations" in obtaining the policy. (Tr.Ct.Op. of 1/4/90 at 5).

On October 30, 1987, the insurer filed suit against the insured requesting a rescission of its policy as of June 3, 1982, the policy's starting date. The insurer alleged that the insured had fraudulently misrepresented that there were no asbestos-related claims against it. In response, the insured defended that the insurer's action was untimely, based on a two-year statute of limitations and on the doctrines of laches, estoppel, and waiver. The case proceeded to trial without a jury.

Following the conclusion of the insurer's case, the insured, arguing that the insurer's action was untimely (based on the expiration of a two-year limitations period, the doctrine of laches, estoppel, and waiver) and that the insurer failed to produce evidence of fraud, moved for a non-suit. Relying on certain Findings of Fact and Conclusion of Law, the trial judge granted the insured's motion for compulsory non-suit. The trial judge reluctantly found that, although the insurer had proved all of the elements needed to rescind the insurance policy based on the insured's false and fraudulent misrepresentations, the insurer had failed to bring its action within the two-year limitations period governing common law fraud cases. ³

The trial judge denied post-trial motions filed by both parties. The insurer filed this timely appeal.

On appeal, the insurer raises the following issues for our review:

1. WHETHER THE DOCTRINE OF LACHES SHOULD APPLY TO AN EQUITABLE ACTION FOR RESCISSION OF A FRAUDULENTLY OBTAINED INSURANCE POLICY. (NOT ADDRESSED BY THE TRIAL COURT, WHICH INSTEAD APPLIED AN ERRONEOUS STATUTE OF LIMITATIONS.)

2. ASSUMING A STATUTE OF LIMITATIONS APPLIES TO AN ACTION IN EQUITY FOR RESCISSION OF A FRAUDULENTLY OBTAINED INSURANCE POLICY, AND ASSUMING THE CAUSE OF ACTION ACCRUED AFTER FEBRUARY 18, 1983, WHETHER THE APPLICABLE STATUTE OF LIMITATIONS IS THE SIX-YEAR CATCHALL STATUTE OF LIMITATIONS FOUND IN 42 Pa.C.S.A. § 5527? (ANSWER IN THE NEGATIVE BY THE TRIAL COURT, WHICH APPLIED A TWO-YEAR STATUTE OF LIMITATIONS FOR TRESPASS ACTIONS INVOLVING FRAUD UNDER 42 Pa.C.S.A. § 5524.)

3. SHOULD A CAUSE OF ACTION FOR RESCISSION OF A FRAUDULENTLY OBTAINED INSURANCE POLICY ACCRUE AT THE TIME WHEN THE PLAINTIFF COULD HAVE FIRST MAINTAINED THE CAUSE OF ACTION TO A SUCCESSFUL CONCLUSION? (ANSWERED IN THE NEGATIVE BY THE TRIAL COURT.)

(Appellant-Insurer's Brief at 3).

Initially, we note that our standard of review in this challenge to the propriety of the trial court's entry of compulsory non-suit is well established. We must "give the plaintiff the benefit of every fact and reasonable inference arising from the evidence, resolving all conflicts in the evidence in his or her favor." Harvilla v. Delcamp, 521 Pa. 21, 25, 555 A.2d 763, 764 (1989); Coatesville Contractors v. Borough of Ridley, 509 Pa. 553, 559, 506 A.2d 862, 865 (1986). We can uphold the entry of a compulsory non-suit only "in a clear case where the facts and circumstances lead to one conclusion--the absence of liability." Harvilla, supra, at id., 555 A.2d at 764. See also Coatesville, supra, at id., 506 A.2d at 865.

The insurer first contends that the trial judge erred in applying a statute of limitations to determine the timeliness of its equitable action for rescission of a fraudulently obtained insurance policy. The insurer asserts that the doctrine of laches, not a statute of limitations, governs the timeliness of actions in equity; the insured's failure to prove the prejudice element of the laches defense warrants a finding that its action for rescission is timely. We do not agree.

It is well-settled that "a party claiming the benefit of the doctrine of laches must demonstrate prejudice due to lapse of time" [between the time the plaintiff's cause of action arose and its efforts to enforce it]. Kay v. Kay, 460 Pa. 680, 685, 334 A.2d 585, 587 (1975) (...