Carlotti v. Employees of General Elec. Federal Credit Union No. 1161

• Decision Date: 04 September 1998
• Citation: 717 A.2d 564
• Parties: Richard CARLOTTI, Individually and as Executor of the Estate of Elaine Carlotti, Appellee, v. EMPLOYEES OF GENERAL ELECTRIC FEDERAL CREDIT UNION NO. 1161, Appellant. Richard CARLOTTI, Individually and as Executor of the Estate of Elaine Carlotti, Appellant, v. EMPLOYEES OF GENERAL ELECTRIC FEDERAL CREDIT UNION NO. 1161, Appellee.
• Court: Pennsylvania Superior Court

Page 564

717 A.2d 564

Richard CARLOTTI, Individually and as Executor of the Estate

of Elaine Carlotti, Appellee, v. EMPLOYEES OF GENERAL ELECTRIC FEDERAL CREDIT UNION NO. 1161,

Appellant.

Richard CARLOTTI, Individually and as Executor of the Estate

of Elaine Carlotti, Appellant, v. EMPLOYEES OF GENERAL ELECTRIC FEDERAL CREDIT UNION NO. 1161, Appellee.

Superior Court of Pennsylvania.

Argued June 4, 1998.

Filed Sept. 4, 1998.

Daniel L. Rivetti, Pittsburgh, for Employees of General Elec. Federal Credit Union No. 1161.

Donald F. Fessler, Jr., Erie, for Richard Carlotti.

Before FORD ELLIOTT, EAKIN and BECK, JJ.

BECK, Judge:

This appeal arises out of a negligence action filed by Richard Carlotti against the Employees of General Electric Federal Credit Union No. 1161 (the "Credit Union"). After a bench trial, the judge found in favor of appellee and awarded damages, plus interest and costs of suit. Post trial motions were denied and this timely appeal followed entry of judgment on the verdict. We reverse.

The following findings of fact by the trial judge are supported by the record. Richard Carlotti has been a member of the Credit Union since 1981, and his wife Elaine was a member from 1986 until the time of her death on April 9, 1995. On March 24, 1995, Richard Carlotti applied for a loan in the amount of $14,500 through the Credit Union; the loan application revealed that Elaine Carlotti's income was necessary to repay the loan and she was identified as a co-maker on the application form. Both Richard and Elaine Carlotti signed a Consumer Credit Disclosure Form, Promissory Note and Security Agreement as "borrower," and these documents obligated both Richard and Elaine Carlotti to repay the loan in installments; the total amount of the repayment was in the amount of $17,741.86.

At the time it made this loan, the Credit Union had secured loan protection insurance from CUNA Mutual Insurance Company, which coverage was provided to members of the Credit Union free of charge. The application for loan protection insurance states that the coverage is provided "in the interest of providing protection for the Credit Union and Members who are eligible for the Insured Class as defined in the said Contract, and their surviving families, against the hardship of outstanding loans and remaining debts." After executing the loan documents, the Carlottis received a Certificate of Insurance from CUNA. The Certificate provides, in part: "You, the insured member of your Credit Union whose account number is identified in this certificate and whose signature appears first on the note as maker of your loan, are the person whose life is insured under this certificate. The lives of any co-makers on your loan are not insured under this certificate." Richard Carlotti's name appeared first on the note, and under the terms of the certificate only he was insured.

Elaine Carlotti died unexpectedly on April 9, 1995. Richard Carlotti made a claim for benefits under the loan protection plan provided by CUNA through the Credit Union. The claim was denied because Elaine Carlotti was not the insured under the Certificate of Insurance. Richard Carlotti filed this negligence action claiming that the Credit Union breached a duty to inform him and his wife that the free loan protection insurance would apply only to the person who "signed the note first," despite the fact that both were members of the Credit Union and both equally liable under the note and security agreement. The trial judge agreed and ordered payment by the Credit Union to the Estate of Elaine Carlotti of "an amount equal to amount decedent would have been entitled to as an insured member of [the Credit Union], plus interest at the rate of 6% on any and all installment payments not made by [the Credit Union], plus costs of suit." The court expressly held that the Credit Union breached its "affirmative duty to advise a member, prior to the execution of the documents ... that the member would be divested of free insurance coverage under the Group Life Insurance Policy--Loan Protection Plan."

Appellant Credit Union argues on appeal that the court erred in imposing such an "affirmative duty" under the circumstances of this case. The trial judge did not specify how he believed the Credit Union's duty arose. Carlotti argues that the duty arises under one or more of the following: 1) the recognized responsibilities of the Credit Union's loan officers; 2) Restatement (Second) of Torts § 323, Negligent Performance of Undertaking to Render Services; 3) a fiduciary duty to credit union members; 4) a reasonable man standard; 5) common law; 6) the Unfair Trade Practices/Consumer Protection Law, 73 P.S. § 201-1 et seq. Appellant Credit Union claims that there is no basis in the law for a claim of negligence under the facts in this case.

Carlotti points out that the Credit Union's loan officer herself acknowledged that she was responsible for "explaining the loan protection insurance to the members of the Credit Union." Carlotti argues that by taking on this obligation, the Credit Union had the duty to perform the explanation in a non-negligent manner. In essence, Carlotti argues that the Credit Union's duty to inform arises under Section 323 of the Restatement (Second) of Torts, which provides:

Negligent Performance of Undertaking to Render Services

One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of the other's person or things, is subject to liability to the other for physical harm resulting from his failure to exercise reasonable care to perform his undertaking, if

(a) his failure to exercise such care increases the risk of harm, or

(b) the harm is suffered because of the other's reliance upon the undertaking.

(Emphasis added). Carlotti argues that, because the Credit Union took on the responsibility of providing loan protection insurance to its members who take out loans, it had the duty to exercise reasonable care in doing so, including properly advising the members about the limitations of the loan protection insurance. The failure to do so, Carlotti claims, proximately caused his damage, i.e., an outstanding debt with no insurance coverage at his wife's death. Carlotti makes this argument despite the fact that he was given a Certificate of Insurance that expressly defined the "insured member" to include just one maker, the one whose signature appeared first.

Clearly, if this were a contract action, Carlotti would not be entitled to relief. The Certificate of Insurance provides the terms of coverage, and any statements made by the Credit Union about the coverage would be parol evidence that would not be admissible to modify the terms of the contract. Henry v. First Fed. Sav. & Loan Ass'n, 313 Pa.Super. 128, 459 A.2d 772 (1983). Moreover, Carlotti would have been held to the express terms of the contract, and his admitted failure to read the Certificate would probably not preclude its enforceability. Standard Venetian Blind Co. v. American Empire Ins. Co., 503 Pa. 300, 469 A.2d 563 (1983). The question is whether Carlotti should be able to avoid application of these principles by bringing a negligence action.

We...