Com. v. Transamerica Ins. Co.

• Decision Date: 07 July 1975
• Citation: 341 A.2d 74,462 Pa. 268
• Parties: COMMONWEALTH of Pennsylvania, Appellant, v. TRANSAMERICA INSURANCE COMPANY, Appellee.
• Court: Pennsylvania Supreme Court

Page 74

341 A.2d 74

462 Pa. 268

COMMONWEALTH of Pennsylvania, Appellant, v. TRANSAMERICA INSURANCE COMPANY, Appellee.

Supreme Court of Pennsylvania.

July 7, 1975.

[462 Pa. 270] Richard J. Orloski, Deputy Atty. Gen., Dept. of Justice, Harrisburg, for appellant.

Metzger, Hafer, Keefer, Thomas & Wood, Heath L. Allen, William E. Miller, Jr., Harrisburg, for appellee.

Before JONES, C.J., and EAGEN, O'BRIEN, ROBERTS, POMEROY, NIX and MANDERINO, JJ.

OPINION

NIX, Justice.

This is an appeal from an order of the Commonwealth Court, proceeding under its original jurisdiction, ¹ from which the Commonwealth appealed. The Commonwealth filed a complaint in assumpsit seeking judgment in the amount of $10,000 plus interest and costs against appellee, Transamerica Insurance Company. The asserted liability was predicated upon a bond (entitled Public Employe Faithful Performance Blanket Position Bond) issued by Transamerica's predecessor company which undertook to indemnify the Commonwealth against any loss, up to a maximum of $10,000 caused to the Commonwealth through the failure of designated Commonwealth employees to faithfully perform duties and/or properly account for all monies and property received by virtue of their position. Preliminary objections of appellee were overruled and an answer was filed. Thereafter, both parties filed motions for summary judgment.

Judge Kramer, on March 8, 1974, entered an order denying the Commonwealth's motion, granting the motion filed by Transamerica, and dismissing the complaint. The single issue presented in this appeal and answered in the affirmative by Judge Kramer was whether the Commonwealth was barred from recovery under the term of the bond limiting the period of time in which suit could be instituted.

The facts set forth in the record (which consist of the complaint, answer and the deposition of bond claim counsel of appellee) and found by the Learned Court below were as follows:

The bond in question became effective July 1, 1963, and remained in force through August 25, 1967. Section 6 of that instrument provided:

'No suit, action or proceeding of any kind to recover on account of loss under this bond shall be brought after the expiration of three years from the cancellation of this bond as an entirety, provided, however, that if such limitation for bringing suit, action or proceeding is prohibited or made void by any law controlling the construction of this bond, such limitation shall be deemed to be amended so as to be equal to the minimum period of limitation permitted by such law.'

During the period that the bond was in force, an employee of the Commonwealth was suspected of embezzling funds. Prior to a definite determination of the suspected wrongdoing of this employee, the Commonwealth notified appellee of a possible claim, on November 4, 1968. On November 15, 1968, appellee responded by requesting the results of the investigation then being conducted by the Commonwealth. In compliance, the Commonwealth, through its investigators, made available the results of its investigation up to that point. On March 28, 1969, the employee was arrested for embezzlement and on April 16, 1969, appellee forwarded proof of loss forms to the appellant. On May 22, 1969, the employee, Mr. Davis entered a plea of guilty to the indictment charging embezzlement and on August 28, 1969, the Commonwealth returned the proof of loss forms claiming a loss of $48,094.11 during the period of the bond coverage. On October 17, 1969, the Commonwealth sent to appellee a copy of its investigation to complete the file. On November 24, 1969, appellee expressed a desire for further information and was advised by appellant on November 26, 1969, that all written reports had been submitted. At this juncture, the Commonwealth expressed willingness to permit Transamerica's agent access to its complete files in the matter. This offer was accepted and an adjuster for appellee did examine the files of appellant. Additionally, at request of appellee, appellant supplied them with copies of specified checks. Appellee in June or July of 1970, requested photostatic copies of the back side of the checks in question. This request was also fully complied with by appellant. During August 1970 appellee's agents again visited with Commonwealth agents and made further examination of the records. After August 6, 1970, but before August 25, 1970, the expiration of the three-year period, appellee decided to refuse to honor the claim of appellant. Despite the cooperative negotiations that had theretofore transpired, the decision to refuse the claim was not communicated to appellant before the expiration of the contractually agreed period during which suit was to have been instituted. Having received no information as to the status of the claim, appellant wrote to Transamerica on October 27, 1970, requesting information. This letter was not answered. Appellant was first advised of the decision to reject the claim in a telephone conversation in November 1970. After an offer of settlement of $5,000 was made by appellee and refused by appellant, this suit was instituted on May 13, 1971.

We agree with the conclusion of Judge Kramer that the case was ripe for disposition of the motion for summary judgment. Rule 1035(b) of the Pennsylvania Rules of Civil Procedure, 12 P.S. Appendix, provides that summary judgment 'shall be rendered if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.' In this case, both parties filed for summary judgment and both agreed that the facts were not in dispute.

We cannot, however, agree with the result of the Learned Court below. This Commonwealth has long recognized the validity of a policy provision limiting the time of bringing suit under its terms and rendering the normal statute of limitations for the cause of action in question inapplicable. Howard Ins. Co. v. Hocking, 130 Pa. 170, 18 A. 614 (1889) (see cases cited therein). Likewise, axiomatic is the principle that a contractual limitation on the right to recovery under the terms of the policy may be waived by the acts of the insurer.

'The utmost fair dealing should characterize the transactions between an insurance company and the insured. If the insurer, . . . by any act throws the insured off his guard as to the necessity of performing some duty enjoined by the policy, the insurer should not be permitted to take advantage of the failure to act.' Fedas v. Insurance Co. of State of Penna., 300 Pa. 555, 559, 151 A. 285, 286--7 (1930). See also Gough v. Halperin, 306 Pa. 230, 159 A. 447, (1932); Evans v. Metropolitan Life Insurance Co., 294 Pa. 406, 144 A. 294 (1928).

Expressing the same concept, that an insurer will not be permitted to take advantage of an insured's failure to act where the insurer induced such a failure, we stated in Arlotte v. National Liberty Insur. Co., 312 Pa. 442, 445, 167 A. 295, 296 (1933):

'It is a well settled rule of law that a party to a contract cannot escape liability under his obligation on the ground that the other party has failed to perform a condition precedent to the establishment of such liability or to the maintenance of an action upon the contract, where he himself has caused that failure.'

Specifically with reference to contractual limitations on the time to commence suit under the terms of a contract of insurance, the courts of this jurisdiction have upheld the validity and enforceability of these provisions where the specified time within which suit was to be brought was not unreasonable. Lardas v. Underwriters Insur. Co., 426 Pa. 47, 231 A.2d 740 (1967); Selden v. Metropolitan Life Ins. Co., 354 Pa. 500, 502--3, 47 A.2d 687, 688 (1946); Howard Insur. Co. v. Hocking supra; Ercole v. Metropolitan Life Ins. Co., 155 Pa.Super. 549, 39 A.2d 293, 294 (1944); O'Connor v. Allemannia Fire Insur. Co., 128 Pa.Super. 336, 342, 194 A. 217 (1937); Ferguson v. Manufacturer's Casualty Ins. Co. of Phila., 129 Pa.Super. 276, 281, 195 A. 661 (1937). However, a provision of this nature may be extended or waived where the actions of the insurer leads the insured to believe the limitation period will not be relied upon. McMeekin v. Prudential Insur. Co. of America, 348 Pa. 568, 570, 36 A.2d 430, 432 (1944); Howard Insur. Co. v. Hocking, supra; Ercole v. Metropolitan Life Insur. Co., supra; Sudnick v. Home Friendly Insur. Co., 149 Pa.Super. 145, 153, 27 A.2d 468, 472 (1942).

'If in the course of the negotiations the company gave the plaintiff reasonable grounds for believing that the time limit would be extended or that such provision would not be strictly enforced, it could not subsequently insist on its strict enforcement without giving...