County of Erie v. American States Ins. Co.

• Decision Date: 20 October 1983
• Docket Number: Civ. A. No. 83-76 ERIE.
• Parties: COUNTY OF ERIE, Plaintiff, v. AMERICAN STATES INSURANCE COMPANY, Defendant and 3rd Party Plaintiff, v. Patricia Ann SANTAFEMIA, 3rd Party Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

573 F. Supp. 479

COUNTY OF ERIE, Plaintiff, v. AMERICAN STATES INSURANCE COMPANY, Defendant and 3rd Party Plaintiff, v. Patricia Ann SANTAFEMIA, 3rd Party Defendant.

Civ. A. No. 83-76 ERIE.

United States District Court, W.D. Pennsylvania.

October 20, 1983.

Kenneth Chestek, Erie, Pa., for plaintiff.

Jack Plowman, Plowman & Spiegel, Pittsburgh, Pa., for defendants.

OPINION

WEBER, District Judge.

The matter is before the court on defendant-third party plaintiff's motion for summary judgment.

This dispute concerns the scope of coverage provided under two Public Employees Blanket Bonds issued to Erie County by American States. The action was originally filed in the Court of Common Pleas of Erie County in March 1983 and was removed to this court pursuant to 28 U.S.C. § 1441. Erie County seeks to recover under the Bonds for losses sustained by the acts of Patricia Ann Santafemia, third party defendant, who served at relevant times as the Director of the County's Tax Claim Bureau (hereinafter also referred to as Director). The question before the court is whether as a matter of law the acts of Santafemia were expressly excluded from coverage under the Bonds. American States filed a Motion for Summary Judgment with supporting affidavits and brief, and Erie County has responded in kind opposing the motion. The matter is now ripe for the court's consideration.

I. FACTS

A review of the facts reveals that on or about October 13, 1982, Santafemia confessed to County officials that she had stolen large sums of money from the Erie County Tax Claim Bureau Trust Account throughout her term of service as Director of that Bureau. The County repeatedly sought payment for the loss it sustained under two existing employee fidelity bonds which are substantially alike save for the periods of coverage provided under each. American States had issued to Erie County Public Employees Blanket Bond No. EX 396-215 (May 1, 1977 to May 1, 1981) and EX 480-480 (May 1, 1981 to present).¹ Both of the bonds contain the following exclusion in the definition section of the "conditions and limitations" clause —

`Employee' as used in Insurance Agreements 3 and 4 means a person while in the employ of the Insured during the Bond Period who is not required by law to furnish an Individual Bond to qualify for office and who is a member of the staff or personnel of the Insured but does not mean any Treasurer or Tax Collector by whatever title known.

Prior to the issuance of the bonds, "application-questionnaires" were executed on behalf of Erie County by William O. Hill, Jr., first in 1977 in his capacity as County Commissioner, and in 1981 as Chairman of the Erie County Council. The printed form of each application-questionnaire contains a recital excluding automatically from coverage "Treasurers and Tax Collectors by whatever title known" and solicits from the insured through the questionnaire those personnel to be excluded. The applications executed by Hill answer this questionnaire by listing the excluded positions, including in abbreviated form, one "delinquent tax collector." Prior to Santafemia, the position of Director of the Erie County Tax Claim Bureau was held by Jerry Robbins (January 7, 1976 to March 26, 1979) for whom the County had obtained separate coverage under a Public Official Bond. The Bond was issued by Pennsylvania National Mutual Casualty Insurance Company on March 29, 1976 under instructions from the Erie County Commissioners and described Robbins as a "delinquent tax collector." Continuation certificates were issued on January 19, 1977 and January 11, 1978. We note that during the time Robbins served as Director of the Tax Claim Bureau, according to his affidavit, the County Commissioners were his immediate supervisors. After the adoption of the Home Rule Charter which became effective January 1, 1978, the Director of Finance, Joseph Schmitt, became supervisor of the position.

American States denies coverage relying on the language of the fidelity bonds and the responses submitted by the County, through Hill, in the "application questionnaire." American States also contends that the County was independently aware that no coverage was provided under both Public Employee Blanket Bonds on the basis of two separate communications, one written and one oral, to County officials. In the first, Jerome A. Matuszak, Manager of Mattis & Robie, Inc. insurance agency stated in a letter to the County Director of Finance, Joseph Schmitt, on March 9, 1978 that "... neither your Bond ... or the Blanket Public Employees Bond provides indemnity for Tax Collectors.... Enclosed is the renewal certificate for Jerry Robbins Tax Collector Bond." In the second, Mr. Matuszak gave similar statements orally to County Council members at a work session in 1978 called to discuss the County's insurance coverage needs. According to Matuszak, in his affidavit, he warned Council members not to discontinue separate coverage under the Public Official Bond for Jerry Robbins because the Public Employees Blanket Bonds did not cover him in his duties as Director of the County Tax Claim Bureau.

For its part, Erie County contends that Ms. Santafemia was covered by the Public Employee Blanket Bonds. The County takes issue with the meaning of the language relied upon by American States to support an exclusion. It offers, by way of affidavit, the expert opinion of an insurance consultant who states that within the insurance industry, the phrase "... Tax Collector by whatever title known," as contained in the bonds, refers to elected tax collectors who obtain their own separate fidelity bonds and not to the appointed position of Director of the Tax Claim Bureau for which a separate fidelity bond is not required. While state law does not specifically require a bond for the Director of the Tax Claim Bureau nevertheless it provides that the:

"County Commissioners ... shall have the power to require the director of the bureau of the county, and such employees and assistants of the bureau, as may by them be designated, to give bonds to the Commonwealth for use of the taxing districts ... and for the use of any other person having a claim by reason of the act of such director ... conditioned for the faithful performance of the duties of their office ... and a strict accounting and payments over of all moneys collected or received by them under the provisions of this Act." 72 P.S. § 5860.203

The agent, Mr. Matuszak, who wrote the bonds now concurs in this position of the County despite prior assertions to the contrary.

The County objects to the use of the "application-questionnaire" documents in this proceeding because the applications were neither attached to the Bonds nor were copies provided Erie County. Pennsylvania statute provides that applications shall not be received in evidence in any controversy between the parties when not contained or otherwise attached to an insurance policy. 40 P.S. § 441. The County further contests the basis of the applications as executed by Councilman Hill. It relies on Article III of the Administrative Code of the County of Erie which provides that the purchase of insurance coverage was to be made by the County Executive or his designee, the Director of Purchasing, and not by any member of the Erie County Council.

Finally, the County disagrees with the contention that it was independently aware of any exclusion based on the written or oral communications from Jerome Matuszak. First, the County contends it has no record of the letter from Matuszak to Joseph Schmitt, and, second, a review of the minutes of County Council meetings fails to reveal any presentation made by Matuszak relating to County insurance needs.

As a prelude to our analysis we note that under the Local Tax Collection Law, tax collectors, as the term is often used, refers to those elected to the position for the various taxing districts throughout the County. These elected tax collectors are independent of the County of Erie and must provide their own surety bonds. 72 P.S. § 5511.4. It is undisputed that the Director of the County Tax Claim Bureau has never been officially titled either a tax collector or delinquent tax collector. But neither can it be disputed that the position occupied first by Jerry Robbins and then by Patricia Santafemia was commonly referred to as that of the delinquent tax collector. This is made clear both by the affidavit of Robbins to this effect and the legislative scheme of the Real Estate Tax Sale Law administered by the Director of the Tax Claim Bureau which law revised and consolidated the laws relating to delinquent taxes. 72 P.S. § 5860.101 et seq., 1947, July 7, P.L. 1368. It is also apparent that the County knew of the title for the position because the Public Official Bond purchased to provide separate coverage for Robbins explicitly described him as a "delinquent tax collector."

In resolving a dispute concerning the scope of coverage under fidelity bonds, we are guided by general contract principles in our efforts to discern the intent of the parties based on the written agreement between them. Fidelity bonds are a form of insurance subject to the rules applicable to insurance contracts generally. And if the words of an insurance policy contract are clear and unambiguous, they are to be given their plain and ordinary meaning. St. Paul Fire and Marine Ins. Co. v. United States Fire Insurance Co., 655 F.2d 521 (3d Cir.1981). The Court's duty is to ascertain the intent of the parties as manifested in the language of the agreement. Mohn v. American Cas. Co. of Reading, 458 Pa. 576, 326 A.2d 346 (1974). Moreover, the court should read such provisions to avoid ambiguities, if the plain language of the contract permits. Pennsylvania Manufacturers' Assoc. Ins. Co. v. Aetna Casualty & Surety Ins. Co., 426 Pa. 453, 457, 233 A.2d 548 (1967). The ambiguity of a written contract is a matter of law to be decided by the court. Clayman v....