Edmondson v. Pennsylvania Nat. Mut. Cas. Ins. Co.

• Decision Date: 21 December 1989
• Docket Number: No. 88-SC-1008-DG,88-SC-1008-DG
• Citation: 781 S.W.2d 753
• Court: United States State Supreme Court — District of Kentucky
• Parties: Gary EDMONDSON and Edmondson, Condit & Calvert, a Partnership, Appellants, v. PENNSYLVANIA NATIONAL MUTUAL CASUALTY INSURANCE COMPANY, Appellee.

Page 753

781 S.W.2d 753

Gary EDMONDSON and Edmondson, Condit & Calvert, a Partnership, Appellants, v. PENNSYLVANIA NATIONAL MUTUAL CASUALTY INSURANCE COMPANY, Appellee.

No. 88-SC-1008-DG.

Supreme Court of Kentucky.

Dec. 21, 1989.

Edward H. Stopher, Raymond G. Smith, Louisville, for appellants.

Rodney S. Bryson, Covington, for appellee.

LEIBSON, Justice.

On November 5, 1983, Millie's Drapery Shop in Covington, Kentucky, was partially destroyed by a fire. Millie Raines, the owner, insured her drapery business in a policy with Pennsylvania National Mutual Casualty Insurance Company ("Pennsylvania National"). She retained her longtime attorney, Gary Edmondson of Edmondson, Condit & Calvert ("Edmondson") to handle her insurance claim.

As usual, the policy listed "Conditions Applicable To" coverage, including:

"15. Suit. No suit shall be brought on this policy unless the insured has complied with all the policy provisions and has commenced the suit within one year after the loss occurs."

After preliminary negotiations between Edmondson and Pennsylvania National, including a demand for a much higher figure, on May 30, 1984, Pennsylvania National wrote a letter to Edmondson stating, in pertinent part:

"This will also acknowledge the completed Proof of Loss forms,.... We are accepting these Proof of Losses, (3), in compliance with the policy conditions concerning the filing of the Proof of Loss. However, we expressly reject any and all statements contained in the said Proof of Losses, (3), with reference to the amount of sound value and the amount of loss. We expressly reserve all of our rights and defenses in connection with ascertainment as to the value and loss, if any, and we do not in any way, in acknowledging the receipt of this Proof of Loss, Waive any of the rights and Defenses which the Pennsylvania National Mutual Casualty Insurance Company possesses under its Policy # 515 03 6556-4."

Attached to this letter was a copy of a so-called "Statement of Loss," "outlining the loss and claim on the building" as the Insurance Company perceived it. This itemization, after "depreciation and the deductible" had a bottom line of $17,258.70. The letter continues:

"We are authorized to make a settlement on the Insureds claim for $17,258.70. We attach a Proof of Loss in this amount. If agreed upon, please have the Insured sign the Proof of Loss and have her signature notarized...."

The only response to this letter was a telephone call from Edmondson to the adjuster asking for a separation of damages; he was told to put his request in writing. The next correspondence was a letter from the adjuster to Edmondson, dated November 2, 1984, referring to the previous "offer to settle all claims in the total and net amount of $17,258.70," and then stating:

"Please be advised that the amount offered of $17,258.70, is the amount recognized as the extent of the Companies liability to your client,.... Any amount alleged or claimed in excess of the above amount is hereby totally rejected.

The Company requires full compliance with all terms and conditions of the policy. The Company reserves all rights and defenses of any and all nature that may be afforded under the terms and conditions of the contract."

There was no response from Edmondson until April 25, 1985, when Edmondson wrote a letter to the adjuster acknowledging the letter of November 2, 1984, and stating "[P]lease be advised that my client has agreed to settle for the $17,258.70."

Because the anniversary date of the loss had passed without settlement or suit, Pennsylvania National took the position it was no longer obligated to pay anything, and made no reply. Edmondson wrote a follow-up letter, and then, on June 27, 1985, the Home Office Claims Manager responded by referring Edmondson to "condition # 15 of the policy," stating that since it "has not been complied with, our file remains closed."

The insured, Millie Raines, thereupon employed a second attorney, and on November 5, 1985, she filed suit against Gary Edmondson, her former attorney, and his law firm, alleging he was responsible for her loss because he negligently permitted her action to become time barred by the period of limitation set out in the terms of her insurance policy. The defendants filed a Third Party Complaint against Pennsylvania National alleging the insurance carrier was obligated to cover the loss under its insurance policy, and, at the least, obligated to the extent of $17,258.70 because the offer was "never withdrawn or revoked" and was accepted by the letter dated April 25, 1985. The defendants, Edmondson and his law partners, then settled with Millie Raines by paying her loss in that amount, and moved for Summary Judgment on their claim for indemnification against Pennsylvania National.

The trial court sustained the Motion for Summary Judgment, holding that "the one-year clause operated to prevent plaintiff Raines from seeking any amount from Pennsylvania National in excess of the offered $17,258.70.... [H]owever, that expiration of the one-year did not entitle Pennsylvania National to refuse to pay this stated amount for which it already had conceded its liability."

The Court of Appeals reversed the Summary Judgment on procedural grounds, holding that "[i]t could very well be said that Penn National waived its protection under paragraph 15 when it admitted liability and offered to pay," but "Edmondson did not plead waiver or estoppel, thus we are left to consider only whether acceptance of Penn National's offer was made within one year."

We have accepted Discretionary Review, and, although we would reverse the Court of Appeals' holding that there was a fatal procedural defect, we agree with Pennsylvania National's position on the underlying substantive issue. Pennsylvania National has steadfastly maintained in its Answer, and throughout, that "any offer to settle ... was conditioned upon the acceptance of said offer within the terms and conditions of the insurance contract as explicitly set out, and that no acceptance of any kind was received from or on behalf of Ms. Raines by Mr. Edmondson or anyone else within the time allotted under the provisions of the contract of insurance." The issue here is whether under principles of waiver or estoppel the insurance carrier is precluded from asserting the contract period of limitations. We hold that in the circumstances of this case, it is not.

Waiver and estoppel, as applied to contracts of insurance, are terms often used interchangeably, but this obscures their meaning. As stated in Long, The Law of Liability Insurance, Sec. 17.14:

"Although the terms are misused and interchanged, there truly is a clear distinction between them. Waiver is bottomed on a voluntary and intentional relinquishment of a known, existing right or power under the terms of an insurance contract. It is the expression of an intent not to insist upon what the law affords. The intention may be inferred from conduct and knowledge and may be actual or constructive, but both intent and knowledge are essential elements of waiver....

Estoppel gives no effect to a presumed intention, but defeats inequitable conduct. It offsets misleading conduct, acts, or representations which have induced a person entitled to rely thereon to change his position to his detriment."

Thus, it is textbook law that a waiver must be intentional. It is quite evident from the correspondence on the behalf of the insurer that it did not intend to waive its contract limitations period of one year. In both letters extending offers of settlement, that of May 30, 1984 and November 2, 1984, the insurer is careful to specify that it expressly reserves all rights and defenses, waives no such rights and defenses as it possesses under its policy, and requires full compliance with all terms and conditions of the policy. It is quite evident that the insurer was aware suit on the claim would be time barred one year from the anniversary date of the loss and intended to retain the right to insist on that condition, although it may well be that the insured's attorney was uninformed on this matter. As stated in Long's textbook, supra, Sec. 17.04:

"The insurer may clearly waive...