A.G. Allebach, Inc. v. Hurley

• Citation: 373 Pa.Super. 41,540 A.2d 289
• Parties: A.G. ALLEBACH, INC., Appellant, v. Joseph W. HURLEY and Norfolk Dedham Mutual Fire Insurance Company and Utica Mutual Insurance Co.
• Decision Date: 04 April 1988
• Court: Superior Court of Pennsylvania

Page 289

540 A.2d 289

373 Pa.Super. 41

A.G. ALLEBACH, INC., Appellant, v. Joseph W. HURLEY and Norfolk Dedham Mutual Fire Insurance

Company and Utica Mutual Insurance Co.

Superior Court of Pennsylvania.

Argued Feb. 9, 1988.

Filed April 4, 1988.

Philip D. Weiss, Norristown, for appellant.

Margaret S. Lurio, Philadelphia, for Utica, appellee.

Before CIRILLO, President Judge, and TAMILIA and HESTER, JJ.

CIRILLO, President Judge:

This is an appeal from an order of the Montgomery County Court of Common Pleas of March 10, 1987, denying the post-trial motions of A. G. Allebach, Inc. (Allebach), and entering judgment for Utica Mutual Insurance Company (Utica). Because we find that appellant Allebach's arguments are without merit, we affirm the order of the trial court.

This case arises from an insurance policy sold by Joseph W. Hurley, an insurance agent, to Allebach, a company in the business of selling and repairing heavy vehicles. The policy purported to cover Allebach for losses due to fire. Allebach at that time rented the building that it occupied. A fire damaged the rented building, vehicles that were in the process of undergoing repairs, and Allebach's own property. Allebach then discovered that its insurance policy did not cover its liability to the owner of the rented building or to the owners of the vehicles undergoing repairs, and that the policy did not cover damage to certain of its own property or business interruption.

On June 3, 1974, Allebach notified Hurley by letter that a suit would be brought against him. On July 25th of that year, Hurley applied to Utica for an errors and omissions policy. The policy application contained a question which specifically asked whether or not the applicant knew of any circumstances or allegations which "may result in any claim being made against the agency, the predecessors in business or any present or past partners[.]" If the applicant answered "yes" to this question, the application required that a statement of complete details be appended to it. Hurley answered this question in the negative on one application, and did not answer it at all on a second. A provision of the policy stated that all questions had to be answered, and that any question left blank would be deemed to have been answered in the negative. Based upon Hurley's representations, Utica issued a claims-made policy to him which was to run from July 29, 1974, to July 29, 1975.

On September 11, 1974, Allebach filed its first complaint against Hurley claiming that Hurley had failed to provide it with adequate insurance coverage. That complaint was dismissed without prejudice because damages had not yet accrued. A second complaint which included damages was filed and later amended to allege additional damages. On June 23, 1975, Hurley contacted Utica and asked to renew his policy. Despite the fact that two complaints had been filed against him, he again answered the question in the application concerning the existence of claims being made in the negative. The policy was renewed on the basis of his representations.

Notice of the impending law suit was given to Utica by Hurley's co-defendant on May 24th of 1976. Hurley again attempted to renew his policy in June of 1976, and this time made mention of the claim against him. Utica decided to rescind Hurley's policy because of the past misrepresentations on his part, and returned with interest all the premiums he had paid since the policy's inception. Utica notified Hurley that it would neither indemnify nor defend him in the law suit. At that point, Hurley reached a settlement with Allebach, assigning to Allebach whatever rights he had against Utica in return for Allebach's agreement not to enforce the judgment entered against him.

Allebach then instituted garnishment proceedings against Utica. The issue of whether or not recision of the policy was proper was submitted to the trial court by counsel on an agreed statement of facts. A verdict was entered for Utica. Allebach's post-trial motions were denied, and it appealed to this court.

Allebach makes four arguments on appeal. Firstly, it claims that the trial court erred in finding that an insurer could rely on the recision of the errors and admissions policy to defeat Allebach's rights in a garnishment claim. Secondly, Allebach argues that the trial court erred in finding that the claim was not made during the policy period and adequate notice had not been given to the insurer, Utica. Thirdly, Allebach argues that it was error for the trial court to hold that Utica's claim that Hurley misrepresented material facts when applying for the policy was effective against it. Lastly, Allebach claims that the trial court erred in finding that an agreed verdict was not binding upon Utica.

In examining an appeal from a judgment entered in a non-jury trial, the findings of the trial court are accorded the same weight and effect as the verdict of a jury, and will not be reversed absent an abuse of discretion or a finding that the evidence does not support the verdict. We, as the appellate court are limited to a determination of whether or not the trial court's findings are supported by competent evidence and whether the trial court erred as a matter of law. Further, the evidence must be viewed in the light most favorable to the verdict winner; all the evidence and inferences favorable to him are taken as true, and all the unfavorable inferences rejected. Brenna v. Nationwide Insurance Co., 294 Pa.Super. 564, 567-68, 440 A.2d 609, 611 (1982). We find that, viewing the evidence in the light most favorable to the verdict winner, along with the favorable inferences that may be reasonably drawn from that evidence, the evidence supported the trial court's finding that recision of the policy was proper in this case, as the insured made material misrepresentations in the policy application.

Allebach complains that allowing Utica to employ all the defenses against it in a garnishment action that Utica would have been able to command in an action against it by Hurley places it on the horns of a great dilemma. According to Allebach, garnishment is its only recourse, since it is unable to bring a direct cause of action against the insurer under Pennsylvania case law and 40 P.S. § 117. If it elects a garnishment action, however, it is precluded from recovering in circumstances where Utica is allowed to raise the defense of misrepresentation as it could have done against Hurley. Allebach claims that the law does not permit it to be placed in such a position because the insurer bears the burden of proving a policy defense, and because of an exception to the rule that the judgment creditor stands in the shoes of the judgment debtor.

Allebach argues that the case of Jamison v. Miracle Mile Rambler, Inc., 536 F.2d 560 (3rd Cir.1976), supports its claim that the law will not allow the garnishee to use defenses against it that could be raised against the first creditor where fraud is present. We do not find this argument persuasive. In Jamison, the verdict winner attempted to garnish a claim owed the insured by the insurer after the insurer and the insured had already settled the claim. The argument was made that since the insured had already settled with the insurer, and the court had dismissed the action with prejudice, the insured was bound by res judicata and precluded from relitigating its claim against the insurer, as was the verdict winner, who was, in effect, the assignee. The verdict winner argued that an exception to the rule set out in Folmar v. Shaffer, 232 Pa.Super. 22, 332 A.2d 821 (1974) should apply. Under Pennsylvania law, an assignee's rights are not extinguished where the assignor has acted fraudulently. Id. at 25, 332 A.2d at 823. The Third Circuit Court of Appeals held that the verdict winner had presented uncontradicted evidence that the insured was hopelessly insolvent at the time of the settlement. The court pointed out that in Pennsylvania, a conveyance is fraudulent when an insolvent conveys property for less than fair consideration. According to the court, the settlement of the claim for less than the amount it was worth was analogous to a fraudulent conveyance. Jamison, 536 F.2d at 565.

Allebach attempts to argue that the return of the premiums to Hurley was a fraudulent conveyance similar to that in the Jamison case. Allebach's argument is specious, and ignores the facts as set out in that case. No similarity exists between the return of premiums by the insurer upon the realization that the insured had misrepresented himself in the application, and the uncontradicted deposition testimony in Jamison that the insured was insolvent and attempted to settle a suit for less than it was worth. The actions in the Jamison case fit into the definition of fraudulent conveyance as set out in that case, the return of premiums here do not. Further, the verdict winner in that case was able to set out evidence tending to show fraud on the part of the insurer and insured. Allebach was unable to allege any such evidence here. The mere recision of a policy which has been issued to the insured upon the basis of material misrepresentations does not rise to the level of fraud.

This court has held that where no policy clause or statutory provision allows suit by a third party against an insurer, the remedy available to the third party is to issue an attachment execution, naming the insurer as the garnishee. See Ferguson v. Manufacturers' Casualty Insurance Co., 129 Pa.Super. 276, 280, 195 A. 661, 663 (1938). We have found no case, nor does Allebach cite any to us, to support its claim that in such an instance the ordinary laws of garnishment would not apply. Allebach has chosen its theory of recovery, and must abide by the case law governing that theory.

We do not fully understand Allebach's argument that because the insurer bears the burden of proving its policy defense, Allebach is precluded from...