Katz v. Aetna Cas. & Sur. Co.
| Decision Date | 06 August 1992 |
| Docket Number | No. 91-1498,91-1498 |
| Citation | 972 F.2d 53 |
| Parties | Harold KATZ and Ruth Katz, Appellants, v. AETNA CASUALTY & SURETY COMPANY. |
| Court | U.S. Court of Appeals — Third Circuit |
Edwin P. Smith (argued), Smith, McEldrew & Levenberg, Philadelphia, Pa., for appellants.
Warren L. Simpson, Jr. (argued), Rawle & Henderson, Philadelphia, Pa., for appellee.
Before: SCIRICA, ALITO and SEITZ, Circuit Judges.
In this diversity case, Harold and Ruth Katz allege that the Aetna Casualty and Surety Company intentionally concealed the existence of a liability policy issued by another insurance company, and that this concealment constituted a violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law and common law fraud. The district court granted summary judgment for Aetna. We will affirm in part and reverse in part.
Appellant Harold Katz was a passenger in a car being driven by Phyllis Appelbaum when an unknown motorist ran the car off the road. Katz was injured, and brought a negligence action against Appelbaum in the Philadelphia County Court of Common Pleas. At the time of the accident, Appelbaum owned two insurance policies: Aetna provided $100,000 in liability coverage and $100,000 in uninsured/underinsured ("UIM") coverage, while Allstate Insurance Company provided $1,000,000 in excess liability coverage. The Katzes had $600,000 in UIM coverage from Hartford Insurance Company.
During pre-trial preparation, the Katzes' attorney specifically asked an Aetna claims officer whether Appelbaum had excess coverage. The claims officer denied such coverage existed. 1 The Katzes then settled their claims against Appelbaum for the $100,000 liability limit of the Aetna policy, and the state action was closed.
The Katzes also sought UIM benefits from both Aetna and Hartford. These insurers agreed to joint arbitration in which Aetna's UIM coverage would be exhausted first. After two days of arbitration, Aetna told the Katzes about Appelbaum's $1,000,000 excess liability coverage from Allstate. The arbitration adjourned to allow the Katzes to reopen their state suit against Allstate. 2
After discovery and briefing, the common pleas judge granted the Katzes' petition to reopen the state suit, finding that: (1) Appelbaum notified Allstate one or two days after the accident, (2) Allstate knew of the Katzes' claim, (3) neither the Katzes nor their attorney knew of the Allstate policy when they settled with Aetna, (4) Allstate knew that the Katzes' attorney did not know of the Allstate policy, (5) Appelbaum knew that the Katzes neither knew nor had reason to know of the Allstate policy, and (6) Aetna knew of the Allstate policy.
The Katzes then filed this action in state court, claiming that Appelbaum, Aetna, and Allstate willfully, intentionally, and fraudulently concealed the Allstate policy and caused financial and emotional harm. Appelbaum and Allstate soon settled, and Aetna--the only remaining defendant--removed the suit to federal district court. Aetna then moved for summary judgment. Construing the Katzes' complaint to assert a claim under the Pennsylvania Unfair Trade Practices and Consumer Protection Law ("the CPL") and a common law claim for fraud and deceit, 3 the district court ruled the Katzes had no standing to sue under the CPL, and their common law claim was preempted by the Unfair Insurance Practices Act ("the UIPA"). This appeal followed. 4
In this appeal, the Katzes contend that summary judgment for Aetna was inappropriate because (1) they have standing under the CPL and (2) their common law fraud claim is viable apart from the UIPA. 5
The Pennsylvania Unfair Trade Practices and Consumer Protection Law provides a private cause of action to "[a]ny person who purchases or leases goods or services primarily for personal, family or household purposes and thereby suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment by any person of a method, act or practice declared unlawful" elsewhere in the statute. Pa.Stat.Ann. tit. 73, § 201-9.2(a) (Purdon Supp.1992) (emphasis added). The district court held that because the Katzes did not purchase the Aetna policy, they lacked standing to bring suit under the CPL. Nevertheless, the Katzes contend that they may still sue under the statute if they can prove that they were the intended beneficiaries of the policy. 6 We disagree. 7
As we have noted, the statute unambiguously permits only persons who have purchased or leased goods or services to sue. Pa.Stat.Ann. tit. 73, § 201-9.2(a) (Purdon Supp.1992). 8 The private cause of action is also limited to unfair or deceptive methods, acts, or practices in the conduct of any "trade or commerce," § 201-3, which is defined as "the advertising, offering for sale, sale or distribution of any services and any property." Id. § 201-2. Had the Pennsylvania legislature wanted to create a cause of action for those not involved in a sale or lease, it would have done so. 9
The Pennsylvania Supreme Court has never addressed the issue before us. Its only reported decision on the CPL supports the conclusion that a private plaintiff must at least have purchased or leased goods or services. In Commonwealth v. Monumental Properties, Inc., 459 Pa. 450, 329 A.2d 812 (1974), the Commonwealth of Pennsylvania alleged that certain landlords violated the CPL by using form leases that employed archaic and technical language, included unfair and deceptive provisions, and omitted certain notices to tenants. The Pennsylvania Supreme Court held that even though the CPL did not, at that time, specifically mention leases, 10 the statute covered unfair and deceptive practices related to the leasing of residential housing. The CPL, commented the court, was enacted to "place on more equal terms seller and consumer," to remedy "the unequal bargaining power of opposing forces in the marketplace," and to "ensure the fairness of market transactions." Id. at 816. The court also commented that the statute was "designed to equalize the market position and strength of the consumer vis-a-vis the seller." Id.
The Katzes conducted no transaction with Aetna that could fall under the CPL. They did not purchase or lease goods or services from Aetna or Appelbaum, § 201-9.2, or otherwise exchange consideration, nor were they the victims of unequal bargaining power. There was no commercial bargaining or exchange.
The Katzes, however, contend that the reasoning in Valley Forge Towers S. Condominium v. Ron-Ike Foam Insulators, Inc., 393 Pa.Super. 339, 574 A.2d 641 (1990), aff'd without opinion, 529 Pa. 512, 605 A.2d 798 (Pa.1992) (per curiam), supports their position. This contention is mistaken. In Valley Forge Towers, Ron-Ike Foam Insulators contracted to sell a roofing membrane manufactured by Mameco to a condominium association. The contract obligated Ron-Ike to install the roofing membrane, and stated that Mameco would provide the association with a ten-year warranty. Mameco manufactured the roof according to specifications in the contract between Ron-Ike and the association. Ron-Ike installed the roof and Mameco issued the warranty directly to the association, but two years later the roof began to leak. After trying unsuccessfully to get the roof repaired, the association sued both Ron-Ike and Mameco for breach of express and implied warranties, and for violation of the CPL. In preliminary objections, Mameco asserted that the association was not a "purchaser" under the CPL because it had not bought the roof from Mameco. The trial court agreed, holding that the association could not be a "purchaser" unless it were in strict privity with Mameco.
The Pennsylvania Superior Court reversed, holding that liability under the CPL extended to "those in privity, those specifically intended to rely upon the fraudulent conduct, and those whose reasonable reliance was specially foreseeable." 574 A.2d at 647. In light of this, the court held that the association's "purchase of the roof from Ron-Ike, which was warranted directly by Mameco, was a 'purchase' giving rise to liability on the part of Mameco ... for failure to honor its warranty, notwithstanding the absence of direct privity." Id. The statute, noted the court, was silent on the issue of privity. Although a claimant must be a person who makes a purchase for personal, family, or household purposes and suffers an ascertainable loss, there was no "express requirement that there be strict technical privity between the party suing and the party sued." Id. at 645. The court then turned to principles of statutory construction to help decide whether privity was an element of the statutory cause of action.
The legislative history of the CPL revealed its purpose was to "substantially enhance" the remedies available to consumers in cases of unfair or deceptive business practices. Id. at 646. In the court's view, this weighed heavily against any requirement that would "hinder the act's remedial effects, or provide a simple expedient for evasion of its force." Id. The court then noted that the privity defense had been eroded to the point where a third party plaintiff could sue a contractor for fraud when the plaintiff was "specifically intended" to rely on that conduct or when the reasonable reliance of such a third party was "specially foreseeable." Id. (citing Woodward v. Dietrich, 378 Pa.Super. 111, 548 A.2d 301 (1988)). This was true even under common law, at least in construction cases. Id. Finally, the court explained that if it were to require strict privity, disreputable contractors would be able to evade liability, leaving their reputable counterparts to pay outstanding judgments. Id. at 646-47.
The Katzes argue that a plaintiff who has not purchased or leased goods or services may nevertheless sue under the CPL if he was specifically intended to rely on a...
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