Koken v. Reliance Ins. Co.

• Decision Date: 20 March 2006
• Citation: 893 A.2d 70
• Court: Pennsylvania Supreme Court
• Parties: M. Diane KOKEN, Insurance Commissioner of the Commonwealth of Pennsylvania, v. RELIANCE INSURANCE COMPANY, Vitas Healthcare Corporation, Vitas Holding Corp., Vitas Healthcare of Texas, L.P., Magellan Reinsurance Company, Ltd., RBH Reinsurance Ltd., Cleanese Americas Corp., Elmwood Insurance Ltd., Clewood Insurance Company, Citicorp Insurance USA, Citicorp, Clients Assurance Pool, Ltd., and CSX Insurance Co., Intervenors Appeal of Mawson & Mawson, Inc.

Page 70

893 A.2d 70

M. Diane KOKEN, Insurance Commissioner of the Commonwealth of Pennsylvania, v. RELIANCE INSURANCE COMPANY, Vitas Healthcare Corporation, Vitas Holding Corp., Vitas Healthcare of Texas, L.P., Magellan Reinsurance Company, Ltd., RBH Reinsurance Ltd., Cleanese Americas Corp., Elmwood Insurance Ltd., Clewood Insurance Company, Citicorp Insurance USA, Citicorp, Clients Assurance Pool, Ltd., and CSX Insurance Co., Intervenors

Appeal of Mawson & Mawson, Inc.

Supreme Court of Pennsylvania.

Argued November 30, 2004.

Decided March 20, 2006.

Stephen C. Baker, John B. Dempsey, Philadelphia, for Mawson & Mawson, Inc., appellant.

Hillary C, Steinberg, Jeffrey B. Rotwitt, James Michael Matour, Philadelphia, for Reliance Ins. Co., appellee.

Joshua Philip Broudy, James B. Dilsheimer, Daniel H. Wheeler, Ann Eun Kim, Eric Jonathan, Rothschild, Anthony Vidovich, Richard P. McElroy, Ann B. Laupheimer, G. Craig Lord, Kit Applegate, Jerome R. Richter, Alan Gershenson, Roger F. Cox. Deborah Fuchs Cohen, Christopher A. Lewis, Philadelphia, Lynne E. Fitzwater, Harrisburg, for Ins. Com'r of PA, appellee.

Lisa Luborsky, Philadelphia, for Pa. Property & Cas. Ins. Guar. Ass'n., intervenor.

Robert A. Kauffman, Harleysville, Elizabeth C.F. Abrams, Philadelphia, Michael L. Browne, for Vitas Healthcare Corp., intervenor.

Paul Kevin Brobson, for Magellan Reinsurance Co. Ltd., RBH Reinsurance, Ltd., intervenors.

Joseph James Bellew, Jay M. Levin, Paoli, for Clients Assur. Pool, Ltd., intervenor.

Carl Robert Shultz, for CXS Ins. Co., intervenor.

Francis P. Newell, Philadelphia, for Celanese Americas Corp., Cellwood Ins. Co., Elwood Ins. Ltd., intervenors.

Diane Marie Takarsky, James William Kutz, Kimberly Marie Colonna, Harrisburg, for Earth Tech, Inc, intervenor.

Mark Jason Dorval, David Carl Franceski, for Citicorp North America, Inc., amicus curiae.

BEFORE: CAPPY, C.J., CASTILLE, NIGRO, NEWMAN, SAYLOR, EAKIN and BAER, JJ.

OPINION

Justice CASTILLE.

This is a direct appeal from a single-judge Commonwealth Court order that denied the petition of appellant Mawson & Mawson, Inc. ("Mawson") to enforce a third party proof of claim ("POC") and its attendant release, and allowed third party claimant Richard Ruhl to withdraw the POC. The question before this Court is whether and when such a third party POC, filed in response to an insurance company's liquidation, may be withdrawn. For the following reasons, we find that the Commonwealth Court erred, and accordingly, we reverse and remand for proceedings consistent with this Opinion.

On June 30, 1997, a truck owned by Mawson collided with an automobile driven by Ruhl on Interstate 81 in Lackawanna County, Pennsylvania.¹ At the time of the accident, Mawson had $1,000,000 in primary insurance coverage through Reliance Insurance Company ("Reliance") and $10,000,000 in excess insurance coverage through Federated Insurance Company ("Federated"). On August 24, 1998, Ruhl filed a personal injury action against Mawson in the Court of Common Pleas of Lackawanna County. Upon receipt of Ruhl's complaint, Mawson notified Reliance and Reliance provided counsel to defend the action. During the course of discovery, Mawson revealed that its primary automobile insurance carrier was Reliance, but did not disclose its excess insurance coverage through Federated.

On May 29, 2001, the Commonwealth Court entered an order appointing the Insurance Commissioner for the Commonwealth of Pennsylvania to serve as Rehabilitator of Reliance pursuant to Article V, Section 221.15 of the Pennsylvania Insurance Department Act (the "Act"), 40 P.S. §§ 221.1-221.63.² The order placed all of Reliance's assets under the control of the Insurance Commissioner and the Commonwealth Court. On October 3, 2001, the Commonwealth Court declared Reliance insolvent,³ terminated rehabilitation, and placed it into liquidation,⁴ with the Insurance Commissioner appointed as Statutory Liquidator (hereinafter, "Liquidator").⁵ On January 15, 2002, the Liquidator notified all interested parties via United States mail of Reliance's liquidation. The notice packet included instructions which advised all potential claimants against Reliance, including third party claimants like Ruhl, of their right to pursue their claims in the liquidation proceedings. Potential claimants were advised that, to pursue their causes in liquidation, they were required to file the enclosed POC form. The notice further provided:

You are a third party claimant if you have a claim against a Reliance insured, which may be covered by the insured's insurance policy. You may either file a claim with the Statutory Liquidator or pursue legal action against the insured to recover your claim. If you file a claim with the Liquidator, filing of the claim shall operate as a release of the insured's liability to you on that cause of action in the amount of applicable policy limits. If coverage of the claim is avoided by the Liquidator, this release will become null and void.

On January 25, 2002, Ruhl promptly filed a POC, which the Liquidator accepted on January 29, 2002. Ruhl's POC contained the following release of Mawson up to Reliance's policy limits:

If the foregoing Proof of Claim alleges a claim against a Reliance Insured (third party claim), the undersigned hereby releases any and all claims which have been or could be made against such Reliance Insured based on or arising out of the facts supporting the above Proof of Claim up to the amount of the applicable policy limit and subject to coverage being accepted by the Liquidator, regardless of whether any compensation is actually paid to the undersigned.

The notice and release are consistent with the provisions of Section 221.40(a) of the Act, which addresses third party claims in liquidation, and the effect of such claims, as follows:

Whenever any third party asserts a cause of action against an insured of an insurer in liquidation the third party may file a claim with the liquidator. The filing of the claim shall operate as a release of the insured's liability to the third party on that cause of action in the amount of the applicable policy limit, but the liquidator shall also insert in any form used for the filing of third party claims appropriate language to constitute such a release. The release shall be null and void if the insurance coverage is avoided by the liquidator.

40 P.S. § 221.40(a).

Notwithstanding Ruhl's filing of the POC, neither Ruhl nor Mawson sought to stay the pending Common Pleas Court litigation in the tort action and discovery continued in that case. Meanwhile, the Liquidator notified the Pennsylvania Property and Casualty Insurance Guaranty Association ("PPCIGA") that a POC was filed, and Ruhl's claim was transferred to PPCIGA.⁶ In January 2002, Ruhl received notice of PPCIGA's involvement. On November 14, 2002, PPCIGA notified Mawson that it had received the claim and advised it to retain independent counsel to protect its exposure in the underlying tort action because a jury award would likely exceed PPCIGA's $300,000 statutory limit.

On November 27, 2002, one business day before trial in the tort action, PPCIGA tendered its $300,000 limit, less statutory offsets, to Ruhl⁷ and advised Mawson that PPCIGA would no longer defend Mawson.⁸ Mawson retained current counsel, who obtained a continuance of the trial until January 22, 2003, so that Mawson could evaluate the case and obtain trial counsel.

In the interim, on December 6, 2002, Reliance informed Mawson that (1) Ruhl had filed a POC in January 2002, and (2) under the POC's release provision, it had no direct liability to Ruhl. Mawson then obtained a copy of Ruhl's POC. Mawson contacted Ruhl on December 9, 2002 requesting a written agreement that Ruhl would not attempt to enforce any judgment against Mawson unless and until Mawson's primary and excess insurance coverage had been exhausted. Ruhl requested a copy of the POC he had executed, which Mawson faxed to him the same day. In a letter dated December 10, 2002, Ruhl then advised Mawson that he had contacted Reliance on December 9, 2002, and withdrawn his POC prior to coverage being "accepted by the Liquidator," and further informed Mawson of a deposition to be taken in the tort action. On December 13, 2002, the Liquidator informed Ruhl that the POC was designated as "inactive," and was again advised of the third party claims release provision set forth in Section 221.40(a).

On January 9, 2003,⁹ Mawson initiated the instant action by filing a petition to enforce Ruhl's POC with the Commonwealth Court, noting that it was covered under both a Reliance insurance policy and a Federated excess insurance policy.¹⁰ Mawson argued that, under the clear language of Section 221.40(a) of the Act, Ruhl's filing of the POC abrogated Mawson's exposure up to its Reliance policy limits. Mawson also amended its answer in the tort action to add the affirmative defense of release. In response to Mawson's petition to the Commonwealth Court, Ruhl filed preliminary objections on January 16, 2003, asserting that he had withdrawn his POC on December 9, 2002, before it was accepted by the Liquidator.

Thereafter, Federated agreed to assume Mawson's defense in the tort action under its excess policy. On January 24, 2003, following a jury trial, the jury returned a verdict and award of damages in favor of Ruhl in the amount of $367,770. Ruhl then filed a motion for delay damages in the amount of $105,343.43.

On February 14, 2003, the Commonwealth Court dismissed both Mawson's petition to enforce the POC as well as Ruhl's preliminary objections. Inexplicably, following this dismissal, Mawson filed an affidavit in connection with his petition to enforce on February 19, 2003, and Ruhl filed an answer to the petition to enforce on February 20, 2003.¹¹ In his answer, Ruhl alleged for the first time that Mawson had failed to disclose its $10,000,000 excess insurance policy with Federated, and h...