Margolies v. State Farm Fire and Cas. Co.

• Decision Date: 22 December 1992
• Docket Number: Civ. A. No. 92-3607.
• Citation: 810 F. Supp. 637
• Parties: Leslie A. MARGOLIES and Linda B. Weinstein, Plaintiffs, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

810 F. Supp. 637

Leslie A. MARGOLIES and Linda B. Weinstein, Plaintiffs, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant.

Civ. A. No. 92-3607.

United States District Court, E.D. Pennsylvania.

December 22, 1992.

Mark R. Kehoe, Fitzpatrick and Tanker, Philadelphia, PA, for plaintiffs.

Joseph A. Dougherty, Britt, Hankins, Schaible & Moughan, Philadelphia, PA, for defendant.

OPINION

GAWTHROP, District Judge.

This case raises an interesting question in an area of frequent recurrence in this forum: divining the meaning of an insurance policy.

Plaintiffs sustained water damage to some personal property when their water heater broke, burst, or exploded on April 23, 1991. Plaintiffs filed a claim on their insurance policy with defendant. The parties were unable to agree on the amount of compensation to be paid by defendant to plaintiffs, and plaintiffs filed this diversity suit, Erie — bound to the law of Pennsylvania, on May 13, 1992. Plaintiffs allege three causes of action: breach of contract, bad faith, and violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law.

The policy itself was a hybrid fire and casualty insurance policy which covered various types of damage. The policy contained a provision purporting to limit the time for bringing actions on the policy to within one year of the time of the alleged loss. Before me now is defendant's motion to dismiss, in which defendant claims that plaintiffs' first two causes of action are barred since the suit was not begun within the one-year period, and that the third cause of action is barred because insurance claims do not come within the ambit of the Consumer Protection Law. Upon the following reasoning, I shall deny the motion.

Count 1: Breach of Contract

The question whether to dismiss the breach-of-contract claim turns on the validity and applicability of the limitations clause in the insurance policy. The Pennsylvania General Assembly has mandated that a one-year limitation-of-actions provision appear in all fire insurance policies, 40 P.S. § 636(2), and that a three-year limitations period appear in all casualty insurance policies. 40 P.S. § 753(A)(11). Thus, the validity and applicability of the limitations provision are dependent upon whether the particular damage here, the escape of steam and water from a water heater, was covered by fire insurance or casualty insurance. Does such damage fall within 40 P.S. § 382(b)(1), which defines the types of damage against which fire insurance companies may insure, or does it fall within 40 P.S. § 382(c)(8), which defines the types of damages against which casualty insurance companies may insure?

The language of § 382(b)(1) is rather all-encompassing, and it sets forth the interesting statutory paradox that fire insurance applies "whether fire ensue or not." The section reads in relevant part:

(b) Stock fire insurance companies may be incorporated ... for making insurances — (1) On dwelling houses, stores, and all kinds of buildings, and household furniture and other property, — against loss or damage, including loss of use or occupancy, by fire, smoke, smudge, lightning, and explosion, whether fire ensue or not, and by tornadoes, cyclones, windstorms, earthquakes, hail, frost, sleet, snow, or flood; against loss or damage by water to any goods or premises, arising from the breakage or leakage of sprinklers, pumps, or other apparatus erected for extinguishing fires, and of water pipes....

40 P.S. § 382 (emphasis supplied).

Section 382(c)(8), the casualty insurance provision, is in many ways similar to the fire insurance provision. However, it does include the language, "or of other conduits or containers," a clause notably missing from the fire insurance provision. That provision reads in relevant part:

(c) Stock casualty insurance companies may be incorporated ... (8) To insure any goods or premises against loss or damage by water or other fluid, caused by the breakage or leakage of sprinklers, pumps, or other apparatus erected for extinguishing fires, or of other conduits or containers, or of water pipes, or caused by casual water entering through leaks or openings in buildings; and against accidental injury, from causes other than fire or lightning, to such sprinklers, pumps, water pipes, conduits, containers, or other apparatus....

40 P.S. § 382 (emphasis supplied).

In construing a statute, I am mindful that words and phrases "shall be construed according to rules of grammar and according to their common and approved usage; but technical words and phrases and such others as have acquired a particular and appropriate meaning or are defined in this part (the Statutory Construction Act), shall be construed according to such peculiar and appropriate meaning or definition". 1 Pa.C.S. § 1903(a). Looking at what allegedly happened to precipitate the damage in this case in the context of the common and approved usage of words and phrases, the precipitating incident seems to fall more readily into the casualty provision than the fire provision. I so conclude even though the fire damage provision expressly states that it need not involve fire. "Casualty" is defined as "an accident, especially one involving serious injury or loss of life." American Heritage Dictionary of the English Language (3d ed. 1992). Thus, it would seem to encompass a more generic concept than "fire," which, prima facie, tends to refer to matters incendiary.

Further, the statutory language referring to "loss or damage by water or other fluid, caused by the breakage or leakage ... of other conduits or containers, or of water pipes ...," viewed in the context of its common and approved usage, seems to place the chain of events in this case¹ within the concept of "casualty" insurance.

This conclusion is strengthened when contemplating the fundamental contractual rule that ambiguities in insurance policies are to be construed against the insurer. Standard Venetian Blind Co. v. American Empire Ins. Co., 503 Pa. 300, 469 A.2d 563 (1983). As the Pennsylvania Supreme Court has stated, "An insurance contract is not a negotiated agreement; rather its conditions are by and large dictated by the insurance company to the insured." Brakeman v. Potomac Ins. Co., 472 Pa. 66, 371 A.2d 193 (1977). Fire insurance policies are to contain a one-year statute of limitations, while casualty insurance policies are to contain a three-year statute of limitations. To permit an insurance company to have mutually encompassing definitions, and then to permit it unilaterally to choose the definition into which it wishes to place a particular type of damage, would be to inappropriately construe the statute in favor of the insurer, since the insurer would, no doubt, always choose to apply the shorter limitations period.

Further, I am mindful that a constructional polestar is to read the statute so as to ascertain and effectuate the intention of the General Assembly. 1 Pa.C.S. § 1921(a). The language, "or of other conduits or containers," was added to § 382(c)(8) in a 1937 amendment. Before that amendment, §§ 382(b)(1) and 382(c)(8) were even more similar. Clearly, the legislature intended to add some kind of water damage to the definition of casualty insurance, and not to add that kind of damage to the definition of fire insurance. I find the damage in this case to be of the kind the legislature had in mind when it wrote the 1937 amendment. To read the statute other than the way I do here would be to ignore the amendment.

So also, the Statutory Construction Act reminds me that the General Assembly did not intend that a statute be construed so as to reach a result that is absurd or unreasonable. 1 Pa.C.S. § 1922(1). To construe the departure of liquid and steam from a water heater², sans fire, as constituting fire damage rather than casualty damage, would be to run afoul of both logic and language, as well as common sense.

Defendant relies on Boughman v. Travelers Indem. Co., 62 Pa.D. & C.2d 635 (1973) for the proposition that damage from an "explosion" is encompassed by the definition of fire insurance rather than casualty insurance. However, Boughman involved explosions which occurred during blasting operations, rather than water damage resulting from the "breakage or leakage ... of other conduits or containers," to use the language of § 382(c)(8), which this case involves.

In addition, I recognize that there are numerous cases standing for the proposition that parties are free to contract as they wish, and that a contracted-for limitations period shorter than the period provided by statute will usually be enforced if the limitations provision is reasonable. See, e.g., Marshall v. Aetna Casualty & Sur. Co., 643 F.2d 151 (3d Cir.1981); Lardas v. Underwriters Ins. Co., 426 Pa. 47, 231 A.2d 740 (1962). But defense counsel has not pointed out, nor has this court's research discovered, any cases holding that an insurance company can contractually override the statutorily mandated limitations provisions of 40 Pa.S. § 753(A)(11).

The cases on which defendant relies are distinguishable. In Schreiber v. Pennsylvania Lumberman's Mut. Ins. Co., 498 Pa. 21, 444 A.2d 647 (1982), the court held that a one-year limitations provision in a fire insurance policy barred a suit filed by plaintiffs some 26 months after their internal heater exploded. Apparently, both parties agreed that the policy in question was a fire insurance policy, and the court relied primarily on the legislatively mandated limitations provision of 40 P.S. § 636(2) in reaching its conclusion. "Such a statutory requirement can hardly be determined a `contract of adhesion,' imposed unfairly by the stronger party upon the weaker. Rather, it represents a legislative determination of a reasonable period within which suits must be brought." Schreiber, 444 A.2d at 647. While defendant asserts that the nature of the damage in Schreiber is similar to the damage here, the Schreiber court...