Rich Maid Kitchens v. Pa. Lumbermens Mut. Ins. Co.
| Decision Date | 18 July 1986 |
| Docket Number | 85-0360.,Misc. No. 85-0359 |
| Citation | 641 F. Supp. 297 |
| Parties | RICH MAID KITCHENS, INC. v. PENNSYLVANIA LUMBERMENS MUTUAL INSURANCE COMPANY. RICH MAID KITCHENS, INC., Millcreek Kitchens, Inc. t/a Millcreek Cabinet Corp. and S.M.L. Leasing Company v. PENNSYLVANIA LUMBERMENS MUTUAL INS. CO. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
COPYRIGHT MATERIAL OMITTED
Karen Lee Turner, Reading, Pa., for plaintiffs.
Walter R. Milbourne, Philadelphia, Pa., for defendant.
This action arises from a dispute as to the amount of insurance coverage that was in effect when a fire destroyed the plaintiff's principal place of business. Two proceedings were commenced in state court to establish the amount of the insurance coverage. These two cases were removed to federal court1 and then consolidated. The defendant filed a motion to dismiss and both parties filed motions for partial summary judgment. After reviewing all of the documents in this case, I conclude that summary judgment should be granted in favor of the defendant insurance company in Count I, which involves the interpretation of the insurance policy. Also, the punitive damages claim in Count III (bad faith settlement of claim) and all of Count V (RICO) of the complaint will be dismissed.
The plaintiff, Rich Maid Kitchens, Inc. ("Rich Maid")2 is a Pennsylvania corporation and, prior to August, 1984, manufactured, sold and distributed kitchen cabinets. Rich Maid conducted their operations at five different locations, with their principal place of business at Route 422 in Wernersville, Berks County.
In the normal course of their business, Rich Maid obtained many types of insurance coverage. Mr. Russel Klotz handled most of Rich Maid's insurance needs, including its casualty and property insurance. When he died in 1972, his son, Richard Klotz, became Rich Maid's insurance agent. Depos. of C. Strickler at p. 4. Initially, Rich Maid's fire insurance had to be brokered out to between 12 and 15 companies because of a capacity problem. As of 1977, the defendant Pennsylvania Lumbermens Mutual Insurance Company ("Lumbermens") began to write a portion of the plaintiff's fire insurance policy. In 1981, Mr. Klotz consolidated the fire insurance coverage into one policy, which was written entirely by Lumbermens. Depos. of R. Klotz at p. 24.
When the plaintiff's fire insurance policy was first written, it provided for coverage based on a scheduled policy. Every insured item was given a monetary value and each item was only insured up to that specific amount. In June of 1981, the coverage was changed to a blanket insurance policy. This type of policy provided complete coverage for any losses on items included in the policy at one or several locations up to the amount of the policy. On May 20, 1983, Rich Maid renewed this insurance policy for another three year period.
Lumbermens wrote this blanket insurance policy with the words "PA. BLANKET" in the upper right hand corner of one of the pages of the policy. On the same page was a space for the identification of all property covered by the policy.3 The words "as per attached" were typed into this space. Stapled to this page of the policy was a small piece of paper with the following written on it:
LOCATION NO. AMOUNT
1. $2,000,000 S/S Route 422, East of Wernersville, Berks Co
Pa
2. 400,000 N/S of Fort Zeller Rd., Newmanstown, Lebanon
Co., Pa
3. 50,000 Rear of 890 Columbia Ave., Sinking Springs
Berks Co., Pa.
4. 500,000 N/S Route 422 K/A 633 W. Lincoln Ave., Myerstown,
Lebanon Co., Pa.
5. 2,500 On the Double-faced sign, approx. 15' × 15' with
eight (8) spot or flood lights, located S/S of
Route 422, Wernersville, Berks Co., Pa.
__________
$2,952,500
Average Fire Rate: .927
E.C. Rate: .077
VMM Rate: .009
All Risk Rate: .067
This list of locations identified all of the property which Rich Maid wanted the insurance policy to cover.
On January 21, 1984, a fire demolished Rich Maid's facility at Wernersville, PA. After the fire, all of the parties held a meeting and it was stated without objection that the policy provided 2 million dollars worth of coverage to the Wernersville facility.4 The defendant agreed that Rich Maid's policy covered the destroyed property. The defendant began to adjust the claim to determine the amount of the loss. At the request of Mr. Klotz, the insurance company made goodwill advance payments totaling 500,000 dollars to Rich Maid on their claim.
While the defendant was adjusting the claim, the plaintiff considered hiring an adjuster to help them negotiate the insurance claim. Bertram Horowitz, a partner in Young Adjustment Co., discussed his company's services with Rich Maid's officers. In the course of these discussions, Horowitz examined Rich Maid's insurance policy. He suggested that the policy could be interpreted as an overall blanket policy. If this was the interpretation, the insurance coverage applicable to the loss would be over 2.95 million dollars and not 2 million dollars. Depos. of B. Horowitz at p. 11-15. Thereafter, Rich Maid hired Young Adjustment Co. to act as its adjuster on a contingency basis.5
The extent of fire damage to the Wernersville facility was much greater than the 2 million dollar insurance coverage.6 Rich Maid's representative for the insurance claim, Mr. Horowitz, continually asserted in his negotiations that the coverage was an overall blanket policy of 2.95 million dollars. Lumbermens replied that the insurance policy was only a blanket per location policy and not an overall blanket policy.
According to Lumbermens, each location had blanket protection only up to the amount of coverage listed at that location and not for the total amount of coverage in the policy. The purpose of the amounts listed next to each location was to limit the liability at that location to that amount. The total policy amount of 2,952,500 dollars merely showed the total amount of the various blanket per location policies purchased by Rich Maid. For example, under this interpretation of the policy, any loss at location # 3 would be insured only up to 50,000 dollars.
However, if the policy was interpreted as an overall blanket policy as the plaintiff asserts, then any loss at any location, including location # 3, would be covered up to the policy limits of 2,952,500 dollars. According to the plaintiff's interpretation, the reason for the list of monetary amounts next to the various locations was to make sure that Rich Maid was fully insured so that the coinsurance clause would not take effect and limit Rich Maid's recovery. No agreement was reached on this issue and, according to the defendant, this unresolved problem required them to do a lot more work processing the claim before payment could be made.7
Due to financial difficulties, Rich Maid filed a bankruptcy petition on July 31, 1984 for protection under the Bankruptcy Act. On August 15, 1984, Lumbermens made a payment of 1.5 million dollars to Rich Maid. Coupled with the advance payment of one-half million dollars, Lumbermens paid the policy limit of 2 million dollars for the loss Rich Maid incurred in the Wernersville fire.
The litigation between these two parties began when Rich Maid brought an action on July 11, 1984 in the Berks County Court of Common Pleas. Two days later, Lumbermens filed a declaratory judgment action against Rich Maid in the Philadelphia Court of Common Pleas. After Rich Maid filed for bankruptcy, these two cases were removed by Rich Maid to this court pursuant to 28 U.S.C. § 1452(a). According to the local rules of the district, this case was immediately referred to the U.S. Bankruptcy Court for further proceedings. After Rich Maid demanded a jury trial on these issues, the case was transferred back to this court by a stipulation of both parties. Finally, in June of 1985, these two cases were consolidated so as to determine the rights and obligations of both parties under the insurance policy.
Rich Maid's complaint contains five separate allegations. Count I seeks a remedy in the form of a declaratory judgment as to the appropriate interpretation of the insurance policy. Count II is an action for breach of contract. Count III requests damages for the defendant's alleged bad faith in attempting to settle the policy. Count IV is an action for the violation of the Unfair Insurance Practices Act. Finally, Count V alleges a violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"). After Lumbermens moved for a dismissal of several of the plaintiff's claims, Rich Maid agreed to dismiss Count IV of the complaint. Both parties have now filed motions for partial summary judgment.
The standards of review to be applied in deciding cross motions for summary judgment are the same as those applied when only one party has filed a summary judgment motion. Selected Risks Insurance Co. v. Schwabenbauer, 540 F.Supp. 22, 24 (E.D.Pa.1982). Summary judgment is warranted only if there is no genuine issue of any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). See Manetas v. International Petroleum Carriers, Inc., 541 F.2d 408, 413 (3d Cir.1976). Since the material facts in the case are undisputed, I am called upon by the parties to decide the legal issues involved in this litigation.
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