Strickler v. Huffine

• Decision Date: 22 December 1992
• Citation: 421 Pa.Super. 463,618 A.2d 430
• Parties: Wade A. STRICKLER and Susan A. Strickler, His Wife v. James L. HUFFINE, Royal Insurance Company. Appeal of ROYAL INSURANCE COMPANY.
• Court: Pennsylvania Superior Court

Page 430

618 A.2d 430

421 Pa.Super. 463

Wade A. STRICKLER and Susan A. Strickler, His Wife v. James L. HUFFINE, Royal Insurance Company.

Appeal of ROYAL INSURANCE COMPANY.

Superior Court of Pennsylvania.

Argued Sept. 29, 1992.

Filed Dec. 22, 1992.

Dara A. Decourcy, Pittsburgh, for appellant.

Edward L. Russakoff, Pittsburgh, for Strickler, appellees.

Before ROWLEY, President Judge, and POPOVICH and CERCONE, JJ.

CERCONE, Judge:

This is a direct appeal from a civil judgment entered after an Allegheny County jury returned a verdict in favor of plaintiffs/appellees, Wade and Susan Strickler. We affirm.

Appellee Wade Strickler was injured in Fayette County on June 20, 1985 while riding as a passenger in an automobile driven by James L. Huffine. The binder of insurance which had been issued to Mr. Huffine by appellant Royal Insurance Company was cancelled effective July 28, 1985 because Mr. Huffine's license was under suspension at the time of his application. In a letter dated August 8, 1985, appellant received actual notice of the accident from appellees' counsel less than two months after its occurrence. Appellees subsequently initiated legal proceedings in Fayette County against Mr. Huffine. On October 14, 1985, Royal Insurance sent a letter to Mr. Huffine denying coverage. Thereafter, Mr. Huffine took no action to defend against the suit and the Stricklers received a default judgment on the question of liability on March 31, 1988. The Court of Common Pleas of Fayette County subsequently granted summary judgment versus Mr. Huffine in the amount of forty-three thousand five hundred dollars ($43,500) to the Stricklers. This appeal stems from an Allegheny County garnishment action filed by the Stricklers against Mr. Huffine and his insurance carrier, Royal Insurance Company, in an effort to collect the Fayette County damage award.

In January of 1989, the Stricklers served Royal Insurance Company (hereinafter "Royal") with garnishee interrogatories. Royal filed an Answer and New Matter in April of 1989. In essence, Royal denied any liability on its part and refused to satisfy the Fayette County judgment entered against Mr. Huffine. At trial, the Stricklers presented copies of the Fayette County court order granting summary judgment, and a stipulation by Royal that a contract for insurance with Mr. Huffine listed as the insured was in effect on the date of the accident. After the Stricklers rested, Royal moved for a compulsory non-suit. It was Royal's contention that the Stricklers had not established a prima facie case since they never demonstrated that Mr. Huffine had complied with all conditions precedent to insurance coverage. The trial court rejected this claim and denied the non-suit. Royal then presented its case in chief and motioned for a directed verdict. The trial judge refused to grant the motion and the jury ultimately returned a verdict in favor of the Stricklers. Royal filed post-trial motions which were also denied by the trial court. The Stricklers (hereinafter "appellees") praeciped for entry of judgment and the instant timely appeal by Royal Insurance Company followed. ¹

Appellant Royal has identified the following issues for our review:

I. Did appellees fail to satisfy their burden of production, in failing to offer evidence of the insured's [Mr. Huffine's] compliance with policy conditions sufficient to shift the burden to appellant to prove the insured's breach of policy conditions and resulting prejudice?

In the alternative, was the evidence insufficient to warrant submission of the issues to the jury, or was appellant entitled to a directed verdict where conclusive evidence of the insured's breach and resulting prejudice to the insurer was adduced?

II. Did the [trial] court abuse its discretion in excluding all evidence of defendant Huffine's misrepresentation in his application for insurance that he possessed a valid operator's license, and appellant's consequent cancellation of the binder issued to Huffine?

III. Did the [trial] court err in refusing to instruct the jury that [defendant Huffine's] conduct in permitting default judgment to be entered against him established prejudice to appellant?

IV. Did the [trial] court err in instructing the jury that when an insurer refuses coverage to the insured, the insured is no longer obligated to send the insurer suit papers, and in refusing appellant's request for instruction that the failure to forward suit papers, if prejudicial to the insurer, would release the insurer from its obligations under the contract?

We shall consider these claims seriatim.

The essence of appellant's first claim of error is that the trial court misapplied the precedential caselaw of this jurisdiction. To this end, appellant argues that it was irremediably prejudiced by the Fayette County default judgment which occurred because Mr. Huffine never notified appellant of either the accident or of the fact that the Stricklers filed suit as a result thereof. It appears to be appellant's theory that under the law of Pennsylvania, the Stricklers were responsible for proving that on the relevant date Mr. Huffine was covered by a policy of insurance issued by Royal and that Royal suffered no prejudice by its lack of notice of the litigation which occurred prior to the garnishment proceeding underlying this appeal. Although appellant Royal concedes that it had issued an insurance binder to Mr. Huffine which was effective on the date of the accident, Royal contends that coverage was never in effect for Mr. Huffine because he failed to pay the insurance premium when it came due. Royal also argues that it would not have issued an insurance policy in any event because Mr. Huffine allegedly made material misrepresentations on his application for insurance.

First, we find appellant's argument specious insofar as it relies on the contention that coverage was non-existent on the relevant date because a "binder" and not a policy of insurance was in effect. "It is the custom of the insurance industry, and sound public policy, to provide on-the-spot temporary insurance coverage in the form of a binder until the application information can be verified and a formal policy issued." Klopp v. Keystone Ins. Companies, 528 Pa. 1, 7 n. 5, 595 A.2d 1, 4 n. 5 (1991). It is well settled in Pennsylvania that a binder constitutes evidence that insurance coverage has attached at a specific time, and continues in effect until either the policy is issued or the risk is declined and notice thereof is given. Harris v. Sachse, 160 Pa.Super. 607, 612, 52 A.2d 375, 378 (1947). Accord Stevens v. Kemper Ins. Co., 384 Pa.Super. 263, 558 A.2d 113 (1989), allocatur denied, 523 Pa. 646, 567 A.2d 650 (1989). The validity of a binder is not dependent upon payment of the premium. Rossi v. Firemen's Ins. Co. of Newark, N.J., 310 Pa. 242, 251, 165 A. 16, 19 (1932); Harris v. Sachse, 160 Pa.Super. at 615-16, 52 A.2d at 380.

We note that in the 1991 case of Klopp v. Keystone Insurance Companies, supra, the Pennsylvania Supreme Court ruled that failure to disclose material information on an application for automobile insurance entitles the insurance company to the common law remedy of contract rescission if the carrier acts within the first sixty days after issuing a binder. Under such circumstances, the insurance binder is considered ineffective to trigger liability from its inception because contract law deems the coverage void ab initio rather than as of the date on which the denial of coverage letter was issued. Klopp explicitly held that a fraudulent policyholder is estopped from making personal claims arising out of the purported policy. However, concurring opinions filed by both Justice Larsen and Justice Cappy indicate that the rights of an innocent and injured third party were neither considered nor determined by Klopp. Both concurring opinions strongly imply that where an innocent third party is concerned, the Supreme Court might be disposed to hold the fraudulent policyholder's insurance carrier liable. A panel of the Superior Court was recently confronted with the issue left unresolved by Klopp, namely the precise rights of an innocent and injured third party against a carrier who has issued a binder of coverage because of material misrepresentations by the applicant for insurance. Shemory v. Keystone Insurance Company, 420 Pa.Super. 405, 616 A.2d 1036 (1992), filed November 24, 1992), holds that such a third party has no rights against the policyholder's carrier where rescission has been sought or the issuance of a policy has been denied within sixty days of the binder's issue date.

The outcome of the instant case is not controlled by either Klopp or Shemory, however. Royal sought neither cancellation nor rescission within the prescribed sixty day period. Although there is some dispute as to the effective date of the binder issued to Mr. Huffine, the certified record discloses that it was effective either on the 24th or 25th of April 1985. That the accident underlying the instant appeal occurred on June 20th, fifty-seven days into the binder period, is irrelevant. Royal did not attempt either to cancel the binder or seek rescission until July 28, 1985, well over sixty days after the binder's April effective date. Within the parameters defined by Klopp and explicated by Shemory, Royal Insurance Company failed to act on a timely basis to protect its rights and is therefore ineligible to receive common law rescission.

Further, we find no authority in support of appellant's contention that appellees were required to shoulder the burden of demonstrating either that the insured complied with the contractual notice provisions or that appellant remained unprejudiced by the insured's alleged failure to provide the required notice. The law of Pennsylvania is currently the exact converse of the point advanced by appellant's argument:

We therefore hold that where an insurance company seeks to...