Preferred Contractors Ins. Co. v. Sherman

J-A09033-18

2018 PA Super 215

PREFERRED CONTRACTORS : IN THE SUPERIOR COURT OF

INSURANCE COMPANY, RRG, LLC : PENNSYLVANIA

:

Appellant :

:

:

v. :

:

: No. 1260 WDA 2017

MICHAEL SHERMAN D/B/A :

SHERMAN WOODCRAFT; AND KIRK :

WILLIAMS; AND JNJ HOLDINGS, :

LLC; AND RICHARD J. FRISCHOLZ, :

JR., ADMINISTRATOR OF THE :

ESTATE OF BRETT FRISCHOLZ, :

DECEASED, AS RECIPIENT OF AN :

ASSIGNMENT FOR THE RIGHTS OF :

MICHAEL SHERMAN D/B/A :

SHERMAN WOODCRAFT, AND IN :

HIS OWN RIGHT AND PREFERRED :

CONTRACTORS INSURANCE :

COMPANY, RRG, LLC :

v. :

:

:

JOHN M. BROWN INSURANCE :

AGENCY, INC. :

Appeal from the Judgment Entered August 17, 2017

In the Court of Common Pleas of Allegheny County Civil Division at

No(s): GD. No. 12-020228

BEFORE: BOWES, J., DUBOW, J., and MURRAY, J.

OPINION BY MURRAY, J.: FILED JULY 24, 2018

Preferred Contractors Insurance Company, RRG, LLC (PCIC) appeals

from the order denying its motion for summary judgment and granting the

motions for summary judgment of defendants Michael Sherman d/b/a

Sherman Woodcraft (Sherman), Kirk Williams (Williams), JNJ Holdings, LLC

J-A09033-18

(JNJ), Richard J. Frischolz, Jr., Administrator of the Estate of Brett Frischolz,

and the John M. Brown Insurance Agency, Inc. (Brown Agency). After careful

consideration, we affirm in part and vacate in part, and remand for further

proceedings consistent with this decision.

We summarize the relevant facts and procedural history of this case as

follows. Sherman is a general contractor who engages in home renovation.

On occasion, Sherman’s contracting business has involved renovating

residential roofs. In early 2011, Sherman orally agreed to work with Williams

on renovating a residential property located at 94 Estella Avenue in the Mount

Washington neighborhood of the City of Pittsburgh (Estella Avenue Project).

In preparation for this project, Sherman, originally from California,

obtained his Pennsylvania Contractor License and enlisted the help of his wife,

Kylee Sherman (Kylee), to help him procure a general liability insurance

policy. In April 2011, Kylee filled out an online form with the Brown Agency,

an Illinois insurance broker, seeking a quote for a general liability insurance

policy. On May 20, 2011, Arturo Coronel (Coronel), a representative of the

Brown Agency, contacted Kylee to discuss potential insurance policies. Based

on this conversation, Coronel chose PCIC to be the insurer for Sherman’s

general liability policy (Policy) and assisted Sherman in completing an

insurance application. The same day, Coronel emailed Sherman a certificate

of insurance, which confirmed the binding of coverage with PCIC. At no point

prior to the binding of coverage did Sherman inform PCIC that he engaged in

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roofing work. Although Sherman later allegedly completed a revised

application, PCIC claimed that it never received the revised version.

Importantly, after the binding coverage and prior to the events giving

rise to this lawsuit, PCIC never sent a copy of the Policy directly to Sherman.

Instead, PCIC uploaded the Policy to a shared electronic database to which

the Brown Agency had access so that the agency could forward the terms of

the Policy to Sherman.

After PCIC bound coverage on the Policy, Sherman signed a contract

with JNJ, a company owned by Williams, to perform contracting work on the

Estella Avenue Project. The contract indicated that the scope of the work for

the project included roofing, electrical, plumbing, HVAC, windows, framing,

drywall, external fascia, gutters, kitchen, bathrooms, painting, flooring, and

decking. As the Estella Avenue Project progressed, Sherman and Williams

realized that they would be unable to complete the project without

subcontracting the roofing work. While attempting to secure a subcontractor

to remove and replace the existing roof, Williams became concerned with the

high cost of the quotes that he and Sherman had received. Consequently,

Sherman and Williams agreed that Sherman would remove the existing roof

and limit the subcontractor’s work to constructing the new roof.

In the time leading up to the subcontractor beginning work on the roof,

Sherman and Brett Frischolz (Frischolz), a college student Williams allegedly

hired to assist Sherman with work on the Estella Project, began tearing out

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the shingles of the existing roof. On the morning of August 4, 2011, Sherman

and Frischolz were nearing completion of their work removing the existing

roof. During the course of that morning, Sherman asked Frischolz to help him

adjust the placement of plywood that the two had earlier situated against the

neighboring home. Sherman and Frischolz had erected these protective

plywood panels, in part, to prevent falling roof debris from damaging the

neighboring home given its close proximity to 94 Estella Avenue. In order to

move the protective panels, Sherman and Frischolz had to access a scaffold

from a second-floor window that was approximately 20 feet off the ground.

When Frischolz stepped on the scaffolding to move one of the protective

panels, he stepped on a wood plank that Sherman had failed to anchor to the

metal poles of the scaffold. The wood plank tipped suddenly and Frischolz fell

headfirst approximately 20 feet to the ground. Frischolz sustained

catastrophic brain injuries and died eight days later.

On October 18, 2011, Richard J. Frischolz, Jr., Administrator of the

Estate of Brett Frischolz (the Estate), filed a wrongful death action against

Sherman, Williams, and JNJ. On November 10, 2011, PCIC issued a

reservation of rights letter in which it informed Sherman that it would provide

him with a defense and indemnification in the wrongful death action subject

to a determination of whether it owed him coverage. In 2012, the Estate

reached a settlement agreement with Williams and JNJ.

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On October 22, 2012, PCIC filed a complaint pursuant to the Declaratory

Judgment Act, 42 Pa.C.S.A. § 7531, et seq., in which it sought, inter alia, a

declaration of rights under the Policy and a determination of whether it had a

duty to indemnify Sherman in the wrongful death action brought against him

by the Estate. PCIC alleged, inter alia, that it did not owe Sherman coverage

in the wrongful death action because Sherman made material

misrepresentations and omissions on Sherman’s insurance application relating

to the nature of Sherman’s contracting business (i.e., the application failed to

inform PCIC that Sherman did roofing work). PCIC further alleged that it did

not owe Sherman coverage because the Policy specifically excluded coverage

for any claims of bodily injury arising out of or relating to roofing operations.1

____________________________________________

1 The roofing operations exclusion reads as follows:

This insurance does not apply to:

* * *

q. Roofing Operations

Any claim for “bodily injury” or “property damage” that arises out

of, results from, is caused by, contributed to, or in any way related

to, in whole or in part, roofing operations performed by any

insured or any contractor or subcontractor working on behalf of

any insured. Roofing operations include, but are not limited to,

the removal or installation of any and all materials on a roof that

constitute a roof on any building, home or structure, including but

not limited to shakes, shingles, tar paper, felt paper, tiles,

decking, and other covering. Also excluded is any claim involving

repair work by any insured on a roof, or deck that also provides a

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In response, Sherman argued that he was not bound by the roofing operations

exclusion because PCIC never delivered the Policy to him.

On August 25 2014, the Estate filed a “Petition to Approve Consent

Judgment” in which it requested that the trial court enter judgment against

Sherman and in favor of the Estate for $3.5 million. The same day, the trial

court granted the petition and entered a judgment in favor of the Estate and

against Sherman for $3.5 million. On August 27, 2014, Sherman assigned all

of his rights under the Policy and any potential claims he had against PCIC for

its failure to indemnify him to the Estate.

On February 27, 2015, PCIC filed its first amended complaint. On July

13, 2015, PCIC filed a “Second Amended Complaint and Joinder Complaint” in

which it joined the Brown Agency as a third-party defendant. PCIC’s second

amended complaint included, inter alia, claims for declaratory relief, breach

of contract, breach of warranty, common law and contractual indemnification,

contribution, misrepresentation, and negligence. PCIC alleged that the Brown

Agency was negligent for failing to ensure it received an accurate insurance

application from Sherman and for failing to deliver the Policy to Sherman.

____________________________________________

covering over interior rooms of a building, home or structure,

including over a garage or storage area.

PCIC’s Motion for Summary Judgment, 11/18/16, Exhibit 5 (The Policy, §

(1)(2)(q)).

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On August 11, 2015, the Brown Agency filed preliminary objections. On

December 2, 2015, the trial court sustained the Brown Agency’s preliminary

objections, in part, based on a forum selection clause in the operating

agreement between PCIC and the Brown Agency that mandated that the

parties litigate any dispute arising out of their operating agreement in Los

Angeles County, California. The trial court dismissed PCIC’s claims against

the Brown Agency for declaratory relief, breach of contract, breach of

warranty, contractual indemnification, and misrepresentation. Following

preliminary objections, PCIC’s only remaining claims against the Brown

Agency were its claims of contribution, common law indemnification, and

negligence.

On November 18, 2016, upon the completion of discovery, PCIC filed a

motion for summary judgment. PCIC argued that Sherman was not entitled

to coverage relating to Frischolz’s death based on material misrepresentations

and omission in Sherman’s insurance application and certain coverage

exclusions. In the alternative, PCIC argued that if Sherman was entitled to

coverage, then PCIC was entitled to indemnification from the Brown Agency

for misrepresentations and omissions on Sherman’s insurance application and

for its failure to deliver the Policy to Sherman. The Estate and the Brown

Agency subsequently filed cross-motions for summary judgment.

The Estate argued that PCIC never delivered the Policy to Sherman and

consequently, PCIC could not rely on any of the coverage exclusions in the

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Policy. PCIC asserted that it electronically delivered the Policy to the Brown

Agency, and because the Brown Agency was Sherman’s agent, this constituted

delivery to Sherman. PCIC maintained that electronic delivery occurred in

May 2011 when it uploaded the Policy to a shared electronic database to which

the Brown Agency had access and sent the Brown Agency an automatically

generated email notification with a link to access the Policy. Although neither

PCIC nor the Brown Agency could produce a copy of the actual notification

email PCIC sent the Brown Agency regarding Sherman’s policy, 2 PCIC

contended that it was the regular course of its dealings with the Brown Agency

to electronically deliver policies by uploading them to the shared database and

sending the automatically generated email.

The Estate maintained that the Brown Agency was PCIC’s agent for

purposes of delivery and thus, even if PCIC had delivered the Policy to the

Brown Agency, it did not constitute delivery of the Policy to Sherman.

Additionally, the Estate argued that Sherman’s insurance application

contained no misrepresentations and thus, provided no legal basis for PCIC to

deny coverage.

The Brown Agency argued that it was entitled to summary judgment

because it owed no common law duty of care to PCIC with respect to the

insurance application and delivery of the Policy. Consequently, the Brown

____________________________________________

2 Both PCIC and the Brown Agency have indicated that they do not have any

emails saved dating back to 2011.

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Agency asserted that PCIC could not establish cognizable claims for

negligence, contribution, and common law indemnification.

On August 17, 2017, following argument by the parties, the trial court

issued a memorandum and order of court in which it denied PCIC’s motion for

summary judgment and granted the motions for summary judgment of the

Estate and the Brown Agency. The trial court concluded that PCIC could not

rely on the roofing operations exclusion in the Policy to deny Sherman

coverage because it had failed to deliver the Policy to him prior to the accident

resulting in Frischolz’s death. Trial Court Opinion, 8/17/17, at 3-5. With

respect to PCIC’s claim that it had no obligation to provide Sherman coverage

based on misrepresentations and omissions in his insurance application, the

trial court concluded that although Sherman’s insurance application was

“arguably[] incomplete[,]” he had satisfied his obligation to correct his

application by contacting Coronel at the Brown Agency to inform him of the

pertinent missing information. Id. at 7-9. The trial court further determined

that PCIC could not establish that the Brown Agency owed it a duty of care

and dismissed its remaining claims against the agency. Id. at 11-12.

On September 1, 2017, PCIC timely appealed to this Court. On

September 8, 2017, the trial court ordered PCIC to file a concise statement of

the errors complained of on appeal pursuant to Rule 1925(b) of the

Pennsylvania Rules of Appellate Procedure within 30 days of the date of the

order. On October 5, 2017, PCIC timely filed its Rule 1925(b) statement.

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On appeal, PCIC presents the following issues for review:

1) Did the court below err in failing to rule that the

misrepresentations in Sherman’s application for insurance and

breaches of the warranties in his application, which became part

of the Policy, preclude coverage or, at minimum, was a factual

issue to be decided by a jury?

2) Did the court below err in concluding that PCIC did not

deliver the Policy to Sherman through delivery to his agent or, at

minimum, that was a factual issue to be decided by a jury?

3) Did the court below err in not allowing PCIC to rely upon its

exclusions to coverage to deny any duty to indemnify?

4) Did the court below err in finding a breach of a duty to

indemnify and indicating that a judgment of at least $1 million

was in order?

5) By ruling in favor of Sherman, did the court below err in

granting the [Brown] Agency’s [m]otion and denying PCIC’s

Motion?

PCIC’s Brief at 3-4.

Our standard of review regarding a trial court’s decision to grant or deny

a motion for summary judgment is as follows:

A reviewing court may disturb the order of the trial court only

where it is established that the court committed an error of law or

abused its discretion. As with all questions of law, our review is

plenary.

In evaluating the trial court’s decision to enter summary

judgment, we focus on the legal standard articulated in the

summary judgment rule. Pa.R.C.P. 1035.2. The rule states that

where there is no genuine issue of material fact and the moving

party is entitled to relief as a matter of law, summary judgment

may be entered. Where the non-moving party bears the burden

of proof on an issue, he may not merely rely on his pleadings or

answers in order to survive summary judgment. Failure of a non[-

]moving party to adduce sufficient evidence on an issue essential

to his case and on which it bears the burden of proof establishes

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the entitlement of the moving party to judgment as a matter of

law. Lastly, we will view the record in the light most favorable to

the non-moving party, and all doubts as to the existence of a

genuine issue of material fact must be resolved against the

moving party.

Thompson v. Ginkel, 95 A.3d 900, 904 (Pa. Super. 2014).

Significant to the first four issues PCIC raises on appeal, each of which

stem from the insurance policy at issue, is the Policy choice of law provision

that states: “This Policy shall be governed and construed in accordance with

the laws of the State of Montana.” Brief in Support of the Estate’s Motion for

Summary Judgment, 11/18/16, Exhibit V (PCIC Policy Commercial General

Liability Conditions, p. 18 ¶ 16 “Governing Law.”). There is no dispute

between PCIC and the Estate that Montana law governs the first four issues

of this appeal.

In its first issue, PCIC argues that the trial court erred in failing to grant

summary judgment in its favor because Sherman made material

misrepresentations and omissions in his insurance application. PCIC contends

that under Montana law, an insured who makes material misrepresentations

or omissions in an insurance application is not entitled to coverage under the

policy. Specifically, PCIC asserts that it presented evidence demonstrating

that Sherman: (1) expressly acknowledged in his application that the Policy

would contain a roofing operations exclusion; (2) warranted that the

information he provided in the application was correct and complete and that

he agreed to notify PCIC of any material changes in the application; (3)

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described his contracting business as “Kitchen and Bath Remodeling for

residential homes”; and (4) omitted any reference to any of his past or

intended future roofing work. PCIC’s Brief at 23-24. PCIC maintains that this

evidence establishes misrepresentations and omissions in the insurance

application material to the risk of issuing an insurance policy with a roofing

operations exclusion. Thus, PCIC argues that the trial court wrongly concluded

that Sherman did not make any misrepresentations or omissions in his

insurance application that voided the Policy. In the alternative, PCIC contends

that at the very least, this evidence demonstrates a genuine issue of material

fact as to whether Sherman made material misrepresentations and omissions

on his insurance application for a jury to resolve.

In response, the Estate argues that Sherman’s application does not

preclude coverage because Sherman was unaware at the time he applied for

insurance that he would be doing roofing work on the Estella Avenue Project.

Additionally, the Estate asserts that the application did not inquire as to

whether Sherman intended to engage in roofing work and otherwise provided

no indication that the Policy would be void if he did engage in such work.

Consequently, the Estate asserts that whether Sherman intended to engage

in roofing operations was not material to the risk assumed by PCIC in issuing

the Policy to Sherman.

Section 33-15-403 of the Montana Code governs the statutory rescission

of an insurance contract, and provides, in pertinent part, as follows:

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(2) Misrepresentations, omissions, concealment of facts, and

incorrect statements do not prevent a recovery under the policy

or contract unless:

(a) fraudulent;

(b) material either to the acceptance of the risk or to the hazard

assumed by the insurer; or

(c) the insurer in good faith would either not have issued the

policy or contract or would not have issued a policy or contract

in as large an amount or at the same premium or rate or would

not have provided coverage with respect to the hazard

resulting in the loss if the true facts had been made known to

the insurer as required either by the application for the policy

or contract or otherwise.

Mont. Code Ann. § 33-15-403(2).

In interpreting Section 33-15-403(2), the Montana Supreme Court has

explained:

The requirement that a misrepresentation on an insurance

application be material either to the acceptance of the risk or to

the hazard assumed by the insurer in § 33–15–403(2)(b), MCA,

overlaps a great deal with the condition in § 33–15–403(2)(c),

MCA, that allows an insurer to deny coverage for a

misrepresentation if the insurer in good faith would not have 1)

issued the policy; 2) issued the policy in as large an amount; 3)

issued the policy at the same premium; or 4) provided coverage

with respect to the hazard resulting in the loss.

An omission or misrepresentation may be material if, had the truth

been known, the reasonable and prudent insurer would not have

issued the policy or would have issued it at a higher premium.

This definition of materiality incorporates the idea of subsection

(2)(c), that is, that the policy would not, among other things, have

been issued had the insured revealed the true state of affairs. The

primary difference between the two subsections is that (2)(b)

deals with an objective standard of materiality, reasonableness,

while (2)(c) refers to a subjective standard, good faith.

* * *

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The materiality of an insured’s misrepresentation is determined

by the extent the false answer initially influenced the insurer to

assume the risk of coverage . . . . . [T]he misrepresentation in

the insurance application may be material if it diminishes the

insurer’s opportunity to determine or estimate its risk. Thus, the

materiality of a misrepresentation generally is measured at the

time the insurer issues the policy[.]

The question of materiality is a question of fact.

Schneider v. Minnesota Mut. Life Ins. Co., 806 P.2d 1032, 1035-36 (Mont.

1991) (quotation and citations omitted).

In this case, there is no dispute that the Policy contained an exclusion

precluding coverage for any claims or losses incurred in roofing operations.

See PCIC’s Motion for Summary Judgment, 11/18/16, Exhibit 5 (The Policy, §

(1)(2)(q)). The record reflects that Sherman initialed the paragraph in his

insurance application that indicated the Policy would contain a “roofing

operations” exclusion and the paragraph stating that any false information

contained in the application would result in the nullification of the policy.

PCIC’s Motion for Summary Judgment, 11/18/16, Exhibit 1 (Insurance

Application, 5/20/11). Sherman’s insurance application contains no mention

that he intended to do roofing work and instead describes his contracting

business as “kitchen and bath remodeling for residential homes.” Id.

Thus, the insurance application: (1) demonstrates that Sherman was

aware the policy for which he was applying would contain a roofing operations

exclusion; and (2) contains no mention that he had previously conducted

roofing work or that he intended to engage in roofing work in the future. See

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id. Sherman’s and Williams’ deposition testimony, however, reveals that

Sherman had done roofing work in his general contractor business in the past

and that he knew doing such work was a distinct possibility, if not certainty,

for the Estella Avenue Project. Brief in Support of the Estate’s Motion for

Summary Judgment, 11/18/16, Exhibit B (Deposition of Sherman, 9/6/13, at

15, 24, 32, 35) and Exhibit C (Deposition of Williams, 6/5/12, at 28-32).

The Estate argues that whether Sherman intended to engage in roofing

operations was not material to the risk assumed by PCIC in issuing coverage

and that PCIC would have issued the Policy regardless of whether Sherman

had initially informed PCIC that he would possibly conduct roofing operations.

The Estate points out that Sherman’s insurance application did not specifically

inquire as to whether the he intended to engage in roofing work. See PCIC’s

Motion for Summary Judgment, 11/18/16, Exhibit 1 (Insurance Application,

5/20/11). Additionally, the Estate relies on the deposition testimony of PCIC’s

underwriter, Daniel Matteoni (Matteoni). Matteoni testified that much of the

work Sherman did on the Estella Avenue Project was the type of work PCIC

would expect a contractor to undertake while insured by the Policy. Brief in

Support of the Estate’s Motion for Summary Judgment, 11/18/16, Exhibit U

(Deposition of Matteoni, 6/10/16, at 49-54). Matteoni further testified that

PCIC operates with the expectation that a general contractor may undertake

work beyond that contained in the contractor’s business description in the

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insurance application and such action does not prevent PCIC from issuing

coverage. Id.

Therefore, on the one hand, based on the existence of a roofing

operations exclusion in the Policy and the insurance application’s indication

that the Policy would contain such an exclusion, representations as to whether

Sherman intended to engage in roofing operations would tend to be material

to PCIC in deciding whether to issue the Policy to Sherman. On the other

hand, the Estate has presented evidence indicating that the insurance

application never afforded Sherman the opportunity to inform PCIC that he

had or intended to do roofing work and evidence of whether Sherman engaged

in roofing work had little effect on PCIC’s decision to issue the Policy.

Accordingly, we conclude that this case contains genuine issues of

material fact for a jury to resolve as to whether Sherman made

misrepresentations or omissions in his insurance application that materially

affected PCIC’s decision to issue the Policy. The Montana Supreme Court has

“expressly” made clear that “questions of materiality and of good faith are

both questions of fact” for a jury to determine. Williams v. Union Fid. Life

Ins. Co., 123 P.3d 213, 220 (Mont. 2005). We therefore vacate the trial

court’s grant of summary judgment in favor of the Estate with respect to the

issue of whether the representations in Sherman’s insurance application

precluded coverage.

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Next, we address PCIC’s second and third issues together because they

are related. PCIC argues that the trial court erred in concluding that PCIC did

not deliver the Policy to Sherman. PCIC contends that the trial court further

erred in determining that because of its failure to deliver the Policy, PCIC could

not rely upon any of the Policy’s exclusions to preclude coverage in this case.

PCIC asserts that it provided evidence that it had electronically delivered the

Policy to the Brown Agency, Sherman’s agent, in May 2011, when it: (1)

uploaded it to a shared electronic database to which the Brown Agency had

access; and (2) sent the Brown Agency an automatically generated email

notification with a link to access the Policy. Although neither PCIC nor the

Brown Agency could produce a copy of the actual notification email PCIC sent

the Brown Agency regarding Sherman’s policy, PCIC maintains that it was the

regular course of its dealings with the Brown Agency to electronically deliver

policies by uploading them to the shared database and sending the

automatically generated email. In response, the Estate argues that under

Montana law, the Brown Agency was PCIC’s agent for purposes of delivery,

and thus, even if PCIC had delivered the Policy to the Brown Agency, it did

not constitute delivery of the Policy to Sherman.

Under Montana law, “[a]n insurance broker is usually regarded as the

agent of the insured.” Nautilus Ins. Co. v. First Nat. Ins., Inc., 837 P.2d

409, 411 (Mont. 1992). As set forth above, the Estate asserts that in Montana,

while an insurance agent acts for the insured in procuring the policy, the agent

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acts for the insurer in delivering the policy. Although the Montana Supreme

Court has not explicitly made this declaration, their relevant decisional

authority strongly suggests that to be the case. In Nautilus, the Montana

Supreme Court stated that negligence on the part of the broker while

performing the specific acts of “delivering the policy and in collecting and

remitting the premiums . . . may result in liability” on the part of the insurance

agent to the insurer. Id. The Court further explained that “the determination

of which party a broker is acting for as to a particular matter depends on which

party requested him to do the particular thing.” Id. at 411-12. Additionally,

the Montana Supreme Court has stated that “once an agency selects a

particular policy from an insurer, that agency becomes the agent of that

insurer.” Monroe v. Cogswell Agency, 234 P.3d 79, 88 (Mont. 2010).

We conclude that the trial court did not err in determining that PCIC

failed to deliver the Policy to Sherman prior to Frischolz’s accident. First, there

is no dispute that PCIC relied upon the Brown Agency to deliver the policy and

to inform the insured (in this case Sherman) of the terms and exclusions of

its insurance policies. See PCIC’s Brief at 33-34. The operating agreement

between PCIC and the Brown Agency expressly states that the agency “will

provide each insured with an explanation of the terms and provisions of the

policy of insurance including, but not limited to coverage being afforded and

also exclusions contained with the policy of insurance.” Second Amended

Complaint and Joinder Complaint, 7/13/15, Exhibit 9 (Limited Produce

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Agreement, ¶ 15). Second, logically speaking, delivery of an insurance policy

cannot occur until after the broker selects an insurance policy from the insurer.

Therefore, because PCIC requested the Brown Agency to deliver the

Policy and delivery could not occur until after the Brown Agency procured the

Policy, we hold that the Brown Agency was the agent of PCIC for purposes of

delivery. Furthermore, because PCIC’s delivery argument is based on the

erroneous assertion that the Brown Agency was Sherman’s agent for purposes

of delivery, PCIC cannot impute its alleged electronic delivery of the Policy to

the Brown Agency onto Sherman. Accordingly, we conclude that the trial court

did not err in determining that delivery did not occur.

Nevertheless, this does not end our inquiry. Importantly, in its third

issue, PCIC contends that all that is required under Montana law for an insurer

to rely on policy exclusions to deny coverage is for the insured to have notice

of those exclusions. Additionally, PCIC contends that it has, at the very least,

established a genuine issue of material fact as to whether it provided sufficient

notice of the roofing operations exclusion to Sherman.

We agree with PCIC’s position that, under Montana law, all that is

required for an insured to be subject to policy exclusions is for the insured to

have notice of those exclusions. While Montana law requires an insurer to

deliver an insurance policy to the insured “within a reasonable period of time

after its issuance,” Mont. Code Ann. § 33-15-412(1), the Estate has cited no

authority from the Montana Supreme Court that explains the consequences to

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an insurer for failing to deliver a policy to the insured. Likewise, our research

has not uncovered any Montana Supreme Court decisions that discuss the

implications of an insurer’s failure to deliver an insurance policy to an insured.

Thus, under Montana law, there is no authority holding that an insurer cannot

rely on the coverage exclusions in an insurance policy if the insurer fails to

deliver the policy to insured.

We agree with PCIC that this issue is governed by the Montana Supreme

Court’s decision in State v. Allendale Mutual Insurance Company, 154

P.3d 1233 (Mont. 2007). Allendale places the focus of the applicability of

coverage exclusions on the question of whether the insured had notice of

them. In Allendale, the insured specifically raised the argument that “if an

insurer does not timely deliver a policy to the insured, it may not rely on

exclusions within the undisclosed policy.” Id. at 1237. The Montana Supreme

Court disagreed, holding that “[e]ven if a policy is not delivered to an insured,

insurers may rely upon valid exclusions in their policies when the insured has

notice of those exclusions.” Id. at 1238. The Court explained:

The exclusions in the policies in question were communicated to

the [insured]. The policies the [insured] claims were not delivered

were renewals of existing policies and contained identical

coverage provisions and exclusions. It is undisputed that the

[insured] received a renewal binder from each insurer that listed

all applicable coverage forms, or otherwise expressly stated the

exclusions. The [insured] cannot reasonably claim that it was

unaware of the relevant terms and exclusions.

Id. at 1237-38.

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The Estate maintains that the Allendale decision is inapplicable to this

case. The Estate argues that Allendale is factually distinguishable because

it involved the renewal of a previously issued insurance policy, and

consequently, the insured in that case was already familiar with the terms and

exclusions of the policy.

In support of its position, the Estate cites Germain v. American

International Group., Inc., 2008 WL 11347705 (D. Mont. Sept. 8, 2008),

for the proposition that delivery is necessary for an insurer to deny coverage

based on policy exclusions. In Germain, the insured argued that its insurer

was estopped from relying on a coverage exclusion in his insurance policy to

deny coverage because the insurer had failed to deliver the policy to him prior

to his injury.

The United States District Court for the District of Montana explained:

[M]any states, including Montana, have enacted statutes requiring

that insurers deliver a copy of an insurance policy to the insured

“within a reasonable time after its issuance.” Mont. Code Ann. §

33–15–412(1). In such states, many courts have held that where

an insurer fails to comply with its statutory duty to deliver a copy

of the policy, and that “failure to comply has prejudiced the

insured, the insurer may be estopped from asserting an otherwise

valid coverage exclusion.”

Id. at *6 (quoting Brown Mach. Works & Supply, Inc. v. Ins. Co. of N.

Am., 951 F. Supp. 988, 994 (M.D. Ala. 1996)). The court further explained

that an insured is “typically” prejudiced “in cases where the insurer fails to

provide the insured with a copy of the policy before the insured suffers a loss,

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and the insurer then attempts to deny coverage based on a previously

undisclosed exclusion.” Id. at *7 (emphasis added).

The court in Germain acknowledged, however, that an insured could

receive notice of coverage exclusions by means other than delivery of the

policy. Id. at *7-*8. Ultimately, the court concluded that the record was

insufficient to make a finding as to whether the insurer in that case timely

disclosed the applicable exclusion to the insured, and declined to grant

summary judgment on the issue of coverage. Id.

Thus, even under the authority relied upon by the Estate, to obtain

summary judgment when arguing that an insurer cannot rely on coverage

exclusions in an insurance policy that the insurer did not deliver, the insured

must establish more than the insurer’s failure to deliver the policy. See id.

Pursuant to Germain, the insured must establish, in addition to the insurer’s

failure to deliver the policy, that the insurer never otherwise timely disclosed

the relevant coverage exclusions to the insured by means other than delivery

of the policy. See id.

Consonant with the foregoing, we conclude that the trial court erred in

deciding that PCIC was unable to rely on any of the exclusions in the Policy

based on its determination that PCIC failed to deliver the Policy to Sherman.

We agree with PCIC’s contention that Allendale is compelling and controlling

in this case. While Allendale is factually distinguishable from this case, there

is no language in the decision expressly limiting the holding (i.e., “Even if a

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policy is not delivered to an insured, insurers may rely upon valid exclusions

in their policies when the insured has notice of those exclusions.”) to the facts

of this case. Additionally, while delivery of an insurance policy would clearly

put the insured on notice of coverage exclusions contained in the Policy, both

Allendale and Germain make clear that exclusions may be applicable in

situations where the insurer provides notice of them to the insured by means

other than delivery of the policy. Moreover, we reiterate that Montana law on

this issue is sparse. In sum, we decline to conclude that delivery of the policy

is required for an insurer to rely on the exclusions in the policy.

PCIC further argues that the record demonstrates Sherman had

adequate notice of the roofing operations exclusion contained in the Policy

because he initialed the paragraph in his insurance application that indicated

the Policy would contain a “roofing operations” exclusion. See PCIC’s Motion

for Summary Judgment, 11/18/16, Exhibit 1 (Insurance Application,

5/20/11). Conversely, the Estate asserts that even though Sherman initialed

that paragraph, it only provided him with notice that the Policy would contain

exclusions that it would later explain and define. The Estate contends that

because Sherman never had knowledge of the precise terms of the roofing

operations exclusion prior to Frischolz’s accident, PCIC cannot rely on the

exclusion to preclude coverage.

Again, we conclude that the question of whether Sherman had notice of

the roofing operations exclusion in the Policy presents a genuine issue of

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material fact to be resolved by a jury. Accordingly, we vacate the trial court’s

order to the extent that it grants summary judgment in favor of the Estate on

the issue of coverage, based on its determination that PCIC failed to deliver

the Policy to either the Brown Agency or Sherman, as delivery of the policy is

not the full inquiry. Thus, to the extent the trial court determined on summary

judgment that PCIC could not rely on exclusions in the Policy based on its

conclusion that PCIC failed to deliver the Policy, we vacate the trial court’s

order in that respect. We remand this matter for a determination of whether:

(1) Sherman had sufficient notice of the relevant policy exclusions; and if so,

(2) factual findings as to whether those exclusions were applicable in this case

to deny coverage.

In its fourth issue, PCIC argues that the trial court erred in concluding

that it breached its duty to indemnify Sherman. PCIC contends that pursuant

to applicable Montana law, it did not violate its duty to indemnify Sherman

because it afforded him a defense in the underlying wrongful death action

brought by the Estate while it contested coverage through the instant

declaratory judgment action.

With respect to an insurer’s duty to defend and indemnify, the Montana

Supreme Court has explained:

The duty to defend arises when a complaint against an insured

alleges facts, which if proven, would result in coverage. Unless

there exists an unequivocal demonstration that the claim against

an insured does not fall within the insurance policy’s coverage, an

insurer has a duty to defend.

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* * *

[W]here an insurer refuses to defend a claim and does so

unjustifiably, that insurer becomes liable for defense costs and

judgments. [W]hen an insurer improperly abandons its insured,

the insured is justified in taking steps to limit his or her personal

liability. In other words, where an insurer refuses to defend its

insured, it does so at its peril.

If an insurer believes a policy exclusion applies, the

prudent course of action is to defend under a reservation

of rights and file a declaratory action to resolve the

coverage question.

J & C Moodie Properties, LLC v. Deck, 384 P.3d 466, 472 (Mont. 2016).

This is exactly what transpired in this case. There is no dispute that

PCIC defended Sherman in the Estate’s wrongful death action. PCIC, believing

one or more policy exclusions applies to preclude coverage, afforded its

defense under a reservation of rights, and filed a declaratory judgment action

to resolve the question of coverage. See id. This is what Montana law

demands. Moreover, as we have discussed, the issue of coverage remains

unclear. Accordingly, we conclude that the trial court erred in granting

summary judgment in favor of Sherman and the Estate on the issue of

whether PCIC breached its duty to indemnify.

Finally, PCIC argues that the trial court erred in denying its motion for

summary judgment with respect to its negligence and common law

indemnification claims against the Brown Agency. Specifically, PCIC contends

that the Brown Agency had a duty to provide it with an accurate insurance

application from Sherman and to the extent Sherman completed a corrected

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application, the agency had a duty to ensure PCIC received the updated

application. Additionally, PCIC asserts that the Brown Agency had a duty to

deliver the Policy to Sherman.

With respect to this issue, both PCIC and the Brown Agency agree that

Pennsylvania law is controlling. The Brown Agency asserts that the economic

loss doctrine bars PCIC’s negligence claim. “The Economic Loss Doctrine

provides that no cause of action exists for negligence that results solely in

economic damages unaccompanied by physical injury or property damage.”

Donaldson v. Davidson Bros., 144 A.3d 93, 101 (Pa. Super. 2016), appeal

denied, 169 A.3d 11 (Pa. 2017). “Purely [economic] loss, when not

accompanied with or occasioned by injury, is considered beyond the scope of

recovery even if a direct result of the negligent act.” Id. (quotations and

citations omitted).

We agree.3 In this case, PCIC argues that the Brown Agency is required

to indemnify it for any amount it is required to pay the Estate for its judgment

against Sherman. PCIC makes this claim based on its assertion that the Brown

Agency was negligent in its handling of Sherman’s insurance application and

in failing to deliver the Policy to Sherman, which PCIC alleges directly resulted

____________________________________________

3 We note that “[w]e are not bound by the rationale of the trial court and may

affirm on any basis.” Sw. Energy Prod. Co. v. Forest Res., LLC, 83 A.3d

177, 184 (Pa. Super. 2013) (quotations and citations omitted).

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in harm to PCIC.4 Thus, PCIC has asserted a claim for negligence in which it

alleges “purely economic loss.”5 See Donaldson, 144 A.3d at 101.

Accordingly, we affirm the trial court’s dismissal of PCIC’s negligence claim

against the Brown Agency. Because we affirm the trial court’s dismissal of

PCIC’s negligence claim against the Brown Agency, PCIC has no basis upon

which to support a common law indemnity claim. Therefore, we conclude that

the trial court did not err in granting summary judgment in favor of the Brown

Agency on PCIC’s claims of common law negligence and indemnification, and

dismissing all claims against the Brown Agency.6

In conclusion, we vacate the trial court’s order to the extent it

determined that Sherman did not make any material misrepresentations and

omissions in his insurance application to void the Policy. Although we affirm

____________________________________________

4 To the extent PCIC asserts that the Brown Agency’s actions with respect to

Sherman’s insurance application were false and misleading, the claim PCIC

raised in its complaint was only that of negligence. PCIC did not raise a claim

of fraud in its complaint against the Brown Agency.

5 Our Supreme Court held that “the economic loss rule does not apply to

claims of negligent misrepresentation brought under Section 552” of the

Restatement (Second) of Torts. Bilt-Rite Contractors, Inc. v. The

Architectural Studio, 866 A.2d 270, 288 (Pa. 2005). Although it appears

PCIC attempted to raise a claim for negligent misrepresentation in its second

amended complaint under “COUNT VII – MISREPRESENTATION,” see Second

Amended Complaint and Joinder Complaint, 7/13/15, at 44-47, the trial court

entered an order on December 2, 2015 dismissing that claim, which PCIC did

not appeal. See supra, p. 7.

6 We note that PCIC does not challenge the trial court’s dismissal of the Brown

Agency’s contribution claim.

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the trial court’s determination that PCIC failed to deliver the Policy to

Sherman, we further vacate the trial court’s order to the extent it concluded

that PCIC’s failure to deliver the Policy precluded PCIC from relying on the

Policy’s exclusions to deny coverage. We also vacate the trial court’s

determination that PCIC breached its duty to indemnify. We affirm the trial

court’s dismissal of all remaining claims against the Brown Agency.

Consequently, we remand this matter to the trial court – for trial – to

determine first whether Sherman made any material misrepresentations or

omissions in his insurance application that preclude coverage. If the jury

determines that Sherman has not made any such material misrepresentations

or omissions, it must then determine whether PCIC provided Sherman with

sufficient notice of the Policy’s exclusions to warrant their application to

preclude coverage. Finally, the jury shall determine whether any Policy

exclusions are factually applicable to this case.

Order affirmed in part vacated in part. Case remanded for further

proceedings consistent with this opinion. Jurisdiction relinquished.

Judge Dubow joins the opinion.

Judge Bowes concurs in the result.

Judgment Entered.

Joseph D. Seletyn, Esq.

Prothonotary

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Date: 7/24/2018

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