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. e du/thir dc ir c uit_2000/72Filed April 6, 2000

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 98-7504

BOWERSOX TRUCK SALES AND SERVICE, INC., Appellant

v.

HARCO NATIONAL INSURANCE COMPANY

On appeal from the United States District Court for the Middle District of Pennsylvania
D.C. Civil No. 97-cv-01874 District Judge: Hon. James F. McClure, Jr.

Argued: June 2, 1999

Before: Scirica, McKee, Circuit Judges, and Schwarzer, District Judge*

(Filed: April 6, 2000)

Jonathan H. Rudd, Esquire (Argued) McNees, Wallace & Nurick
100 Pine Street

P.O. Box 1166 Harrisburg, PA 17108-1166

Attorney for Appellant

___________________________________________________ ______________ * The Honorable William W Schwarzer, United States District Court for the Northern District of California, sitting by des ignation.

Todd B. Narvol, Esquire (Argued) Thomas, Thomas & Hafer
305 North Front Street

P.O. Box 999 Harrisburg, PA 17108

Attorney for Appellee

OPINION OF THE COURT

McKEE, Circuit Judge.

Bowersox Truck Sales & Service, Inc. ("BTS") appeal s thedistrict court's grant of summary judgment in favor of

Harco National Insurance Company on BTS's claim for breach of contract and bad faith arising under an insurance policy Harco had issued to BTS. For the r easons that follow, we will reverse, and remand for procee dings consistent with this opinion.

I.

Harco issued a policy of commercial property insura nce to BTS by which Harco insured business property of BTS. The insurance included coverage for interruption of BTS's business resulting from damage to the insured prope rty. The policy included business interruption insurance . The policy stated, "No one may bring a legal action .. . under this Coverage Part unless: . . . [t]he action is br ought within 2 years after the date on which the direct physical loss or damage occurred." App. at 19a.

On March 4-5, 1994, the weight of accumulated ice a nd snow on the roof of the insured building caused tha t building to partially collapse. BTS attempted to sh ore up the property, and then submitted an insurance claim to Harco. In response, on October 25, 1994, Harco issu ed four checks totaling $169,610.66. App. at 205a-206a. Tha t sum included an advance in the amount of $19,500 under the Business Interruption and Extra Expense portion of the policy. Harco purportedly advanced that sum in the belief that the building could be repaired. Harco calculat ed the

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amount of BTS's loss under the Business Interruptio n coverage based upon Harco's assumption that BTS wou ld lose $4,000/week for three weeks, and would also ha ve to rent another building during those three weeks at a cost of $2,500/week. However, BTS and Harco failed to agree on whether the building could be repaired, or the cost of repair if repair was possible. BTS eventually concluded th at the building had to be replaced, and it sued Harco in 1 994 to recover replacement costs of the building. In that suit, BTS also sought a declaratory judgment that it was enti tled to
recover the actual loss of the business income suff ered while the building was being replaced.

On August 31, 1995, Harco and BTS formally agreed t o settle BTS's claim for the replacement cost of the building. In return for payment of $250,000 from Harco, BTS a nd Harco entered into a settlement agreement that was affirmed by the district court. That agreement prov ided in pertinent part as follows:

FOR AND IN CONSIDERATION of the payment to[Bowersox] of the sum of ONE HUNDRED TWENTY-

NINE THOUSAND THREE HUNDRED SIXTY-NINE DOLLARS and THIRTY-FOUR CENTS ($129,369.34),

. . . we . . . release . . . Harco National Insurance Company . . . of and from any and all past, present and future actions. . . including claims or suits based upon negligence, breach of contract, bad fai th, and any claims (except for business interruption as described below) seeking recovery for any sums of mone y under Commercial Property Insurance Policy No. CFR 00 10 95-08 . . . for all damages (except for busi ness interruption as described below) to property belonging to and owned by Bowersox.

App. at 54a-56a. However, the settlement agreement specifically reserved BTS's right to pursue any cla im it may have under the business interruption coverage as fo llows:

It is hereby stipulated and agreed that this Settlement and Release shall apply to all claims except for business interruption damages as described b elow, resulting from the aforementioned accumulati on of snow and ice affecting the building, includi ng its

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attached office. . . . The present payment . . . in addition to two payments already made by Har co to Bowersox . . . is intended to finally settle any and all claims Bowersox may have against Harco excep t as related to business interruption as describe d as follows. Nothing in this Release shall preve nt Bowersox from submitting a claim to Harco and otherwi se pursuing that claim for business interruptio n and extra expense under [the policy] pursuant to the l anguage of the "Business Income Coverage Form (and Extr a Expense)" as provided in that policy. The pa rties expressly recognize that Harco continues to insure
Bowersox and this Release is not intended to effect[sic] Bowersox's right to make claim under its cur rent or any future policy with Harco for future loss or damage covered by such policies. . . .

App. at 56a (emphasis added). The agreement also contained the following language regarding BTS's ri ght to subsequently bring a claim against Harco for the la tter's
bad faith:

[W]e the Releasors do further release Harco from any and all claims that we may have for the mann er in which all claims under the aforementioned po licy have been handled, adjusted, negotiated or settle d, including, but not limited to, claims based on . . .Pennsylvania Bad Faith Insurance Law, or any other

law applicable to insurance practices. . . . We additionally release Harco for any claims we have under any theory of bad faith or unfair clai ms handling practices.

Id. App. 56a-57a (emphasis added).

On or about September 27, 1995, counsel for BTS sen t a letter to Harco outlining a proposal to adjust the business interruption and extra expense portion of BTS's cla ims. In that letter, BTS explained why it was not possible to repair the existing structure, and also outlined its inten t to construct a new, smaller facility to temporarily ho use its business while the damaged building was being repla ced. The letter specifically informed Harco that "The co ntractor who will be doing the work would like to begin erec ting the

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Addition this fall in order to be able to start rep lacement of the existing building in the early spring. Accordin gly, we would like to resolve this issue as soon as possibl e." App at 222a. Therefore, Harco clearly knew that it was hig hly improbable that BTS would not be able to complete replacement of the damaged building before March 5, 1996, the second anniversary of the partial collapse.

Even though the Commercial Property Conditions port ion of the policy contained the aforementioned requirem ent that the insured bring any legal action within two years of the "direct physical loss or damage," the Business Inco me Coverage Form (And Extra Expenses) coverage part of the policy stated:

We will pay for the actual loss of Business Income you sustain due to the necessary suspension of y our "operations" during the "period of restorati on." The suspension must be caused by direct physical loss of, or damage to property at the premises descri bed in the Declarations, . . . resulting from any Cover ed Cause of

Loss.

App. at 40a. The policy also states under S 3 of th e Business Income Coverage Form: "We will pay any Ext ra Expense to minimize the suspension of business if y ou cannot continue `operations' . . . to the extent th at it [the Extra Expense] reduces the amount of loss that othe rwise would have been payable under this Coverage Form." Section 3 of the policy defines the covered "extra expense"

as follows:

Extra expense means necessary expenses you i ncurduring the "period of restoration" that you would not

have incurred if there had been no direct ph ysical loss or damage to property caused by or resulting from a

Covered Cause of Loss.

App. at 40a. Under the policy, Harco also undertake s to

pay:

(1) . . . any Extra Expense to avoid or mini mize the suspension of business and to continue "oper ations":

(a) At the described premises; or

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(b) At replacement premises or at temporary locations, including:

(i) Relocation expenses; and

(ii) Costs to equip and operate the replac ement or temporary locations.

Id. The "Period of Restoration" as used in S 3 of t he "Business Income Coverage Form (And Extra Expense)" is
defined as:

the period of time that:

a. Begins with the date of direct physical l oss or damage caused by or resulting from any Cover ed Cause of Loss at the described premises; and

b. Ends on the date when the property at the described premises should be repaired, rebuilt, or rep laced with reasonable speed and similar quality.

App. at 46a.

II.

From October 18, 1995, until the present litigation was filed, Harco and BTS exchanged numerous letters in an attempt to settle the business interruption claim. In a letter dated October 18, 1995, Harco told BTS, "once the reconstruction on the building is completed," Harco would require certain financial documents before settling the claim. App. at 224a-25a (emphasis added). Harco did not suggest in that letter, or in any of its other nume rous and regular communications with BTS, that Harco believe d that the aforementioned two year limitation period began to run on March 5 when the building collapsed. As noted ab ove, BTS's September 27 letter to Harco informed Harco t hatBTS would not be able to begin construction on a

replacement building until the spring of 1996. Thus , Harco was clearly alerted (by that letter as well as by n umerous other communications) to the possibility that BTS m ay not be able to present its claim for business interrupt ion insurance until more than two years after the date of the partial collapse. Nevertheless, in several of its communications to BTS, Harco stated that it (Harco) would

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address the business interruption claim upon the termination of the reconstruction period. Indeed, i n a letter dated January 2, 1996, discussing possible settleme nt,
Harco advised BTS that "we can settle the business income and extra expense claim after the loss is actually incurred and upon our receipt of satisfactory documentation .. ." See, generally, App. at 205a-206a, 229a-41a.

BTS did not complete reconstruction of the building until on or about January 1, 1997. App. at 157a. On Janua ry 14, 1997, BTS's lawyer sent Harco's lawyer a letter and several documents that Harco had requested BTS to s end upon completion of the reconstruction of the proper ty. App. at 232a. On February 27, 1997, BTS submitted an evaluation of the business interruption loss, as pe r Harco's request. Harco did not then assert the two year lim itation under the policy as it now does. Rather, on March 7 , 1997, Harco requested additional information that it purp ortedly needed to process BTS's claim. App. at 264a. This p attern continued and Harco's investigation of BTS's claim remained open until December 10, 1997, when BTSfina lly filed the instant suit against Harco. The district court granted Harco's motion for summary judgment and dismissed BTS's claims and, after the district cour t denied reconsideration, BTS filed the instant appeal.

III.

Our review of the grant of summary judgment is plen ary. W.B. v. Matula, 67 F.3d 484, 493 (3d Cir. 1995). "S ummary judgment is appropriate when there are no issues of material fact . . . and the moving party is entitle d to judgment as matter of law." Id. The interpretation of an insurance contract is a question of law that is pro perly decided by the court, Reliance Insurance Co. v. Moe ssner, 121 F.3d 895, 900 (3d Cir. 1997), unless the court determines that the contract is ambiguous, in which case the interpretation of the ambiguous term is a quest ion of fact. Sanford Investment Co. v. Ahlstrom Machinery Holdings, Inc., 198 F.3d 415, 420 (3d Cir. 1999); H ullett v. Towers, Perrin, Forster & Crosby, Inc., 38 F.3d 107 , 111 (3d Cir. 1994). Here, we are concerned with the operati on andapplication of the limitations provision to the dam age BTS

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incurred. Accordingly, our review is plenary. See V anguard Telecommunications v. So. New England Tel., 900 F.2 d 645, 650 (3d Cir. 1990) ("The questions involved in this case are concerned `with the legal operation of the agreemen t,' because we . . . are not called upon to fill a gap in the agreement, but only to determine the legal effect o f the agreement.").

IV.

A.

BTS argues that the district court erred in holding "that BTS's business interruption claim was barred by the policy provision requiring suit to be commenced within two years of the direct physical loss or damage." Appellant's Br. at 14. BTS claims that, "[i]n the context of a business in terruption claim, the `damage' is the business interruption lo ss, and the limitation period begins to run from the date o f the business interruption." Appellant's Br. at 14. 1 Th e district court found that "the date of the direct damage is the starting point, and costs could have been estimated at that time." Op. at 5. Harco insists that the limitation under the policy requires that the action be filed within two years of March 5, 1994, because that was the date of the"dir ect physical loss or damage,"2 under the policy. See Ap p. at
19a.

As noted above, the Business Income provisions of t he policy provide for the payment of "necessary expens es"

___________________________________________________ ______________

1. Additionally, BTS argues that even if the time t o file did expire,

"Harco waived, extended, suspended, or is otherwise estopp ed from relying on this provision." Appellant's Br. at 15. However, we need not reach the issue of whether Harco waived its right to assert i ts time limitations

defense.

2. Harco also claims that BTS violated the policy's requirement that "No one may bring a legal action against [Harco] under this Coverage Part unless: There has been full compliance with all of the terms of this Coverage Part." App. at 19a. Harco alleged that BTS failed to submit to an examination under oath which it was obligated to do under the policy. See Appellee's Br. at 14. However, that was not the basis of the district court's ruling and that issue is not befor e us.

8incurred during the " `period of restoration' that [BTS]

would not have incurred if there had been no direct physical loss or damage to property caused by or re sulting from a Covered Cause of Loss." App. 40a. The policy further provides that Harco will "pay any Extra Expense to avoid or minimize the suspension of business and to continue `operations.' " App. at 40a. Moreover, the"period o f
restoration" is defined in section G of the Busines s Income Coverage Form as beginning when the initial propert y loss is suffered and it "[e]nds on the date when the pro perty at the described premises should be repaired, rebuilt, or replaced with reasonable speed and similar quality. " App.

at 46a.3

This insurance policy clearly provides coverage for "extra expense" the insured incurs "during the period of restoration" that would not have occurred absent"ph ysical . . . damage to the property." However, the "period of restoration" "begins with the date of direct physic al . . . damage caused by . . . any Covered Cause," and"ends on the date when the property . . . should be rebuilt or replaced with reasonable speed and similar quality. " App. at 46a. If Harco's assertion that any suit for busi ness interruption coverage must be brought within two ye ars of the date the property is damaged is correct, then s uch a claim would be impossible to bring when the necessa ry reconstruction is not completed until more than two years from the date the property is damaged. Such a readi ng would render Harco's coverage illusory in situation s like the one before us now. As noted above, Harco was aware that the period of restoration might not end until a dat e that was more than two years from the time the covered property was damaged. The policy specifically provi des that the two year limitation in the Commercial Property Conditions is subject to "Additional Conditions in Commercial Property Coverage Forms." App. at 19a. T his appears to include the aforementioned definitions a nd conditions of coverage pertaining to business incom e, extra expense, and period of restoration, contained in th e Business Income Coverage Form.

___________________________________________________ ______________

3. The policy also provides that "[t]he expiration date of this policy

will

not cut short the "period of restoration." Id.

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Thus, the district court could not properly conclud e as a matter of law that the period for filing suit conta ined in the Commercial Property Conditions Part does not apply tobusiness income loss protections. The wording of Ha rco's

policy refers to different "parts" of the policy. A s noted above, the two year limitation is contained in S D of the Commercial Property Conditions "part." That limitat ion states: "No one may bring a legal action against us under this Coverage Part unless . . . " (emphasis added). App. at 19a. BTS's claim for business interruption insuranc e arises under a different "part" of the policy entitled: "B usiness Income Coverage Form (And Extra Expense)", and that "part" of the policy does not contain a similar tim e bar. App. 40a.

Our interpretation of the policy is corroborated by the contemporary course of dealing of the parties. That course of dealing clearly counsels against Harco's claim t hat the two year limitations provision applied to BTS's bus iness interruption coverage. In Bensalem Township v. International Surplus Lines Ins. Co., 38 F.3d 1303, 1309 (3rd Cir. 1994) we noted that Pennsylvania courts h ave stated, "[c]ourts must examine the totality of the insurance
transaction involved to ascertain the reasonable ex pectation of the insured." (citing Everett Cash Mut. Ins. Co. v. Krawitz, 633 A.2d 215, 216 (Pa. Super. 1993)). Here, the"tot ality of the insurance transaction" includes the several req uests
that Harco made for additional documentation of BTS 's business income coverage during and after the purpo rted two year limitation period. Given Harco's conduct, BTS could not have reasonably expected that the two-yea r clock was ticking. We will not now interpret this contrac t in such a way as to negate the entire course of dealing bet ween Harco and BTS after March 1994. That course of deal ing reflects the parties' own interpretation of this in surance policy, and it is very relevant to our analysis."Th e interpretation of insurance contracts to accord wit h the reasonable expectations of the insured, regardless of the existence of any ambiguity in the policy, constitut es judicial recognition of the unique nature of contracts of in surance." Murray v. United of Omaha Life Ins. Co., 145 F.3d 1 43, 154 (3rd cir. 1998) (resisting an interpretation of an insurance policy that would "defeat, rather than promote, the purpose

10

of the . . . insurance. . .") (internal quotation m arks and citations omitted).4

Thus, we hold as a matter of law that the two year period of limitations established under the policy does no t apply to BTS's claim for business interruption coverage.

B.

The district court also held that BTS released Harc o fromany future bad faith claim involving Harco's handli ng of

BTS's business interruption loss. Harco argues that "[t]he Release excepts all claims relating to BTS's busine ss interruption claim, including any bad faith claim." BTS claims that "[t]he express language of the Release applies only to BTS's bad faith claim for Harco's past cond uct, and does not apply to any future bad faith claim based on Harco's future handling of BTS's business interrupt ion loss." Appellant's Br. at 16. We agree.

"A signed release is binding upon the parties unles s executed and procured by fraud, duress, accident or
mutual mistake." Three Rivers Motor Co. v. Ford Mot or Co., 522 F.2d 885, 892 (3d Cir. 1975); see also Billman v. Pennsylvania Assigned Claims Plan, 503 A.2d 932, 93 5 (Pa. Super. 1986); ACF Produce, Inc. v. CHUBB/Pacific Indemnity Group, 451 F.Supp. 1095, 1101 (E. D. Pa. 1978). However, "a release covers only those matters which may fairly be said to have been within the contemplatio n of the parties when the release was given." Restifo v. McD onald, 230 A.2d 199, 201 (Pa. 1967). Thus, "the general wo rds of
the release will not be construed so as to bar the
enforcement of a claim which has not accrued at the date of release." Id. (referring to those claims contemp lated by both parties at the time of execution). However, th at is exactly what the district court did here. By holdin g that the general words of BTS's release applied to future cl aims for loss of business income, the court stretched the la nguage of the Release beyond the words agreed upon by the par ties,

___________________________________________________ ______________

4. In Murray, we were interpreting a contract of he alth insurance, but the analysis there is nevertheless relevant to our present inquiry given the parameters of this dispute.

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and applied them to future claims that are not incl uded in the language of BTS's general release. The parties agreed that BTS was releasing such claims for Harco's hand ling of BTS's claims that "[BTS] may have under the theory of bad faith . . . ." The parties did not agree that BTS w as releasing any such claims that it may now have, or may have a t any time in the future. "[T]he general rule for constru ction of releases is that the intention of the parties must govern, but this intention must be gathered from the langua ge of
the release." Three Rivers Motors Co. v. Ford Motor Co., 522
F.2d at 892. This release reflects an intention to release claims BTS may have had at the time the release was entered into, but not to release any such claims th at may accrue in the future. Only the present tense appear s in the relevant portions of the release. Harco's argument would
have us reword the release and insert the future te nse thatis now absent.

Releases are strictly construed "so as to avoid the ever present possibility that the releasor may be overre aching." Restifo v. McDonald, 230 A.2d at 201. Thus, even if we concluded that the scope of the release was ambiguo us, we would still find, as a matter of law that this rele ase did not
include future claims of bad faith that accrued bas ed upon
the manner in which Harco handled BTS's claim for business interruption coverage after the release wa s executed. See Three Rivers, 522 F.2d at 887.

V.

For the reasons set forth above, we will reverse th e ruling of the district court and remand for further procee dings consistent with this opinion.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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