2000 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

4-6-2000

Bowersox Truck Sales v. Harco National

Precedential or Non-Precedential:

Docket 98-7504

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Recommended Citation

"Bowersox Truck Sales v. Harco National" (2000). 2000 Decisions. Paper 72.

http://digitalcommons.law.villanova.edu/thirdcircuit_2000/72
Filed 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 designation. 

 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") appeals the 
district 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 reasons 

that follow, we will reverse, and remand for proceedings 

consistent with this opinion. 

I. 

Harco issued a policy of commercial property insurance 

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 property. 

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 brought 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 and 

snow on the roof of the insured building caused that 

building to partially collapse. BTS attempted to shore up 

the property, and then submitted an insurance claim to 

Harco. In response, on October 25, 1994, Harco issued four 

checks totaling $169,610.66. App. at 205a-206a. That 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 calculated the 

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amount of BTS's loss under the Business Interruption 

coverage based upon Harco's assumption that BTS would 

lose $4,000/week for three weeks, and would also have 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 that the 

building had to be replaced, and it sued Harco in 1994 to 

recover replacement costs of the building. In that suit, BTS 

also sought a declaratory judgment that it was entitled to 

recover the actual loss of the business income suffered 

while the building was being replaced. 

On August 31, 1995, Harco and BTS formally agreed to 

settle BTS's claim for the replacement cost of the building. 

In return for payment of $250,000 from Harco, BTS and 

Harco entered into a settlement agreement that was 

affirmed by the district court. That agreement provided 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 faith, and any 

 claims (except for business interruption as described 

 below) seeking recovery for any sums of money under 

 Commercial Property Insurance Policy No. CFR 00 10 

 95-08 . . . for all damages (except for business 

 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 claim it may 

have under the business interruption coverage as follows: 

 It is hereby stipulated and agreed that this Settlement 

 and Release shall apply to all claims except for 

 business interruption damages as described below, 

 resulting from the aforementioned accumulation of 

 snow and ice affecting the building, including its 

 3 

 attached office. . . . The present payment . . . in 

 addition to two payments already made by Harco to 

 Bowersox . . . is intended to finally settle any and all 

 claims Bowersox may have against Harco except as 

 related to business interruption as described as 

 follows. Nothing in this Release shall prevent Bowersox 

 from submitting a claim to Harco and otherwise 

 pursuing that claim for business interruption and extra 

 expense under [the policy] pursuant to the language of 

 the "Business Income Coverage Form (and Extra 

 Expense)" as provided in that policy. The parties 

 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 current 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 right to 

subsequently bring a claim against Harco for the latter's 

bad faith: 

 [W]e the Releasors do further release Harco from any 

 and all claims that we may have for the manner in 

 which all claims under the aforementioned policy have 

 been handled, adjusted, negotiated or settled, 

 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 claims handling 

 practices. 

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

On or about September 27, 1995, counsel for BTS sent a 

letter to Harco outlining a proposal to adjust the business 

interruption and extra expense portion of BTS's claims. In 

that letter, BTS explained why it was not possible to repair 

the existing structure, and also outlined its intent to 

construct a new, smaller facility to temporarily house its 

business while the damaged building was being replaced. 

The letter specifically informed Harco that "The contractor 

who will be doing the work would like to begin erecting the 

 4 

Addition this fall in order to be able to start replacement of 

the existing building in the early spring. Accordingly, we 

would like to resolve this issue as soon as possible." App at 

222a. Therefore, Harco clearly knew that it was highly 

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 portion 

of the policy contained the aforementioned requirement that 

the insured bring any legal action within two years of the 

"direct physical loss or damage," the Business Income 

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 your 

 "operations" during the "period of restoration." The 

 suspension must be caused by direct physical loss of, 

 or damage to property at the premises described in the 

 Declarations, . . . resulting from any Covered Cause of 

 Loss. 

App. at 40a. The policy also states under S 3 of the 

Business Income Coverage Form: "We will pay any Extra 

Expense to minimize the suspension of business if you 

cannot continue `operations' . . . to the extent that it [the 

Extra Expense] reduces the amount of loss that otherwise 

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 incur 
 during the "period of restoration" that you would not 

 have incurred if there had been no direct physical loss 

 or damage to property caused by or resulting from a 

 Covered Cause of Loss. 

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

pay: 

 (1) . . . any Extra Expense to avoid or minimize the 

 suspension of business and to continue "operations": 

 (a) At the described premises; or 

 5 

 (b) At replacement premises or at temporary 

 locations, including: 

 (i) Relocation expenses; and 

 (ii) Costs to equip and operate the replacement 

 or temporary locations. 

Id. The "Period of Restoration" as used in S 3 of the 

"Business Income Coverage Form (And Extra Expense)" is 

defined as: 

 the period of time that: 

 a. Begins with the date of direct physical loss or 

 damage caused by or resulting from any Covered 

 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 replaced 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 numerous and 

regular communications with BTS, that Harco believed that 

the aforementioned two year limitation period began to run 

on March 5 when the building collapsed. As noted above, 

BTS's September 27 letter to Harco informed Harco that 
BTS 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 numerous 

other communications) to the possibility that BTS may not 

be able to present its claim for business interruption 

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 

 6 

address the business interruption claim upon the 

termination of the reconstruction period. Indeed, in a letter 

dated January 2, 1996, discussing possible settlement, 

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 January 

14, 1997, BTS's lawyer sent Harco's lawyer a letter and 

several documents that Harco had requested BTS to send 

upon completion of the reconstruction of the property. App. 

at 232a. On February 27, 1997, BTS submitted an 

evaluation of the business interruption loss, as per Harco's 

request. Harco did not then assert the two year limitation 

under the policy as it now does. Rather, on March 7, 1997, 

Harco requested additional information that it purportedly 

needed to process BTS's claim. App. at 264a. This pattern 

continued and Harco's investigation of BTS's claim 

remained open until December 10, 1997, when BTSfinally 

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 court denied 

reconsideration, BTS filed the instant appeal. 

III. 

Our review of the grant of summary judgment is plenary. 

W.B. v. Matula, 67 F.3d 484, 493 (3d Cir. 1995). "Summary 

judgment is appropriate when there are no issues of

material fact . . . and the moving party is entitled to 

judgment as matter of law." Id. The interpretation of an 

insurance contract is a question of law that is properly 

decided by the court, Reliance Insurance Co. v. Moessner, 

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 question of 

fact. Sanford Investment Co. v. Ahlstrom Machinery 

Holdings, Inc., 198 F.3d 415, 420 (3d Cir. 1999); Hullett v. 

Towers, Perrin, Forster & Crosby, Inc., 38 F.3d 107, 111 (3d 

Cir. 1994). Here, we are concerned with the operation and 
application of the limitations provision to the damage BTS 

 7 

incurred. Accordingly, our review is plenary. See Vanguard 

Telecommunications v. So. New England Tel., 900 F.2d 645, 

650 (3d Cir. 1990) ("The questions involved in this case are 

concerned `with the legal operation of the agreement,' 

because we . . . are not called upon to fill a gap in the 

agreement, but only to determine the legal effect of 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 interruption 

claim, the `damage' is the business interruption loss, and 

the limitation period begins to run from the date of the 

business interruption." Appellant's Br. at 14. 1 The 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"direct 

physical loss or damage,"2 under the policy. See App. at 

19a. 

As noted above, the Business Income provisions of the 

policy provide for the payment of "necessary expenses" 

_________________________________________________________________ 

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

"Harco 

waived, extended, suspended, or is otherwise estopped 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 its 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 before us. 

 8 
incurred 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 resulting 

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 of 

restoration" is defined in section G of the Business Income 

Coverage Form as beginning when the initial property loss 

is suffered and it "[e]nds on the date when the property 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"physical 

. . . damage to the property." However, the "period of 

restoration" "begins with the date of direct physical . . . 

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 business 

interruption coverage must be brought within two years of 

the date the property is damaged is correct, then such a 

claim would be impossible to bring when the necessary 

reconstruction is not completed until more than two years 

from the date the property is damaged. Such a reading 

would render Harco's coverage illusory in situations like the 

one before us now. As noted above, Harco was aware that 

the period of restoration might not end until a date that 

was more than two years from the time the covered 

property was damaged. The policy specifically provides that 

the two year limitation in the Commercial Property 

Conditions is subject to "Additional Conditions in 

Commercial Property Coverage Forms." App. at 19a. This 

appears to include the aforementioned definitions and 

conditions of coverage pertaining to business income, extra 

expense, and period of restoration, contained in the 

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. 

 9 

Thus, the district court could not properly conclude as a 

matter of law that the period for filing suit contained in the 

Commercial Property Conditions Part does not apply to 
business income loss protections. The wording of Harco's 

policy refers to different "parts" of the policy. As noted 

above, the two year limitation is contained in S D of the 

Commercial Property Conditions "part." That limitation 

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 insurance arises 

under a different "part" of the policy entitled: "Business 

Income Coverage Form (And Extra Expense)", and that

"part" of the policy does not contain a similar time 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 that the 

two year limitations provision applied to BTS's business 

interruption coverage. In Bensalem Township v. 

International Surplus Lines Ins. Co., 38 F.3d 1303, 1309 

(3rd Cir. 1994) we noted that Pennsylvania courts have 

stated, "[c]ourts must examine the totality of the insurance 

transaction involved to ascertain the reasonable expectation 

of the insured." (citing Everett Cash Mut. Ins. Co. v. Krawitz, 

633 A.2d 215, 216 (Pa. Super. 1993)). Here, the"totality of 

the insurance transaction" includes the several requests 

that Harco made for additional documentation of BTS's 

business income coverage during and after the purported 

two year limitation period. Given Harco's conduct, BTS 

could not have reasonably expected that the two-year clock 

was ticking. We will not now interpret this contract in such 

a way as to negate the entire course of dealing between 

Harco and BTS after March 1994. That course of dealing 

reflects the parties' own interpretation of this insurance 

policy, and it is very relevant to our analysis."The 

interpretation of insurance contracts to accord with the 

reasonable expectations of the insured, regardless of the 

existence of any ambiguity in the policy, constitutes judicial 

recognition of the unique nature of contracts of insurance." 

Murray v. United of Omaha Life Ins. Co., 145 F.3d 143, 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 marks and 

citations omitted).4 

Thus, we hold as a matter of law that the two year period 

of limitations established under the policy does not apply to 

BTS's claim for business interruption coverage. 

B. 

The district court also held that BTS released Harco from 
any future bad faith claim involving Harco's handling of 

BTS's business interruption loss. Harco argues that"[t]he 

Release excepts all claims relating to BTS's business 

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 conduct, and 

does not apply to any future bad faith claim based on 

Harco's future handling of BTS's business interruption 

loss." Appellant's Br. at 16. We agree. 

"A signed release is binding upon the parties unless 

executed and procured by fraud, duress, accident or

mutual mistake." Three Rivers Motor Co. v. Ford Motor Co., 

522 F.2d 885, 892 (3d Cir. 1975); see also Billman v. 

Pennsylvania Assigned Claims Plan, 503 A.2d 932, 935 (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 contemplation of the 

parties when the release was given." Restifo v. McDonald, 

230 A.2d 199, 201 (Pa. 1967). Thus, "the general words 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 contemplated by 

both parties at the time of execution). However, that is 

exactly what the district court did here. By holding that the 

general words of BTS's release applied to future claims for 

loss of business income, the court stretched the language of 

the Release beyond the words agreed upon by the parties, 

_________________________________________________________________ 

4. In Murray, we were interpreting a contract of health insurance, but 

the analysis there is nevertheless relevant to our present inquiry given 

the parameters of this dispute. 

 11 

and applied them to future claims that are not included in 

the language of BTS's general release. The parties agreed 

that BTS was releasing such claims for Harco's handling of 

BTS's claims that "[BTS] may have under the theory of bad 

faith . . . ." The parties did not agree that BTS was releasing 

any such claims that it may now have, or may have at any 

time in the future. "[T]he general rule for construction of 

releases is that the intention of the parties must govern, 

but this intention must be gathered from the language 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 that may 

accrue in the future. Only the present tense appears in the 

relevant portions of the release. Harco's argument would 

have us reword the release and insert the future tense that 
is now absent. 

Releases are strictly construed "so as to avoid the ever 

present possibility that the releasor may be overreaching." 

Restifo v. McDonald, 230 A.2d at 201. Thus, even if we 

concluded that the scope of the release was ambiguous, we 

would still find, as a matter of law that this release did not 

include future claims of bad faith that accrued based upon 

the manner in which Harco handled BTS's claim for 

business interruption coverage after the release was 

executed. See Three Rivers, 522 F.2d at 887. 

V. 

For the reasons set forth above, we will reverse the ruling 

of the district court and remand for further proceedings 

consistent with this opinion. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

 12