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. e du/thir dc ir c uit_2001/188Filed August 22, 2001

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 00-2423

ACCEPTANCE INSURANCE COMPANY

Appellant

v.

ROBERT H. SLOAN, BANKRUPTCY TRUSTEE FOR MON VALLEY STEEL COMPANY, INC.; LARRY M. BOWERS; GLADYS D. BOWERS, INDIVIDUALLY

AND

AS CO-ADMINISTRATORS OF THE ESTATE OF JOELENE BOWERS, DECEASED; UTICA MUTUAL INSURANCE COMPANY; NOBLE WINE; COMMONWEALTH

OF PENNSYLVANIA

ON APPEAL FROM THE

UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

(Dist. Court No. 98-cv-01647) District Court Judge: William L. Standish

Argued: April 17, 2001

Before: ALITO, RENDELL, and FUENTES, Circuit Judge s.

(Opinion Filed: August 22, 2001)

Russell J. Ober, Jr. (Argued) Kelly A. Reynolds Meyer, Unkovic & Scott LLP 1300 Oliver Building Pittsburgh, Pennsylvania 15222 Counsel for AppellantJan C. Swensen (Argued)

Alan H. Perer

Swensen Perer & Kontos
2710 Two PNC Plaza Pittsburgh, Pennsylvania 15222 Counsel for Appellees Larry M. Bowers and Gladys D. Bowers

Ashley W. Ward
Sites & Harbison 250 West Main Street,
Suite 2300 Lexington, Kentucky 40507 Counsel for Appellee Utica Mutual Insurance Company

OPINION OF THE COURT

ALITO, Circuit Judge:

Acceptance Insurance Co. ("Acceptance") brought thi s action seeking a declaratory judgment to resolve it s rights and duties under an insurance policy issued to Mon Valley Steel Co. ("Mon Valley"). The policy in question wa s a general liability policy for the Clyde Mine, locate d in western Pennsylvania. Acceptance's potential liabil ity arose as a result of an action against Mon Valley brought by the parents of Joelene Bowers, who was pushed to her de ath through an open shaft in the Clyde Mine. Acceptance sought to establish that the Clyde Mine insurance p olicy was effectively terminated prior to Joelene Bowers' s death and, thus, that Acceptance is not obligated to prov ide a defense for Mon Valley or to pay for any recovery.

The District Court entered summary judgment against Acceptance, holding that under regulations of the Pennsylvania Department of Environmental Protection ("DEP"), the Clyde Mine policy could not effectivel y be
canceled until the DEP was notified. The District C ourt further held that no reasonable jury could find fro m the undisputed facts that Acceptance had notified the D EP of its cancellation of the Clyde Mine policy and that therefore

2the policy was still in effect at the time of Joele ne Bowers's

death. We hold that, under the applicable DEP regul ations, notification was not a necessary precondition of
cancellation. We therefore reverse.

I.

In 1994, Mon Valley contacted independent insurance broker Phillip Harvey of Phillip J. Harvey & Co., I nc. ("PJH & Co.") to obtain general liability insurance for m ining operations at the Clyde Mine. Harvey contacted Tri- City Brokers ("Tri-City") to locate a policy. Through Tr i-City's brokerage agreement with Acceptance Risk Managers, Acceptance's underwriters, Acceptance issued a poli cy to Mon Valley.

On February 13, 1995, Acceptance issued a certifica te of insurance to Mon Valley for a general liability pol icy covering the Clyde Mine. The policy's coverage was to be effective from December 7, 1994, through December 7
, 1995, and was subsequently extended through January 24, 1996. The insurance policy contained no provision requiring Acceptance to notify the DEP before cance ling the policy.

Mon Valley's last valid permit to operate the Clyde Mine had expired on October 31, 1994, and Mon Valley had ceased all mining operations on approximately that date. Harvey, acting on Mon Valley's behalf, submitted th e certificate of insurance to the DEP as proof of the requisite insurance coverage in support of Mon Valley's appli cation for a renewal of its expired mining permit. On Marc h 21, 1995, and again on May 3, 1995, the DEP notified Mo n Valley that its application for a mining license co uld not be processed because of several deficiencies in the ap plication and the accompanying proof of insurance. Because Mo n Valley did not make the necessary corrections or re quest an informal hearing, the DEP denied the license applic ation on November 9, 1995.

Mon Valley, which financed the policy through First Premium Services, Inc. ("First Premium"), never act ually made a premium payment on the policy. On March 7, 1995, First Premium used its power of attorney purs uant to

3an agreement with Mon Valley to notify Acceptance t o

cancel the policy for nonpayment of premiums. Altho ugh it is not clear on what date Acceptance actually cance led the policy, it is undisputed that Acceptance took actio ns which, absent a statutory or regulatory bar, would have te rminated the policy by July 15, 1995, at the latest.

PJH & Co. had a general business practice of sendin g notices of cancellation to both certificate holders and state administrative agencies. Harvey testified that a no tice of cancellation addressed to the DEP was present in PJ H & Co.'s files. However, Harvey could not testify from personal knowledge concerning the actual preparation or mail ing of the notice. Moreover, the DEP file on Mon Valley di d not contain a copy of the notice.

In March 1998, the Bowers commenced an action in th e Court of Common Pleas of Greene County, Pennsylvani a, captioned Bowers v. Mon Valley Steel Co., Inc., et al., Case No. AD-24 (1998) (the "Greene County suit"), to rec over damages relating to the murder of Joelene Bowers at the Clyde Mine on January 19 or 20, 1996. Acceptance th en brought the instant action, seeking a declaratory j udgment that the Clyde Mine policy was effectively canceled prior to Joelene Bowers's death and that Acceptance therefor e had no duty to defend or indemnify Mon Valley in connec tion with the Greene County suit.

Following discovery, Acceptance moved for summary judgment, arguing that the undisputed facts showed that the Clyde Mine policy had been effectively terminat ed prior to Joelene Bowers's death. Acceptance argued that i t had no duty to notify the DEP prior to cancellation bec ause no contractual provision, statute, or regulation speci fically so required. In the alternative, Acceptance argued tha t, by application of the Pennsylvania "mailbox rule," the undisputed facts gave rise to a presumption that a notice of cancellation had been received by the DEP and that there
was insufficient evidence in the record to rebut th at presumption.

The Bowerses and Utica also moved for summary judgment, arguing that the applicable DEP regulatio ns mandated that Acceptance notify the DEP before its

4attempted cancellation became effective. The Bowers es and

Utica also argued that Acceptance had not provided sufficient evidence to trigger the mailbox rule. The Magistrate Judge issued a Report and Recommendation, concluding that "the DEP's coal min ing regulations establish a strict administrative schem e which unequivocally prohibits an insurer from cancelling a policy without first providing notification to the agency. " R. & R. at 12, App. at 18. In reaching this conclusion, the Magistrate Judge relied on 25 Pa. Code S 86.168(d), which outlines the requirements for insurance policies su bmitted with a permit application. The Magistrate Judge als o concluded that Acceptance had not adduced sufficien t evidence to show that notice had been given to the DEP. The Magistrate Judge wrote that Acceptance "c[ould] not overcome this significant and undisputed fact: the DEP's license file for Mon Valley does not contain a canc ellation notice." R. & R. at 13, App. at 19. Accordingly, th e Magistrate Judge recommended that summary judgment be granted to Utica and the Bowerses.

The District Court adopted the Magistrate Judge's recommendation, and Acceptance then took this appea l. Our standard of review with respect to the grant of summary judgment is plenary. Waldorf v. Shuta , 896 F.2d 723, 728 (3d Cir. 1990). The Appellees in this appe al are Utica Mutual Insurance Co. ("Utica"), the surety on reclamation and subsidence bonds posted on behalf o f Mon Valley, and the Bowerses.

II.

Acceptance raises two issues on appeal. The first i s whether the District Court erred in concluding that the DEP regulations require that a surface and undergro und coal mining general liability insurance carrier not ify the DEP prior to canceling an insurance policy. The sec ond
issue is whether the District Court erred in conclu ding that the undisputed facts did not allow Acceptance to be nefit from the presumption of receipt accorded to items p laced in the mail under the Pennsylvania mailbox rule. We ho ld that Acceptance had no duty to notify the DEP before can celing

5the policy, and we therefore need not reach the que stion

whether Acceptance adduced sufficient evidence to t ake advantage of the Pennsylvania mailbox rule.

A.

Pursuant to the authority granted by the Pennsylvan ia Surface Mining Conservation and Reclamation Act of May 31, 1945, P.L. 1198, as amended, 52 Pa. Cons. Stat. Ann. SS 1396.1-1396.31, the DEP has issued regulations governing surface and underground coal mining and
reclamation activities. See 25 Pa. CodeSS 86.1 et s eq. Under these regulations, it is illegal to operate a coal mine in Pennsylvania without a permit from the DEP. See 25 Pa. Code S 86.11. Furthermore, 25 Pa. Code S 86.144 pro vides that an applicant for a coal mining permit must pro vide proof of adequate insurance:

86.144 Requirement to file a certification o f liability
insurance.

Each applicant for a [mining] permit shall s ubmit proof to the Department [of Environmental Protecti on] of liability insurance coverage for its mining and reclamation operations issued by an insuranc e company authorized to do business in this Commonwealth. The amount, duration, form, conditions, terms and method of proof of thi s insurance coverage shall conform to [25 Pa. Code] S 86.168 (relating to terms and conditions f or liability insurance).

25 Pa. Code S 86.144. The regulations also outline the requirements of an applicant's insurance policy if a permit is to be granted:

86.168. Terms and conditions for liability i nsurance.

(a) A permittee shall submit proof of liabil ity insurance coverage before a permit or license is issue d. The proof may consist of either a certificate filed at the time of license application and renewal thereof, or, otherwise annually filed with the Department certifyin g that the permittee has a public liability insurance p olicy in force

6covering all of the permittee's mining and r eclamation

operations in this Commonwealth.

. . . .

(d) The insurance shall include a rider requ iring that the insurer notify the Department 30 days prior to substantive changes being made in the policy , or prior
to termination or failure to renew.

25 Pa. Code SS 86.168(a), (d) (emphasis added).

B.

Since the Pennsylvania Supreme Court has yet to interpret the regulation in question in this appeal ,"we must predict how the state court would resolve thes e issues should it be called upon to do so." Wiley v. State Farm Fire & Cas. Co., 995 F.2d 457, 459 (3d Cir. 1993). We pr edict that the Pennsylvania Supreme Court would interpret this regulatory scheme, and specifically S 86.168(d), to mean that Acceptance had no duty to inform the DEP of th e cancellation unless the insurance policy itself cre ated a duty to do so. Although the DEP presumably could ha ve issued a regulation directly requiring an insurer t o notify the DEP of cancellation of a mining insurance polic y, the

DEP has not done so.

Unless a statute or regulation imposes some additio nal requirement, "[w]here the right to cancel an insura nce policy is expressly reserved in the contract itself , then the extent of the right and the conditions upon which i t may be exercised must be determined by reference to the co ntract." Clairton City Sch. Dist. v. Mary, 541 A.2d 849, 851 (Pa. Commw. Ct. 1988) (citing Hanna v. Reliance Ins. Co. , 166 A.2d 877, 879 (Pa. 1961)). Neither Utica nor the Bo werses argue that Acceptance failed to cancel the policy i n accordance with the policy's cancellation clause. N or do they contend that the policy contained the requisit e rider or any language equivalent to what was contained there in. Rather, they argue that S 86.168(d) is ambiguous an d that we should interpret it to require notice to the DEP

.

Pennsylvania has adopted the canon of statutory
construction that courts of the Commonwealth must

7interpret unambiguous statutes according to their t erms.

See 1 Pa. Cons. Stat. Ann. S 1921(b) (Purdon's 1995 ); Anthony v. Koppers Co., 436 A.2d 181, 183 (Pa. 1991 ). When interpreting a Pennsylvania statute, we are to give the words of a statute their plain and ordinary mea ning. Commonwealth v. Neckerauer, 617 A.2d 1281 (Pa. Supe r. Ct. 1992); Commonwealth v. Johnson, 612 A.2d 1382 ( Pa. Super. Ct. 1992). The words are to be considered in their grammatical context. 1 Pa. Cons. Stat. Ann. S 1930 (Purdon's 1995). Moreover,

sections of statutes are not to be isolated from the context in which they arise such that an ind ividual interpretation is accorded one section which does not
take into account the related sections of th e same statute. Statutes do not exist sentence by s entence. Their sections and sentences comprise a comp osite of their stated purpose.

Commonwealth v. Lurie, 569 A.2d 329, 331 (Pa. 1990) (quoting Commonwealth v. Revtai, 532 A.2d 1, 5 (Pa. 1987)). These same principles of statutory construction app ly to DEP regulations as well. See 1 Pa. CodeS 1.7; Bush v. Pa. Horse Racing Comm'n, 466 A.2d 254, 255-56 (Pa. Comm w. Ct. 1983).

Instead of directly requiring that insurers notify the DEP upon cancellation of a policy, the text of S 86.168 (d) provides that a permit applicant must secure a poli cy having a rider mandating notice to the DEP in the e vent of cancellation. The pertinent parts of S 86.168, read in conjunction, require the following: "A permittee sh all submit proof of liability coverage . . . . The insu rance shall include a rider requiring that the insurer notify t he Department 30 days prior to substantive changes bei ng made in the policy, or prior to termination or fail ure to renew." SS 86.168(a)-(d). The plain meaning of SS 8 6.168(a) and (d) is that the permittee must obtain suitable insurance in order to obtain a permit and that the insurance, in order to be suitable, must contain a rider requiring noti ce to the DEP. Section 86.168(d) places no direct obligation on the insurer. Indeed, when viewed in light of S 86.168(a ), all of the provisions of S 86.168 speak to the obligations of

8permittees and permit applicants -- not to the obli gations

of insurers.

Moreover, if, as Utica and the Bowerses argue, the regulation did directly require that the insurer pr ovide notice, the requirement that a rider be included in the policy would be superfluous. "Such an interpretatio n would defy the axiom of statutory construction that `when ever possible each word in a statutory provision is to b e given meaning and not to be treated as surplusage.' " Commonwealth v. Lassiter, 722 A.2d 657, 661 (Pa. 19 98) (quoting In re Employees of Student Servs., 432 A.2 d 189, 195 (Pa. 1981)). The more logical explanation is th at the DEP chose to place the burden on the insured to hav e the rider included in the policy and to have the policy form the basis of the insurer's duty. Thus, S 86.144 states that if the applicant wishes to have its application for a mini ng permit approved, "the amount, duration, form, conditions, terms, and method of proof of this insurance shall conform to S 86.168." This shows that the burden is on the per mit applicant to have the rider placed in the insurance contract. Similarly, the requirement that proof of suitable insurance be submitted with a permit application su ggests that DEP's means of ensuring that it receives notic e of cancellation is to deny any permit application that is not accompanied by an insurance policy imposing such a duty on the insurer. If the interpretation of S 86.168(d ) advanced by Utica and Bowers were correct, the DEP would hav e no need to deny a permit application that was not accompanied by such a policy.

In concluding that the regulation itself imposed a notice requirement, the Magistrate Judge relied in part on 2 Couch on Insurance S 31:19 (3d ed. 1996), which states th at "[w]here statutory provisions require notice to a g overnment agency in order to effect a cancellation of policy, such notice must be given to effect a cancellation, and conversely there is no cancellation where notice is given mere ly in accordance with the provisions of the policy." This statement is inapplicable to Acceptance's situation . Section 31:19 concerns the effect of the failure to notify a government agency "[w]here statutory provisions req uire notice to a government agency in order to effect a

9cancellation of a policy." As discussed above, the relevant

regulations here do not require notice to the DEP t o effect a cancellation of the policy. Rather, the regulatio ns require that policies contain notification riders. It is no teworthy
that none of the cases cited in Couch involved a si tuation analogous to the one here, i.e., a situation in whi ch the law, rather than directly requiring the insurer to provide notice, required a notification rider to be include d in the policy.

For similar reasons, Metro Transportation Co. v. No rth Star Reinsurance Co., 912 F.2d 672 (3d Cir. 1990), on which Utica and the Bowers rely, is not apposite. I n Metro Transportation, we noted that "whenever a statute o r insurance policy provides for notice of cancellatio n , Pennsylvania law has mandated that an insurer's fai lure to comply with the provisions of the notice of cancell ation results in the continuation of coverage regardless of any prescribed date of expiration." Id. at 682 (citatio ns omitted) (emphasis added). We do not question that, if S 86. 168(d) directly required Acceptance to provide notice of cancellation, then a failure to provide notice woul d have made an attempted cancellation ineffective. However , the principle of Pennsylvania law stated in Metro Trans portation does not apply where, as in this case, there is no statute or regulation requiring notification.1 And, as we have stated, the policy contains no such requirement. We will no t convert a statutory requirement of a rider into a m andate that the requisite language be deemed to be implica ted in the policy if the rider is not in fact attached.

Our analysis of the text of S 86.168(d) is confirme d by a survey of analogous Pennsylvania regulations. In ot her similar areas, the DEP has explicitly placed the bu rden of giving notice directly on insurers. For example, th e DEP has a permit system for the handling and disposing of r esidual

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1. The regulation in question in Metro Transportati on required a taxi company to file a Uniform Carrier Bodily Injury and Property Damage Certificate of Insurance, known as a "Form E." "For m E . . . [itself]

states that the insurance policy -- and hence the coverage provided by the policy -- cannot be canceled without first giving[t he Pennsylvania Public Utility Commission] thirty days [sic] notice." Id. at 678.

10waste. See 25 Pa. Code S 287.1 et seq.. Section 287 .101

outlines the requirements for receiving a permit. O ne of the requirements is that an applicant must "comply with the . . . insurance requirements of Subchapter E." Sect ion 287.375, part of Subchapter E, states:

(b) The operator shall submit proof of insur ance under S 287.373 (relating to proof of insurance co verage) . . . .

(c) The insurer may cancel or otherwise term inate an insurance policy by sending 60 days or other period prior written notice as may be authorized by the Insurance Department, to the Department and the operator, of the insurer's intention to canc el or otherwise terminate the insurance policy. The notice s hall be sent to the Department and the insured by certifi ed mail, return receipt requested. Prior to the cance llation or termination becoming effective, the operator shall provide the Department with proof of a repla cement insurance policy sufficient to meet the requ irements of this subchapter.

25 Pa. Code S 287.375(b)-(c) (emphasis added). This provision contrasts sharply with the regulation at issue in the present case. Whereas 25 Pa. Code S 287.375(c) places an obligation directly on the insurer to provide no tice regardless of the provisions of the policy, 25 Pa. Code S 86.168 places an obligation on an applicant to ha ve a rider requiring notice placed in the insurance cont ract. See also 25 Pa. Code S 271.383(f)(2) (regulating munici pal waste management); 25 Pa. Code S 271.392 (g)(2) (same).

Finally, we note that our interpretation of the reg ulation is consistent with what we perceive to be the Legis lature's objective, viz., ensuring that mining operations ar e not conducted without the type of insurance deemed by t he Legislature to be necessary.2 That goal is fulfille d by

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2. Consideration of legislative intent is not neces sary in this case since the Pennsylvania legislature has provided that "[w] hen the words of a statute are clear and free from all ambiguity, the letter of it is not to

be disregarded under the pretext of pursuing its spiri t." 1 Pa. Code S 1922(b). However, we merely reconcile our interpr etation with the general intent of the regulatory scheme in order to ensure that we

11requiring that the party applying for the mining pe rmit

obtain liability insurance. See SS 86.67, 86.144. I f the applicant has not obtained an insurance policy with a rider requiring notice of cancellation, the application s hould be rejected, and the applicant may not legally conduct a mining operation. See id. Thus, assuming that the D EP ensures that mining operations are not conducted wi thout a permit, notification to the DEP of the cancellati on of a policy is not necessary to prevent uninsured partie s from conducting mining operations. Cf. Metro Transp. , 9 12 F.2d at 681 (goal of notice requirement for cancellation of automobile insurance policy for taxis is so that th e State may revoke the taxi license if the insurance is can celed).

III.

In sum, we hold that, under Pennsylvania law, a sur face and underground coal mining general liability insur ance carrier has a no duty to notify the DEP before effe ctively canceling an insurance policy unless a notification provision is included in the insurance policy. We t herefore reverse the District Court's July 17, 2000, order g ranting summary judgment against Acceptance and remand this case to the District Court for entry of an order gr anting summary judgment in favor of Acceptance.

A True Copy:

Teste:

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

___________________________________________________ ______________

effectuate the Pennsylvania Legislature's other man dates that (1) "[t]he object of all interpretation and construction of st atutes is to ascertain
and effectuate the intention of the General Assembl y," 1 Pa. Code S 1921(a); and (2) "the General Assembly does not i ntend a result that is absurd," 1 Pa. Code S 1922(1).

12