Opinion ID: 3015757
Heading Depth: 2
Heading Rank: 1

Heading: Tran’s Reliance on Lam’s Representations

Text: Justifiable reliance on an alleged misrepresentation is an element of both fraudulent representation and negligent misrepresentation causes of action in Pennsylvania.8 Courts 8 The parties do not dispute that Pennsylvania law applies to this diversity action. To succeed on a fraudulent misrepresentation claim under Pennsylvania law, a plaintiff must prove the following elements by clear and convincing evidence: “(1) a misrepresentation; (2) a fraudulent utterance; (3) an intention by the maker that the recipient will be induced to act; (4) justifiable reliance on the misrepresentation; and (5) damage to the recipient as a proximate result.” Tunis Bros. Co., Inc. v. Ford Motor Co., 952 F.2d 715, 731 (3d Cir. 1991) (emphasis added) (collecting Pennsylvania cases). “Negligent misrepresentation requires proof of: (1) a misrepresentation of material fact; (2) made under circumstances in which the misrepresenter ought to have known of the falsity; (3) with an intent to induce another to act on it; and [](4) which results in injury to a party acting in justifiable reliance on the 10 must consider “the relationship of the parties involved and the nature of the transaction” when determining whether one party’s reliance on the allegedly fraudulent representations of another is justifiable. Rempel v. Nationwide Life Ins. Co., Inc., 370 A.2d 366, 368 (Pa. 1977). “The right to rely upon a representation is generally held to be a question of fact.” Silverman v. Bell Sav. & Loan Ass’n, 533 A.2d 110, 115 (Pa. Super. Ct. 1987). Nevertheless, as discussed above, the District Court held as a matter of law that Tran’s reliance on Lam’s representations that premium obligations under his policy would cease after a period of time was not reasonable, leaving Tran unable to overcome what the District Court determined were the clear, unambiguous terms of the policy. The general rule in Pennsylvania, as elsewhere, is that courts are required to give effect to the language of contracts, including insurance policies, if that language is clear and unambiguous. See Bensalem Township v. Int’l Surplus Lines Ins. Co., 38 F.3d 1303, 1309 (3d Cir. 1994) (surveying Pennsylvania law); Standard Venetian Blind Co. v. Am. Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983). However, as the District Court recognized, “in certain situations the insured’s reasonable expectations will be allowed to defeat the express language of an insurance policy.” Bensalem Township, 38 F.3d at 1309; see also Rempel, 370 A.2d at 368 (“Consumers misrepresentation.” Bortz v. Noon, 729 A.2d 555, 561 (Pa. 1999) (emphasis added). 11 . . . view an insurance agent . . . as one possessing expertise in a complicated subject. It is therefore not unreasonable for consumers to rely on the representations of the expert rather than on the contents of the insurance policy itself.”); Toy v. Metro. Life Ins. Co., 863 A.2d 1, 13 (Pa. Super. Ct. 2004) (“[N]ormal contract principles are no longer applicable in insurance transactions because insurance contracts are not freely negotiated and an insured must place a certain amount of trust in its agent.” (internal quotation omitted)). In Bensalem Township, we canvassed the Pennsylvania Supreme Court’s decisions on the doctrine of reasonable expectations and concluded that “we [were] unable to draw any categorical distinction between the types of cases in which the Pennsylvania courts will allow the reasonable expectations of the insured to defeat the unambiguous language of an insurance policy and those in which the courts will follow the general rule of adhering to the precise terms of the policy.” 38 F.3d at 1311. We concluded, however, that [o]ne theme that emerges from all the cases . . . is that courts are to be chary about allowing insurance companies to abuse their position vis-a- vis their customers. Thus we are confident that where the insurer or its agent creates in the insured a reasonable expectation of coverage that is not supported by the terms of the policy[,] that expectation will prevail over the language of the 12 policy. Id.; see also W. Am. Ins. Co. v. Park, 933 F.2d 1236, 1239 (3d Cir. 1991) (“[T]he Supreme Court of Pennsylvania has consistently applied equitable estoppel to prevent an insurer from attempting to frustrate the reasonable expectations of the insured.”). Here, the District Court agreed with Tran that his reasonable expectations regarding the terms of his policy must be viewed in light of his limited understanding of English. The Court proceeded to hold, however, that Tran had a duty under Pennsylvania law to read the policy or to have it read to him (obviously in a language he understands) and that, because he failed to fulfill that duty, he could not claim justifiable reliance on Lam’s representations and his expectations thus could not defeat the clear policy language. This conclusion was incorrect because Pennsylvania does not impose a duty to read insurance policies when insureds allege fraud. The Pennsylvania Supreme Court has stated that “[t]he idea that people do not read or are under no duty to read a written insurance policy is not novel.” Rempel, 370 A.2d at 369 (citing Dowling v. Merchs. Ins. Co., 31 A. 1087 (Pa. 1895)). The Rempel Court elaborated on this principle and held that “the policyholder had no duty to read the policy unless under the circumstances it is unreasonable not to read it.” Id. (holding that the question of whether policyholders’ reliance on agent’s 13 allegedly fraudulent representations was justifiable should be presented to the jury); see also Toy, 863 A.2d at 12 (discussing Rempel and stating “[w]e cannot agree with the trial court that Appellant’s failure to conduct a cursory examination of the information contained upon the cover page of the life insurance policy prevents her from demonstrating her justifiable reliance on [the agent’s] oral representations.”). Standard Venetian Blind, cited by the District Court and relied on heavily by MetLife, is not to the contrary. The Pennsylvania Supreme Court stated in that case that “[i]n the absence of proof of fraud, failure to read [the contract] is an unavailing excuse or defense and cannot justify an avoidance, modification or nullification of the contract or any provision thereof.” 469 A.2d at 566 (emphasis added) (internal quotation omitted). Importantly, Standard Venetian Blind involved claims for breaches of express and implied warranties in an insurance policy, whereas Rempel involved a fraudulent representation claim. Compare Standard Venetian Blind, 469 A.2d at 565, with Rempel, 370 A.2d at 367. Thus, although Standard Venetian Blind does support the proposition that there is a duty to read a policy when no fraud is present, its language indicates, and the Rempel decision dictates, that it does not apply to a situation where, as here, there have been allegations of fraudulent misrepresentations. Cf. Pekular v. Eich, 513 A.2d 427, 431 (Pa. Super. Ct. 1986) (stating that the court “was not inclined to rule, as a matter of law” that policyholders who did not read the policy were “bound by the terms of the contract” 14 under Standard Venetian Blind because, unlike that case, the plaintiffs had “alleged, and intend[ed] to prove, that the limitation in coverage provided by the contract was obtained as a result of intentionally false and fraudulent representations”). In Tonkovic v. State Farm Mut. Auto. Ins. Co., 521 A.2d 920 (Pa. 1987), the Pennsylvania Supreme Court discussed at length the potential tension between the holdings of Standard Venetian Blind and Rempel. The Court emphasized that it had “made it clear that [its] holding [in Standard Venetian Blind] was not to be mechanically applied without regard to the factual context in which the claim arose. . . . Neither did we intend by our decision in [Standard] Venetian Blind to overrule or create a conflict with our decision in Rempel. . . .” Id. at 925. Tonkovic identified a crucial distinction between cases where one applies for a specific type of coverage and the insurer unilaterally limits that coverage, resulting in a policy quite different from what the insured requested, and cases where the insured received precisely the coverage that he requested but failed to read the policy to discover clauses that are the usual incident of the coverage applied for. Id. Rempel applies to the first type of case, and Standard Venetian Blind applies to the second. Id; accord Pressley v. Travelers Prop. Cas. Corp., 817 A.2d 1131, 1140–41 (Pa. 15 Super. Ct. 2003) (discussing Tonkovic, concluding that Standard Venetian Blind did not apply to a policyholder who did not receive the coverage she requested, and holding that the policyholder did not have an obligation to read her policy). Although our case does not involve coverage issues, we nonetheless believe that the Tonkovic distinction is useful, as Tran did not receive the premium structure he anticipated just as the policyholders in Tonkovic and Pressley did not receive the coverage they anticipated. This brings our case within Rempel and its progeny rather than Standard Venetian Blind, and the rule that an insured has no duty to read a policy unless it would be unreasonable not to do so applies here.9 Summary judgment 9 In concluding otherwise, the District Court, while referring to Standard Venetian Blind, did not discuss Rempel. Instead, the Court relied mainly on Fried v. Feola, 129 F. Supp. 699 (W.D. Pa. 1954). That case holds that “where a party to a writing of any kind is unable to read and understand the terms of the writing so that he is aware of its actual contents, he is under a duty to have one who does understand it read and explain it to him; if he does not he is bound by his signature.” Id. at 703. Despite this broad language, however, the District Court’s reliance on Fried was misplaced because Fried: (1) involved a promissory note, not an insurance policy, and thus did not implicate the same equitable estoppel concerns that the Pennsylvania courts have considered in the insurance context; (2) did not involve any fraud allegations; and (3) predates the Pennsylvania Supreme Court’s decision in Rempel. 16 was therefore inappropriate because the District Court’s determination that Tran could not justifiably rely on Lam’s representations as a matter of law rested almost entirely on its erroneous conclusion that Tran had a duty to read his policy or have it read to him. We also disagree with the District Court’s determination that the terms of Tran’s policy were clear and unambiguous. “Interpretation of the language of an insurance policy is generally the role of the court, rather than the jury.” Williams v. Nationwide Mut. Ins. Co., 750 A.2d 881, 885 (Pa. Super. Ct. 2000) (citing Standard Venetian Blind, 469 A.2d at 566). Here the District Court found that the policy was clear because it stated, inter alia, that premiums were payable for fifty-nine years and that it contained “no[] promise that premiums [would] ‘vanish’ when [Tran] alleges.” However, as the Court of Appeals for the Eighth Circuit recently noted, a policy provision stating that premiums are payable for a certain number of years “could be read by a reasonable unsophisticated insured as being completely consistent with the agents’ alleged representations that the premiums paid by plaintiffs for a limited time, in combination with policy interest and dividends paid, would be sufficient to cover future premiums.” Knouse v. Gen. Am. Life Ins. Co., 391 F.3d 907, 913 (8th Cir. 2004). It went on to hold that (1) when insurance sales agents stated that premiums would vanish after a period of time but at the same time used illustrations 17 cautioning that dividend calculations were not guaranteed (as occurred here), “reasonable minds could differ as to whether those statements were necessarily inconsistent with the agents’ alleged representations that plaintiffs’ premium payments would vanish and would not increase at any time,” and (2) “[a]t the very least, this issue should go before a jury.” Id. (applying Pennsylvania law).10 10 Tran asserts that the Eighth Circuit’s decision in Knouse should prevent MetLife from relitigating the issue of Tran’s justifiable reliance in this case under the issue preclusion doctrine. “Under Pennsylvania law, issue preclusion applies where: (1) the issue decided in the prior adjudication was identical with the one presented in the later action; (2) there was a final judgment on the merits; (3) the party against whom the plea was asserted was a party or in privity with a party to the prior adjudication; and (4) the party against whom it is asserted has had a full and fair opportunity to litigate the issue in question in a prior action.” Greenleaf v. Garlock, 174 F.3d 352, 357–58 (3d Cir. 1999) (internal quotation omitted). MetLife apparently owns General American Life Insurance, which was the defendant-appellee in the Eighth Circuit case. Thus Tran contends the privity requirement is satisfied. Even if so, Tran’s issue preclusion argument nonetheless fails because prong one is not met. Knouse involved a factual situation similar to ours and many of the same legal arguments were raised in that case as have been made here. However, the actual issue decided by the Eighth Circuit was whether the statute of limitations barred the policyholders’ claims of fraud, negligence, and violations of 18 Similarly, even if Tran had read his policy or had it read to him, an examination of the policy terms would not necessarily have revealed that Lam’s alleged statements were false as to when premium payments would cease. The policy states that dividends may be used to pay premiums. Thus the policy term providing that premiums would be payable for fifty-nine years does not unambiguously mean that Tran would be required to pay those premiums out-of-pocket for that entire period of time. “Where a provision of an insurance policy is ambiguous, it will be construed in favor of the insured.” Williams, 750 A.2d at 885 (internal quotation omitted). Given the posture of this case, we must also look at the facts in the light most favorable to Tran. Doing so, we are compelled to conclude—in light ofthe ambiguous policy language, Lam’s alleged statements about premiums being payable for only ten years, the policy the UTPCPL based on sales agents’ representations regarding vanishing premiums. Knouse, 391 F.3d at 910. The Eighth Circuit’s statements on the justifiable reliance issue were made in the context of discussing the application of the discovery rule—an equitable rule that tolls the statute of limitations when plaintiffs cannot, through the exercise of reasonable diligence, discover that they had been injured before the limitations period ran, see, e.g., Vitalo v. Cabot Corp., 399 F.3d 536, 542–43 (3d Cir. 2005)—to vanishing premiums cases. Knouse, 391 F.3d at 913. Thus, the issue litigated in the Eighth Circuit is not identical to the issues being litigated here, and that Circuit’s reasoning, while instructive, is not preclusive. 19 illustration indicating that premiums would be “paid up” after thirteen years, and Tran’s apparently limited understanding of English—that genuine issues of fact would exist in this case even if it could be shown that Tran read the policy (or had it read to him).11 Accordingly, summary judgment was not called for on the ground that Tran could not demonstrate justifiable reliance. We stress, as have the Pennsylvania courts, that the issue of whether reliance on a representation is reasonable (or justifiable) is generally a question of fact that should be presented to the jury. See, e.g., Silverman, 533 A.2d at 115; see also Rempel, 370 A.2d at 368; Toy, 863 A.2d at 12. This is particularly true 11 Although we believe that the District Court erred in determining that the policy language was clear, reasonable jurors in any event could find that, despite Tran’s failure to read the policy, his reasonable expectations (based on Lam’s representations) that his policy premiums would “vanish” after a period of time prevailed even if the District Court had been correct that those expectations contradicted unambiguous policy language. See, e.g., UPMC Health Sys. v. Metro. Life Ins. Co., 391 F.3d 497, 502 (3d Cir. 2004) (“The Pennsylvania doctrine of reasonable expectations states that ‘[t]he reasonable expectations of the insured is the focal point of the insurance transaction . . . regardless of the ambiguity, or lack thereof, inherent in a given set of documents.’” (quoting Collister v. Nationwide Life Ins. Co., 388 A.2d 1346, 1353 (Pa. 1978) (emphasis added)). 20 in the insurance context, where the Pennsylvania courts have consistently applied equitable estoppel principles and have warned that we should be “chary about allowing insurance companies to abuse their position vis-a-vis their customers.” Bensalem Township, 38 F.3d at 1311. Having determined that the District Court erred in concluding that Tran could not establish justifiable reliance as a matter of law, we turn to Tran’s argument that the District Court also erred in determining that he was required to prove justifiable reliance at all as to his UTPCPL claims.