Court Opinion

ID: 4961031
Source: CourtListenerOpinion
Date Created: 2021-09-24 14:58:32.950131+00
Date Added: 2024-06-11T08:15:48.964201
License: Public Domain

DISSENTING OPINION BY
JOYCE, J.:
¶ 1 While my esteemed colleagues have undertaken a thorough analysis of the issues at bar, I disagree with the conclusion that the Zimmermans proved by clear and convincing evidence that Harleysville Mutual Insurance Company acted in bad faith when it denied their claim. Accordingly, I dissent.
¶ 2 Harleysville asserts five grounds for its first claim that it had a “reasonable basis to deny, defend, and appeal the insurance claim.” Appellant’s Brief, at 21. Harleysville’s first ground is that, under these facts, “the general rule [i.e., the manifestation rule] applied by most courts in property insurance cases provided a reasonable basis to conclude that Harleys-ville did not provide coverage.” Id. The rule, Harleysville explains, “provides that manifestation occurs at that point in time when appreciable damage occurs and is or should be known to the insured, such that a reasonable insured would be aware that his notification duty under the policy has been triggered.” Id. at 22. Applied instantly, Harleysville contends:
[t]he “manifestation” occurred during the Fireman’s Fund policy term because: (a) appreciable damage occurred in the form of falling ceiling tiles; (b) the falling ceiling tiles were known to the Zimmermans; and (c) the Zimmer-mans were aware that their notification duty was triggered as they notified their insurance agent about the falling ceiling tiles during the effective dates of the Fireman’s Fund policy.
Id. Harleysville cites to non-Pennsylvania cases, primarily Prudential-LMI Commercial Insurance v. Superior Court, 51 Cal.3d 674, 274 Cal.Rptr. 387, 798 P.2d 1230 (1990), in support of this manifestation rule.
¶ 3 The Majority concluded that Har-leysville acted in bad faith as it did not have a reasonable basis for denying benefits under the policy and that the insurer knew of or recklessly disregarded its lack of reasonable basis in denying the claim. As the finding of bad faith was, in most part, based upon Harleysville’s position that the collapse of the bowling alley roof was a “loss in progress” and, therefore, was not covered under its policy period, an examination of the law in this area is warranted.
¶ 4 Broadly speaking, after an insurance policy is issued, coverage under that policy must be “triggered.” Various theories exist as to when a “triggering” occurs. See, e.g., Consulting Eng’rs, Inc. v. Ins. Co. of N. Am., 710 A.2d 82, 87 (Pa.Super.1998) (rejecting “multiple trigger” theory under the facts). Where successive insurance carriers are involved, determining when *176coverage is triggered becomes particularly important.
¶ 5 One such theory is the “manifestation trigger.” For example, coverage is triggered under an occurrence type liability insurance policy “when the injurious effects of the negligent act first manifest themselves in a way that would put a reasonable person on notice of the injury.” D’Auria v. Zurich Ins. Co., 352 Pa.Super. 231, 507 A.2d 857, 861 (1986). By way of corollary, in a property insurance context, coverage is triggered when the property damage first manifests itself — presumably in a manner “that would put a reasonable person on notice of the [damage].” Id.
¶ 6 It has been posited that the “manifestation” theory complements the “known loss” or “loss in progress” theory. See Prudential-LMI Commercial Ins. v. Superior Court, 51 Cal.3d 674, 274 Cal.Rptr. 387, 798 P.2d 1230, 1246-17 (1990); 7 Lee R. Russ, Couch on Insueance § 102:9 (3d ed.1995).10 The “known loss” doctrine, as defined by our Supreme Court, states: “that one may not obtain insurance for a loss that either has already taken place or is in progress.” Rohm and Haas Co. v. Cont’l Cas. Co., 566 Pa. 464, 781 A.2d 1172, 1176 (2001) (citation omitted) (emphasis supplied).11 Thus, if property damage manifested itself prior to or was in progress at the time insurance coverage commenced, the insurer may argue that the “manifestation” occurred outside the scope of its coverage under the Pennsylvania interpretation of the “known loss” doctrine.
¶ 7 I disagree with the trial court’s finding that Harleysville acted in bad faith in denying the Zimmerman’s claim based on (a) that the facts did not support the invocation of the manifestation theory; and (b) that “it was apparent” that the “loss in progress” theory lacked legal support. My primary disagreement is with the manner in which the trial court arrived at its conclusion. I secondarily note our Supreme Court’s later adoption of the “known loss” doctrine and the Zimmerman I court’s unexplained application of a third-party liability insurance analysis to the instant first-party property insurance policy.
¶ 8 The bad faith trial court’s analysis is predicated on the Zimmerman I court’s rejection of Harleysville’s “loss in progress” theory of defense. According to the trial court, Harleysville, therefore, acted in bad faith by even presenting this defense in the first place. The flaw in this conclusion lies in the fact that the viability of this defense was not rejected by our courts until the underlying coverage litigation. Certainly, Harleysville cannot be faulted for pursuing what it believed to be a potentially viable legal theory in light of the facts specific to this case simply because the issue was ultimately resolved in favor of the Zimmermans.
*177¶ 9 The Zimmerman I court rejected Harleysville’s “loss in progress” defense on the basis of our holding in D’Auria, supra. The Zimmerman I court concluded, based on D’Auria, that “Pennsylvania law provides clear authority for determining liability when damages occur over time and under different insurers. In the absence of ambiguity in this area of the law, we decline [Harleysville’s] invitation to adopt the ‘loss in progress’ doctrine of other jurisdictions....” Zimmerman I, slip op. at 9 (footnote omitted). The Zimmerman I court considered Harleysville’s theory, decided that it was foreclosed by prior Pennsylvania law, and, therefore, rejected it.
¶ 10 Harleysville could not have known it was acting in bad faith by presenting a reasonable but heretofore unrecognized defense, as opposed to one previously rejected by our courts.12 Cf. J.H. France Refractories Co. v. Allstate Ins. Co., 534 Pa. 29, 626 A.2d 502, 510 (1993) (commenting, “[i]t would be harsh indeed to attribute bad faith to parties which relied on the reasoning and approaches that other courts have found convincing, when there had been no definitive precedent in this jurisdiction.”). I therefore disagree with the trial court’s conclusion that “[i]t was apparent that the defendant’s legal position was tenuous.” Trial Court Op., slip op. at 6. This was, as Harleysville asserts, a “legitimate coverage issue” that required litigation as to its belief that the Zimmer-mans’ claims were not covered.
¶ 11 I further note that our Supreme Court adopted the “known loss” doctrine in Rohm and Haas Co. v. Continental Cas. Co., 566 Pa. 464, 781 A.2d 1172, 1177 (2001). While the Zimmermans contend that Rohm and Haas is factually distinguishable from the instant case, our Supreme Court’s adoption of this theory is suggestive that Harleysville did not act in bad faith by presenting it at the underlying coverage litigation. As previously discussed, it appears that our Supreme Court has defined “known loss” to encompass a “loss in progress.” Other courts have also adopted the “manifestation” and “loss in progress” theories. See, e.g., Bostick v. ITT Hartford Group, Inc., 56 F.Supp.2d 580, 585 (E.D.Pa.1999) (commenting that “if a deterioration problem [that resulted in collapse of wall] occurred prior to the effective date of a policy, an insurer would not be held liable for ongoing damage that began before the insurer’s policy period.”); Winding Hills Condo. Ass’n, Inc. v. N. Am. Specialty Ins. Co., 332 N.J.Super. 85, 752 A.2d 837, 840 (App.Div.2000) (concluding “that the manifest-trigger rule remains appropriate in first-party property damage claims for a variety of reasons.”).
¶ 12 Finally, I note that D’Auria addressed a different issue: whether the insurers had a duty to defend the insured, a medical doctor, against third parties when the alleged acts of malpractice occurred before the insurers’ coverage began. The D’Auria insurers provided “occurrence” type liability policies.13 The D’Auria court, in defining “occurrence” in that context, adopted the “cause” and “effect” test of Appalachian Ins. Co. v. Liberty Mut. Ins. Co., 676 F.2d 56 (3d Cir.1982).14
*178In many insurance contexts ranging from principles of causation, to the varied post-loss duties addressed here, the courts recognize the conceptual and practical difference between—
• “First party” insurance, which is a contract between the insurer and insured protecting the insured’s own actual losses and expenses, such as property insurance, fidelity insurance, and medical/health insurance.
• “Third party” insurance, which is a contract to protect the insured from actual or potential monetary liability to a third party, such as liability insurance.
14 Lee R. Russ, Couch on InsuRance § 198:3 (3d ed.1995) (footnote omitted); accord Port Auth. v. Affiliated FM Ins. Co., 311 F.3d 226, 233-34 (3d Cir.2002) (considering New Jersey case); Anthem Elecs., Inc. v. Pac. Employers Ins. Co., 302 F.3d 1049, 1054 (9th Cir.2002) (interpreting California law); see also 7 Lee R. Russ, Couch on InsuRance § 101:58 (3d ed.1995).
¶ 13 Harleysville, in the underlying coverage litigation, did not consider DAuria applicable as DAuria addressed an insurer’s duty to defend the insured against third parties under an “occurrence” type liability insurance policy, whereas the instant case concerned an insurer’s allegedly “bad faith” failure to pay a claim under the insured’s first-party property insurance policy. The November 3, 1993 letter from Harleysville’s retained counsel states in pertinent part:
Our investigation and research of relevant legal authority in regard to [this] claim has been completed. It is interesting to note that this appears to be a case of first impression in Pennsylvania. Nonetheless, the loss for which the insureds seek indemnity, was in progress at the inception of the Harleysville policy and therefore did not result from a fortuitous event.
The coverage afforded by any policy of liability or property insurance is generally “triggered” by an occurrence. Though integral to any contract of insurance, most policies do not expressly define an “occurrence”.15 Additionally, the meaning of an “occurrence” differs in the context of liability and property insurance.
There is a paucity of reported authority addressing the definition of occurrence in its application to property policies. No Pennsylvania case law was found. However, the few courts that have interpreted the term as used in this context, have done so by utilizing a comparative analysis to the term as used in liability coverage....
*179... Hence, while the cause of a loss constitutes an occurrence for purposes of liability coverage,16 the actual manifestation of damage is the occurrence for which property insurance affords coverage.17
The ascertainment of an occurrence becomes particularly critical where, as in the instant claim, an insured sustains a continuous or protracted loss.
Def.’s Trial Ex. Y, at 5-6, (emphasis supplied); see also Def.’s Trial Ex. Ql, at 2, (noting, in a letter discussing whether to appeal the adverse trial court coverage litigation verdict, “[t]he [coverage trial judge’s] obvious confusion between liability and property coverages and his improper analysis of this property claim under the liability portion of the policy....”).
¶ 14 The Zimmerman I court disagreed, relying on the DAuria-Keystone-Appala-chian “cause” and “effect” test in rejecting the concept that the “occurrence,” or manifestation of damage that led to the collapse of the roof, took place during the Fireman’s Fund coverage. DAuria, Keystone, and Appalachian all addressed third-party liability insurance policies. The instant case concerned a first-party property insurance policy. Although we agree that certain analytical principles may apply to issues involving both first-party and third-party insurance policies, the Zimmerman I court chose not to explain its reasoning in following the Keystone court’s “suggestion” in applying DAuria to the underlying action. See Zimmerman I, slip op. at 8 n. 11; see also Cain Village Assocs., L.P. v. Home Indem. Co., 75 F.Supp.2d 404, 411 (E.D.Pa.1999) (applying DAuria test, without explanation, to a first-party property insurance policy).18 This lack of explanation would seem crucial since the distinction was a controlling factor in Harieysville’s chosen course of conduct.
¶ 15 Additionally, the Majority found that Harleysville acted in bad faith since it pursued its “loss in progress” position “without observing its concomitant duty to protect the Zimmermans” because it did not consider a joint loss payment to protect the Zimmermans during the litigation. Majority opinion, at 178. However, there is no requirement under the law that Har-leysville tender such a payment in the face of what it believed to be a non-recoverable event. While it is true that Harleysville’s counsel did suggest a joint loss payment, counsel also alternatively suggested a de*180claratory judgment action as a course to pursue, which is precisely what occurred. Def.’s Trial Ex. Y, at 17-18.
¶ 16 In sum, I disagree that Harleysville acted in bad faith in denying coverage on the basis that the claim was a “loss in progress” in light of Harleysville’s then-accurate belief that no countervailing Pennsylvania authority existed. That this Court disagreed with Harleysville’s legal position and our Supreme Court dismissed the appeal after briefing and oral arguments (over the dissent of two justices) does not justify a finding of “bad faith.” Reasonable theories would perish for fear of suffering a title 42, section 8371 imposition of punitive damages. Under these circumstances, I would find that Harleys-ville was, at worst, reasonably mistaken in concluding D’Auria did not apply, or conversely, that Prudentialr-LMI should apply. Accordingly, I would reverse the order of the Court of Common Pleas and direct that a verdict be entered in favor of Harleysville.

. We recognize that state and federal courts disagree on whether the “known loss” and "loss in progress” doctrines are separate or identical doctrines.

. The Rohm and Haas court’s definition seemingly considers these doctrines as identical. We note one commentator's discourse:
The loss in progress doctrine is generally articulated in terms of the insurer not being liable if a loss was already in progress before the policy’s coverage took effect. While the term "known loss” would, on its face, appear to indicate that the loss has actually occurred, and has been so interpreted, most courts articulate this doctrine to include both actual losses that have occurred by the time the insurance is effected, and losses which are "substantially certain to occur” or which were a "substantial probability” or some equivalent statement.
7 Lee R. Russ, Couch on Insurance § 102:8 (3d ed.1995) (footnotes omitted).

. I do not, by any means, suggest that an insurer, by presenting a defense previously rejected by Pennsylvania courts, acts in bad faith perse.

. “An 'occurrence' policy protects the policyholder from liability for any act done while the policy is in effect_” D’Auria v. Zurich Ins. Co., 352 Pa.Super. 231, 507 A.2d 857, 858 (1986) (quoting St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531, 535 n. 3, 98 S.Ct. 2923, 57 L.Ed.2d 932 (1978)).

.The D’Auria court explained the "cause” and "effect” test as follows:
The general rule is that an occurrence is determined by the cause or causes of the *178resulting injury. "[T]he majority of jurisdictions [employ] the 'cause theory'. .... Using this analysis, the court asks if '[t]here was but one proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damage.' ” [citing Appalachian, 676 F.2d at 61.]
We adopt the "cause of the loss” test in the instant case to determine the number of "occurrences” present in [the insured's] complaint.
D’Auria, 507 A.2d at 860.

. The instant policy defined "occurrence” under the liability section as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Zimmerman v. Harleysville Mut. Ins. Co., et al., No. 10103-1993, slip op. at 5 (C.P. Pa. June 30, 1995) (citation omitted). "Occurrence” was "not defined in the property portion of the policy....” Zimmerman v. Harleysville Mut. Ins. Co., et al., No. 10103-1993, slip op. at 3 (C.P.Pa. Aug. 13, 1996). The trial court employed the liability section definition of occurrence, reasoning that insurance policies are interpreted in accordance with contract principles. See id.

. But see D'Auria, 507 A.2d at 862 (explaining, "an 'occurrence' happens when injury is reasonably apparent, not at the time the cause of the injury occurs.”).

. The conclusion was based upon a discussion and analysis of Newmont Mines, Ltd. v. Hanover Ins. Co., 784 F.2d 127 (2d Cir.1986).

. Indeed, some commentators have cautioned against such intermingling.
Many states have court decisions addressing trigger of coverage for third-party liability claims. Although a trigger-of-coverage analysis for both third-party and first-party claims focuses on when a loss occurs for purposes of coverage, it must be kept in mind that first-party property coverage concepts and coverage concepts applying to third-party liability claims are entirely different.
Applying the reasoning used for triggers of coverage in third-party claims to a first-party loss should be avoided or at least approached with caution because there are significant differences between the two types of coverage.
Paula B. Tarr, William S. Daskam IV, Herbert X Baumann, Jr., Insurance Coverage for Collapse Claims: Evolving Standards and Legal Theories, 35 Tort and Ins. L.J. 57, 78 (1999); see also Chandra Lantz, Note, Triggering Coverage of Progressive Property Loss: Preserving the Distinctions Between First- and ThirdParty Insurance Policies, 35 Wm. & Mary L. Rev. 1801 (1994).