Court Opinion

ID: 4537786
Source: CourtListenerOpinion
Date Created: 2020-05-29 17:00:28.499059+00
Date Added: 2024-06-11T12:43:10.819607
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT

                                      ____________

                                       No. 19-2994
                                      ____________

      STACY POWER; AL B. HILL, as Receiver for Credit National Capital, LLC

                                             v.

                    ERIE FAMILY LIFE INSURANCE COMPANY

                                       Stacy Power,
                                                 Appellant
                                      ____________

                     On Appeal from the United States District Court
                        for the Eastern District of Pennsylvania
                                (D.C. No. 2-18-cv-02094)
                     District Judge: Honorable Eduardo C. Robreno
                                     ____________

                       Submitted under Third Circuit LAR 34.1(a)
                                    May 27, 2020

           Before: AMBRO, HARDIMAN, and RESTREPO, Circuit Judges.

                                  (Filed: May 29, 2020)

                                      ____________

                                        OPINION*
                                       ___________
HARDIMAN, Circuit Judge.

       *
        This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
       Stacy Power bought a life insurance policy that the Erie Family Life Insurance

Company first issued to Stephen Creighton. The policy lapsed when Power failed to

timely pay the premiums. Power sued Erie, claiming it breached the duty of good faith

and fair dealing by failing to notify him a premium was due. The District Court granted

Erie summary judgment and Power appealed. We will affirm.

                                             I

       In 2015, Creighton sold his Erie life insurance policy to James Torchia and Marc

Celello. The parties sent Erie a change-of-ownership form listing Torchia and Celello as

joint owners and beneficiaries, each with the same address in Georgia (the Georgia

address). That address belonged to Torchia’s business, Credit Nation Capital, LLC. Erie

confirmed the change of ownership in a policy endorsement it sent to Torchia at the

Georgia address. The policy endorsement stated that the “payor has been changed to

James Torchia,” and Erie changed the payor address—the address to which it sends non-

payment notices—to the Georgia address. That year, the Securities and Exchange

Commission sued Torchia, alleging he was running a “Ponzi scheme” through Credit

Nation. SEC v. Torchia, 922 F.3d 1307, 1312 (11th Cir. 2019).

       In January 2016, Torchia and Celello sold the policy to Power by written purchase

agreement. Power became the owner and payor, the Power Living Trust became the

beneficiary, and Credit Nation retained the file for management purposes. And for

reasons unexplained in the record, the parties also verbally agreed that Credit Nation

                                             2
would pay the policy premiums for four years. Consistent with that arrangement, they

sent Erie a change-of-ownership form listing Stacy Power as the owner, but at the

Georgia address. They listed Power’s home address in South Carolina as the address for

the Power Living Trust (the South Carolina address). Erie mailed a policy endorsement

confirming these changes to Power at the Georgia address. Erie also changed the payor

from Torchia to Power but did not note this change in the policy endorsement. The payor

address remained the Georgia address.

       In April 2016, a federal district court froze Credit Nation’s assets and appointed a

receiver to “facilitate the collection, sale, and distribution of assets to repay investors

defrauded by [Torchia].” Torchia, 922 F.3d at 1312. Power then called Erie and

“requested . . . that the owner address be updated” to the South Carolina address. App.

556. Erie’s agent asked if Power wanted to change the payor address. Power replied: “I

have no authority to do that.” App. 331. The agent did not inform Power that he was the

payor. Finally, Power asked Erie’s agent to contact him “in case anything was to happen”

to the policy, and the agent assured him “nothing would happen to the policy without

[him] being notified.” App. 329–30. Erie sent a letter to Power at the South Carolina

address confirming “a change of address was processed on [his] policy.” App. 554.

       A couple months later, the receiver contacted Power and explained that, under the

district court’s order, Power could retain ownership of the policy only on certain terms,

including that he “assume responsibility for all future premiums.” App. 305–06. By letter

                                               3
dated June 21, 2016, Power accepted the terms and Credit Nation acknowledged his

acceptance by email. Its email instructed Power to “update [Erie] with your name and

address as the premium payor on record.” App. 311–12. It continued, “You will want to

make sure you receive any and all correspondence from [Erie] regarding your policy. The

current paid-to-date on your policy is: 03/24/2017.” Id. Despite this instruction, Power

did not update Erie with his name and address as the premium payor. As a result, the

payor address remained the Georgia address.

       Erie sent three non-payment or lapse notices to the Georgia address in February

and April 2017, each of which was returned to Erie as undeliverable. The policy states it

terminates “when a premium due is not received before the end of the [thirty-one day]

grace period.” App. 219, 224. The policy also states, “No alteration of this policy and no

waiver of any of its provisions shall be valid unless made in writing by us and signed by

one of our officers.” App. 223. Power failed to pay the premiums within the grace period,

and the policy terminated. In June 2017, Power called Erie to pay a premium, and Erie’s

agent told him the policy had terminated. The agent explained that the policy could be

reinstated, but only if the insured submitted an application. Erie sent Creighton two

letters inquiring if he wished to apply. Creighton did so, but Erie denied his application.

       Power sued Erie in the United States District Court for the Eastern District of

Pennsylvania, asserting claims for breach of contract, promissory estoppel, “equitable

relief,” and negligence. Power v. Erie Family Life Ins. Co., 392 F. Supp. 3d 587, 591

                                              4
(E.D. Pa. 2019). As relevant here, Power argued Erie breached the duty of good faith and

fair dealing by failing to notify him that the policy lapsed. The District Court granted Erie

summary judgment. See id. at 593–94. It reasoned that although Erie’s internal business

practices provide for notice, those practices exist to “assist Erie and its employees,” “do

not create a duty on the part of Erie which may be enforced by a third-party payor,” and

“do [not] modify or supplement the [policy’s] express terms and obligations.” Id. at 592.

The Court also observed that Erie sent Power notices, which he did not receive because

he “fail[ed] to notify Erie of the correct payor address.” Id.

       Power timely appealed.

                                              II1

       We review the District Court’s summary judgment de novo. State Auto Prop. &

Cas. Ins. Co. v. Pro Design, P.C., 566 F.3d 86, 89 (3d Cir. 2009). Summary judgment is

appropriate “if the movant shows that there is no genuine dispute as to any material fact

and the movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a).

       Pennsylvania law implies a duty of good faith and fair dealing into every contract.

See Somers v. Somers, 613 A.2d 1211, 1213 (Pa. Super. Ct. 1992). Good faith is

“[h]onesty in fact in the conduct or transaction concerned.” Id. (quoting 13 Pa. Cons.

Stat. § 1201). Examples of bad faith include: “evasion of the spirit of the bargain, lack of

       1
         The District Court had jurisdiction under 28 U.S.C. § 1332, and we have
jurisdiction under 28 U.S.C. § 1291.

                                              5
diligence and slacking off, willful rendering of imperfect performance, abuse of a power

to specify terms, and interference with or failure to cooperate in the other party’s

performance.” Id. (quoting Restatement (Second) of Contracts § 205 cmt. d (1981)). The

duty of good faith “is not divorced from the specific clauses of [a] contract and cannot be

used to override an express contractual term.” Northview Motors, Inc. v. Chrysler Motors

Corp., 227 F.3d 78, 91 (3d Cir. 2000) (citations omitted) (applying Pennsylvania law).

       Power’s main argument on appeal is that “once [Erie] undertook . . . to [provide

non-payment and lapse notices], the law implies a duty by Erie to do so in good faith.”

Opening Br. 21. The District Court correctly rejected this attempt to give Erie’s business

practices binding legal effect. The policy terminates “when a premium due is not received

before the end of the grace period.” App. 224. The policy does not require Erie to remind

Power when premiums are due or otherwise notify him before the policy lapses. To

impose such a duty would not force Erie to honor in good faith the policy’s “specific

clauses”; it would saddle Erie with an obligation altogether “divorced from” them.2

Northview Motors, Inc., 227 F.3d at 91; see also Murphy v. Duquesne Univ., 777 A.2d
418, 434 n. 11 (Pa. 2001) (explaining duty of good faith is “tied specifically to and is not

separate from the duties a contract imposes on the parties”).

       2
         That one of Erie’s agents may have told Power “nothing would happen to the
policy without [him] being notified” does not affect this conclusion. Opening Br. 6. The
agent had no power to verbally alter the policy, which says modifications must be made
in writing and signed by an Erie officer.

                                              6
      The District Court also concluded that even if the duty of good faith was as broad

as Power suggests, Erie fulfilled it. Erie sent two non-payment notices and one lapse

notice to the Georgia address. We agree with the District Court that it was Power’s lack

of diligence—not Erie’s—that rendered these notices undeliverable. Power knew the

payor address was not current, because he told Erie’s agent he “had no authority” to

change it. And yet, when Credit Nation instructed him to “update [Erie] with [his] name

and address as the premium payor on record,” App. 311, he did not. Indeed, Credit

Nation’s email alerted Power to the very risk that now forms the basis for his appeal—

that he may not “receive any and all correspondence from [Erie] regarding [his] policy.”

Simply put, Erie’s notice was reasonably calculated to inform Power about the lapse,

given the uncertainty that Power’s inaction generated.

                              *             *             *

      For the reasons stated, we will affirm the District Court’s summary judgment.

                                            7