Court Opinion

ID: 9466314
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:11:44.983716+00
Date Added: 2024-06-11T17:39:39.738128
License: Public Domain

GARTH, Circuit Judge,
dissenting.
My disagreement with the majority is threefold. First and most important, the majority’s holding rests wholly on the unwarranted assertion that Brokers and St. Paul were parties of relatively equal bargaining power. Second, relying on this unsupported premise, the majority then ignores the import of the district court’s findings of fact that St. Paul never explained the effect of its insurance exclusion to Mockler, Brokers’ president, and that therefore Mockler did not understand it. Third, because these errors flaw the foundation on which the majority’s analysis is constructed, the majority has, as a consequence, additionally erred in predicting that Pennsylvania would carve out an exception to the Hionis rule in this case.
I.
As I read the record and the relevant case law, I am satisfied that the district court did not err either in its reliance upon the Hionis case or in its factfinding in resolving the present controversy. Although admittedly Hionis dealt with an ambiguous policy term, as contrasted with the unambiguous exclusion present here, the Hionis court stated:
When a defense is based on an exception or exclusion in a policy, our Supreme Court has held that such a defense is an affirmative one, and the burden is upon the defendant to establish it. Weissman *1182v. Prashker, 405 Pa. 226, 233, 175 A.2d 63 (1961). Even where a policy is written in unambiguous terms, the burden of establishing the applicability of an exclusion or limitation involves proof that the insured was aware of the exclusion or limitation and that the effect thereof was explained to him. See, e.g., Frisch v. State Farm Fire and Casualty Co., 218 Pa. Superior Ct. 211, 275 A.2d 849 (1971); Purdy v. Commercial Union Insurance Co. of New York, 50 Pa.D. & C.2d 230, 235 (1970).
230 Pa.Super. at 517, 327 A.2d at 365 (emphasis supplied).
As noted by the majority, the district court found that although Mockler was aware of the exclusion, and the exclusionary language was not ambiguous, St. Paul had failed to explain the exclusion and its effect, and Mockler therefore did not understand its effect. In light of these findings of fact, St. Paul cannot prevail unless either the Hionis rule does not apply to this case or the district court’s findings of fact are clearly erroneous, Krasnov v. Dinan, 465 F.2d 1298, 1302-03 (3d Cir. 1972).
A.
In a diversity case we are bound to apply Pennsylvania law under the rule of Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Hence our inquiry is to discern or predict the law which would be applied by the Supreme Court of Pennsylvania. In the absence of any decision of that court, declarations of lower state courts are “not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise,” West v. American Telephone & Telegraph Co., 311 U.S. 223, 237, 61 S.Ct. 179, 183, 85 L.Ed. 139 (1940).
Hionis involved a policy insuring Hionis’ leased restaurant against fire. Fire destroyed the contents, improvements, and fixtures of the restaurant. The controversy between Hionis and his insurer centered on the provisions of the policy which reduced or excluded coverage in the event that the improvements were not repaired or replaced within a reasonable time after loss. The trial court noted that “if the evidence had clearly demonstrated that the policy limitations and exclusions were the product of the parties’ true intentions, the [insurer’s] position would have been unassailable,” 230 Pa.Super. at 515, 327 A.2d at 365. However, at the conclusion of the plaintiff’s case, when the defendant produced no evidence but relied wholly upon the terms of its policy, a directed verdict was granted for the plaintiff. On appeal, the Pennsylvania Superior Court, noting that Hionis’ only objective in obtaining insurance was the security of protecting his establishment, and holding that the burden of explaining the limiting insurance provisions and their effect was on the insurer, affirmed the judgment in favor of Hionis.
In so doing, the court stated the considerations for its holding:
Insurance contracts have been viewed under the law as contracts of “adhesion”, where the insurer prepares the policy for a purchaser having no bargaining power. Where a dispute arises, such contracts are construed strictly against the insurer. Eastcoast Equipment Company v. Maryland Casualty Company, 207 Pa.Super. 383, 218 A.2d 91 (1966). In East Coast, we affirmed the decision of a court en banc on the basis of the lower court opinion which provided in part: “The policy behind this rule [construction against the insurer] is sound; the insurer wrote the policy and the individual purchaser is concerned primarily with monetary benefits. Concern with definitional clauses and exclusions is minimal; therefore, if they do become material, they should be strictly construed against the insurer.” 38 Pa.D. & C.2d at 511, 218 A.2d at 98.
230 Pa.Super. at 516-17, 327 A.2d at 365.
Thereafter, in Daburlos v. Commercial Insurance Co., 521 F.2d 18 (3d Cir. 1975), this Circuit, in a diversity case, held that Hionis represented the law in Pennsylvania. Daburlos involved certain exclusions found in Clause 3 of airline insurance policies upon which the insurers relied in refusing payment of the policies when the insureds were *1183killed. After emphasizing the language of Hionis quoted above, Judge Biggs, writing for the court, stated:
Thus, even if we assume Clause 3 was clear and unambiguous in the context of the policy, the defendants had the burden of establishing that the Daburloses were aware of the exclusion presented by that clause and that its effect was explained to them. The defendants did not meet this burden of proof.
Id. at 25.
Thus, Pennsylvania, which has had ample opportunity to reject Hionis, and our court, which I submit has to date read Hionis correctly, have both recognized the full contours of the Hionis doctrine and its application even in an unambiguous context.
B.
Concededly, both Hionis and Daburlos involved layman plaintiffs. St. Paul, in the first instance, and now the majority, consequently argue that where the plaintiff, Brokers, was “experienced” and “equal in bargaining power” to St. Paul in insurance matters, the Hionis rule should not apply. The difficulty with this contention is that the record in this case affords no support for such an argument.
The district court found as a fact that although Mockler understood the construction of a typical insurance policy and that many such policies provided exclusions from coverage, Mockler’s “experience with the St. Paul errors and omissions policy was his first exposure to such coverage, and, regrettably, he did not understand its terms,” 466 F.Supp. at 1176-77.
The evidence supporting this finding is more than ample. Mockler testified that his business consisted of his wife and himself, Trial Transcript, July 27, 1978, at 92; that he would solicit real estate brokers and try to get orders for title insurance, id. at 41; that he would order a title report through a searching company and then close title, recording the various documents, discharging liens, and disbursing funds, id. In this latter regard he testified that in every settlement, funds had to be handled, id. at 41 — 42. It was for this very reason that he purchased an errors and omissions policy. He stated without contradiction:
The reason I purchased an Errors and Omissions Insurance Policy was to protect myself and my insurance company against any error act of myself or my employees in handling of funds at settlement, sending out checks, or failing to record instruments. That was the sole purpose of buying this policy.
Id. at 44. He also declared that he had never been familiar with any of the terms of this type of coverage, id. at 45, and that St. Paul through Murray had never made any explanation of the policy exclusion to him, Trial Transcript, July 28, 1978, at 21.
This testimony was consistent with Murray’s (St. Paul’s) testimony on deposition which was credited by the district court, that although Murray had read the exclusions to Mockler, he had not explained either the exclusions or their effect. Referring to the exclusions, Murray testified:
Q. With reference to exclusions on page two of the insurance policy, you said in answer to Mr. Scherlis’ question: Since that one exclusion [Exclusion G — handling of disbursements] was between A and H you must have read it to Mr. Mockler. Did you read it to Mr. Mockler?
A. Yes.
Q. Did you tell him anything more or say anything more than reading what it appears to be on the piece of paper?
A. I read it. I neither added or deleted.
Murray Deposition at 60.
Hence, even if on an appropriate record the majority arguably might be correct in predicting that Pennsylvania would modify Hionis where the insured was equal to St. Paul in bargaining power and where the insured’s expertise in general insurance matters was established and found, this is not such a case. The majority can find no support in the record of this case for its bald assertion that Brokers and St. Paul were parties of equal bargaining power or equal expertise. It is thus not surprising that the majority has been unable to cite to *1184any record evidence which would sustain its assumptions. The record supports only the contrary conclusion.
It is St. Paul which, as the majority acknowledges, is a general insurer whose business consists of creating, drafting, and selling general insurance and surety policies. Mockler and his wife, even though they were in the title insurance business, may appropriately be characterized as no more than a “Mom and Pop” title agency existing at the other end of the insurance spectrum. Mockler testified at trial as to Brokers’ business. His testimony and indeed the record as a whole are barren as respects any familiarity which he, Mockler, might have had with the intricacies of insurance beyond the very specific title insurance functions that he performed:
I would solicit real estate brokers and try to get orders for title insurance. When I got the order for title insurance, I would start processing; and that would be having a title report ordered through a searching company or one of our own people to search the records in order to get the full report against that title. We then would proceed. A settlement would be followed a few months later, and I would handle the recording of the various papers, clearing off the title against any judgments or mortgages or any other liens, and I would disburse funds in order with the settlement sheet itself.
Trial Transcript, July 27, 1978, at 41.
If, in this case, we were sitting as the district court and not as a reviewing court, it is possible that I too might have found, as the majority suggests, that Mockler may have understood the terms of the exclusion. Factfinding, however, is beyond our province, and regardless of the conclusion that might result if we had found the facts instead of the district court judge, we are obliged to review factfindings of the district court by an exceedingly narrow standard. See Chalfant v. Wilmington Institute, 574 F.2d 739, 747-53 (3d Cir. 1978) (en banc) (Garth, J., dissenting). Accordingly, there being ample evidence in the record supporting the facts found by the district court, no reviewing court in my opinion can hold them to be clearly erroneous, and they must therefore be given effect. As to Brokers, it is therefore apparent that St. Paul’s “errors and omissions” policy remained a contract of adhesion, and as such the majority’s discussion of hornbook contract law, see majority op. part III, is completely beside the point.
If indeed Mockler had been the insurance professional which the majority opinion makes him out to be, majority op. p. 1177, and if indeed he had been the “mature businessm[a]n of relatively equal bargaining power [to St. Paul],” id. at p. 1180, and if indeed Brokers had paralleled St. Paul in general insurance expertise and stature, then I too might entertain doubts about applying the adhesion doctrine (an exception to the general rules of contract) to this case. As I have indicated, however, and more importantly, as the record and the district court’s findings of fact reveal, Mockler was not an experienced insurance professional in the same context and on the same level of insurance sophistication as St. Paul. The characterizations employed by the majority — that “a sub-agent of St. Paul was dealing with an agent of a relatively large title insurance company, Title Guarantee Company,” id. at p. 1180 cannot obscure what the record discloses, that in fact it is St. Paul which is the large general insurance company and Brokers which is a two-employee service agent for a real estate title insurance company.
Thus, there is no occasion to regard the parties here as being relatively equal, any more than one would regard a journeyman mechanic who is knowledgeable about “nuts and bolts” as the equivalent of a skilled technician who services a nuclear power plant. This being so, I find the relevant contract to be one of adhesion — subject, therefore, to the Pennsylvania rule of Hion-is.
This conclusion is supported by the discussion found in Purdy v. Commercial Union Insurance Co., 50 Pa.D. & C.2d 230, 235 (C.P. Allegheny County 1970):
We do not intend to treat the individual plaintiff any differently from the large *1185corporate plaintiff. The burden of proof, in either event, is on the party asserting the exclusion to prove not only its applicability, but its understanding by the party against whom the exclusion is sought. As with any other contract situation, if there is no meeting of the minds on the terms of the contract, there is no contract. If it be shown, in the case of a large corporation, that the insurance contract went along with all the other contracts entered into by the corporation to the corporate attorneys for examination before signing, then it may be reasonably concluded by the court that the exclusion was known to exist and understood as applying to any given situation. However, in the case of an individual construing this contract of adhesion strictly against the insurer, unless it be shown by the insurer that the insured was made aware of this exclusion and its effect on his coverage at the time of purchase of the policy, we will not enforce it as a part of the bargained for agreement.
I am satisfied that the burden placed upon St. Paul by Hionis was not met by St. Paul, and that sufficient evidence supported the district court’s findings that St. Paul had not explained its policy’s exclusionary provision to Mockler. Thus, as the district court found, Mockler did not understand its terms or effect, and Brokers consequently should not be held bound by the exclusionary provision of the policy.1
II.
St. Paul argues that even should the district court be affirmed in its holding that coverage existed under the errors and omissions policy which it had issued to Brokers, the district court nevertheless erred by entering judgment against St. Paul in the amount of $98,630.40 (order of January 26, 1979). Because the majority has directed that judgment be entered for St. Paul, it did not find it necessary to reach this question. It is for this reason only, that I forgo discussing St. Paul’s challenge to the amount of the district court judgment, even though it is clear to me that the district court was correct in its reasoning and result in entering a judgment in the full amount against St. Paul. See 466 P.Supp. at 1179-80.
III.
Because it is evident to me that the district court’s findings of fact were not clearly erroneous and that it did not err in its application of the relevant Pennsylvania law, I respectfully dissent from the majority opinion which reverses the district court’s judgment. Accordingly, I would affirm the district court’s January 26, 1979 judgment against St. Paul in the amount of $98,630.40.

. I do not find it necessary to decide what course would be taken by the Pennsylvania courts in the event that both the insured and the insurer were completely equal in bargaining power. It may be that if the facts found by a district court on record evidence established such a case, I too might conclude, as does the majority, that Hionis would have little or no impact.
Nor is this case similar to either Miller v. Prudential Ins. Co. of America, 239 Pa.Super. 467, 362 A.2d 1017 (1976), or Treasure Craft Jewelers, Inc. v. Jefferson Ins. Co., 583 F.2d 650 (3d Cir. 1978), the cases on which St. Paul relied in its brief. Suffice it to say that even in those cases, which are materially different from the case before us, and which I therefore believe to be inapposite, the Hionis doctrine was recognized and acknowledged.