Court Opinion

ID: 9465827
Source: CourtListenerOpinion
Date Created: 2023-08-05 00:56:49.348942+00
Date Added: 2024-06-11T17:39:23.585482
License: Public Domain

JAMES HUNTER, III, Circuit Judge,
dissenting:
I do not believe that the Diamon case, which is the sole basis for the majority’s decision to reverse the judgment of the district court, accurately represents Pennsylvania law. Moreover, even if Diamon were a correct statement of Pennsylvania law, appellant’s complaint does not make sufficient allegations to come within the Diamon rule. Accordingly, I dissent.
I
This Court is, of course, not obligated in a diversity case to adopt the most recent decision of a lower state court as the law of the state, irrespective of whether that decision is consistent with earlier rulings of the state supreme court. Instead, as we noted in National Surety Corp. v. Midland Bank, 551 F.2d 21 (3d Cir. 1977), our task is to “determine how the [state] Supreme Court would decide the question before us.” Id. at 28; see Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967).
At issue in this case is the effect to be given a statutorily mandated 1 provision in Leone’s fire insurance policy, which states that “[n]o suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with, and unless commenced within twelve months next after inception of the loss.” (emphasis added).
This suit limitation clause has been examined by the Pennsylvania Supreme Court in Lardas v. Underwriters Insurance Co., 426 Pa. 47, 231 A.2d 740 (1967), and General State Authority v. Planet Insurance Co., 464 Pa. 162, 346 A.2d 265 (1975). In Lardas the supreme court concluded that such a clause is “valid and reasonable,” 426 Pa. at 50, 231 A.2d at 741, and held that “[t]he failure of [the insured] to abide by the [suit limitation] provision . . . constitutes an absolute bar to [the insured’s] claim. To hold otherwise, in the factual matrix of this litigation would render meaningless this provision.” Id. at 53, 231 A.2d at 742-43. Similarly, in General State Authority, the court “recognize[d] the validity and binding nature” of the one year limit, 464 Pa. at 168, 346 A.2d at 268.
Despite the seemingly unequivocal language of these cases, however, the supreme court has recognized that failure to bring a suit to compel payment of fire insurance benefits within one year of loss does not per se prevent judicial consideration of the suit. In Lardas, the court reached the merits of an insured’s claim that the insurer had waived its right to rely on the suit limitation provision, or was estopped from doing so. See 426 Pa. at 52-53, 231 A.2d at 742. And in General State Authority, the court explicitly held that an insured could excuse his failure to file suit within one year of loss by proving facts constituting waiver or estoppel. 464 Pa. at 165 n. 6, 168, 346 A.2d at 267 n. 6, 268.
It is essential to note, however, that the supreme court read these exceptions to the twelve month limit provision very narrowly. Thus, the insured’s claims of waiver and estoppel were denied in Lardas because the insurers “did not in any manner mislead [insured] about the possibility of settlement,” 426 Pa. at 52, 231 A.2d at 742, nor did they “in any manner induce or persuade [him] to refrain from commencing suit.” Id. In like manner, the court in General State Authority recognized an exception to the one year limit “where the actions of the *571insurer lead the insured to believe the contractual limitation period will not be enforced,” 464 Pa. at 165 n. 6, 346 A.2d at 267 n. 6, or where “the insured’s failure to comply is induced by the actions of the insurer.” Id.
In short, Lardas and General State Authority do not stand for the broad principle apparently adopted by the majority that the statutory suit limitation clause may be ignored whenever the insurer fails to act in good faith. Instead, these eases hold only that a court, in order to prevent injustice, need not strictly observe the clause when “conduct or action on the part of the insurer is responsible for the insured’s failure to comply in time." Id. at 168, 346 A.2d at 268 (emphasis added). This Court’s consideration of Diamon is circumscribed by these two eases.
As the majority points out, Diamon relied on two alternative theories to allow the plaintiff-insured in that case to avoid the impact of the suit limitation provision. The first theory, purportedly based on principles of estoppel,2 was that the one year time period is tolled when an insurer has an insured arrested for filing an allegedly fraudulent insurance claim. The majority in this case does not rely on that theory, finding it unavailable to Leone given the allegations contained in his complaint.3
The second theory advanced in Diamon to circumvent the suit limitation clause, and used by the majority here, is in two parts. First, the superior court recognized that under Pennsylvania and common law, an insurer owes a duty of good faith and fair dealing to its insured. Second, relying on a California decision, Gruenberg v. Aetna Insurance Co., 9 Cal.3d 566, 108 Cal.Rptr. 480, 510 P.2d 1032 (1973), the court held that if the insurer breached this duty in the course of its investigation of the insured’s claim, a subsequent suit by the insured “to recover on the policy is not barred by [the] failure to comply with the [one year suit] limitation clause.” 4 247 Pa.Super. at 555, 372 A.2d at 1229. This theory, in my view, is inconsistent with Lardas and General State Authority, I believe that the majority errs in adopting it.
The essence of Lardas and General State Authority is that an insured can excuse his failure to file suit within one year of loss only when “the insurer is responsible for the insured’s failure to comply in time.” General State Authority, 464 Pa. at 168, 346 A.2d at 268. This principle rests on the premise that it would be grossly unfair to allow an insurer to avoid liability under the policy by invoking the suit limitation clause when the failure of the insured to sue on time was the fault of the insurer, not the insured. Otherwise, an insurer could easily *572avoid having to reimburse its insured merely by promising to pay until it is too late for the insured to file suit, and then reneging.
The equitable underpinning which makes the Lardas/General State Authority estop-pel rule a necessary exception to the twelve month suit limitation clause is glaringly absent with regard to the Diamon “good faith” test. If the insurer, whether or not acting in good faith, denies an insured’s claim and there is sufficient time left for the insured to comply with the one year limit, the insured, far from being induced not to sue, will be motivated to file suit promptly.5 If the insured nevertheless fails to comply with the suit limitation provision, the fault for non-compliance is his, not the insurer’s. And when the blame for failure to act in accordance with the suit limitation provision is not attributable to the insurer, I do not understand how, consistent with Lardas and General State Authority, the insurer can be estopped from relying on that provision.
Thus, under Pennsylvania law as I read it, the one year suit limitation provision is binding unless the insurer is responsible for the insured’s failure to comply with it. Here, even if the majority correctly reads into Leone’s complaint the allegation that Aetna’s denial of his claim was made in bad faith,6 there is nothing in the complaint to suggest that Aetna in any way was the cause of Leone’s failure to bring a timely suit to compel payment of his claim. As a result, I dissent.
II
Even if the Diamon “good faith” test were an accurate statement of Pennsylvania law, I would still be unable to join the majority’s opinion. The majority reads an allegation of a bad faith denial of Leone’s claim into paragraph twelve of Leone’s complaint, which provides:
On or about October 12, 1976, Defendant, by its duly authorized agent, did advise Plaintiff and Plaintiff’s agent that -Defendant was continuing to investigate the cause of said loss, because Defendant had reason to believe that the loss incurred was caused by the wilfull (sic) act of Plaintiff, which allegation Plaintiff then and there denied, but which Defendant continued thereafter to allege, despite continued denial by Plaintiff.
I agree with the majority that the Conley test governs our examination of the complaint, and that we must give the complaint a “liberal reading.” But Conley does not stand for the principle that a federal court must deny a rule 12(b)(6) motion to dismiss whenever it can imagine a set of allegations — plainly not contained in the complaint — which would entitle the plaintiff to relief if proved at trial. Instead, the rule is that “the complaint must contain either direct allegations on every material point necessary to sustain a recovery . . . , or contain allegations from which an inference fairly may be drawn that evidence on these material points will be introduced at trial.” 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, at 122-23; see id. § 1357, at 602.
On its face, paragraph twelve stated only that Aetna denied Leone’s claim on the ground that the loss resulted from Leone’s willful act. Necessarily implicit in this allegation is that Leone did not in fact cause the fire, and that Aetna was therefore wrong in refusing to make payment. But I do not believe that the language of the paragraph is subject to the inference not only that Leone was blameless, but that Aetna knew he was not responsible, or conducted an investigation of the fire that was so reckless as to put its good faith at issue. Thus, even if the Diamon good faith test is the law of Pennsylvania, which I doubt, I cannot read Leone’s complaint as making *573allegations sufficient to come within the Diamon rule.7

. Pa.Stat.Ann. tit. 40, § 636(2), lines 157-61 (1971).

. The court in Diamon distinguished the concepts of waiver and estoppel. 247 Pa.Super. at 539-40, 372 A.2d at 1220-21. See O’Connor v. Aliemania Fire Ins. Co., 128 Pa.Super. 336, 339-40, 194 A. 217, 218-19 (1937). It viewed waiver as an express decision by the insurer not to rely on the suit limitation clause; estop-pel, on the other hand, referred to acts by the insurer which excused the insured’s failure to comply with the clause, notwithstanding the insurer’s intention to invoke the clause as a defense. Nothing in Leone’s complaint suggests that Aetna waived its right to rely on the one year limit, and Leone does not allege waiver on appeal.

. Leone does not allege in his complaint that he was actually arrested, but only that Aetna denied his claim on the ground that Leone caused the fire. In Abolin v. Farmers American Mutual Fire Ins. Co., 100 Pa.Super. 433 (1930), the superior court held that a statement by an insurer that it did not know whether to pay the insured or have him arrested for being involved in the burning of his property did not estop the insurer from invoking the one year suit limitation provision. The majority, while apparently accepting both Diamon and Abolin as accurate statements of Pennsylvania law, believes that the facts of this case, as alleged by Leone, are closer to Abolin than they are to Diamon. Because the majority does not rely on the first alternative ground of Diamon, I will not discuss it in detail. I will say only that, in my view, the facts of the two cases are indistinguishable, and that the result in Abolin is consistent with the rationale of Lardas and General State Authority while the result in Diamon is not.

. The Diamon court also implied that an insured’s failure to comply with the suit limitation clause would be excused even if the insured’s decision to deny his claim was based on a good faith but negligent investigation. 247 Pa.Super. at 555, 372 A.2d at 1229.

. In Lardas, the supreme court held that estop-pel was not demonstrated when the plaintiff had five months to file a timely suit after he and the insurer terminated negotiations for a settlement. 426 Pa. at 51, 231 A.2d at 742. Here, the fire occurred on May 15, 1976, and Leone’s complaint was denied on November 30, 1976. Thus, Leone had more than five months to file his suit after the rejection of his claim.

. On appeal, Leone contends that Brakeman v. Potomac Ins. Co., 472 Pa. 66, 371 A.2d 193 (1977), requires reversal. In Brakeman, the supreme court held that a suit to collect on an automobile liability policy may not be dismissed for failure to comply with the notice of loss provision of the policy absent a showing of prejudice to the insurer. Leone claims that the prejudice test also applies here, so that his complaint may not be summarily dismissed.

. But see part II infra. *573For the reasons so well expressed by the district court in Brandywine One Hundred Corp. v. Hartford Fire Ins. Co., 405 F.Supp. 147 (D.Del.1975), aff’d 588 F.2d 819 (3d Cir. 1978), I do not believe that the Pennsylvania Supreme Court would apply Brakeman in the context of a suit limitation clause, the purpose of which is totally distinct from that of a notice of loss provision.