Court Opinion

ID: 9711603
Source: CourtListenerOpinion
Date Created: 2023-08-26 04:35:08.693103+00
Date Added: 2024-06-11T18:23:06.259819
License: Public Domain

*26WATKINS, Judge,
dissenting:
This is an appeal from the Court of Common Pleas of Luzerne County, Civil Division, involving the appellant insurance company’s appeal from a declaratory judgment entered against it by the court below on December 22, 1978. The court below ruled that the insurance carrier was responsible for defending a claim against its insured in a tort action and awarded attorney’s fees and costs to the insured in the amount of $5887 for defense of the tort action and $12,024.25 for the declaratory judgment action.
On June 3, 1974, one Robert Donnelly was employed by the petitioner, Kelmo Enterprises, Inc., as a bartender at the Mr. Bojangles’ Bar operated by Kelmo. On said date Donnelly and his brother hosted a private party in the bar while the bar was not open for business. Apparently this party was conducted without the knowledge of Kelmo. After the party ended, one Lee Clark Kitzmiller, allegedly a guest at the party, remained with the Donnellys to clean up the bar. Upon leaving the premises Kitzmiller mounted his motorcycle and proceeded to drive away from the premises. Some time later Kitzmiller lost control of the motorcycle, struck a utility pole and died as a result of the accident.
On August 2, 1974, the Administrator of Kitzmiller’s estate, commenced an action in trespass against Kelmo in the Court of Common Pleas of Luzerne County. The action was commenced by the issuing of a writ which was served on Kelmo on August 5, 1974. Kelmo notified its insurance carrier of the writ on the same day. On August 9,1974, the appellant insurance carrier was notified of the facts of Kitzmiller’s death, as set forth above, by a letter written to it by Kelmo’s attorney. The letter requested appellant to enter into and undertake the defense of the tort action on behalf of Kelmo. On August 16, 1974 a representative of appellant spoke by telephone with Kitzmiller’s attorney and was advised that the plaintiff’s cause of action was based upon allegations to the effect that Kitzmiller was served alcoholic beverages while he was a minor and was visibly intoxicated. On August 19, 1974 the appellant wrote to *27Kelmo advising it that coverage was excluded under the terms of the insurance policy.
Plaintiff discontinued the lawsuit initiated by the summons on December 16, 1974 and on the same date filed a complaint against Kelmo. George Mohanco and Brian Kelly, owners of Kelmo were also sued. On October 17, 1975, plaintiff filed a second Amended Complaint adding a third cause of action which alleged that an agent of Kelmo’s carried Kitzmiller from the premises, placed him upon his motorcycle and proceeded to start it for him.
On June 17, 1976, prior to the trial of the matter, Kelmo, Mohanco and Kelly (hereinafter referred to jointly as Kelmo) filed a petition for declaratory judgment against appellant alleging the facts recited above, and requesting an adjudication of their rights under the insurance policy and requesting an award of counsel fees and costs. Depositions were subsequently taken of various witnesses and on August 14,1978 the court below ruled that appellant was required to provide a defense for Kelmo under the terms of the policy and awarded Kelmo the sum of $2,500 for counsel fees incurred. On August 28, 1978 the court below filed an amended Order revoking the Order of August 14, 1978 and establishing August 29, 1978 as the date for a hearing to determine the amount of the counsel fees to be awarded to Kelmo. On August 24, 1978 appellant took this appeal. On December 22, 1978 the court below modified its order regarding counsel fees and awarded Kelmo counsel fees in the amount of $5887.00 to defend the tort action and $12,024.25 for the declaratory judgment action.
The basis of the appellant’s refusal to defend the tort action maintained against its insured is an exclusion in the insurance policy. The said exclusionary language provides as follows:
“EXCLUSIONS
This insurance does not apply:
... (h) to bodily injury or property damage for which the insured or his indemnitee may be held liable (1) as a person or organization engaged in the business of manu*28factoring, distributing selling or serving alcoholic beverages or
(2) if not so engaged, as an owner or lessor of premises used for such purposes, if such liability is imposed
(i) by or because of the violation of any statute, ordinance or regulation pertaining to the sale, gift, distribution or use of any alcoholic beverage, or
(ii) by reason of the selling, serving or giving of any alcoholic beverage to a minor or to a person under the influence of alcohol or which causes or contributes to the intoxication of any person;
but part (ii) of this exclusion does not apply with respect to liability of the insured or his indemnitee as an owner or lessor described in (2) above...” (Emphasis Ours)
Since plaintiff’s cause of action alleged negligence on the grounds that Kitzmiller was served while visibly intoxicated and that he was a minor appellant takes the position that it was correct in refusing to extend coverage to Kelmo and that the lower court erred when it ruled otherwise and awarded counsel fees to Kelmo. Appellant also claims that the award of counsel fees was excessive, punitive, and was not supported by any statutory authority. Kelmo argues that the phrase in the insurance policy “if such liability is imposed” requires an adjudication of the matter on the merits before appellant may rely on the exclusion. Kelmo also argues that even if the exclusionary language clearly applies to the instant situation that it should not be given effect because there is nothing on record indicating that appellant brought the exclusion to the attention of Kelmo and that appellant failed to explain it to them. The court below ruled that “the phrase, If such liability is imposed, sets out a condition precedent which must be satisfied before the exclusion is operative.” Thus, the court below held that before appellant could assert the exclusion there must have been an adjudication to the effect that the liability of the insured was predicated upon either of the conditions mentioned above. As such the court never addressed Kelmo’s second contention.
*29Exceptions to a general liability insurance policy are to be strictly construed against the insurance carrier which wrote the policy. Frisch v. State Farm Fire & Casualty Company, 218 Pa.Super. 211, 275 A.2d 849 (1971). This is so because 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. As such any ambiguity of language in the insurance contract is to be strictly construed against the insurer. Hionis v. Northern Mutual Insurance Company, 230 Pa.Super. 511, 327 A.2d 363 (1974). When a defense is based on an exception or exclusion in an insurance policy, such a defense is an affirmative one, and the burden is on the insurance carrier to establish it. Weissman v. Prashker, 405 Pa. 226, 175 A.2d 63 (1961). Kelmo also argues that 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. Kelmo cites Hionis, supra, in support of this position. In Hionis, supra, however, the insurance carrier attempted to assert an exclusion to a general liability policy which covered improvements that the insured had made in a restaurant. The exclusion reduced the amount of the coverage thereto in the event that the insured failed to repair or replace those improvements within a reasonable amount of time after a loss. A fire completely destroyed the restaurant and the improvements. The insurance carrier then attempted to assert the exclusion thereby reducing the amount it would have to pay to the insured on the loss because the insured did not repair or replace the improvements. However, it was proven at trial that the insured had attempted to replace the improvements but could not obtain financing for same, that the agents who sold the insured the policies testified that the insured was a “reluctant buyer” of the policy, that the policy contained co-insurance provisions which further complicated the already confusing language of the insurance policy which covered the insured in the amount of $49,500 but reduced the amount of coverage if the premises were “not *30repaired or replaced within a reasonable time after such loss” to the extent of “that portion of the original cost at the time of installation of the damaged or destroyed improvements and betterments, which the unexpired term of the lease at the time of the loss bears to the period(s) from the date(s) such improvements and betterments were made to the expiration date of the lease.” Asserting this language the insurance carrier offered the insured $12,733.86 for the total loss, instead of the $49,500 amount. Under those circumstances we held that the insurance carrier had the burden of establishing that it had explained to the insured the type and amount of coverage that the insured was getting for his money. That case differs from the instant one, however, because in Hionis the issue at hand was the applicability of a very complicated formula (in the policy) for determining the amount of coverage that the insured had while in the instant case the issue is whether the insured had any coverage at all The latter situation (assuming the insurance contract language to be unambiguous) is clearly more easily understandable to a layman than is the former. Thus, the burden on an insurance carrier of establishing an exclusion in an insurance policy contract diminishes as the subject matter of the insurance policy becomes more simple and more easily comprehended. I would refuse to impose a burden upon insurance carriers which requires them to affirmatively prove that the insured completely understood every provision in the insurance policy before an exclusion could be asserted because such a burden is an impossible one to carry in such a situation. All an insured has to do to extend the coverage for which he contracted beyond the terms of the policy is to feign ignorance of the exclusionary language’s meaning for then the exclusion could not be asserted. Such a rule rewards ignorance and/or dishonesty since the exclusion applies only to insureds who admitted that they understood the insurance policy’s terms. I also note that because of the varying degrees of human intelligence it is quite probable that some insureds may never be able to grasp the concepts set forth in their insurance contracts no matter how painstakingly the policy language is *31explained to them. For these reasons I would hold that where the language of an insurance policy is unambiguous, deals with concepts which are relatively uncomplicated (e. g. whether damages inflicted by a particular understandable event or occurrence comes within the orbit of coverage offered under the policy), and is set forth in terms ordinarily understandable to the average person the insurance carrier may carry its burden of establishing an exclusion to the coverage merely by proving the existence of such language in the insurance contract.
Under the facts of the instant case I note that the exclusion is set forth in terms understandable to the average person and that the concept involved (excluding damages or injuries occasioned by reason of serving alcoholic beverages to minors or visibly intoxicated persons) is one which is relatively uncomplicated. Thus, the sole issue that I would consider is whether the exclusionary language was ambiguous.
The court below held that the phrase of the insurance policy contract wherein it is stated that the aforesaid exclusions apply “if such liability is imposed” by the reason of the serving of minors or visibly intoxicated person sets out a condition precedent which must be satisfied before the exclusion is operative. I do not agree. Under that interpretation of the contract language there would have to be an adjudication establishing that the insured’s liability was predicated upon one of the sets of circumstances set forth in the contract as “exclusions” before the insurer could assert the exclusion. Such a situation places the insurance carrier in the untenable position of defending a case in which the imposition of liability upon the insured on the grounds asserted in the plaintiff’s complaint would relieve the insurer of the duty to pay. This would place the insured in a vulnerable position as his best interests would not be served under such circumstances as it would be within the interests of his insurer, who is providing for his defense, to establish liability on any set of facts which would be covered by exclusionary language in the insurance contract. When the *32basis of the plaintiff’s complaint clearly asserts a theory of liability which would exclude insurance coverage the insurance carrier has no duty to defend the case as the obligation to defend suits against the insured extends only to situations where insurance against liability is covered by the terms of the policy. Wilson v. Maryland Casualty Company, 377 Pa. 588, 105 A.2d 304 (1954). An insurance carrier upon issuing a policy, does not agree to defend any and all types of claims which may be asserted against the insured but is only bound to defend suits and pay claims which are within the scope of the coverage provided by the insurance policy. The carrier may also exclude certain losses from coverage as long as the exclusionary language is clear and unambiguous. See Warner v. Employers’ Liability Assurance Corp., 390 Pa. 62, 133 A.2d 231 (1957); Dennis v. New Amsterdam Casualty Company, 216 Pa.Super. 320, 264 A.2d 436 (1970).
It is certainly clear that in the instant case the basis of the insured’s liability, as set forth in the Complaint, is that the deceased, a minor, was served alcoholic beverages while visibly intoxicated. It is equally as clear that the exclusionary language of the insurance contract removes from coverage liability arising from the serving of alcoholic beverages to minors and/or visibly intoxicated persons. Thus, it is apparent that the insurance policy does not require the insurer to pay losses arising out of either such instance. To hold that the insurer is obligated to defend the suit but is not obligated to pay any losses arising therefrom would be to place both the insured and the insurer in the untenable situation discussed previously.
Turning to the phrase in question we note that Webster’s New International Dictionary, Second Edition defines the word “impose” to means: “1. To charge; impute ... 2.a to subject (one) to a charge, penalty or the like. b. To lay as a charge, burden, tax, duty, obligation, command, penalty, etc.; to enjoin, levy; inflict...”
The phrase does not establish a condition precedent (that being that there be an adjudication of liability) to the assertion of the exclusion. Had the phrase read “if such *33liability has been imposed” it would convey the meaning attributed to it by the insured. Reading as it does I do not construe it to require an adjudication of liability before the exclusion may be asserted since the wording of the phrase does not specifically so provide and because there are valid policy reasons, as discussed above, for holding otherwise. I note that the instant case is not one where the language setting forth the acts which constitute the exclusion is alleged to be ambiguous but is a situation wherein the language setting forth the time when the exclusion may be asserted is questioned. For the reasons stated above I would hold that the insurer in the instant case had no duty to defend the suit. Nor would I hold that the insurer manifested bad faith when it refused to defend prior to the filing of the complaint as the record makes it clear that the insurer had a detailed knowledge of the basis of the action prior to that time which was acquired by its conversations with plaintiff’s attorney and by the August 9, 1974 letter sent to it by Kelmo’s attorney.
Finally, I fail to see how plaintiffs’ amended complaint sets forth a new cause of action when it alleged that Donnelly helped the deceased onto the motorcycle and started it for him. Any negligence attributed to such an act draws its essence from the fact that the deceased was visibly intoxicated and was served alcoholic beverages in that condition, as was alleged in the Complaint. Helping a person onto a motorcycle and starting it for him are not negligent acts, in themselves. It is only when the plaintiff alleges that the decedent was visibly intoxicated at the time that the complaint alleges a possible negligent act. The Complaint also alleges negligence for serving the decedent alcoholic beverages as a minor and while he was visibly intoxicated. The decedent’s allegedly visibly intoxicated condition, therefore, is inextricably intertwined with the acts which were subject to the exclusionary language of the insurance policy. For that reason I would hold that the Amended Complaint does not set forth a new cause of action which would remove the matter from the exclusionary clause.
*34For all the above reasons, I would distinguish this situation from the Hionis case and would reverse the decision of the court below granting the relief sought by the appellees in the declaratory judgment action and hold that the insurer, upon the face of the complaint, had no duty to either pay losses arising out of the decedent’s death nor to defend the suit in trespass brought against the insured.