Defense Digest

The Caption May Become the Most Important Part of a Letter
By John R. Warner, Esq.*

My time recently has been occupied in defending a suit against an insurance company for breach of contract and bad faith on fidelity coverage in a commercial crime policy, actually in two commercial crime policies.  The treasurer of a volunteer fire company thought that some of the company's funds belonged to him, took them, was discovered and convicted.  The fire company was actually two separate non-profit corporations:  the company itself and a Fireman's Relief Association, each with its own policy.  The stolen funds were traced solely to the fire company at the outset.  A claim was made under the fidelity coverage.  During the course of the investigation by an independent investigator, and eventually by counsel, letters were exchanged between the fire company's representatives and the insurance company, its representatives and counsel.  In the captions of the letters initiated by the insurance company and its representatives, the fire company and its policy number and the Fireman's Relief Association and its policy number were used interchangeably.  This was true even though it was known that the stolen funds were only from the fire company's accounts.  Both policies had conditions that suits against the insurance company had to be instituted within two years of the discovery of the loss.  The claim was not paid, and suit was instituted against the insurance company solely in the name of the Fireman's Relief Association.  After the two-year limitations period, the plaintiff awakened and moved to amend the caption to insert the fire company as the proper party plaintiff, which was granted subject to any limitations defenses.  The defense then filed a motion to have the breach of contract action dismissed based on the two-year limitation of actions as contained in the policy.  The plaintiff countered by stating that it was actively misled because captions in some of the defendant's earlier letters contained "Fireman's Relief Association" and the policy number applicable to that insured.  The court denied the defendant's motion without opinion.  Was the court correct in its ruling? – maybe.  (It will never be really known as the case settled prior to trial.)

There are numerous cases which are instructive on this issue, the most recent being Blaine v. York Financial Corp. 847 A.2d 727 (Pa. Super. 2004).

The general rule is an amendment to a pleading to add a new party, substitute a new party, or change the capacity in which a party is named will not be permitted after the statute of limitations has run.   However, the court will not apply the rule where the defendant has actively misled the plaintiff as to the identity of a party.  The defendant's actions need not be intentional, and the plaintiff must prove active concealment by clear and convincing evidence. 

In Blaine, the plaintiff fell and was injured on a premises owned by York Federal S&L Association.   The plaintiff initially handled his claim pro se and had, through the process, received several letters from the insurer indicating in their captions that the insured was York Financial Corporation.  The plaintiff also had several conversations with the adjuster who never informed him as to the true owner of the premises.   The plaintiff sought the assistance of counsel who filed suits against York Financial Corporation just before the statute of limitations was about to expire.  After the expiration of the statute, the adjuster wrote a letter identifying the true owner of the premises, and defense counsel raised an ownership issue in his answer.  The plaintiff moved to amend the complaint to substitute the true owner as a party.  The plaintiff's motion was denied, and the defendant filed a motion for summary judgment, which was granted by the trial court.  The Superior Court reversed and held that the actions of the adjuster were clearly and convincingly misleading.  The court also questioned the adjuster's intentions as to her non-disclosure. 

However, a decision by the same appellate court in 2001 would not allow such an amendment in an automobile accident case where only the owner and not the driver was timely sued.   Ferraro v. McCarthy – Pascuzzo, 777 A.2d 1128 (Pa. Super. 2001).  In that case, the insurance company's letters referred to the "policy holder," rather than the "insured."  The Blaine Court distinguished the cases on the basis that the driver of an automobile may be, and commonly is, someone other than the policy holder.  This fact should be within the knowledge of the plaintiff and/or his attorney who then should not be misled into believing that the policy holder was the driver. 

The contents of a police report and the actions of defense counsel also play a role in determining active concealment.  In Diaz v. Schultz, 841 A.2d 546 (Pa. Super. 2004), the pedestrian plaintiff was injured by an unoccupied parked car that rolled down an incline in a parking lot.  Since the car was unoccupied at the time, the police report did not contain identification of anyone deemed to be the driver.  It did contain the name of the owner of the vehicle.  When the incident was reported to the insurance company, the identity of the person who had been driving the automobile that day was not disclosed (who was the owner's son and eating in a nearby restaurant at the time).  The plaintiff's attorney, well in advance of the expiration of the statute of limitations, requested the name of the driver.  The insurance company did not respond, although it later learned of the identity of the driver.  Suit was filed three weeks before the expiration of the statute of limitations against only the owner.  Defense counsel prepared an answer denying owner involvement in the accident and sent it to the owner/defendant nine days prior to the statute running without any type of notation as to the urgency of reviewing it, verifying it, and returning it to the attorney for filing before the critical date.  It was returned and filed after the critical date.  The plaintiff moved to amend the complaint to include the operator of the car on the day of the accident, which was denied.  The defendant then filed a motion for summary judgment that was granted.  The Superior Court held that there had been "active concealment" tolling the statute of limitations and reinstated the case.  However, where the police report identified the driver, and where counsel filed an accurate answer three weeks prior to the running of the statute, the result was totally different.  Hamilton v. Bechtel, 441 A.2d 390, (Pa. Super. 2001).

The lessons to be learned from this exercise can be blurred because reported cases are many times fact specific; however, it would be prudent in automobile cases that, if the driver is different than the owner, captions in letters refer to a "policy holder" rather than a "insured."  Also, police reports should be examined to determine if the driver of a motor vehicle is identified.  In premises cases where the insured is not the owner of the accident premises, this fact should be disclosed and documented prior to the running of the statue of limitations.  In those cases, the use of the word "policy holder" in letter captions may not be sufficient disclosure.  Finally, in all cases, it is not prudent to give the appearance of undue delay in involving defense counsel after suit it filed if it appears that the wrong party has been sued and the statute will run in the near future.

We will leave products liability cases and successor liability for another day.

*John, a shareholder in our Norristown, PA office, can be reached at (610) 292-4455 or jwarner@mdwcg.com.