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Legal Updates for Insurance Agents & Brokers

Pennsylvania Federal Court Takes a Bite Out of Restaurant’s COVID/Business Interruption Coverage Claims Against Insurance Broker

Presented by the Insurance Agents & Brokers Liability Practice Group

October 5, 2021

by Dana A. Gittleman and Timothy G. Ventura

A Pennsylvania federal court recently dismissed claims asserted against an insurance broker for breach of contract and declaratory judgment in connection with a COVID-related business interruption loss in State Street Restaurant Group, Inc. v. The Cincinnati Casualty Co., et al., (M.D. Pa., Civil No. 3:20-CV-816). Marshall Dennehey attorneys Timothy Ventura and Dana Gittleman represented defendants AssuredPartners of New Jersey, LLC d/b/a Kincel & Co. The court granted Kincel’s motion to dismiss, determining that State Street lacked a viable breach of contract claim against our client and that the derivative declaratory judgment claim also failed as a matter of law. 

In its complaint, State Street alleged bad faith against its insurer, Cincinnati Casualty Company, and declaratory judgment and breach of contract against Cincinnati and Kincel, based upon Cincinnati’s denial of State Street’s insurance claim for loss of business income arising from COVID-related shutdown and governmental orders mandating the closure of all non-essential businesses.

State Street alleged that Kincel breached the insurance policy/its coverage obligations under the policy. Yet, the policy itself unequivocally stated that the parties to the insurance policy contract were the plaintiff, as policyholder, and Cincinnati, the insurer—notably, not Kincel—and the plain language of the policy did not impose any duty or coverage obligations upon Kincel. 

In the Magistrate Judge’s opinion, adopted by Judge Mariani, the court concluded that Kincel was not a party to the contract and had not agreed to undertake any responsibilities or liabilities for Cincinnati’s coverage determinations. Kincel merely acted as an agent for a plainly disclosed principal (Cincinnati) and facilitated the contract between the parties thereto.

State Street’s declaratory judgment count sought a declaration that State Street’s COVID-related business losses were insured under the policy and that Kincel was obligated to pay for these losses. Given the inextricable entwinement of the breach of contract and declaratory judgment allegations at issue—and in the absence of a viable breach of contract claim against Kincel—the court dismissed State Street’s declaratory judgment claim against Kincel as well. 

Notably, the complaint contained fact averments regarding purported misrepresentations made by Kincel post-loss regarding claim submission, i.e, indicating to the plaintiff that the business interruption loss likely would not be covered by the insurer because there was no physical property damage, but that they would still submit the claim regardless. However, the plaintiff’s complaint did not assert any tort theories against Kincel for negligence—e.g, failure to procure adequate coverage that would have indemnified for the lost business income due to government-mandated closures due to COVID—or for negligent misrepresentation.

The scope of this decision exceeds pandemic-related litigation and, in fact, blunts plaintiffs’ potential arguments about an insurance broker’s purported breach of an insurance policy to which it is not a party, in concert with recent Pennsylvania federal court opinions. 

Fundamental contract law provides that a party cannot be liable for breach of a contract to which it was not a party. See Electron Energy Corp. v. Short, 597 A.2d 175, 177 (Pa. Super. 1991) (internal citations omitted). Pennsylvania courts have held that an insurance broker who is not a party to the insurance contract (policy) cannot be liable for a breach of that contract. See Kearns v. Minn. Life Ins. Co., 75 F. Supp. 2d 413, 422 (E.D. Pa. 1999); Conquest v. WMC Mortgage Corp., 247 F. Supp. 618, 640 (E.D. Pa. Mar. 30, 2017); Wilson v. Hartford Cas. Co., 2020 WL 5820800 at *9 (E.D. Pa. Sept. 30, 2020).

While it may seem intuitive to insurance brokers that they are not parties to the insurance policy, affirmative steps may be undertaken to mitigate the risk of a potential breach of contract claim, such as clearly communicating the insurance broker’s role in the insurance transaction; avoiding issuing coverage opinions or analyses, deferring such coverage and claim determinations to the insurer; and submitting their customer’s claims, regardless of the broker’s impression as to coverage.

 

The material in this law alert has been prepared for our readers by Marshall Dennehey Warner Coleman & Goggin. It is solely intended to provide information on recent legal developments, and is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. We welcome the opportunity to provide such legal assistance as you require on this and other subjects. If you receive the alerts in error, please send a note tgventura@mdwcg.com. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2021 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved.

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The Eastern District of Pennsylvania recently reinforced a critical limitation on bad faith claims, holding that a timely filing alone will not preserve a cause of action absent a good-faith effort to serve the original process. The plaintiff had presented a claim for underinsured motorist benefits to his auto insurer. The insurer evaluated the claim and determined that the plaintiff’s accident-related damages did not exceed the bodily injury liability insurance limits of the at-fault driver and denied his claim. Among other claims, the plaintiff sought to present a claim for insurance bad faith under 42 Pa. C.S.A. § 8371, to which a two year statute of limitation applies. He first filed a praecipe for writ of summons before the expiration of the statute of limitation. However, the plaintiff did not attempt to serve the praecipe or writ until after the statute of limitations had expired. Additionally, the service failed as the plaintiff had mailed the original process to an incorrect address. Despite receipt of the Postal Service’s failure to deliver the original process, the plaintiff did not attempt to re-serve the writ. Two months later, the plaintiff filed a complaint and then successfully served that complaint. The insurer sought to dismiss the plaintiff’s bad faith claim as time-barred by the statute of limitations. The district court agreed. Though the plaintiff had filed a praecipe for a writ of summons prior to the expiration of the statute of limitations, the statute is only tolled if there is a good faith effort to serve that original process. In this case, the court determined that the plaintiff had failed to perform a “good faith effort to serve the original process”. Additionally, though the filing and service of a complaint can serve as alternative original process when the lawsuit is commenced by the filing of a praecipe for a writ of summons, the plaintiff filed his complaint after the statute of limitations had expired. The plaintiff’s bad faith claim was therefore determined to be barred by the statute of limitations and dismissed by the court, with prejudice. A key takeaway for the defense is not to assume that the statute of limitations has been successfully tolled by a plaintiff merely because a praecipe for a writ of summons or complaint has been filed prior to the expiration of the statute. A filed complaint or writ is only part of the equation. The defense should carefully review the docket and filings to confirm that the plaintiff also performed the requisite good faith effort to serve that original process. A thorough review of the docket may reveal that the plaintiff failed to make the good-faith service efforts necessary to toll the statute of limitations.

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In a decision that resolves years of appellate uncertainty and confirms that insurers and insureds alike can rely on the legal framework in place when a policy is issued, the Supreme Court of Florida last week found that Florida Statute §627.70152, which involves an insured’s requirement to provide an insurer with pre-suit notice before filing a suit, cannot be applied retroactively. In Universal Property & Casualty Insurance Company v. Hughes, the Court was presented with the issue of whether the statutory pre-suit notice requirement applied retroactively and whether it would apply to a breach of contract of an insurance policy that was issued before the statute went into effect. Before the Court was an appeal from a homeowner, Ms. Hughes, who sued her insurance carrier, Universal Property & Casualty Insurance Company (Universal) for breach of contract under an insurance policy that was in effect from April 24, 2019 through April 24, 2020. During the policy period, Ms. Hughes suffered a loss and, on May 29, 2019, made a claim for water damage. The carrier investigated the loss and issued payment; Ms. Hughes disputed the payment, finding the amount insufficient for repairs. On July 1, 2021, Florida Statute §627.70152 went into effect, which required insureds to provide notice of intent to initiate litigation against the carrier prior to filing a lawsuit; if an insured filed the lawsuit without complying with §627.70152, a court must dismiss the case without prejudice. On August 4, 2021, Ms. Hughes filed her lawsuit against Universal for breach of contract. Universal moved to dismiss based on her failure to comply with §627.70152. Ms. Hughes contended the notice requirement could not be applied retroactively. The trial court disagreed and dismissed the lawsuit without prejudice, and Ms. Hughes appealed. During the appeal, the Fourth District Court of Appeal, in Cole v. Universal Property & Casualty, 363 So. 3d 1089 (Fla. 4th DCA 2023), ruled that Florida Statute §627.70152 did apply retroactively to policies issued before the effective date of §627.70152. However, the Sixth District Court agreed with Ms. Hughes and overturned the trial court’s ruling, finding the statute could not retroactively apply to policies issued prior to the statute effective date. Thereafter, the other district courts weighed in, with the Third District Court agreeing with the Fourth District Court, and the First, Second and Fifth District Courts agreeing with the Sixth District Court. In resolving the conflict amongst the district courts, the Supreme Court advised “as a general rule, ‘the statute in effect at the time an insurance contract is executed governs substantive issues arising in connection with that contract.’ Hassen v. State Farm Mut. Auto. Ins. Co., 674 So. 2d 106, 108 (Fla. 1996). The Court applied the two-step test when deciding whether a statute has retroactive application: “First, the Court must ascertain whether the Legislature intended for the statute to apply retroactively. Second, if such an intent is clearly expressed, the Court must determine whether retroactive application would violate any constitutional principles.” Menendez v. Progressive Exp. Ins. Co., 35 So. 3d 873, 877 (Fla. 2010). In analyzing the Legislature’s intent, the Court must determine whether the Legislature has manifested a clear command for retroactivity in the statutory text.  In review of the statutory text, the Court found nothing in the language of the statute to indicate that the phrase “all suits” was serving another purpose of expanding its reach to suits based on policies that both predate and postdate the enactment of the statute. Buis v. Universal Prop. & Cas. Ins. Co., 394 So. 3d 738, 741 (Fla. 2d DCA 2024). Further, the Court noted the statute has an effective date, which has long been considered to be evidence against retroactive application of a statute. The Court concluded that, on its face, no provision of §627.70152 speaks to application of the statute to insurance policies issued before the statute’s effective date and therefore, the Legislature did not clearly command retroactivity of the statute to include insurance policies issued prior to the enactment of the statute. The Court briefly reviewed Universal’s argument that the presuit notice requirement was procedural, not substantive, and therefore should be applied retroactively; however, the Court agreed with the Sixth District Court’s finding that, in its entirety, §627.70152 transformed an insured’s ability to sue an insurance company under a property insurance policy and an insurer’s obligations to respond to and pay insurance claims, thus making the requirement a substantive change. The Court thereby upheld the decision of the Sixth District and disapproved the decision of the Fourth District in Cole.

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