J. E04001/14


                             2015 PA Super 146

SELECTIVE WAY INSURANCE           :           IN THE SUPERIOR COURT OF
COMPANY,                          :                 PENNSYLVANIA
                                  :
                    Appellant     :
                                  :
                v.                :
                                  :
HOSPITALITY GROUP SERVICES, INC.; :               No. 1430 WDA 2013
HOSPITALITY GROUP SERVICES, INC. :
T/D/B/A RAMADA INN; HOSPITALITY   :
GROUP SERVICES, INC. T/D/B/A      :
RAMADA OF LIGONIER; AND           :
HOSPITALITY GROUP SERVICES, INC. :
T/D/B/A RAMADA OF HISTORIC        :
LIGONIER; ROGER N. ALMS; ROSE M. :
ALMS AND TERRI NEMCHECK,          :
INDIVIDUALLY AND AS               :
ADMINISTRATRIX OF THE ESTATE OF :
SEAN M. NEMCHECK, DECEASED        :


                   Appeal from the Order, August 8, 2013,
           in the Court of Common Pleas of Westmoreland County
                      Civil Division at No. 3543 of 2012


BEFORE: GANTMAN, P.J., FORD ELLIOTT, P.J.E., BENDER, P.J.E., PANELLA,
        DONOHUE, SHOGAN, MUNDY, OLSON, AND OTT, JJ.


DISSENTING OPINION BY FORD ELLIOTT, P.J.E.:FILED JULY 07, 2015

      I respectfully dissent. Under the circumstances of this case, I agree

with the trial court that the four-year statute of limitations for filing a

declaratory judgment action began to run no later than August 1, 2007,

when the plaintiffs in the underlying lawsuit filed a formal complaint.      I

disagree that the trial court ipso facto determined that the statute begins to
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run on all coverage disputes at the time of the filing of the complaint.     I

agree with the analysis of the Majority in defining the purpose of declaratory

judgment actions.   I also agree that the actual controversy triggering the

statute can be a moving target that must be decided by the facts of any

given case. Certainly, Wagner v. Apollo Gas Co., 582 A.2d 364 (Pa.Super.

1990), and its unique facts established as much.        Legislatively created

limitations periods are based on a policy of fairness to a defendant, as well

as to prevent stale claims and to require a reasonable time to enforce rights.

See Aivazoglou v. Drever Furnaces, 613 A.2d 595, 597 (Pa.Super. 1992)

(“The Pennsylvania Supreme Court has repeatedly emphasized the important

purposes which are served by statutes of limitation. They not only serve to

give prompt notice to defendants that claims are being made against them,

but they prevent stale claims and thus promote finality and stability.”)

(citations omitted). To hold as Selective advocates that the trigger for the

statute is when the carrier denies coverage to the insured would in effect

allow the limitations period to begin when the insurer says it should begin

thereby thwarting legislative intent. Rather, I would decide that the statute

of limitations for filing a declaratory judgment action begins to run when the

insurer is on notice of a coverage dispute, be it upon the review of the

complaint, the completion of discovery, the ultimate resolution of the

underlying lawsuit, or any other event which would provide actual notice.




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      Here, Selective was aware there was a coverage issue; in fact, it had

already sent Hospitality a reservation of rights letter on July 31, 2007.

Selective was also aware of the Liquor Code Enforcement proceedings in

which the sworn testimony of Matthew White, Sean Nemcheck’s co-worker,

was introduced to establish that Nemcheck obtained alcohol from the

premises   while   unsupervised    and   without   Hospitality’s   knowledge   or

permission.    Selective argues that because Nemcheck took and consumed

alcohol without Hospitality’s knowledge or permission, there is no Liquor

Liability Coverage.    Yet, for whatever reason, Selective waited to file a

declaratory judgment action until June 6, 2012, nearly five years later.1

              In determining whether an insurance company is
              responsible to defend its insured, we observed in
              Gene’s Restaurant Inc. v. Nationwide Ins. Co.,
              519 Pa. 306, 308, 548 A.2d 246, 247 (1988) that:

                   [a]n insurer’s duty to defend an action
                   against the insured is measured, in the
                   first instance, by the allegations in the
                   plaintiff’s pleadings. . . . In determining
                   the duty to defend, the complaint
                   claiming damages must be compared to

1
  In Zourelias v. Erie Ins. Group, 691 A.2d 963 (Pa.Super. 1997), appeal
denied, 706 A.2d 1214 (Pa. 1998), this court found that the statute of
limitations did not begin to run until Erie denied the appellant’s request for
coverage. Id. at 964 n.2. However, as Hospitality points out, the plaintiff in
the declaratory judgment action in Zourelias was the insured, not the
insurer. (Supplemental brief of appellees at 6.) Obviously, in that case, an
“actual controversy” would not arise regarding interpretation of the
insurance policy at issue until the insurer actually denied coverage. An
insured would have no reason to file a declaratory judgment action before
then. Here, however, Selective knew in 2007 simply by comparing the
factual allegations in the Nemcheck complaint with the coverage exclusions
in the policy that there was a basis for denial of coverage.


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                   the policy and a determination made as
                   to whether, if the allegations are
                   sustained, the insurer would be required
                   to pay resulting judgment. . . . [T]he
                   language of the policy and the
                   allegations of the complaint must be
                   construed together to determine the
                   insurers’ obligation.

             Therefore, “a carrier’s duties to defend and
             indemnify an insured in a suit brought by a third
             party depend upon a determination of whether the
             third party’s complaint triggers coverage.” Mutual
             Benefit Ins. Co. v. Haver, 555 Pa. 534, 538, 725
             A.2d 743, 745 (1999).

Donegal Mutual Ins. Co. v. Baumhammers, 938 A.2d 286, 290-291 (Pa.

2007).   “[W]e focus primarily on the duty to defend because it is broader

than the duty to indemnify. If an insurer does not have a duty to defend, it

does not have a duty to indemnify.         However, both duties flow from a

determination that the complaint triggers coverage.”          American Nat.

Property and Cas. Companies v. Hearn, 93 A.3d 880, 884 (Pa.Super.

2014), quoting Indalex Inc. v. National Union Fire Ins. Co. of

Pittsburgh, 83 A.3d 418, 421 (Pa.Super. 2013) (citations and quotation

marks omitted).

      As our supreme court stated in General Accident Ins. Co. of

America v. Allen, 692 A.2d 1089, 1095-1096 (Pa. 1997) (emphasis in

original):

             The question before a court in a declaratory
             judgment action is not whether the insurer owes
             indemnification in a specific amount, which would
             be a premature inquiry absent a full resolution of the


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           underlying action. Instead, the question is whether
           the insurer has a duty to indemnify the insured in
           the event of liability in the underlying action. A
           court can answer such a question because it is within
           the scope of a court’s power pursuant to the
           Declaratory Judgments Act.      42 Pa.C.S. § 7532
           (courts have the power to declare rights, status and
           other legal relations whether or not further relief is
           or could be requested). Indeed, the Superior Court
           has held that the duty to defend and the duty to
           indemnify may be resolved in a declaratory
           judgment action.       [Erie Ins. Exchange v.
           Claypoole, 673 A.2d 348 (Pa.Super. 1996)] (duty to
           defend and duty to indemnify may be resolved in
           declaratory judgment action); Harleysville Mutual
           Insurance Company v. Madison, 415 Pa.Super.
           361, 609 A.2d 564 (1992) (insurer can seek
           determination of obligations to insured before
           conclusion of underlying action); see also,
           Uguccioni v. United States Fidelity & Guaranty
           Company, 408 Pa.Super. 511, 597 A.2d 149
           (1991).

See also Baumhammers, 938 A.2d at 291 (“To determine whether

Donegal is obligated to defend and potentially indemnify parents in the

instant case requires review of the factual allegations contained in the

complaint.”).   Hence, the duties owed by an insurer under the policy are

uniquely a matter for declaratory judgment.

     As supported by Allen, the relief of a declaratory judgment in

insurance coverage disputes between an insurance company and its insured

must be viewed in the context of a duty analysis.      Under any policy of

insurance, there is a duty of good faith and fair dealing imposed on the

insurer to investigate claims and resolve coverage disputes with its insured

in a timely manner. See Berg v. Nationwide Mut. Ins. Co., Inc., 44 A.3d


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1164, 1170 (Pa.Super. 2012), appeal denied, 65 A.3d 412 (Pa. 2013)

(“The duty of good faith originates from the insurer’s status as a fiduciary for

its insured under the insurance contract, which gives the insurer the right,

inter alia, to handle and process claims.”) (citation omitted).       This duty

rests on the foundation that the prejudice to the insured can be great if a

defense and coverage is denied. Furthermore, an insurer and its insured are

not on equal footing; and in my view, where an insurer is put on notice of a

coverage issue, i.e., by comparing the factual allegations in the underlying

complaint with the terms of the policy, it should promptly seek a judicial

determination of whether or not it has a duty to defend/indemnify its insured

in order to avoid prejudice to the insured.    There would be little question

that if the four corners of a complaint in a given case established that a duty

to defend and indemnify was clearly excluded, then the insurer would be

estopped from waiting to file for declaratory relief following the resolution of

the underlying action.    The result is no different instantly when Selective

waited until the eve of trial.

      As of July 31, 2007, when Selective sent a reservation of rights letter,

and August 1, 2007, when the complaint was filed, Selective was aware of a

potential coverage issue. Selective was well aware of all the pertinent facts

more than four years prior to filing the declaratory judgment action. By the

time the complaint was filed, Selective knew that Nemcheck was an

employee of Hospitality; that he died in a one-vehicle accident while driving



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home; that he was a minor; and that he had a BAC of .14. These facts were

alleged in the complaint in the underlying lawsuit and summarized by

Selective in its reservation of rights letter. As a result of the Liquor Code

Enforcement proceeding, Selective also knew that Nemcheck took and

consumed    alcohol     without   Hospitality’s   knowledge   or    permission.

Substantially the same facts are set forth in Selective’s complaint for

declaratory judgment to support its contention that coverage is precluded

under the policy.     A simple comparison of the factual allegations in the

Nemcheck complaint with the terms of the policy should have enabled

Selective to timely file a declaratory judgment action. Despite knowing all

the salient facts upon which it relies in its declaratory judgment action,

Selective waited until the eve of trial to seek a judicial determination of

non-coverage.

           When an insurance company or its representative is
           notified of loss occurring under an indemnity policy,
           it becomes its duty immediately to investigate all the
           facts in connection with the supposed loss as well as
           any possible defense on the policy. It cannot play
           fast and loose, taking a chance in the hope of
           winning, and, if the results are adverse, take
           advantage of a defect in the policy. The insured
           loses substantial rights when he surrenders, as he
           must, to the insurance carrier the conduct of the
           case.

Malley v. American Indemnity Corp., 146 A. 571, 573 (Pa. 1929). See

also Babcock & Wilcox Co. v. American Nuclear Insurers, 76 A.3d 1,

13 (Pa.Super. 2013), appeal granted in part, 84 A.3d 699 (Pa. 2014),



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quoting Mid-Century Ins. Co. v. McKelvey, 666 S.W.2d 457, 459

(Mo.Ct.App. 1984) (“Nothing chills one’s zeal for a defense so much as the

belief that, even if he loses, it will cost him nothing. . . .”).        In the

meantime, had Hospitality been informed of Selective’s actual intention to

deny coverage, it could have engaged separate counsel and managed its

own defense. See Brugnoli v. United National Ins. Co., 426 A.2d 164,

168 n.6 (Pa.Super. 1981) (“consent of the insured is necessary if the insurer

is to retain control of defense of the action and at the same time reserve the

right to disclaim liability under the policy”), quoting 14 G.Couch, Cycopedia

of Insurance Law § 51:84 (2nd ed. 1965); Babcock & Wilcox Co., 76 A.3d

at 12 (an insured has the option to decline a defense tendered subject to a

reservation of rights and furnish its own defense, either pro se or through

independent counsel retained at the insured’s expense). Although Selective

did send a protective reservation of rights letter, Hospitality could be

forgiven for assuming Selective had decided to waive any coverage issue

when it had still not filed a declaratory judgment action five years later.

      For these reasons, I would hold that the statute of limitations begins to

run when an insurer is put on notice of a coverage dispute on a claim. In

this case, that was no later than August 1, 2007, when the underlying

complaint was filed.    It was at that time that Selective was aware of an

actual coverage controversy.     Therefore, I would find that the limitations

period to file a declaratory judgment action expired on August 1, 2011, and



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Selective’s complaint was filed ten months too late, on June 6, 2012.   As

such, I respectfully dissent.



      Judges Panella and Shogan join this dissenting opinion.

      Judge Mundy concurs in the result.




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