author: HERRON, J.,

text:
    Weiler v. SmithKline Beecham Corp.

      October 8, 2001

      Louis C. Ricciardi, for plaintiffs.

      Ellen R. Rogojf, for defendant.
   HERRON, J.,

Defendant State SmithKline Beecham Corporation has filed preliminary objections to the complaint of plaintiffs Kelli R. Weiler and Diane Wojcik. For the reasons set forth in this opinion, the court is issuing a contemporaneous order overruling the objections.

BACKGROUND

The allegations in the complaint center on SmithKline’s use of phenylpropanolamine, the active ingredient found in some over-the-counter decongestant medicines that supposedly is associated with stroke, seizure and damage to the cardiovascular and central nervous systems. The plaintiffs contend that SmithKline was aware of these side effects but advertised that its products that included PPA were safe and never warned the purchasers of the dangers of the PPA products.

Both plaintiffs purchased PPA products and seek to represent a class of those PPA products purchasers who have not suffered personal injury. According to the complaint, the members of the proposed class suffered economic damages because the PPA products did not safely alleviate the symptoms of the class members’ colds, flu and allergies. On the basis of these allegations, the plaintiffs have asserted claims for violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, breach of implied warranty, strict liability (failure to warn) and unjust enrichment/restitution. In response, SmithKline asserts that the plaintiffs’ claims are legally insufficient.

DISCUSSION

For the purposes of reviewing preliminary objections asserting legal insufficiency, “all well-pleaded material, factual averments and all inferences fairly deducible therefrom” are presumed to be true. Tucker v. Philadelphia Daily News, 757 A.2d 938, 941-42 (Pa. Super. 2000). Furthermore,

“[I]t is essential that the face of the complaint indicate that its claims may not be sustained and that the law will not permit recovery. If there is any doubt, it should be resolved by the overruling of the demurrer. Put simply, the question presented by demurrer is whether, on the facts averred, the law says with certainty that no recovery is possible.” Bailey v. Storlazzi, 729 A.2d 1206, 1211 (Pa. Super. 1999).

I. The Complaint Alleges Complete Counts for UTPCPL Violations

The objections do not raise any substantive defect in the plaintiffs’ UTPCPL claims that may be addressed at this stage. As a result, the objections to the UTPCPL claims are overruled.

A. The Plaintiffs Allege a Causal Link Necessary To Establish a Violation of Section 201-2(4)(xxi)

The plaintiffs present a detailed history of section 201-2(4) to argue that UTPCPL section 201-2(4)(xxi), also known as the “catchall provision,” does not require evidence of each element of common-law fraud. SmithKline counters that the provisions of the UTPCPL that it allegedly violated, including the catchall provision, require proof of reliance. It is not clear that these arguments are mutually exclusive. Indeed, the court must conclude that the current version of the catchall provision requires proof of a causal link between the SmithKline misconduct and the harm to the plaintiffs but does not require evidence of each element of common-law fraud.

Before 1996, the catchall provision prohibited only “fraudulent conduct, which creates a likelihood of confusion or of misunderstanding.” This required plaintiffs pleading a violation of the catchall provision to prove all of the elements of common-law fraud. See e.g., Prime Meats Inc. v. Yochim, 422 Pa. Super. 460, 468, 619 A.2d 769, 773 (1993) (“to recover under 73 Pa.C.S. §201-2(4)(xvii), the elements of common-law fraud must be proven”). Id., 422 Pa. Super. at 469, 619 A.2d at 773. Because reliance is an element of common-law fraud, courts held that a plaintiff acting under the catchall provision must have relied on the defendant’s improper conduct. See id., 422 Pa. Super. at 470, 619 A.2d at 774.

In 1996, however, the catchall provision was amended to prohibit deceptive conduct in addition to fraudulent conduct as follows:

“[(xvii)] (xxi) Engaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.” Act 146, P.L. 906, §1, December 4, 1996.

According to the plaintiffs, this eliminates the requirement that they plead each element of common-law fraud for violations of the catchall provision.

When construing a statute, “the legislature is presumed to have intended to avoid mere surplusage; thus, whenever possible, courts must construe a statute so as to give effect to every word contained therein.” Berger v. Rinaldi, 438 Pa. Super. 78, 86, 651 A.2d 553, 557 (1994). If the legislature modifies the language of a given statute, the amendment “ordinarily indicates a change in the legislative intent.” Commonwealth v. Pierce, 397 Pa. Super. 126, 130, 579 A.2d 963, 965 (1990) (citing Masland v. Bachman, 473 Pa. 280, 289, 374 A.2d 517, 521 (1977)).

Here, the insertion of the phrase “or deceptive” implies that either deceptive or fraudulent conduct constitutes a violation of the catchall provision and that deceptive conduct is not the same as fraudulent conduct. Moreover, it is clear from the legislative history of the catchall provision amendment that the General Assembly’s intent was to expand the scope of the UTPCPL. See e.g., Pa. Legis. Journal — Senate 1996, v.II, pp. 2427-28 (discussing general motivations for UTPCPL amendments). This conclusion also comports with the Pennsylvania Supreme Court’s instructions that the UTPCPL “is to be construed liberally to effect its object of preventing unfair or deceptive practices.” Commonwealth v. Monumental Properties Inc., 459 Pa. 450, 460, 329 A.2d 812, 817 (1974). See also, Wallace v. Pastore, 742 A.2d 1090, 1093 (Pa. Super. 1999) (citing Monumental Properties and applying the UTPCPL liberally in a private action context). Given these circumstances, the court must conclude that the purpose of the 1996 amendment was to eliminate the requirement that a plaintiff plead all the elements of fraud to sustain a claim under the catchall provision. To hold otherwise would be to find the word “deceptive” redundant and would clash with the rules of statutory interpretation.

This holding finds support in Booze v. Allstate Insurance Co., 750 A.2d 877 (Pa. Super. 2000). In Booze, the court stated that “to state a claim under the catchall provision of the Unfair Trade Practices and Consumer Protection Law, a plaintiff must prove the elements of common-law fraud.” 750 A.2d at 880. However, this conclusion was based on section 201-2(4)(xvii), the pre1996 version of the catchall provision, and the court specifically noted that the catchall provision had been amended. Cf. In re Patterson, 263 B.R. 82, 92 n.17 (Bankr. E.D. Pa. 2001) (concluding that “the addition of the word ‘deceptive’ was intended to cover conduct other than fraud which was clearly embraced by the pre-amendment statute”).

The court’s opinion in Tesauro v. The Quigley Corporation, August term 2000, no. 1011 (C.P. Phila. April 9, 2001) (Herron, J.) is not to the contrary. In Tesauro, there was no indication that the plaintiffs were attempting to proceed on a deceptive, as opposed to fraudulent, conduct claim, making the court’s statement that all elements of fraud were required appropriate. As a result, even if there areno allegations of fraud, the plaintiffs’ claim for breach of the catchall provision is legally sufficient so long as the complaint alleges “deceptive conduct which creates a likelihood of confusion or of misunderstanding.”

Of course, the fact that the catchall provision does not require proof of common-law fraud does not obviate the need to establish a causal connection between SmithKline’s allegedly deceptive conduct and the harm the plaintiffs have suffered. As noted by several Pennsylvania appellate court decisions, a private plaintiff, whose right to act arises under UTPCPL section 9.2, must show that he or she was damaged as a result of a defendant’s unlawful act. Weinberg v. Sun Co., 565 Pa. 612, 618, 777 A.2d 442, 446 (2001) (Section 9.2 “clearly requires, in a private action, that a plaintiff suffer an ascertainable loss as a result of the defendant’s prohibited action”); DiLucido v. Terminix International Inc., 450 Pa. Super. 393, 402, 676 A.2d 1237, 1241 (1996) (Section 9.2’s “use of the phrase ‘as a result of’ indicates the intent of the legislature to require a causal connection between the unlawful practice and a plaintiff’s loss”). These interpretations of section 9.2 are unaffected by the 1996 modifications of the catchall provision. As a result, the plaintiffs must plead that they suffered harm as a result of SmithKline’s deceptive conduct.

A review of the complaint reveals that the plaintiffs have pled the required element of causation. According to paragraph 45 of the complaint, the damages suffered by the class are a “direct and proximate result” of SmithKline’s violations of the UTPCPL. Because the court must accept the plaintiffs’ allegations as true, this is sufficient to allege causation and allows the plaintiffs’ claim under the catchall provision to survive Smith-Kline’s demurrer.

B. The Plaintiffs Have Alleged Reliance in Support of Their False Advertising, Fraud and Fraudulent Misrepresentation Claims

Two of the plaintiffs’ UTPCPL claims are for fraudulent misrepresentation and fraud, both of which require proof of reliance. Bortz v. Noon, 556 Pa. 489, 499, 729 A.2d 555, 560 (1999); Kit v. Mitchell, 771 A.2d 814, 819 (Pa. Super. 2001). In paragraph 17 of the complaint, the plaintiffs assert that they purchased the PPA products “[bjased on the defendant’s promotions, marketing, advertisements and other representations,” many of which are alleged to have been false. This is sufficient to allege that the plaintiffs relied on Smith Kline’s conduct that violated the UTPCPL.

The plaintiffs argue that a false advertising claim brought under UTPCPL section 201-2(4)(v) does not require proof of reliance or common-law fraud. This is incorrect. While at least one Superior Court case indicated that reliance was not an element under the UTPCPL’s false advertising provision, the Pennsylvania Supreme Court in Weinberg made it clear that a private plaintiff pursuing a 201-2(4)(v) claim must allege reliance. 565 Pa. at 618, 111 A.2d at 445-46. As discussed supra, however, the plaintiffs have alleged reliance, and the objections to the plaintiffs’ UTPCPL claims asserting a failure to allege reliance are overruled.

C. The Court Cannot Examine the Plaintiffs’ Class Action Allegations in the Context of Preliminary Objections

As a final argument against the plaintiffs’ UTPCPL claims, SmithKline asserts that individual questions of reliance make this matter inappropriate for class action treatment. This argument cannot be raised in the context of preliminary objections and must be overruled.

Under Pennsylvania Rules of Civil Procedure, the class that the plaintiff claims to represent must be certified by the court. Pa.R.C.P. 1707. To certify a class, a court must find that the class meets the requirements of numerosity, predomination of common questions of law or fact, typicality of the named plaintiff’s claims, ability of the named plaintiffs to fairly and adequately protect the interests of the class and the fairness and efficiency of a class action as a method for adjudication. Pa.R.C.P. 1702.

While these five elements are important, a court may not address questions of certification “until the pleading stage is concluded, [and] attacks on the form of the complaint or demurrers to attack the substance” have already been disposed of. Niemiec v. Allstate Ins. Co., 721 A.2d 807, 810 (Pa. Super. 1998). This is “to ensure that the class proponent is presenting a non-frivolous claim capable of surviving preliminary objections.” Janicik v. Prudential Ins. Co. of America, 305 Pa. Super. 120, 129, 451 A.2d 451, 455 (1982). Thus, a trial court reviewing preliminary objections “should not. . . concem[] itself with the preliminary objections to the class action allegations at all.” Sherrer v. Lamb, 319 Pa. Super. 290, 294, 466 A.2d 163, 165 (1983). See also, Pa.R.C.P. 1705 (stating that issues of fact with respect to the class action allegations are not to be raised in preliminary objections); Niemiec, 721 A. 2d at 810 (distinguishing between the certification and the pleading stages by stating that “upon a motion for class action certification the court considers whether a claim may be brought by a class of plaintiffs, whereas at the earlier, preliminary objection stage, the court must decide whether there exists a valid claim to be brought at all, no matter who the plaintiff”).

The court shares SmithKline’s doubts about whether the instant action will survive the certification process, especially in light of the Weinberg court’s holding. See 565 Pa. at 618, 777 A.2d at 446. (If the plaintiff’s false advertising claims were to proceed as a class action, “questions of fact applicable to each individual private plaintiff would... be numerous and extensive”). Indeed, it seems inconceivable that the plaintiffs will be able to show the predominance of common questions of fact and law, as required for certification. Regardless of these doubts, however, the court must limit its current examination to those issues properly raised in preliminary objections, not at a certification hearing. Consequently, the ability of the plaintiffs to sustain this suit as a class action cannot be considered now, and the objections attacking the class allegations must be overruled.

II. The Prohibition on Recovery Under a Strict Liability (Failure To Warn) Theory for Economic Damages Does Not Apply to This Matter

SmithKline next argues that the plaintiffs’ claim for strict liability is deficient because the plaintiffs suffered only economic damages. While citations from several Pennsylvania cases hint that SmithKline is correct, the context of those citations shows that the plaintiffs’ strict liability count is permissible.

SmithKline’s attack is premised on the economic loss doctrine. This doctrine has its origins in Pennsylvania in REM Coal Co. v. Clark Equipment Co., 386 Pa. Super. 401, 563 A.2d 128 (1989). There, the court considered

“[T]he appropriateness of permitting recovery in tort where a product malfunctions because of an alleged defect in the product, causing damage to the product itself and consequential damages in the nature of costs of repair or replacement or lost profits, but the malfunction causes no personal injury and no injury to any other property of the plaintiff.” 386 Pa. Super. at 403, 563 A.2d at 129.

Ultimately, the court concluded that “negligence and strict liability theories do not apply in an action between commercial enterprises involving a product that malfunctions where the only resulting damage is to the product itself.” 386 Pa. Super. at 412-13, 563 A.2d at 134. Later, this prohibition on recovery in tort was extended to non-commercial plaintiffs. See Jones v. General Motors Corp., 428 Pa. Super. 544, 546, 631 A.2d 665, 666 (1993) (finding “that the rationale behind REM Coal is equally applicable to disputes involving claims brought by individuals”). In its current form, the Commonwealth’s version of the doctrine precludes recovery for economic losses in negligence and strict liability actions where the plaintiff has suffered no physical or property damage. Moscatiello v. Pittsburgh Contractors Equipment Co., 407 Pa. Super. 378, 385-86, 595 A.2d 1198, 1201 (1991) (“purely economic losses cannot be recovered where the plaintiff’s action sounded solely in negligence or strict liability”).

While SmithKline’s assertions regarding the right to recover economic loss are technically correct, they must be placed in their proper context. An examination of the economic loss doctrine reveals that its purpose is to limit, a plaintiff to contract remedies, when available:

“In REM, we adopted the rationale of the United States Supreme Court in East River S.S. Corp. v. Transamerica Delaval Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986). There, the Supreme Court expressed its concern for maintaining the separate spheres of the law of contract and tort. It emphasized that where an allegedly defective product causes damage only to itself, and other consequential damages resulting from the loss of the use of the product, the law of contract is the proper arena for redressing the harm because in such a case, the damages alleged relate specifically to product quality and value as to which the parties have had the opportunity to negotiate and contract in advance. They have allocated the risks of possible types of losses, and agreed on the level of quality that will be given for the price demanded. When the product fails to conform and only economic losses result, the parties ’ recovery one against the other for economic losses should be limited to an action on that contract and no additional recovery in negligence or strict liability is permitted.” New York State Elec. & Gas Corp. v. Westinghouse Elec. Corp., 387 Pa. Super. 537, 550-51, 564 A.2d 919, 925-26 (1989). (emphasis added)

In the instant matter, there does not appear to be a contract on which the plaintiffs could base their claim. If it is not, the entire purpose behind the economic loss doctrine, i.e., precluding plaintiffs from recovering in tort for contract claims, would not be served by barring the plaintiffs’ strict liability claim.

III. The Plaintiffs ’ Breach of Implied Warranty Claim Is Legally Sufficient

Under Pennsylvania law, an agreement for the sale of goods may include implied warranties of merchantability and fitness for a particular purpose. 13 Pa.C.S. §§2314, 2315. SmithKline asserts that, because the plaintiffs did not suffer any physical harm, they are precluded from recovering under an implied warranty theory.

There is no support in Pennsylvania law for Smith-Kline’s argument that physical harm is required for breach of warranty recovery. It appears that Pennsylvania permits recovery for economic injuries for breach of warranty. See Altronics of Bethlehem Inc. v. Repco Inc., 957 F.2d 1102, 1106-1107 (3d Cir. 1992) (allowing recovery of consequential damages for breach of warranty claim). The Pennsylvania cases SmithKline cites are not to the contrary. In Brinkman v. Shiley Inc., 732 F. Supp. 33 (M.D. Pa. 1989), aff’d, 902 F.2d 1558 (3d Cir. 1989), the court held that a plaintiff who suffered only psychic and emotional injuries from a defective artificial heart valve could not recover under an intentional infliction of emotion distress theory. Nowhere did the Brinkman court address economic damages. Similarly, the plaintiff’s claim in Angus v. Shiley Inc., 989 F.2d 142 (3d Cir. 1993), was insufficient not because she did not suffer physical injuries but rather because she did not establish that the product in question was defective and because she alleged only emotional injuries. Here, in contrast, the complaint alleges repeatedly that the PPA products were defective and “not of merchantable quality or safe or fit for the intended use or purpose” for various reasons. Complaint at ¶¶62-65, 67. Accordingly, the plaintiff’s failure to allege that she suffered physical harm does not render her breach of warranty claim legally insufficient.

IV. The Plaintiffs’ Unjust Enrichment Claim Is Proper

SmithKline’s arguments against the plaintiffs’ unjust enrichment, claim are based on the premise that their tort claims are legally insufficient. See defendant’s memorandum at 21 (“if SmithKline’s demurrers are sustained for Counts II and III, Count IV also must be dismissed”). Because their tort counts have survived the objections, the plaintiffs may proceed on their claim for unjust enrichment. Cf. Steamfitters Local Union No. 420 Welfare Fund v. Phillip Morris Inc., 171 F.3d 912, 937 (3d Cir. 1999) (finding “no justification for permitting plaintiffs to proceed on their unjust enrichment claim once we have determined that the district court properly dismissed the traditional tort claims because of the remoteness of plaintiffs’ injuries from defendants’ wrongdoing”).

CONCLUSION

Each of the plaintiffs’ claims is legally sufficient for the purposes of the objections.

ORDER

And now, October 8, 2001, upon consideration of defendant SmithKline Beecham Corporation’s preliminary objections to the complaint of plaintiffs Kelli R. Weiler and Diane Wojcik and the plaintiffs’ response thereto and in accordance with the memorandum opinion being filed contemporaneously with this order, it is hereby ordered and decreed that the preliminary objections are overruled. The defendant is directed to file an answer to the complaint within 20 days of this order.

      . 73 Pa.C.S. §201-1 — 201-9.3.

      . 73 Pa.C.S. §201-2(4)(xxi).

      . Before 1996, the catchall provision was numbered as 73 Pa.C.S. §201-2(4) (xvii).

      . This is consistent with the general principle that “[t]he UTPCPL must be liberally construed to effect the law’s purpose of protecting consumers from unfair or deceptive business practices.” Wallace v.

        Pastore, 742 A.2d 1090, 1093 (Pa. Super. 1999) (citing Commonwealth v. Monumental Properties Inc., 459 Pa. 450, 329 A.2d 812 (1974)).

      . This conclusion does not conflict with Weinberg v. Sun Co., 565 Pa. 612, 777 A.2d 442 (2001). In Weinberg, the court examined a claim brought under the false advertising provision of the UTPCPL and did not address either the old or amended version of the catchall provision. Accordingly, the court’s comment that “[njothing in the legislative history suggests that the legislature ever intended statutory language directed against consumer fraud to do away with the traditional common-law elements of reliance and causation” would not be applicable to claims brought under the revised catchall provision. 565 Pa. at 618, 777 A.2d at 446.

      . Ironically, Patterson reads Booze as interpreting the post-1996 version of the catchall provision. 263 B.R. at 92 & 92 n.17. For the reasons set forth supra, the court must respectfully disagree with Patterson’s reading.

      . In addition, it does not appear that the Tesauro plaintiffs alleged reliance or causation, rendering their catchall provision claim invalid regardless of whether their claims were based on deception or fraud.

      . In its entirety, UTPCPL section 9.2(a) reads as follows:
      “(a) Any person who purchases or leases goods or services primarily for personal, family or household purposes and thereby suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment by any person of a method, act or practice declared unlawful by section 3 of this Act, may bring a private action to recover actual damages or $100, whichever is greater. The court may, in its discretion, award up to three times the actual damages sustained, but not less than $100, and may provide such additional relief as it deems necessary or proper. The court may award to the plaintiff, in addition to other relief provided in this section, costs and reasonable attorney fees.” 73 Pa.C.S. §201-9.2.

      . SmithKline challenges only the element of reliance and not the remaining elements of these three counts.

      . 73 Pa.C.S. §201-2(4)0).

      . In DiLucido, for example, the court held that plaintiffs “are not required to prove the elements of common-law fraud to establish violations of sections (ii), (v) and (xvi).” 450 Pa. Super, at 401, 676 A.2d at 1241. The Weinberg court found this statement to be incorrect because in Commonwealth v. Hush-Tone Industries Inc., 4 Pa. Commw. 1 (1971), the primary case on which the statement was based, “was an action brought by the Attorney General in the name of the Commonwealth, and the quoted elements of proof are the sorts of considerations appropriate for a high public official responsible for protecting public interests.” 565 Pa. at 617, 777 A.2d at 446.

      . The five class certification requirements, as set forth in Rule 1702, are numerosity; predomination of common questions of law or fact; typicality of claims; ability of the plaintiffs to fairly and adequately protect the interests of the class; and the fairness and efficiency of a class action as a method for adjudication. Weinberg v. Sun Co. Inc., 740 A.2d 1152, 1162-63 (Pa. Super. 1999).

      . One case appears to be an isolated exception to this rule. In Adamson v. Pennsylvania Liquor Control Board, 49 Pa. Commw. 54, 410 A.2d 392 (1980), the Superior Court thoroughly measured the proposed class against the class requirements and, based on the defendant’s preliminary objections, concluded that the plaintiff’s action would not benefit the class. This, however, is the only case where a Pennsylvania court has examined the class itself when reviewing preliminary objections and appears to violate the principle set forth in later cases.

      . The economic loss doctrine initially applied solely to strict liability torts but has gradually been extended to negligence claims and, by some courts, to intentional torts as well. See Steven C. Tourek, Thomas H. Boyd and Charles J. Schoenwetter, Bucking the “Trend: ” The Uniform Commercial Code, The Economic Loss Doctrine and Common Law Causes of Action for Fraud and Misrepresentation, 84 Iowa L. Rev. 875, 885-91 (1999) (tracing the history of the economic loss doctrine nationwide).

      . The court agrees with the sentiments expressed in Rivera v. Wyeth-Ayerst Laboratories, 121 F. Supp.2d 614 (S.D. Tex. 2000), where the court addressed a class of plaintiffs who suffered only economic harm from a defective drug:
      “If for example, a person uses a defective tire which does not malfunction in his particular case, then that person has obtained the benefit of the bargain. With defective medicine, however, even if the medicine does not cause physical injury, the user may spend months or years worrying about potential illness caused by the medicine. Part of what people bargain for when they purchase medicine is a safe product which will not cause them worry. The court cannot say as a matter of law that there was no breach of warranty, even absent physical injury, for a medicine with a revoked assurance of safety.” 121 F. Supp.2d at 619.

      . The foreign cases relied on by SmithKline are also readily distinguishable, as the plaintiffs in most of the cases cited failed to show that the products supplied by the defendants were defective. See e.g., Lauterbach v. Shiley Inc., civ. a. no. H-87-3208, 1991 WL 148137, at *8 (S.D. Tex. March 29,1991) (plaintiff could not recover for breach of warranty where “[ajbsent a defective product”); Sill v. Shiley Inc., 735 F. Supp. 337, 340 (W.D. Mo. 1989), aff’d, 909 F.2d 508 (8th Cir. 1990) (“[i]n the absence of properly presented facts that Shiley had done something to her that has caused her distress, i.e., that there is some defect in the valve implanted in her, plaintiff does not have a cognizable claim for infliction of emotional distress”).


source: Caselaw Access Project

author: HOOVER, J.,

license: Public Domain

text:
    Progressive Northern Insurance Co. v. Yudell
    C.P. of Dauphin County,
    no. 4513 S 1999.

      July 19, 2001

      James Nealon III, for plaintiff.

      Daryl J. Gerber, for defendant Webber.

      Timothy Shollenberger and Ronald S. Chima, for defendants Jones.

      Christopher M. DeMarco, for defendant Kelbaugh.

      Stephen M. Greecher, for defendant DiNunzio.
   HOOVER, J.,

This declaratory judgment action, pursuant to Declaratory Judgment Act, 42 Pa.C.S. §7531 et seq., arises out of a claim for liability coverage. Plaintiff Progressive Northern Insurance Company, avers that driver/defendant Joshua Yudell did not have permission of automobile owner Noel Kelbaugh to use the automobile involved in an accident or, in the alternative, was using the vehicle outside the scope of permission granted by Ms. Kelbaugh. Progressive Northern Insurance Company avers that, therefore, no liability coverage should be provided for the aforesaid accident.

For reasons set forth herein, Progressive’s motion for declaratory judgment is granted.

FACTUAL BACKGROUND

The accident out of which this matter arises occurred on April 18, 1999 at approximately 2:12 a.m. on Route 283, in East Hempfield Township, Lancaster County, Pennsylvania. At that time, Joshua Yudell was operating a vehicle owned by Noel Kelbaugh. The vehicle was loaned to him by Ms. Kelbaugh’s fiancé, Ronald Bauman, a frequent driver of the car. The accident occurred as Mr. Yudell traveled east in the westbound lanes of 283 then collided with a vehicle operated by Lisa DiNunzio, and the vehicle of Thomas Mellot. Both have made claims of injuries arising out of the accident.

At the time of the accident, the Kelbaugh vehicle had no insurance coverage. Mr. Yudell asserts that, under his insurance policy, he is entitled to liability coverage applicable to the Kelbaugh vehicle by virtue of permission granted by the owner Ms. Kelbaugh, and her flaneé, Ronald Bauman. Ms. Kelbaugh acknowledges that Mr. Yudell had permission to use the vehicle, but only to the extent granted to him by Mr. Bauman. Mr. Bauman states that he granted Mr. Yudell permission only to use the vehicle to go to work in York, Pennsylvania, and then drive the vehicle to a college fraternity formal at the Greenfield Holiday Inn. Mr. Bauman has testified in deposition that Mr. Yudell was to park the vehicle and attend the formal. Bauman states that he and Mr. Yudell had an understanding that they would then return home in the vehicle together the next day.

The record reflects that Mr. Yudell drove the vehicle to his job in York, and then proceeded to the formal as expected. However, at the formal, Mr. Yudell became intoxicated. Although he has no recollection of doing so, Mr. Yudell left the formal and traveled on Route 283 in the wrong direction, ultimately colliding with the DiNunzio and Mellot vehicles. His last memories of the events are limited to lying on a couch in a guest room of the Holiday Inn; his next memory is waking up in the hospital after the accident.

The applicable language of the policy at issue provides:

“Subject to the limits of liability, if you pay a premium for bodily injury liability coverage, we will pay damages, other than punitive or exemplary damages, for bodily injury for which an insured person becomes legally responsible because of an accident arising out of the ownership, maintenance or use of a vehicle.” See Progressive policy, page 5.

In defining an “insured person,” the policy states:

“(4) You [Yudell] with respect to an accident arising out of the maintenance or use of any vehicle with the express or implied permission of the owner of the vehicle.” Id. at 6.

This policy, therefore, insures the vehicle at issue, the 1987 Nissan Sentra, and Mr. Yudell, if he operated the vehicle with “express or implied permission of the owner of the vehicle.” In order to determine if Mr. Yudell is entitled to coverage under Progressive’s policy, we must determine whether he had express or implied permission to use the vehicle. We must then determine whether his use of the vehicle substantially deviated from the scope of permission granted.

We hold that, based on the facts of record, Mr. Yudell’s use of the vehicle was a substantial deviation from the scope of express permission to use the vehicle, and therefore, no coverage exists.

Pennsylvania law will allow coverage under the policy language at issue if the driver is able to establish that he had express or implied permission to use the vehicle. However, there is no coverage where there is substantial deviation from permission.

Necessary permission may be in the form of express or implied affirmative consent, through implication from the relationship of the parties, or the course of conduct in which the parties have mutually acquiesced. Belas v. Melanovich, 247 Pa. Super. 313, 324-25, 372 A.2d 478, 485 (1977); see also, Brower v. Employers’ Liability Assurance Company Ltd., 318 Pa. 440, 177 A. 826 (1935).

The evidence establishes that Mr. Bauman granted Mr. Yudell permission to use Ms. Kelbaugh’s vehicle for the express purpose of traveling to work and to the formal. The record reflects that Mr. Bauman and Mr. Yudell agreed that they would return together in Ms. Kelbaugh’s vehicle the next day. Therefore, because express permission was limited to Mr. Yudell driving the vehicle to work and to the formal, he did not have express permission to use the vehicle for any other purpose.

In examining whether Mr. Yudell had implied permission to use the vehicle for other than the expressly granted permission, it is instructive to look to the following framework in order to establish whether a party has implied permission: “the critical question will always be whether the named insured said or did something that warranted the belief that the ensuing use was with his consent. There must be ‘a connection made’ with the named insured’s own conduct; proof of ‘acts, circumstances, and facts such as the continued use of the car,’ will be insufficient ‘unless they attached themselves in some way to the acts’ of the named insured.” Belas v. Melanovich, 247 Pa. Super. 313, 324, 372 A.2d 478, 483 (1977) (quoting Beatty v. Hoff, 382 Pa. 173, 177, 114 A.2d 173, 174 (1955).

There are no facts to suggest that Mr. Yudell had implied permission to use the vehicle beyond the express purpose allowed. There is no evidence that Mr. Yudell had any communication with the insured, Ms. Kelbaugh, or that it was Ms. Kelbaugh’s intention to give a general consent for him to have free use of the vehicle. There is no evidence that Mr. Yudell was a frequent driver of the vehicle or that he had previously used the car for more than the original intended purpose. Significantly, the evidence does suggest that Mr. Yudell’s use of the vehicle was a singular event for which there is no pattern or connection to any other incidents.

Therefore, Mr. Yudell did not have implied permission to use the vehicle as he used it on the night of the accident. He clearly acted outside the scope of the consent granted.

Further, evidence demonstrates that in leaving the hotel and driving a substantial distance while intoxicated, Mr. Yudell substantially deviated from permissive use of the vehicle. Generally, to substantially deviate from permissive use, one must use the vehicle outside the original consent of the owner. In Freshkorn v. Marietta, 345 Pa. 416, 29 A.2d 15 (1942), Marietta asked the owner of the vehicle to drive him to Freedom, Pennsylvania. Marietta gained permission to use the vehicle when the owner tossed him the keys, and said, “Here are the keys, you can have the car.” Marietta drove the car to Freedom with a friend, dropped off the friend, and then drove to a neighboring town 7 1/2 miles away. An accident occurred on his return, within 2 1/2 miles of Freedom.

The court in Freshkorn found that no coverage existed because the driver’s extra trip substantially deviated from the scope of permission granted. The Freshkorn court stated: “ ‘slight and inconsequential deviations will not annul the coverage of the omnibus clause,’ but here there was not a slight deviation but a new journey wholly independent from, and additional to, that for which permission was granted, a journey which, after Freedom had been reached, carried on further for a distance of 7 1/2 miles and involved therefore a round trip of some 15 miles more than the 5 mile trip for which the car had been loaned.” Freshkorn, 345 Pa. at 419-20, 29 A.2d at 17 (quoting Laroche v. Farm Bureau Mutual Automobile Insurance Company, 335 Pa. 478, 7 A.2d 361 (1939)). See also, Hall v. Wilkerson, 926 F.2d 311 (1991) (coverage in Pennsylvania will be extended if the driver’s deviation from the named insured’s permission is slight and inconsequential, but coverage is denied if that deviation is substantial).

In the case at bar, Mr. Bauman granted permission for Yudell to use the vehicle to go to work and to the formal so that each would have transportation home together the next day. There was no discussion regarding use of the vehicle after driving it to the formal. Because this was a fraternity formal and imbibing alcoholic beverages could be expected, the objective of having the function at the hotel was to avoid incidents of driving under the influence. Mr. Yudell’s use of the vehicle after the formal was a new journey wholly independent from and in addition to that for which permission had been granted. Freshkom, supra. In fact, Mr. Yudell’s accident occurred eight miles away as he was apparently returning to the hotel. Therefore, Mr. Yudell’s use of the vehicle was a substantial deviation from express consent of the owner.

Therefore, because there was a substantial deviation from the scope of permission, Mr. Yudell did not have consent by the owners to use the vehicle at the time the accident occurred. Based on the language of the policy, no coverage exists.

Accordingly, plaintiff’s motion for declaratory judgment is granted.

ORDER

And now, July 19, 2001 the motion for declaratory judgment by Progressive Northern Insurance Company is hereby granted.


author: SHEPPARD JR., J.,

text:
    United States Fire Insurance Company v. American National Fire Insurance Company

      April 6, 2001

      James B. Bums, for plaintiff.

      Arthur W. HanJdn, AdamM. Share and Sheryl Axelrod, for defendant.

      John C. Sullivan, for additional defendant.
   SHEPPARD JR., J.,

Third-party defendant Liberty Mutual Fire Insurance Company has filed a motion for summary judgment requesting that the joinder complaint of American National Fire Insurance Company against Liberty be dismissed. This motion raises, inter alia, several novel issues under Pennsylvania law concerning the relationship between a primary and an excess insurer. Because this court concludes that the primary insurer, Liberty, may have had a duty under two distinct theories to notify the excess insurer, American, that its interests were at risk, Liberty’s motion is denied.

BACKGROUND

Some time prior to 1995,1.A. Construction Company began operating as a subcontractor for James J. Anderson Construction Company Inc. Under the contract between I.A. Construction and Anderson (subcontract), I.A. Construction was responsible for providing insurance and defending Anderson against any claims that arose from work done by I.A. Construction. To fulfill its obligations under the subcontract, I.A. Construction purchased a primary insurance policy with a limit of $2 million per occurrence from Liberty. I.A. Construction also purchased an excess policy with a limit of $20 million per occurrence from American. Under the American policy, I.A. Construction was obliged to give notice to American “[wjhenever it appeared] that an occurrence, claim or ‘suit’ [was] likely to involve” the American policy. American policy at IV.C.l.a.

On June 6, 1995, Keith Voiro, an employee of I.A. Construction, was injured at the Anderson construction site. When Voiro filed suit against Anderson on May 10, 1996, Anderson tendered its defense to I.A. Construction. I.A. Construction, in turn, contacted Liberty, which provided the defense for Anderson in accordance with the Liberty policy’s blanket additional insured provision.

The Voiro action settled for $4.8 million on November 17, 1998, with Anderson’s share amounting to $4 million. Liberty paid $2 million toward the Voiro settlement, but American refused to contribute, claiming that I.A. Construction had not notified it of the Voiro action or permitted it to participate in the defense of the case. American alleges that Liberty was aware of the American policy and had information by March 6, 1998 that liability in the Voiro action could exceed $2 million, but did not contact American until September 4, 1998.

Because of American’s refusal, Anderson’s primary and excess insurers agreed to provide the remaining $2 million to complete the Voiro settlement. U.S. Fire subsequently brought the instant action against American to recover the amount of its contribution under breach of contract and equitable subrogation theories. American filed the joinder complaint, which joins Liberty to the instant action and requests a declaratory judgment holding that Liberty is solely liable, liable over to American by way of contribution and/or indemnity and/or is jointly or severally liable with American.

DISCUSSION

Liberty’s motion seeks summary judgment based on asserted limits on duties owed to excess insurers. Liberty also asserts that the joinder complaint is invalid under Pennsylvania Rule of Civil Procedure 2252. In opposing summary judgment, the crux of American’s argument is, broadly, that it should have been notified of the Voiro action:

“If Liberty Mutual believed that American National was obligated to provide excess coverage to defendant James J. Anderson in the Voiro case, then Liberty Mutual had a duty to timely report the Voiro loss to American National so as to permit American National to meaningfully participate in the preparation of the defense of the case.

“In addition, if Liberty Mutual believes that American National was obligated to provide excess coverage to defendant James J. Anderson in the Voiro case, then Liberty Mutual had a duty to timely report the Voiro loss to its alleged insured, Anderson, so as to permit American National to meaningfully participate in the preparation of the defense of the case.” American’s surreply at 4.

The facts alleged by American present a viable cause of action against Liberty under two alternate theories, although the specific theory on which American relies —that is, that Liberty had a duty to advise Anderson to contact its excess carrier (American) — is untenable. Here, there are material facts in dispute that preclude granting summary judgment. In addition, the joinder complaint is valid under Rule 2252.

I. Liberty, As a Primary Insurer, May Have Had a Duty To Notify American, the Excess Insurer, of the Voiro Action

A. Pennsylvania Law Does Not Address in Depth the Duties of a Primary Insurer to an Excess Insurer

The relationship between a primary and an excess insurer is rife with potential conflicts of interest. Pennsylvania law recognizes these difficulties inherent in interactions between primary and excess insurance carriers:

“The relationship between the primary and excess carrier is an unusual one; each has a separate contract with the insured, but they have none with each other. Conflicts of interest invariably arise when the underlying tort injury is of such severity that a recovery over the limits of the primary policy is possible. In that circumstance, the excess carrier wishes the primary insurer to dispose of the case within its limits and is not unduly impressed with the primary insurer’s desire to save some or all of its policy limits by a favorable verdict at trial. Conversely, the primary carrier is unlikely to have such paternalistic feelings as will induce it to concede its limits when there is some chance of obtaining a favorable verdict. In each instance, one carrier is to some extent gambling with the other’s money.” Physicians Ins. Co. v. Callahan, 167 Pa. Commw. 485, 499-500, 648 A.2d 608, 615-16 (1994). See also, F.B. Washburn Candy Corporation v. Fireman’s Fund, 373 Pa. Super. 479, 485, 541 A.2d 771, 774 (1988) (“while the interests of a primary insurer are virtually unaffected by the existence of excess coverage, the interests of an excess insurer are very much affected by the actions taken by the primary carrier”).

In an attempt to address these conflicts, Pennsylvania courts have allowed the excess insurer to be treated as the insured’s subrogee through the doctrine of equitable subrogation. This doctrine is “a means of placing the ultimate burden of a debt upon the one who in good conscience ought to pay it, and is generally applicable when one pays out of his own funds a debt or obligation that is primarily payable from the funds of another.” High-TechEnterprises Inc. v. General Accident Insurance Co., 430 Pa. Super. 605, 609, 430 A.2d 639, 642 (1993). (citation omitted) To sustain a claim based on equitable subrogation, a purported subrogee — here the excess insurer— must establish five elements:

“(1) The claimant paid the creditor to protect its own interests;

“(2) The claimant did not act as a volunteer;

“(3) The claimant was not primarily liable for the debt;

“(4) The entire debt has been satisfied; and

“(5) Allowing subrogation will not cause injustice to the rights of others” Tudor Dev. Group Inc. v. United States Fidelity & Guaranty Co., 968 F.2d 357, 361 (3d Cir. 1992) (citing United States Fidelity & Guaranty Co. v. United Penn Bank, 362 Pa. Super. 440, 524 A.2d 958 (1987)).

When the conditions for equitable subrogation are satisfied, an excess insurer steps into the shoes of the insured, and a primary insurer owes the same duty to an excess insurer that it would owe to the insured itself. F.B. Washburn Candy Corp, 373 Pa. Super. at 484-85, 541 A.2d at 774.

Beyond these few cases addressing equitable subrogation, there is little Pennsylvania law discussing the relationship or duties running between a primary insurer and an excess insurer. In addition, no Pennsylvania cases address the duty of a primary insurer either to give notice of a claim to an excess insurer or to advise an insured that it should notify its primary carrier of a claim.

B. Even If American Is Anderson’s Equitable Subrogee, Liberty Had No Obligation To Advise Anderson To Contact American

Based on the theory of equitable subrogation, American argues that it is Anderson’s subrogee and that it has inherited the claims that Anderson could have brought against Liberty. American’s surreply at 4. Among these claims, it asserts, is an action based on Liberty’s violation of its obligation as a primary carrier to advise Anderson of its duty to notify its excess carrier when excess coverage may be triggered.

Because no Pennsylvania case speaks to a primary insurer’s duty to advise an insured, American directs the court to Ralston Purina Co. v. Home Insurance Co., 760 F.2d 897 (8th Cir. 1985), which addressed the relationship among an insured and its two insurance carriers. In Ralston, neither the primary insurer nor the insured party had notified the excess carrier of a claim that resulted in an award in excess of the $100,000 primary insurance coverage. When the excess carrier denied coverage, the insured brought suit against both insurers, asserting a breach of fiduciary duty claim against the primary insurer for its failure to advise the insured that the excess carrier should be notified. At trial, the jury found in favor of both insurers, and the insured appealed.

On appeal, the Eighth Circuit found adequate evidence to support the jury’s conclusion that the primary insurer had adequately advised the insured of the potential for liability in excess of $100,000. According to American, the fact that the court even addressed the sufficiency of the evidence “establishes that a primary carrier may be held liable to its insured in excess of the primary carrier’s limits, for exposing its insured to amounts exceeding its policy, but failing to timely advise the insured to put its excess carrier on notice.” American’s memorandum at 13. (emphasis omitted)

In addition to its age and non-binding nature, there are a number of reasons to reject the Ralston holding as proposed by American. First, nowhere in the opinion does the court explicitly state that a primary insurer has a duty to advise an insured that it should notify its excess carrier. Even if this principle is inferred from the court’s analysis, the Eighth Circuit cited no case law to support this conclusion and instead appears simply to have assumed it to be true. Moreover, the question whether such a duty existed was not dispositive in Ralston, since the jury’s finding that the primary insurer had satisfied its obligations to the insured was held to be supported by the evidence. As a result, Ralston is not persuasive. This court is not convinced that Liberty had a duty to advise Anderson to notify American.

C. Liberty May Have Owed American a Direct Duty To Notify It of the Voiro action

American’s assertions of Liberty’s liability are better served by relying on the theory of a direct duty, as set forth in a recent New Jersey case. In American Centennial Insurance Co. v. Warner-Lambert Co., 681 A.2d 1241 (N.J. Super. Law Div. 1995), the New Jersey Superior Court examined the liability of a primary insurer that failed to give notice to an excess carrier of a pending claim that ultimately implicated the excess policy. Like the Pennsylvania Commonwealth Court in Physicians Insurance Co., th & American Centennial court considered the “distinctive” and “unique relationship” in which “the excess insurer relies upon the primary carrier to act in good faith in processing claims.” Id. at 1246. On this basis, the court found that this dependence had legal implications:

“Fairness and policy require the imposition of a duty of good faith on the primary carrier. The primary is in a knowledgeable position as it has current information of the status of an underlying claim, while the excess carrier relies on the primary carrier to keep it properly apprised of negotiation and litigation. It is a unique relationship between the parties, and it is reasonable for the excess carrier to rely on the primary carrier to act in good faith. The primary carrier should understand the risk involved to the excess carrier if it does not perform its duties in good faith. The excess carrier charges the insured a premium that assumes the primary carrier will act in good faith to settle and litigate claims, thereby decreasing the excess carrier’s exposure to risk. When the primary carrier does not perform its duties in good faith, the public suffers, as excess carriers will then charge higher premiums for excess coverage. Therefore, the consideration of the unique relationship between the parties, the risk accruing to the excess carrier, and the public'interest in lower premiums, mandates the imposition of a duty of good faith and fair dealing upon the primary carrier.” Id. at 1247. See also, General Accident Ins. Co. v. New York Marine and Gen. Ins. Co., 727 A.2d 1050, 1054 (N.J. Super. App. Div. 1999) (the duty of good faith running from a primary insurer to an excess insurer “exists as a result of the distinctive and unique relationship between the two carriers”). Ultimately, the court concluded that this direct duty of good faith imposes on a primary insurer an obligation to notify an excess carrier, when known, if it reasonably appears that exposure may exceed the primary limit

Essentially, the parties’ arguments here mirror those made by the parties in American Centennial. Liberty, on the one hand, asserts that it was Anderson’s obligation to notify American and that Liberty had no such duty. Liberty’s memorandum at 7. American’s broad contention that Liberty may have had a duty to notify it of the Voiro action, in contrast, is supported by the court’s holding in American Centennial, although, admittedly, American does not cite that precedent. American’s surreply memorandum at 4.

This court concludes that American Centennial is persuasive. While Pennsylvania courts have not endorsed the concept of direct primary/excess insurer duties expressly, they have shown concern regarding the skewed relationship between the primary and the excess insurance carrier. See e.g., Physicians Ins. Co., 167 Pa. Commw. at 500, 648 A.2d at 616 (noting that “[t]he insurance industry has long recognized the unsatisfactory nature of the relationship between primary and excess carriers”); F.B. Washburn Candy Corp., 373 Pa. Super. at 485, 541 A.2d at 11A (noting the conflict of interest between a primary and an excess insurer). This imbalance is not rectified if the excess insurer is limited to claims based on equitable subrogation.

Moreover, the rationale supporting this theory is sound. Among the primary insurer, the excess insurer and the insured, only the primary insurer has both the information concerning the claim and the expertise necessary to evaluate that information and to determine if the excess policy is likely to be implicated. As the American Cen tennial court astutely noted, in the absence of a direct duty, the excess insurer’s risk will increase, leading to a corresponding rise in excess insurance premiums. Cf. Physicians Ins. Co., 167 Pa. Commw. at 500, 648 A.2d at 616 (noting that, “[b]ecause of its less frequent exposure, the excess carrier generally charges lower premiums”). Accordingly, Pennsylvania law supports and is best served by the principle that a primary insurer that is aware of an excess policy bears the responsibility for notifying the excess insurer that its policy may be implicated.

It must be acknowledged that the Third Circuit rejected the contention that there are any duties running directly from a primary carrier to an excess carrier in Puritan Insurance Co. v. Canadian Universal Insurance Co. Ltd., 775 F.2d 76 (3d Cir. 1985). Nevertheless, the Third Circuit’s decision is unconvincing on this issue for several reasons. First, Puritan is a federal court decision whose holding has never been adopted in Pennsylvania and is therefore not binding on this court. See Kubik v. Route 252 Inc., 762 A.2d 1119, 1124 (Pa. Super. 2000) (decisions of federal courts are not binding on Pennsylvania courts). Second, to the extent that federal court decisions generally are persuasive, Puritan is not, in that the Third Circuit reached its conclusions without any discussion, reasoning or analysis. In addition, Puritan’s legitimacy is not beyond question. In a recent Eastern District case, Judge John P. Fullam Sr. stated that it is “conceivable” that a primary insurer “might be found to have breached a duty owed directly to the excess carrier.” Blair v. Protective Nat’l Ins. Co., no. 96-8438, 1998 WL 212768, at *1 (E.D. Pa. 1998). Last, and perhaps most significant, Puritan was decided before the emergence of the “modem trend for courts and legislatures to impose duties of good faith and fair dealing on the relationship between primary and excess carriers.” Couch section 198:20. For these reasons, this court declines to follow Puritan and holds that a primary carrier that is aware of an insured’s excess policy owes a direct duty to the excess insurer to notify it of claims that may implicate the excess policy.

In the instant matter, the approach adopted in American Centennial imposes a direct duty on Liberty owed to American. Thus, Liberty had an obligation to notify American of the Voiro action, if it was aware of the excess insurance policy and should reasonably have known that exposure in the Voiro action might exceed the $2 million limit under the Liberty policy.

D. In the Alternative, Liberty May Have Had a Duty As Anderson’s Subrogee To Notify American of the Voiro Action Under the Notification Requirements in the American Policy

The direct duty theory is not the only rationale that supports American’s claims.

Several cases embrace the principle that a primary insurer is, in effect, subrogated to the insured’s claims and thus assumes the insured’s obligation to notify the excess carrier according to the terms of the excess policy. This “primary insurer subrogation” theory is best illustrated in Sequoia Insurance Co. v. Royal Insurance Co. of America, 971 F.2d 1385 (9th Cir. 1992), where the court relied primarily on the notification terms of the excess insurance contract itself to find that the primary insurer had a duty to notify the excess carrier. See also, North Amer. Van Lines Inc. v. Lexington Ins. Co., 678 So.2d 1325, 1331 (Fla. Dist. App. 1996) (“the primary insured’s position is analogous to that of the insured”); John K. DiMugno & Paul E.B. Glad, California Ins. L. Handbook §32.06(1) (2000) (“[a]s its insured’s subrogee, a primary insurer is obligated to comply with the notice and cooperation provisions in the insured’s excess policy”). Because nearly all insurance policies have a notification provision, the primary insurer subrogation approach almost always will lead to the same result as imposing a direct duty.

This principle has not been universally adopted. Assigning an insured’s responsibilities to a primary insurer through subrogation was considered and rejected by the New York court in Monarch Cortland v. Columbia Casualty Co., 646 N.Y.S.2d 904 (N.Y. App. Div. 1996). The court there held that the defendant primary insurer did not assume the notice duties of the plaintiff insured:

“There is no evidence in the record that defendant acted deliberately or even recklessly. Nor is there anything in the record to suggest that defendant put its own interests ahead of plaintiff’s interests; defendant had nothing to gain by not informing plaintiff of possible excess liability. The record also demonstrates that defendant kept plaintiff informed of all the relevant facts, so that plaintiff had essentially the same information as defendant on which to form an opinion as to the need to notify the excess carrier. As the insured, plaintiff clearly had the obligation to notify the excess carrier ‘as soon as practicable’ pursuant to the terms of the excess policy. Having had essentially the same information as defendant, plaintiff should not be permitted to shift to defendant the responsibility for failing to notify the excess carrier, an obligation imposed on plaintiff alone by its contract with the excess carrier. At most, plaintiff’s evidence established defendant’s erroneous belief that plaintiff’s liability would not exceed the primary policy limits. Such an error in judgment cannot serve as the predicate for a bad-faith action....” Id. at 906. (emphasis added)

The Monarch Cortland rationale is ultimately unpersuasive, however, primarily because it ignores the fact that an insured seldom has the expertise necessary to evaluate a claim and to determine whether informing an excess insurer is warranted. The party in the best position to evaluate a claim and to notify an excess insurer is the primary insurance carrier, not the insured. In addition, New York allows an excess insurer to proceed against a primary insurer under a direct duty theory. Harford Accident & Indemn. Co. v. Michigan Mut. Ins. Co., 462 N.Y.S.2d 175, 178 (N.Y. App. Div. 1983), aff’d, 475 N.Y.S.2d 267 (N.Y. 1984). As such, imposing an insured’s contractual duties on a primary insurer would be redundant and, in fact, could serve to limit the rights accruing through the primary insurer’s direct duty to the excess insurer. Consequently, for the same reasons, legal and otherwise, that the direct duty theory is appropriate, primary insurer subrogation liability is also justified.

Here, under the primary insurer subrogation theory, Liberty was subrogated to Anderson’s position as the insured and assumed Anderson’s notification obligations as set forth in the American policy. Thus, under both the direct duty and primary insurer subrogation approaches, Liberty potentially had a duty to notify American of the Voiro action.

II. There Are Outstanding Issues of Material Fact As To Whether Liberty Should Have Notified American and Whether Liberty Satisfied Its Notification Obligations

While no Pennsylvania case addresses when the duty to give notice to an excess insurer arises, Couch on Insurance 3d sets forth the following rule:

“[Pjolicy language requiring an insured to notify an excess insurer of potential liability under the policy imposes a duty on the insured to give notice when the insured becomes aware, or should become aware of facts to suggest to a reasonably prudent person that an occurrence or action might reasonably be expected to produce a claim against the insurer.” Section 191:67.

Once the duty to notify an excess insurer has been triggered, Pennsylvania law holds that an insured’s failure to comply with the notice requirements in an insurance contract relieves an insurance carrier of liability only if the carrier can demonstrate that it was prejudiced by late notice. Nationwide Mutual Insurance Co. v. Lehman, 743 A.2d 933, 940 (Pa. Super. 1999). This is based on the underlying reasons for the notice provision:

“The function of the notice requirements is simply to prevent the insurer from being prejudiced, not to provide a technical escape-hatch by which to deny coverage in the absence of prejudice nor to evade the fundamental protective purpose of the insurance contract to assure the insured and the general public that liability claims will be paid up to the policy limits for which premiums were collected. Therefore, unless the insurer is actually prejudiced by the insured’s failure to give notice immediately, the insurer cannot defeat its liability under the policy because of the non-prejudicial failure of its insured to give immediate notice of an accident or claim as stipulated by a policy provision.” Brakeman v. Potomac Insurance Co., 472 Pa. 66, 75, 371 A.2d 193, 197 (1977). (citation omitted)

American asserts that Liberty was aware of the American policy by August 1997, at the latest, and that the attorney working on the Voiro action advised Liberty on February 19, 1998 that American should be notified. American’s memorandum at 14. The joinder complaint asserts that Liberty was aware that the Voiro action had a value in excess of $2 million some time before March 2, 1998. Joinder complaint at ¶¶12-13, 16-17. American allegedly did not receive notice of the Voiro action until September 4, 1998, precluding it from participating in the defense of the matter and settlement conferences. American’s memorandum at 5,7-8; joinder complaint at ¶¶18-21. If American’s allegations are correct, they establish that Liberty had a duty to give notice to American, that Liberty breached its duty and that prejudice to American resulted.

As might be expected, Liberty contests the truth of each of these points. See Liberty’s answer to joinder complaint. As a result, there are outstanding disputed issues of material fact, and the court could not grant summary judgment in any event. Cf. Rohm and Haas Co. v. Continental Casualty Co., 732 A.2d 1236, 1259 (Pa. Super. 1999) (24-year delay in giving notice to excess insurer created question of fact for jury).

III. American’s Joinder Complaint Is Proper Under Rule 2252

Rule 2252 sets forth the conditions under which a defendant may join an additional party:

“(a) Except as provided by Rule 1706.1, any defendant or additional defendant may join as an additional defendant any person, whether or not a party to the action, who may be

“(1) solely liable on the plaintiff’s cause of action, or

“(2) liable over to the joining party on the plaintiff’s cause of action, or

“(3) jointly or severally liable with the joining party on the plaintiff’s cause of action, or

“(4) liable to the joining party on any cause of action arising out of the transaction or occurrence or series of transactions or occurrences upon which the plaintiff’s cause of action is based.”

In determining if joinder is permitted, Rule 2252 “is broadly construed to effectuate the purpose of avoiding multiple lawsuits by settling, in one action, all claims arising from transactions or occurrences which gave rise to the plaintiff’s complaint.” Goodman v. Kotzen, 436 Pa. Super. 71, 78, 647 A.2d 247, 250 (1994) (citing Olson v. Grutza, 428 Pa. Super. 378, 389, 631 A.2d 191, 196-97 (1993)).

Here, there is no doubt that American’s claims arise from the same transactions and occurrences as U.S. Fire’s claims. The joinder complaint incorporates all of the allegations in U.S. Fire’s complaint. Joinder complaint at ¶4. In addition, the sole count brought against Liberty makes it clear that Liberty’s liability is dependent on the facts asserted by U.S. Fire. Id. at ¶23. Most important, the essence of U.S. Fire’s cause of action is the allocation of responsibility for the Voiro action settlement in excess of the Liberty policy, a question that the joinder complaint addresses. As such, allowing the joinder complaint will effectuate Rule 2252’s purpose of preventing multiple lawsuits and is the appropriate course of action.

Liberty counters by pointing to Gould Inc. v. Continental Casualty Co., 401 Pa. Super. 219, 585 A.2d 16 (1991), and American Metal Fabricators Co. v. Goldman, 227 Pa. Super. 284, 323 A.2d 891 (1974), each of which, it contends, limits the definition of “transactions and occurrences” and mandates dismissal of the joinder complaint. But, in each of those cases the court focused on the lack of a valid claim and dismissed the joinder complaints for that reason. See Gould Inc., 401 Pa. Super. at 224-25, 323 A.2d at 19 (agreeing that joinder was improper because the third-party defendant was not contributorily liable to the third-party plaintiff); American Metal Fabricators Co., 227 Pa. Super. at 289, 323 A.2d at 894 (finding that no valid cause of action was asserted against the additional defendants). As discussed at length supra, American’s cause of action against Liberty is valid. Thus, Liberty’s argument based on Rule 2252 is unconvincing, and the joinder complaint is proper.

CONCLUSION

For these reasons, this court finds that the joinder complaint is proper under Rule 2252. Further, the court finds that Liberty may have been required to give American notice of the Voiro action either under a direct duty theory or as Anderson’s subrogee. However, because disputed issues of material fact remain outstanding the motion for summary judgment should be denied. This court will enter a contemporaneous order consistent with this opinion.

ORDER

And now, April 6, 2001, upon consideration of the motion for summary judgment of third-party defendant Liberty Mutual Fire Insurance Company, the opposition to it of third-party plaintiff, American National Fire Insurance Company, the respective memoranda, all other matters of record, and in accord with the opinion being filed contemporaneously with this order, it is hereby ordered that the motion for summary judgment is denied.

      . Neither the American policy nor the Liberty policy has a governing law provision. Because all relevant events have taken place in Pennsylvania and both parties rely exclusively on Pennsylvania law, this court will apply Pennsylvania law.

      . Voiro v. PECO Energy and James J. Anderson Construction Co., C.P. Phila. May 1996, no. 1035 {“Voiro action”).

      . Anderson met the criteria for an “insured” under the Liberty policy. See Liberty’s memorandum exhibit E.

      . Anderson’s primary insurer was Pennsylvania Manufacturers’ Association Insurance Company. Its excess insurer was United States Fire Insurance Co.

      . Pennsylvania Rule of Civil Procedure 1035.2 allows a court to enter summary judgment “whenever there is no genuine issue of any material fact as to a necessary element of the cause of action.” A court must grant a motion for summary judgment when a non-moving party fails to “adduce sufficient evidence on an issue essential to his case and on which he bears the burden of proof such that a jury could return a verdict in his favor.” Ertel v. Patriot-News Co., 544 Pa. 93, 101-102, 674 A.2d 1038, 1042 (1996), cert. denied, 519 U.S. 1008, 117 S.Ct. 512, 136 L.Ed.2d 401 (1996).
      Where, however, there are disputed issues of material fact present, summary judgment may not be granted.

      . There is yet another theory, known as “triangular reciprocity,” under which American might assert a cause of action. First adopted in Transit Casualty Co. v. Spink Corp., 156 Cal. Rptr. 360 (Cal. Ct. App. 1979), the theory of triangular reciprocity recognizes the tensions among the insured, the primary insurer and the excess insurer. Because of these tensions, the theory holds that there is a tripartite duty of care among the three parties and apportions liability according to the comparative fault of each. As noted by other courts, however, triangular reciprocity has been roundly criticized by most courts that have considered it, including courts in the jurisdiction in which it was adopted. See e.g., National Union Fire Ins. Co. of Pittsburgh, Pa. v. Insurance Co. of N. Amer., 955 S.W.2d 120, 136 (Tex. Ct. App. 1997) (“[tjriangular reciprocity has not been widely accepted”); Fireman’s Fund Ins. Co. v. Maryland Cas. Co., 26 Cal. Rptr. 2d 762, 771 n.13 (Cal. Ct. App. 1994) (triangular reciprocity “has failed to gain any currency”); Certain Underwriters of Lloyd’s v. General Accident Ins. Co. of Amer. 699 F. Supp. 732, 739 (S.D. Ind. 1988) (rejecting triangular reciprocity and noting that the theory “has not been widely accepted”).
      In sum, this court believes that the theory is without merit and may not serve as a basis for American’s claim.

      . In reviewing requests for subrogation, it has been held that “great care should be taken by the court that the subrogation will work no injustice to the rights of others.” U.S. Steel Homes Credit Corp. v. South Shore Development Corp., 277 Pa. Super. 308, 316, 419 A.2d 785, 790 (1980). (citation omitted) However, no case requires a plaintiff to plead that no injustice will result from granting the relief.

      . Although the Tudor Development Group court cited United States Fidelity as the source of this five-element test, a careful examination of the Superior Court’s opinion in United States Fidelity reveals no evidence that the Third Circuit took the test from that case. In addition, no Pennsylvania court has explicitly adopted this test. There are Pennsylvania cases, however, that recognize each of these elements as being a prerequisite to equitable subrogation. See Jacobs v. Northeastern Corp., 416 Pa. 417, 429, 206 A.2d 49, 55 (1965) (holding that “[rjights of subrogation ... are created by law to avoid injustice”); Kaiser v. Old Republic Insurance Co., 741 A.2d 748, 754 (Pa. Super. 1999) (subrogee must act to protect its own interests), High-Tech-Enterprises Inc., 430 Pa. Super. at 609, 430 A.2d at 642 (subrogee must not have primary liability for the debt); Dominski v. Garrett, 276 Pa. Super. 18, 25, 419 A.2d 73, 77 (1980) (a party may not invoke the doctrine of equitable subrogation if it has acted as a volunteer); Hunsberger v. Perkiomen Nat’l Bank, 108 Pa. Super. 443, 450, 164 A. 839, 841 (1933) (“[ujnless the surety pays the debt in full, he is not entitled to subrogation”).

      . The claims of a subrogee are subject to all defenses that could have been raised against the subrogor. Public Service Mutual Insurance Co. v. Kidder-Friedman, 743 A.2d 485, 488 (Pa. Super. 1999).

      . Such a duty to an insured would be part of the broader duty of good faith owed by an insurance carrier to an insured. See Gilderman v. State Farm Insurance Co., 437 Pa. Super. 217, 226, 649 A.2d 941, 945 (1994) (insurer carrier owed insured duty of “utmost good faith” and fair dealing); Strutz v. State Farm Mutual Insurance Co., 415 Pa. Super. 371, 375, 609 A.2d 569, 571 (1992) (calling such duties “fiduciary” in nature).

      . Even if the Ralston court had been interpreting Pennsylvania law, its conclusions still would not have been binding on this court. See Hutchison v. Luddy, 763 A.2d 826, 837 n.8 (Pa. Super. 2000) (Pennsylvania courts are “not bound by decisions of federal courts construing state law”).

      . American’s attempt to make Ralston more persuasive by highlighting its citation in United National Insurance Co. is equally unavailing. In United National Insurance Co., Ralston was mentioned as an illustration of Missouri law and is not cited for the principle that American claims it stands for. As a result, the local use of Ralston does not mandate that the court accept American’s argument.

      . Because this court finds that a primary insurer’s duties to an insured do not include the obligations asserted by American, there is no need to address whether American qualifies as Anderson’s subrogee.

      . Similarly, courts in other jurisdictions have found duties running directly from a primary insurer to an excess insurer and allowed direct action based upon such duties. See e.g., Attorneys Liab. Protection Soc’y v. Reliance Ins. Co., 117 F. Supp.2d 1114, 1124 (D. Kan. 2000) (primary insurer owes a duty of good faith to excess insurers); National Union Fire Ins. of Pittsburgh, Pa. v. Liberty Mut. Ins. Co., 696 F. Supp. 1099, 1101 (E.D. La. 1988) (primary insurance carrier owes a duty of good faith to excess carrier); Kaiser Found. Hosps. v. North Star Reinsurance Corp., 153 Cal. Rptr. 678, 682 (Cal. App. 1979) (primary insurer owes excess insurer duty of good faith and fair dealing); Schal Bovis Inc. v. Casualty Ins. Co., 732 N.E.2d 1082, 1091 (Ill. App. 1999) (finding a direct duty of good faith running from a primary carrier to an excess carrier); Commercial Union Ins. Co. v. Medical Protective Co., 356 N.W.2d 648, 651-52 (Mich. App. 1984), aff’d in part, 393 N.W.2d 479 (Mich. 1986) (a breach of good faith claim against a primary insurer “arises as a result of the independent and direct duty to the excess insurer and is not dependent upon equitable principles of subrogation”); Harford Accident & Indem. Co. v. Michigan Mut. Ins. Co., 462 N.Y.S.2d 175, 178 (N.Y. App. Div. 1983), aff’d, 475 N.Y.S.2d 267 (N.Y. 1984) (allowing direct action by excess carrier against primary carrier based on breach of duty of good faith). See also, Couch on Insurance 3d §187:52 (“when a primary carrier/ excess carrier relationship is involved, proper notice means the primary carrier, not the insured, should advise the excess carrier of the existence of a claim”); Id. at §219:24 (“[t]he primary insurance company is required to provide the excess company notice of claims against the insured that might affect the excess policy. ..”).
      But, see Phico Ins. Co. v. Aetna Cas. & Sur. Co. of Amer., 93 F. Supp.2d 982, 989 (S.D. Ind. 2000) (concluding that there .is no duty running from a primary insurer to an excess insurer); Blair v. Protective Nat’l Ins. Co., no. civ. a. 96-8438, 1997 WL 634423, at *1 (E.D. Pa. October 6, 1997) (stating that “[tjhere is no duty running from a primary to an excess carrier under Pennsylvania law”). As an aside, because Blair is a federal court decision, it is not binding on this court and, as discussed infra (pp. 491-92) in the review of Puritan Insurance Co. v. Canadian Universal Insurance Co. Ltd, 775 F.2d 76 (3d Cir. 1985), is not persuasive.

      . In reaching its conclusion, the. American Centennial court analyzed and gave strong consideration to the guiding principles for primary and excess insurance companies, a set of guidelines promulgated by the insurance industry in 1974. The fifth principle addresses a primary carrier’s obligation to give notice to an excess carrier:
      “(5) If at any time, it should reasonably appear that the insured may be exposed beyond the primary limit, the primary insurer shall give prompt written notice to the excess insurer, when known, stating the results of investigation and negotiation, and giving any other information deemed relevant to a determination of the total exposure, and inviting the excess insurer to participate in a common effort to dispose of the claim.” 681 A.2d at 1246.
      It has been noted that, “[f]or the most part, the guiding principles relating to the primary insurer’s conduct reflect the present state of the law in most jurisdictions.” Michael M. Marick, Excess Insurance: An Overview of General Principles and Current Issues, 24 Tort & Ins. L.J. 715, 741 (1989). See also, United States Fire Ins. Co. v. Nationwide Mut. Ins. Co., 735 F. Supp. 1320, 1324-25 (E.D. N.C. 1990) (finding that the principles “set forth the general standards of insurance practice”).

      . While American does not assert that Liberty had a direct duty to notify it of potential liability, it makes the broad argument that, if Liberty believed that American was obliged to provide excess coverage, it had a duty to report the Voiro action to American. American’s surreply memorandum at 4.

      . Essentially, the difference between a claim arising from equitable subrogation and one based on a primary carrier’s direct duty to the excess carrier is that, “[u]nlike a direct duty running from the primary carrier to the excess carrier, a claim for equitable subrogation is subject to any defenses the primary carrier could assert against the insured, including refusal to settle and failure to cooperate.” Forum Ins. Co. v. Lorance & Thompson, no. 14-97-00974-CV, 1999 WL 627878 (Tex. App. August 19, 1999). See also, Paul B. Butler Jr. & Robert V. Potter Jr., The Primary Carrier Caught in the Middle with Bad Faith Exposure to its Insureds, Excess Carriers and Reinsurers,
        24 Tort & Ins. L.J. 118, 123-24 (1988) (“[t]he primary concern to excess carriers with proceeding against the primary carrier on the basis of subrogation or assignment of claim is that by doing so, the primary carrier can assert against the excess carrier all defenses which the primary carrier has against the insured”). Courts and commentators alike have found the direct duty approach superior to the equitable subrogation approach for two reasons. First, it allows the excess insurer to recover “even though the insured engaged in culpable conduct that would destroy the excess carrier’s bad faith claim under equitable subrogation.” John F. Jenks, Picking Up the Pieces: The Excess Insurer’s Bad Faith Cause of Action Against the Primary Insurer, 54 Mont. L. Rev. 385, 402 (1993). Second, it permits the court to “apportion liability between the primary insurer and the excess insurer based on principles of comparative negligence.” Id. See also, Estate of Penn v. Amalgamated Gen. Agencies, 372 A.2d 1124, 1127 (N.J. Super. App. Div. 1977) (reviewing disadvantages of equitable subrogation); Russo v. Rochford, 472 N.Y.S.2d 954, 959 (N.Y. App. Div. 1984) (discussing advantages of the direct duty theory).

      . Many courts have recognized that the knowledge of a primary carrier is superior to that of both the insured and the excess insurer. See e.g., Bohemia Inc. v. Home Ins. Co., 725 F.2d 506, 514 (9th Cir. 1984) (“[t]he insured is generally ignorant of insurance practices and legal procedure”); Baen v. Farmers Mut. Fire Ins. Co. of Salem Cty., 723 A.2d 636, 639 (N.J. Super. App. Div. 1999) (“[t]he primary carrier is in a knowledgeable position, as it has current information of the status of an underlying claim, while the excess carrier relies on the primary carrier to act in good faith”); United Servs. Auto Ass’n v. Empire Fire & Marine Ins. Co., 653 P.2d 712, 714 (Ariz. App. 1982) (primary insurer is “in a better position to evaluate its risk than would be a purely excess carrier against whom no claims might be made even though its insureds had repeatedly incurred liability in amounts within their primary coverage”).

      . The Puritan court stated that the theory of a direct duty was rejected in United States Fire Insurance Co. v. Royal Insurance Co., 759 F.2d 306 (3d Cir. 1985) and relied exclusively on that case. As pointed out in the dissent in Puritan, however, the United States Fire court relied on the theory of equitable subrogation and left open the question of a direct duty:

        “[Excess insurer] Fire strongly urges that this court allow a direct cause of action by the excess carrier against the primary ‘thus obviating the need to struggle with the equitable subrogation theory.’ Supp. brief of appellee at 10. Fire has cited no Pennsylvania cases creating such a direct duty and no plausible legal or policy basis for so doing. We decline to do so in the instant case, without further guidance from the Pennsylvania Supreme Court.” 759 F.2d at 309 n.3.
      In addition, the question of a direct duty was moot in United States Fire, as the court held that the primary insurer had not acted in bad faith. 759 F.2d at 311-12.

      . It is important to distinguish this theory, under which a primary insurer becomes the insured’s subrogee, from the theory put forward by American under which an excess insurer becomes the insured’s subrogee.

      . It is unclear if a primary insurer’s notice and ongoing information obligations must be interpreted as strictly as they would be for an insured. Compare Bohemia Inc., 725 F.2d at513-14 (a primary insurer’s duties were satisfied when it notified the excess insurer of the claim even if it did not keep it apprised of significant developments in the case), with Butler & Potter, 24 Tort & Ins. LJ. at 128-29 (a primary insurer has ongoing responsibilities to the excess insurer, including the duty to notify the excess insurer of settlement offers and significant developments).

      . As an aside, the trial court in Monarch Cortland had been guided by the principles, even though the primary insurer had not signed them. In reversing the trial court on the question of bad faith, however, the appellate division eschewed discussion of the principles, focusing instead on the terms of the excess insurance policy and the insured’s obligations thereunder.

      . In AAA Sprinkler Corp. v. General Star National Insurance Corp., 705 N.Y.S.2d 582 (N.Y. App. Div. 2000), the court cited Monarch Cortland in support of the statement that a primary insurer “had not acted in bad faith when it failed to notify its insured or the insured’s excess liability carrier of the possibility of a judgment in excess of the primary policy limits.” Because the AAA Sprinkler court did not set forth the facts of that case, however, it is unclear whether this means that a primary insurer’s failure to give notice of the possibility of an excess judgment should never constitute bad faith in New York.

      . See also, CSX Transp. Inc. v. Commercial Union Ins. Co., 82 F.3d 478, 481 (D.C. Cir. 1996) (“the notice obligation arises when, viewed objectively, the facts and circumstances known to the insured would have suggested to a reasonable person the possibility of a claim likely to trigger the excess insurer’s coverage”); Olin Corp. v. Insurance Co. of N. Amer, 743 F. Supp. 1044, 1054 (S.D. N.Y. 1990) (the “duty to notify each excess insurer accrued when the circumstances known to [insured] would have suggested a reasonable possibility of a claim that would trigger that excess insurer’s coverage”); Household, Int’l Inc. v. Liberty Mut. Ins. Co., no. 1-99-2094,1-99-3044, 2001 WL 209813, at *7 (Ill. App. March 2, 2001) (“the two important considerations for review include (1) the reasonable possibility of a claim; and (2) the reasonable likelihood that the claim would implicate the excess policy layers”); Barry R. Ostrager & Thomas R. Newman, Handbook on Ins. Coverage Disputes, 9th ed. §4.02 (1998) (“an insured’s duty to provide notice to its excess insurers typically arises when the insured has reason to believe that an occurrence is likely to involve the excess coverage,” as “judged by an objective standard”).

      . An evaluation of this final issue is complicated by the fact that American all but ignores it in the documentation it has submitted to the court.

      . Rule 1706.1 addresses joinder in a class action lawsuit.

      . Because the joinder complaint is proper under Rule 2252(a)(4), there is no need to address Liberty’s argument that it is not authorized under Rule 2252(a)(1), (2) and (3).