Catch and Release: A Plaintiff May Expressly Preserve Actionable Claims Against Insurance Agent While Releasing Insurer of Vicarious Liability
Pennsylvania – Settlement & Releases
In Ross v. Foremost Insurance Company, 2010 Pa. Super. 107; 2010 Pa. Super. LEXIS 421 (June 11, 2010), the Pennsylvania Superior Court addressed the issue of whether, under principles of agency law, a plaintiff's release of vicarious liability claims against an insurer, while expressly preserving its claims against the insurer's agent, would effectively release the agent of liability, despite the reservation of rights clause. For the reasons set forth herein, the Superior Court found that a reservation of rights provision would be upheld and the release of the vicariously liable principal would not operate to release the agent, so long as there is a basis for the underlying claims.
The underlying facts of Ross reveal that in April 2001, the plaintiff Daniel Ross purchased a 1984 Travel Trailer, a 35-foot by 8-foot, licensed trailer that can be pulled by hitch for travel on a highway. After the purchase, Ross sought to obtain insurance coverage for the trailer from Foremost Insurance Company ("Foremost") by contacting Sentry Services, Inc. ("Sentry"), which was listed in the phone book as an insurance agent that dealt with Foremost. In the telephone conversation with Sentry, Ross provided the agent with a description of the trailer, the location of the lot where the trailer would be parked - some 1,500 feet from the Connoquenessing Creek in Harmony, Pennsylvania - and explained that the trailer would be used for seasonal living. Sentry then sent Ross copies of an insurance worksheet, wherein he disclosed the proximity of the trailer to the creek. A footnote to the inquiry explained that, because of the trailer's proximity to the creek, coverage would only be provided if flood insurance was excluded. Ross completed, signed, and returned the worksheet with a check for coverage of the trailer. A few weeks later, Ross received a copy of the Foremost Mobile Home Policy, which specifically excluded coverage for losses caused by flooding and other water damage, as well as a declarations page that included information regarding where Ross could obtain flood insurance if he so desired. Ross admitted that he did not read the policy or the declarations page at this time, or at time upon renewing the policy each year.
In 2004, the Connoquenessing Creek flooded and damaged Ross's trailer and its contents. Three days later, Ross submitted a claim to Foremost for damage, which Foremost denied on the grounds that flood loss was not covered by the policy.
Ross brought suit against both Foremost and Sentry in the Court of Common Pleas of Allegheny County. Three years later, Ross entered into a settlement and release agreement ("the Release") with Foremost, wherein he expressly preserved his claims against Sentry for negligence and violations of the Uniform Trade Practices and Consumer Protection Law ("UTPCPL"). Because Sentry had been acting as Foremost's agent, the trial court granted summary judgment in favor of Sentry, holding that the release of Foremost also operated as a release of Sentry. In appealing the trial court's decision to the Pennsylvania Superior Court, Ross challenged the trial court's findings that (1) the release of vicarious liability claims against Foremost operated to release Sentry of liability as a result of the agent/principal relationship and (2) that the underlying claims against Sentry lacked merit.
The Superior Court upheld the trial court's grant of judgment in favor of Sentry but disagreed with the trial court's reasoning in reaching its holding. Specifically, the Superior Court found that the trial court was wrong in concluding that the Release of Foremost also released Sentry because Ross expressly preserved his claims against Sentry in the language of the Release. The Superior Court held that such an express reservation of rights is valid against an agent - although not against a vicariously liable principal.
The court held that a claim of vicarious liability against a principal, such as Foremost, is inseparable from a claim against the agent acting on its behalf since a vicarious liability claim is based upon the acts of only one party. Absent any showing of an affirmative act or omission on behalf of the principal, the termination of a claim against its agent will extinguish the vicarious liability claim against the principal. Thus, if Ross had released Sentry of all liability, such release would have effectively released Foremost as well.
Conversely, in such circumstances where a plaintiff surrenders vicarious liability claims only, while expressly preserving claims against an agent, the parties to the Release will be entitled to effectuate their express intentions, and the court will generally uphold the provision. Accordingly, the release of Foremost, as the vicariously liable party, did not operate to relieve Sentry of liability for the underlying claims because Ross included an express reservation of the rights in the language of the Release.
Nonetheless, where the underlying claims preserved against the agent lack merit, like Ross's claims against Sentry, the court will still grant judgment in favor of the agent. The underlying claims preserved against Sentry, which were premised upon common law fraud, misrepresentation and negligence, were not actionable because Sentry disclosed to Ross that flood coverage was excluded from the policy and because Ross was aware of the risk of flood.
Accordingly, although Ross expressly reserved his rights against Sentry in the language of the Release, the Superior Court upheld the judgment in Sentry's favor because Ross's claims against Sentry were not actionable.
*Angeline is an associate in our Philadelphia, Pennsylvania, office. She can be reached at (215) 575-3575 or email@example.com.
Defense Digest, Vol. 16, No. 3, September 2010