Jeffrey J. Sikirica, Esq., as Trustee of Pittsburgh Beauty Academy, Inc. v. Nationwide Insurance Company Jeffrey J. Sikirica

Citations: 416 F.3d 214; 2005 U.S. App. LEXIS 16077; 2005 WL 1837010Docket: 04-2035

Court: Court of Appeals for the Third Circuit; August 4, 2005; Federal Appellate Court

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Jeffrey Sikirica, acting as the bankruptcy trustee for Pittsburgh Beauty Academy (PBA), initiated a lawsuit against Nationwide Insurance Company for bad faith and breach of contract after Nationwide declined to defend PBA in a class action lawsuit related to fraud and consumer protection violations. The District Court denied Sikirica's request to remand the case back to state court and subsequently ruled in favor of Nationwide, citing that the bad faith claim was barred by the statute of limitations and that the insurance policy did not cover the allegations of intentional and fraudulent conduct.

The underlying issues began in 1985 when Victoria Cinski visited PBA for hair coloring services, signing a release that waived PBA's liability in exchange for discounted services. However, she was charged $9.15 despite the material costs being only $7.06, resulting in serious injuries. Cinski and her husband filed a state court action against PBA, alleging fraudulent misrepresentation, negligence, personal injury, and violations of the Unfair Trade Practices and Consumer Protection Law, including class action claims for overcharged services.

Nationwide had previously informed PBA that the insurance policy excluded coverage for the class action allegations, stating that the claims did not fall under bodily injury or property coverage nor under personal or advertising injury provisions. The District Court's decision and the subsequent appeal by Sikirica focused on these legal determinations and the applicability of the insurance policy in the context of the claims made against PBA.

Reale, Fossee and Ferry continues to represent Pittsburgh Beauty Academy (PBA) regarding allegations related to Victoria Lynn Cinski's individual action. The trial in 1993 resulted in the dismissal of Cinski's UTPCPL claim, although her personal injury claims were successful. The Pennsylvania Superior Court later reinstated the UTPCPL claim, finding PBA had overcharged Cinski and misled her about pricing, awarding her $100 for direct damages but ruling there was insufficient proof of reliance or fraud. In a subsequent class action trial, the court found for the class on claims of fraudulent misrepresentation, unjust enrichment, and UTPCPL violations, awarding $100 to each member and totaling approximately $290,000. Sikirica appealed the decision, but the Superior Court affirmed, applying res judicata or collateral estoppel based on the earlier ruling in Cinski's case. 

On April 26, 2002, Sikirica, as Trustee, sued Nationwide for failing to defend and indemnify PBA in the class action, alleging bad faith insurance practices and breach of contract across five policy sections. Nationwide removed the case to federal court, asserting timely removal, which Sikirica contested. The District Court denied Sikirica's motion to remand, confirming Nationwide's compliance with the removal timeline. Subsequently, Nationwide moved for judgment on the pleadings, which was granted based on the statute of limitations barring the bad faith claim and the conclusion that the policy did not cover intentional misconduct as alleged in the class action complaint. Jurisdiction over the appeal is established under 28 U.S.C. 1291, with subject matter jurisdiction under 28 U.S.C. 1332, requiring the asserting party to prove proper federal court jurisdiction. The standards for reviewing removal and judgment on pleadings are both plenary, emphasizing a strict interpretation against removal and favoring the nonmoving party.

Interpretation of an insurance policy is a legal question with plenary review, as established in Westport Ins. Corp. v. Bayer. Courts must assign clear and unambiguous policy language its plain meaning, while ambiguous terms may be interpreted through extrinsic evidence, with ambiguity construed against the insurer without distorting the language. In Sikirica's motion to remand for untimely removal, he argues that Nationwide failed to remove the case to federal court within the required 30 days under 28 U.S.C. 1446(b). Sikirica claims that a demand letter dated April 5, 2002, combined with the writ of summons served on April 29, 2002, provided adequate notice of diversity jurisdiction to begin the removal timeline. However, the District Court, referencing Foster v. Mutual Fire, held that this combination did not establish notice of diversity jurisdiction until the complaint was filed on July 8, 2002. Consequently, since Nationwide's removal on July 22, 2002, occurred within 30 days of the complaint, it was deemed timely. The core issue revolves around whether the 30-day removal period started with the writ of summons or the complaint, with Sikirica arguing that informal correspondence, like his demand letter, qualifies as "other paper" under the statute, though the applicability of the second paragraph of 28 U.S.C. 1446(b) is contingent on the complaint being the initial pleading.

The court in Foster interpreted 'initial pleading' within Section 1446(b), ruling that defendants must file Notices of Removal within thirty days after receiving a writ of summons, praecipe, or complaint that adequately indicates federal jurisdiction. The ruling emphasized that a writ of summons alone does not confer notice of federal jurisdiction, and correspondence cannot be considered a pleading unless filed with a court. The District Court held that the defendant lacked notice until the receipt of the complaint, as the demand letter did not qualify as a court-filed pleading.

The authority of Foster was questioned in Murphy Bros. v. Michetti Pipe Stringing, where the Supreme Court ruled that the removal period begins with the simultaneous service of the summons and complaint or receipt of the complaint, but not merely upon receiving the complaint without formal service. This contrasts with Foster's interpretation, which allowed for the 30-day period to start upon receipt of any document indicating federal jurisdiction.

Subsequent cases, like Whitaker v. Am. Telecasting, illustrate differing interpretations of Murphy Bros. The Second Circuit concluded that 'initial pleading' does not strictly mean 'complaint,' allowing a summons with notice to qualify as an initial pleading under Section 1446(b), thus enabling a timely removal even when the complaint is served later.

A summons cannot be considered an initial pleading under Murphy Bros. The Supreme Court clarified that the time for removal is triggered by the receipt of a complaint, not the service of a summons. This distinction underscores the Court's intent that a summons alone does not provide sufficient notice of the action's nature. Unlike New York law, which requires a summons to detail the nature of the action and relief sought, Pennsylvania law does not impose similar requirements. The Pennsylvania writ of summons lacks adequate information to inform a defendant about the action, as it only includes basic identifying details. Moreover, adopting a different standard, like the one in Whitaker, would create inconsistencies across jurisdictions, as defendants in Pennsylvania could be left unaware of the complaint's details when deciding on removal. Consequently, it is concluded that Murphy Bros. implicitly overruled Foster, establishing that a writ of summons cannot trigger the removal period under 28 U.S.C. § 1446(b). The complaint, which provided notice of federal diversity jurisdiction, constitutes the initial pleading; thus, the second paragraph of Section 1446(b) is inapplicable. Nationwide did not receive notice of federal jurisdiction prior to the complaint filing on July 8, 2002, and the removal on July 22, 2002, was timely. The District Court's denial of the motion to remand was therefore correct.

Sikirica's bad faith claim under 42 Pa. Cons. Stat. 8371 was dismissed by the District Court due to the statute of limitations. The court established a two-year limitations period starting from February 22, 1991, when Nationwide notified PBA of its refusal to defend and indemnify in a class action. Sikirica argued that the limitations period should not start until the Pennsylvania Superior Court rejected PBA's appeals on March 27, 2001. The writ of summons was issued on April 26, 2002, over eleven years after the initial denial of coverage, but less than two years after the class action judgment was finalized. Since Section 8371 lacks a specified limitations period and the Pennsylvania Supreme Court has not addressed this issue, federal courts must predict state court rulings, which may favor lower state court precedents over conflicting federal ones. 

The Third Circuit, in Haugh v. Allstate Insurance Co., predicted that the Pennsylvania Supreme Court would apply the two-year tort statute of limitations for Section 8371 claims, supported by a majority of lower state court rulings. The District Court rejected Sikirica's claim that the refusal to defend and indemnify were separate events for statute of limitations purposes, relying on Adamski v. Allstate Insurance Co., which ruled that the claim accrues upon the insurer's clear refusal to indemnify or defend. The court held that the limitations period starts when the right to sue arises, typically when the insurer's refusal to pay is deemed frivolous or unfounded. Thus, the statute began running at the initial denial of coverage, consistent with precedent.

The plaintiff in Adamski argued that the insurer engaged in multiple distinct acts of bad faith, including refusal to defend or indemnify, denial of liability protection without a declaratory judgment, failure to settle, inadequate basis for denial, and lack of diligent investigation. The court rejected this, ruling that these acts were interconnected and stemmed from an initial denial of coverage rather than separate bad faith acts. Sikirica attempted to distinguish this case by asserting that Nationwide only refused to defend against specific allegations, while Adamski required a clear refusal. However, Nationwide's denial letter explicitly communicated its refusal to defend or indemnify against the class action allegations, which were clearly outlined. The subsequent writ of summons came over two years after this denial, thus Sikirica's bad faith claim is barred by the two-year statute of limitations.

Regarding Sikirica's breach of contract claims, the District Court determined that the policy did not cover the intentional conduct alleged in the class action. Sikirica claimed Nationwide had a duty to defend and indemnify under four sections of the policy: Comprehensive General Liability, Professional Liability, Contractual Liability, and Comprehensive Crime Coverage. Under Pennsylvania law, an insurer must defend if the complaint potentially falls within policy coverage, which is a broader obligation than indemnification. If there is no duty to defend, there is no duty to indemnify. The court must analyze the complaint to see if it triggers coverage, and if it does, the insurer must defend. Sikirica specifically claimed coverage under the Comprehensive General Liability section, which obligates the insurer to pay damages for bodily injury or property damage caused by an occurrence and includes a duty to defend any related lawsuit.

The term 'occurrence' in the insurance Policy is defined as an accident resulting in bodily injury or property damage that is neither expected nor intended by the insured, excluding intentional acts. Sikirica asserts that PBA's liability arose from negligent rather than intentional misconduct, which should qualify as an 'occurrence' or 'accident.' He points to the underlying complaint alleging negligent misrepresentation, noting that the Superior Court found no fraud or intentional wrongdoing by PBA. However, the court characterized PBA's pricing misrepresentation as 'deliberate' and its finding of no fraud stemmed from a lack of reliance and the minimal impact of the misrepresentation. 

Sikirica fails to identify any allegations of accidental or negligent conduct in the complaint. He argues that a claim under Section 201-2(4)(xi) of the UTPCPL is similar to negligent misrepresentation, citing a case where a lawyer's negligence was involved in a Ponzi scheme. However, this case did not address the UTPCPL. Additional case references from other jurisdictions do not interpret the UTPCPL. He also cites DiLucido v. Terminix to argue that the UTPCPL holds liability for misleading statements without requiring intentional fraud, but the court did not equate UTPCPL claims with negligent misrepresentation. 

The class action complaint alleges violations of the UTPCPL, including fraudulent conduct and misleading statements regarding the charging of student services. These claims relate to intentional fraud rather than negligence or accidents. Specific allegations indicate that plaintiffs were not asserting negligent misrepresentation, as they claimed PBA knowingly violated regulations regarding charging for student services. Consequently, the alleged conduct does not qualify as an 'accident' or 'occurrence,' leading to the conclusion that Nationwide had no obligation to defend or indemnify PBA under the Comprehensive General Liability section.

Sikirica claims breach of contract against Nationwide for its refusal to defend or indemnify PBA under the Professional Liability section of the Policy. This section requires Nationwide to cover damages for bodily injury and property damage caused by accidents. However, the class action allegations do not assert bodily injury, nor do they claim that PBA’s property damage was accidental, thus Nationwide had no obligation to defend or indemnify under this provision.

In the Contractual Liability section, Sikirica again alleges breach due to Nationwide's refusal to provide defense or indemnification. This section modifies an exclusion in the Comprehensive General Liability section, which generally covers occurrences or accidents but excludes liability assumed under contracts except for incidental contracts. The definition of incidental contract is broadened to include any agreements related to PBA's business, but coverage does not extend to injuries or damages not arising from an occurrence or accident. Since the complaint fails to allege conduct qualifying as such, Nationwide had no duty here either.

Lastly, Sikirica alleges breach concerning the Comprehensive Crime Coverage Endorsement, particularly under the 'Loss Inside the Premises Coverage.' This provision covers loss of money and securities due to destruction, disappearance, or wrongful abstraction within specified premises. Sikirica argues that wrongful abstraction includes overcharges for which PBA was sued, occurring within the premises. However, the losses claimed were suffered by PBA's patrons, not PBA itself. The policy language implies coverage for the insured's own losses, not those resulting from actions causing third-party losses. Additionally, other provisions indicate that third-party losses are not covered, while the 'Loss Outside the Premises Coverage' details separate conditions for losses occurring outside the premises.

The legal document addresses a provision regarding the loss of property due to robbery or theft while transported by a Messenger or armored vehicle, specifically covering the loss of PBA's own assets. Sikirica contends that PBA should be indemnified for intentionally overcharging its customers, which contradicts Pennsylvania's public policy against insuring intentional torts or criminal acts, referencing cases such as Agora Syndicate, Inc. v. Levin and State Farm Mut. Auto. Ins. Co. v. Martin. The Comprehensive Crime Coverage Endorsement is clarified to not cover instances of overcharging customers. The class action allegations do not assert that PBA suffered any loss from overcharging; instead, they claim PBA was unjustly enriched through illegal practices. Thus, the complaint does not present conduct covered by the policy, leading to Nationwide's lack of duty to defend or indemnify PBA. The District Court's decisions to deny Sikirica's motion to remand and to grant Nationwide's motion for judgment on the pleadings were affirmed. The document also notes procedural details regarding the court's authority and applicable Pennsylvania law, as well as the resignation of Judge Chertoff before the opinion was filed.

The court in InHaugh indicated that the statute of limitations for a bad faith claim may begin when the insured becomes aware of the insurer's breach, although it did not make a definitive ruling due to an incomplete factual record. Sikirica references a footnote in Haugh, which cites cases from the Tenth and Eleventh Circuits and the Arizona Supreme Court, establishing that a bad faith claim does not accrue until the underlying judgment is final. Haugh did not endorse these decisions but acknowledged them as relevant to the broader legal context without binding authority. Furthermore, Sikirica does not challenge the District Court's ruling regarding the breach of contract claim under the Personal Injury and Advertising section of the policy. Additionally, Section 201-2(4) of the UTPCPL outlines various acts deemed "unfair or deceptive," including the prohibition against making false or misleading statements regarding price reductions. Nationwide provided a defense for PBA in Mrs. Cinski's personal injury claim.