Warrantech Consumer Products Services, Inc. v. Reliance Insurance Co. in Liquidation, 626 Pa. 218

Background

Warrantech purchased "service contract reimbursement" occurrence policies from Reliance for contracts issued in 1999–2000; policies contained an "Effect of Cancellation" clause leaving Reliance liable for claims on contracts issued during policy periods even after cancellation.
Reliance was placed in liquidation on October 3, 2001; Commonwealth Court designated November 2, 2001 (30 days later) as the statutory cut-off under 40 P.S. § 221.21 for "risks in effect."
After November 2, 2001 Reliance stopped reimbursing Warrantech; Warrantech paid consumer claims and filed proofs of claim against Reliance’s estate seeking reimbursement (~$11.9M) for post-cutoff claims (Cancellation Issue) and other offsets (resolved separately).
Liquidator assigned zero value to Warrantech’s post-November 2 claims under § 221.21; Commonwealth Court sustained that view and valued certain offset claims but affirmed zero for Cancellation Issue; Supreme Court review followed.
Central legal dispute: whether § 221.21’s "continuance of coverage" (limits coverage for "risks in effect" to at most 30 days after liquidation) applies to policies cancelled pre-liquidation but that by their terms still expose the insurer to future claims arising from earlier-issued service contracts.

Issues

Issue	Plaintiff's Argument (Warrantech)	Defendant's Argument (Liquidator)	Held
Does § 221.21 apply to policies cancelled before liquidation but that by contract still cover claims tied to pre-cancellation acts?	§ 221.21 applies only to policies with active policy periods at liquidation; Reliance’s policies were cancelled in 2000, so statute doesn’t cut off coverage.	"All insurance in effect" includes any policy that continued to provide coverage as of liquidation; § 221.21 therefore applies to cancelled-but-continuing policies.	Held: § 221.21 applies to any insurance that "continues to provide coverage" at liquidation, including cancelled policies whose terms still impose risk.
Is the triggering event for coverage the issuance of service contracts (pre-liquidation) or the later consumer claims/product breakdowns?	Coverage was "triggered" when Warrantech issued the service contracts during the policy periods (analogous to multiple-trigger asbestos cases), so claims later manifested remain covered.	The Reliance policies are triggered by Warrantech becoming legally obligated to pay—i.e., a consumer claim/product breakdown—which occurred after liquidation for many claims; those risks are cut off by § 221.21.	Held: Triggering event is the post-breakdown claim; therefore many claims occurring after the 30-day window are terminated by § 221.21.
Does the policy "Effect of Cancellation" clause override or trump § 221.21?	The clause preserved Reliance's perpetual liability for contracts issued during policy periods and thus should survive liquidation.	Statutory law controls; contractual provisions repugnant to applicable statute must yield. § 221.21 overrides conflicting policy terms.	Held: Statute controls; the contractual cancellation clause cannot override § 221.21.
Is obligating policyholders to seek replacement/retroactive insurance an unlawful or absurd result under the Act?	Applying § 221.21 here creates a coverage gap and undermines expectations from purchased coverage; unjust to require replacement insurance after paying large premiums.	The statutory scheme balances competing interests and fixing liabilities is necessary for equitable distribution; § 221.21’s 30-day window is a reasonable legislative limit.	Held: Hardship does not invalidate the statute; the Court enforces the statutory balance favoring fixed liquidation timelines and a 30-day continuance.

Key Cases Cited

J.H. France Refractories Co. v. Allstate Ins. Co., 534 Pa. 29, 626 A.2d 502 (1993) (adopted multiple-trigger analysis in asbestos toxic-tort context)
Kvaerner Metals Div. v. Commercial Union Ins. Co., 589 Pa. 317, 908 A.2d 888 (2006) (policy interpretation principles; occurrence vs. claims-made distinctions)
401 Fourth St., Inc. v. Investors Ins. Grp., 583 Pa. 445, 879 A.2d 166 (2005) (insurance contract interpretation is a question of law)
Minnesota Fire & Cas. Co. v. Greenfield, 579 Pa. 333, 855 A.2d 854 (2004) (policy-holder intent governs trigger analysis)
Prudential Prop. & Cas. Ins. Co. v. Colbert, 572 Pa. 82, 813 A.2d 747 (2002) (contract terms conflicting with statute are invalid)
Foster v. Mut. Fire, Marine & Inland Ins. Co., 581 Pa. 598, 614 A.2d 1086 (1992) (upholding limitations on claims against insolvent insurers to permit effective administration)
Montrose Chem. Corp. v. Admiral Ins. Co., 10 Cal.4th 645, 42 Cal.Rptr.2d 324, 913 P.2d 878 (1995) (out-of-jurisdiction authority on triggering coverage principles)
Boston Gas Co. v. Century Indem. Co., 454 Mass. 337, 910 N.E.2d 290 (2009) (other-jurisdiction discussion of coverage triggering)