Lead Opinion
We evaluate Section 544 of the Insurance Department Act, 40 P.S. § 221.44 (the “Act”) and determine what priority classification ought to be assigned to a subrogation claim held by an insurance company against an insolvent insurer under the Act. We hold that this type of claim is a loss claim for which the loss has been indemnified and therefore that the appropriate classification is set forth in subsection (g) of Section 533 of the Act. We therefore reverse the holding of the Commonwealth Court which improperly adopted a referee’s determination that the appropriate classification was set forth in subsection (b).
I. Facts
This case arises from a motor vehicle accident caused by an escaped horse. On January 9, 1998, the horse “Pocket Rocket” ran from the premises of the Sports Creek Raceway into automobile traffic and caused a motor vehicle accident in which Sheila Follen-Davis was injured. At the time of the accident, Pocket Rocket’s owners, the Members of the Harness, were insured by Appellee Reliance Insurance Company (“Reliance”). At the time of the accident, Ms. Follen-Davis was insured by Farm Bureau Insurance (“Farm Bureau”).
Following the accident, Farm Bureau settled with Ms. Follen-Davis and paid her seven thousand dollars ($7,000) for her injuries. Farm Bureau then sought to recover $7,000 from Reliance. On May 30, 2001 Reliance and the Members of the Harness executed a settlement agreement pursuant to which they agreed to pay Farm Bureau $7,000.
Although a check was issued by Reliance, Farm Bureau allowed the check to become stale. When Farm Bureau finally presented the check to its bank, the check was dishonored due to the lapse of time. On October 3, 2001, Reliance was placed into liquidation and thereafter was unable to issue a new check to Farm Bureau.
In an effort to seek reimbursement, Farm Bureau submitted Proof of Claim No. 1010161 for $7,000 in the Reliance
The parties agree that the Claim could only be classified under either subsection (b) or else the “catch all” subsection (g) of Section 544. 40 P.S. § 221.44(b), (g). Subsection (b) generally applies to “[a]ll claims under policies for losses wherever incurred, including third party claims, and all claims against the insurer for liability for bodily injury or for injury to or destruction of tangible property which are not under policies ...” 40 P.S. § 221.44(b). There is a major “carve-out” in subsection (b), however. Pursuant to the language of subsection (b) “[t]hat portion of any loss, indemnification for which is provided by other benefits or advantages recovered by the claimant, shall not be included in this class ...” Id. To paraphrase the language of the Act, claims under policies for loss are categorized under subsection (b) unless the loss has been compensated by other benefits or advantages.
In the event that a loss has been compensated by other benefits or advantages, the claim would be classified under subsection (g) of the Act. 40 P.S. § 221.44(g). Pursuant to the language of subsection (g), classification under this section applies to “[c]laims or portions of claims, payment of which is provided by other benefits or advantages recovered by the claimant.” 40 P.S. § 221.44(g)(3). To paraphrase the language of the Act, if a claim is subject to the carve-out described in subparagraph (b), then the claim is classified under subsection (g) of the Act, and that claim receives a lower priority in the liquidation.
Upon review of Farm Bureau’s Proof of Claim, Appellant Commissioner designated the Claim as being classified under subsection (g). As the basis for this designation, the Commissioner reasoned that Farm Bureau’s rights could be no greater than those of its insured, Ms. Follen-Davis, who was otherwise compensated. Farm Bureau filed an objection in the Commonwealth Court, arguing that the Claim should have been designated as one classified under subsection (b).
There are numerous claims in the Reliance liquidation. Some claims are subject to disputes regarding classification and priority. In an effort to resolve these disputes, the Commonwealth Court has appointed various referees to review claims and issue recommendations.
A subrogation claim by Empire Fire & Marine Insurance Company (“Empire”) against Reliance was reviewed by Referee James C. Schwartzman. This claim arose from the fact that a Reliance insured caused a motor vehicle accident injuring Empire’s insured David Wyrick. Empire paid Mr. Wyrick for his injures and then sought payment from Reliance. After reviewing the facts underlying the claim, Referee Schwartz-man determined that Empire’s subrogation claim should be classified under subsection (g). Referee Schwartzman’s recommendation was affirmed
A subrogation claim by Factory Mutual Insurance Company (“Factory”) against Reliance was reviewed by Referee G. Alan Bailey. This claim arose from a fire in a building insured by Factory that was caused by a gasoline spill created by an employee of a Reliance insured. Factory paid its insured for the fire and then sought payment from Reliance. After reviewing the facts underlying the claim, Referee Bailey determined that Factory’s subrogation claim should be classified under subsection (g). Referee Bailey’s recommendation was affirmed by the Commonwealth Court on July 14, 2005.
Nearly a year after the resolution of the Empire and Factory claims, on February 25, 2006, the dispute regarding the instant Claim was referred to Referee Luther E. Milspaw. On May 3, 2006, Referee Milspaw issued a report and recommendation concluding that the Claim should be classified under subsection (b) (the “Report and Recommendation”). As the basis for his Report and Recommendation, Referee Milspaw found that Farm Bureau is a “claimant” under a policy for loss as defined by the Act in subsection (b). Referee Milspaw further reasoned that because Farm Bureau has no other source of reimbursement, the carve-out does not apply so the Claim must be classified under subsection (b), rather than subsection (g).
The Commissioner filed an exception to Referee Milspaw’s Report and Recommendation in the Commonwealth Court. On December 14, 2007, the Commonwealth Court overruled the Commissioner’s exception. Ario v. Reliance Ins. Co.,
The Commissioner filed a Motion for Reconsideration. In support thereof, the Commissioner cited the referee determinations relating to the Empire and Factory subrogation claims. As the Commissioner noted, these claims had been classified under subsection (g) of the Act and therefore similar claims had been dissimilarly classified in the Reliance liquidation. The Commonwealth Court denied the Motion for Reconsideration and the Commissioner filed a timely appeal to this Court.
II. Analysis
In his brief the Commissioner posits the following two issues for this Court’s review:
Did the lower court err when it affirmed the Report and Recommendation of Referee Milspaw who found that insurer Farm Bureau Insurance Company, having paid its insured a settlement payment for wrongs allegedly committed by Reliance’s insured, as it was required to do under its policy with insured, was entitled to (b) priority (pursuant to 40 P.S. § 221.44(b)) for its subrogation claim against Reliance, where (1) Farm Bureau Insurance Company’s claim is entirely derivative of the rights of its fully-compensated [insured]; (2) the statute explicitly carves out from priority (b) “[t]hat portion of any loss, indemnification for which is provided by other benefits or advantages recovered by theclaimants ...;” and (3) where (b) priority is and should be reserved for claims under policies of insurance for loss. Did the lower court improperly fail to adhere to (1) the doctrine of stare decisis; (2) the rule of coordinate jurisdiction; (3) the law of the case doctrine; or (4) applicable principles of equity and fairness or administration and asset distribution among creditors of an insolvent insurer’s estate, when, having Orders affirming two prior Referee decisions assigning priority (g) to indistinguishable insurer subrogation claims, it ordered the Farm Bureau Insurance Company subrogation claim a (b) priority.
These issues can be concisely restated as follows: first, did the Commonwealth Court err in affirming Referee Milspaw’s determination that the Claim was classified under subsection (b); second, was the Commonwealth Court permitted to discount or depart from prior referee decisions that it had affirmed in the Reliance Liquidation. Although our resolution of the first issue disposes of the matter, we discuss both issues in an attempt to elucidate issues that may arise on an ongoing basis in the Reliance liquidation.
A. Proper Classifícation of the Claim
First, we evaluate whether the Commonwealth Court erred in affirming Referee Milspaw’s determination that the Claim was properly classified under subsection (b) of the Act. The Commissioner and amicus Northland Insurance Company (“Northland”)
The Commissioner argues that the Claim should be classified under subsection (g) and the Commonwealth Court erred in giving it subsection (b) classification.
As is not atypical in the context of liquidation, it is anticipated that Reliance’s assets will not be sufficient to fully pay all claims asserted in the liquidation. As a result, the classification of claims in this and other liquidations is a matter of great significance to claimants. The liquidator, here the Commissioner, is charged with properly classifying claims to ensure equitable distribution of assets. 40 P.S. § 221.36(b)(3). Recognizing the importance of classifying claims, the General Assembly enacted the Act to ensure that claimants entitled to more protection have prioritized claims. Section 544 of the Act states, in relevant part, that “[e]very claim in each class shall be paid in full or adequate funds retained for such payment before the members of the next class receive any payment.” 40 P.S. § 221.44. The plain language of the Act must therefore be the starting point for any classification of claims.
At issue in this matter is the language of Section 544, subsection (b) and subsection (g) of the Act. Pursuant to the language of subsection (b), the following claims are classified thereunder:
All claims under policies for losses wherever incurred, including third party claims, and all claims against the insurer for liability for bodily injury or for injury to or destruction of tangible property which are not under policies, shall have the next priority. All claims under life insurance and annuity policies, whether for death proceeds, annuity proceeds, or investment values shall be treated as loss claims. That portion of any loss, indemnification for which is provided by other benefits or advantages recovered by the claimant, shall not be included in this class, other than benefits or advantages recovered or recoverable in discharge of familial obligations of support or by way of succession at death or as proceeds of life insurance, or as gratuities. No payment made by an employer to his employe shall be treated as a gratuity.
40 P.S. § 221.44(b). Pursuant to the language of subsection (g), the following claims are classified thereunder: “[cjlaims or portions of claims, payment of which is provided by other benefits or advantages recovered by the claimant.” 40 P.S. § 221.44(g).
Here, the Claim arises in a subrogation context. The equitable doctrine of subrogation places the subrogee in the precise position of the one whose rights are subrogated. Wimer v. Pa. Emp. Benefit Trust Fund,
To determine whether the Commonwealth Court erred in assigning the priority of the Claim, we must engage in a statutory analysis of subsections (b) and (g) of Section 544 of the Act. The objective of interpretation and construction of statutes is to ascertain and effectuate the intention of the General Assembly. 1 Pa.C.S. § 1921(a). Generally, the best indication of legislative intent is the plain language of the statute. Commonwealth v. Shiffler,
The plain language of Section 544 demonstrates that a subrogated claim, like the Claim at issue in this matter, is subject to the carve-out in subsection (b) and therefore is properly classified under subsection (g). First, the plain language of subsection (b) states that “[a]ll claims under policies for losses wherever incurred, including third party claims” are entitled to priority under subsection (b). 40 P.S. § 221.44(b) (emphasis added). Therefore, in order to be classified under this subsection, a claim must be alleged under a policy for loss.
Second, even if a claim is alleged under a policy for loss, it may still be exempt pursuant to the carve-out in subsection (b). The plain language of subsection (b) states that a “portion of any loss, indemnification for which is provided by other benefits or advantages recovered by the claimant, shall not be included in this class ...” Id. (emphasis added). Therefore, where there has been compensation for loss, a claim may not properly be classified under subsection (b). In evaluating this subsection of the Act, we note that the use of the word “shall” renders the carve-out mandatory. See Koken v. Reliance Ins. Co.,
If a claim is subject to the carve-out in subsection (b), the plain language of the Act dictates that the claim be classified under subsection (g). Pursuant to its plain language, subsection (g) applies to “[cjlaims or portions of claims, payment of which is provided by other benefits or advantages recovered by the claimant.”
The language of the Act is clear. In order to be classified under subsection (b), a claim must: 1) derive from a policy covering loss; and 2) must not have been otherwise compensated. If neither is true, that claim is classified under subsection (g).
Applied to the facts of this matter the plain language of the Act directs the classification of the Claim under subsection (g).
If, on the other hand, Northland acknowledges that the Claim arises from subrogation, then Farm Bureau “stands in the shoes” of Ms. Follen-Davis. See Johnson v. Beane,
B. Precedential Effect of Other Claim Classifications
We now evaluate whether the Commonwealth Court was permitted to discount or depart from prior referee decisions that it had affirmed in the Reliance Liquidation. As the Commissioner points out, the Claim appears to have been treated differently than other similar claims asserted in the Reliance liquidation. According to the Commissioner, stare decisis, the law of the case, and the doctrine of coordinate jurisdiction mandate that the decisions be reconciled, and that the aberrant decision regarding the Claim be reversed.
Northland attempts to distinguish the inconsistent claims, arguing that the settlement agreement creates a different set of circumstances. According to Northland, no prior decisions by referees or the Commonwealth Court are binding precedent on the Claim because the facts surrounding the Claim are distinguishable.
We need not decide whether the particular doctrines cited above strictly apply in the context of referee recommendations in liquidation matters. It is clear that the broader principles of uniformity and equity apply and would direct the result here. In the context of a liquidation, where thousands of claims will be evaluated by various referees, there is value in an attempt to promote uniformity. Assuming for the sake of argument that multiple claims in the same litigation involve similar facts, the same outcome should be ordered in each claim.
Here, for the reasons discussed at length above, the Claim is one against Reliance by a holder of a subrogation claim. The existence of a settlement agreement is immaterial, the Claim is not functionally different from the Empire and Factory subrogation claims. The Empire and Factory subrogation claims were assigned priority under subsection (g) of the Act. The facts surrounding the Claim do not justify a departure from the reasoning applied to the Empire and Factory subrogation claims. All claims in the Reliance litigation, including the Claim, ought to be treated uniformly, and therefore the Claim should have also been assigned priority (g).
III. Conclusion
Accordingly, we hold that the Commonwealth Court erred in failing to classify the Claim under subsection (g) of the Act. We therefore reverse the Commonwealth Court’s decision, remand, and direct the entry of an order classifying the Claim under subsection (g) of the Act.
Notes
. Appellant Joel S. Ario, the Acting Pennsylvania Insurance Commissioner (the "Commissioner”), acts as the liquidator for the Reliance liquidation. 40 P.S. § 221.15(a).
. Hundreds of subrogation claims have been filed in the Reliance liquidation. Although the amount at stake in the instant matter is small, the resolution of this case will have a significant impact on numerous other, more substantial, subrogation claims.
. Farm Bureau has not filed a brief in this appeal, apparently due to the small amount of money at stake. Instead, amicus Northland filed a brief in support of the Commonwealth Court’s decision, and presented oral argument to this Court. Northland has a subrogation claim in another matter that has been stayed pending resolution of this matter. Northland believes that the outcome in this matter will provide important precedent for its own case.
. Amicus the National Association of Insurance Commissioners (the “NAIC”) filed a brief in support of the Commissioner's position. In its brief, the NAIC argues that revisions of the Model Act regarding priority classification in insurance liquidation proceedings make it clear that these statutes are designed to protect policyholders first, before subrogated insurers like Farm Bureau. Moreover, as the NAIC points out, this Court’s decision will have nationwide ramifications in other liquidation proceedings.
. Northland urges this Court to examine the legislative intent and history underpinning the Act. Such an examination is not necessary or appropriate where, as here, the Act’s language is unambiguous and Northland's interpretation is contrary to the Act’s plain language.
. This Court commends all counsel who participated in this appeal for exceptionally well-crafted, well-researched, and persuasive briefs and arguments.
Concurrence Opinion
Concurring.
I concur in the result. I join Mr. Justice Saylor’s Concurring Opinion respecting the first issue presented. I write separately only to express my view of the jurisprudential stability and uniformity
The Commissioner argues that under either stare decisis, the law of the case doctrine, or the coordinate jurisdiction rule, the Commonwealth Court’s disposition is erroneous because it does not conform to two of that court’s 2005, single-judge adjudications in the Empire and Factory Mutual matters, even though those cases are materially indistinguishable on the claims classification issue presented. In those earlier matters, the court approved and affirmed referee recommendations that assigned the subrogated insurers’ claims to “class (g)” priority status. The Majority recognizes the importance of the preclusion issue, but then determines that we “need not decide” whether the three preclusion doctrines cited by the Commissioner “strictly apply” in this context because, the Majority holds summarily, “[i]t is clear that the broader principles of uniformity and equity apply and would direct the result here.” Majority Op. at 505,
I would meet the Commissioner’s issue head-on because, if a preclusion doctrine applies, the Commonwealth Court has little or no discretion in a case such as this and it should be so informed. On the other hand, if a preclusion doctrine does not apply, we should offer a fuller explanation of the source and contours of the constraints we would impose on the doctrine. For the reasons that follow, I do not believe that the doctrines invoked by the Commissioner apply. Nevertheless, important jurisprudential concerns, arising from the nature of this sort of litigation, the need for stability and predictability, and the institutional relationship of the Commonwealth Court to this Court, counsel that the Commonwealth Court exercise more care in keeping its own house in jurisprudential order.
The core doctrine of stare decisis teaches that:
[F]or purposes of certainty and stability in the law, a conclusion reached in one case should be applied to those which follow, if the facts are substantially the same, even though the parties may be different. While stare decisis serves invaluable and salutary principles, it is not an inexorable command to be followed blindly when such adherence leads to perpetuating error. See [Mayle v. Pa. Dep’t of Highways,479 Pa. 384 ,388 A.2d 709 , 720 (1978)] (“[T]he doctrine of stare decisis is not a vehicle for perpetuating error, but rather a legal concept which responds to the demands of justice and, thus, permits the orderly growth processes of the law to flourish.”).
Stilp v. Commonwealth,
The law of the case doctrine refers to:
a family of rules which embody the concept that a court involved in the later phases of a litigated matter should not reopen questions decided by another judge of that same court or by a higher court in the earlier phases of the matter. Among the related but distinct rules which make up the law of the case doctrine are that: (1) upon remand for further proceedings, a trial court may not alter the resolution of a legal question previously decided by the appellate court in the matter; (2) upon a second appeal, an appellate court may not alter the resolution of a legal question previously decided by the same appellate court; and (3) upon transfer of a matter between trial judges of coordinate jurisdiction, the transferee trial court may not alter the resolution of a legal question previously decided by the transferor trial court.
The various rules which make up the law of the case doctrine serve not only to promote the goal of judicial economy ... but also operate (1) to protect, the settled expectations of the parties; (2) to insure uniformity of decisions; (3) to maintain consistency during the course of a single case; (4) to effectuate the proper and streamlined administration of justice; and (5) to bring litigation to an end.
Commonwealth v. Starr,
The coordinate jurisdiction rule likewise addresses individual cases as it provides that “judges of coordinate jurisdiction sitting in the same case should not overrule each others’ decisions.” Starr,
The Commonwealth Court’s prior dispositions in Empire and Factory Mutual were both unpublished, single-judge orders by then-President Judge James Gardner Cohns. Section 414 of the Commonwealth Court’s Internal Operating Procedures (“IOPs”) provides that a “single-judge opinion, even if reported, shall be cited only for its persuasive value, not as binding precedent.” See 210 Pa.Code
The Judicial Code vests the Commonwealth Court with original jurisdiction where such jurisdiction is conferred by statute. 42 Pa.C.S. § 761(a)(4). This jurisdiction includes insurance company insolvencies where the insurance company is a domestic company licensed in the Commonwealth of Pennsylvania, as is the case here. 40 P.S. § 221.4(d); see also Koken v. Reliance Ins. Co.,
Given the nature of single-judge decisions of the Commonwealth Court, it is readily apparent that stare decisis is not applicable; thus, in this matter, that doctrine did not command fidelity to the previously decided Empire and Factory Mutual matters. It is equally apparent that the law of the case doctrine does not apply, as this is not: a case returned to a trial court on remand, a second appeal, or a matter that has been transferred. The coordinate jurisdiction rule poses a slightly closer question. If this dispute were a subsequent portion of the “same case” as Empire and Factory Mutual, then the Commonwealth Court would be bound by the coordinate jurisdiction rule. But the hundreds of distinct insurer subrogation claims within the more than 150,000 claims comprising the entire Reliance liquidation process do not quite resemble component parts of the “same case” in the manner understood by the coordinate jurisdiction rule. Thus, the coordinate jurisdiction rule does not apply.
But this does not end the inquiry. The preclusion doctrines evolved in response to particular cases and specific problems. The concern forwarded here poses a new scenario, deriving largely from the unique nature of the Commonwealth Court. The question then is whether the principles animating the preclusion doctrines should
The Commissioner’s application for reconsideration sets forth in detail the internal inconsistency between the single-judge decision here and those in the previously decided Empire and Factory Mutual matters. One of the considerations governing whether to allow reargument is “[wjhere the court has overlooked or misapprehended (as by misquotation of text or misstatement of result) a controlling or directly relevant authority.” Pa.R.A.P. 2543 cmt. The circumstances here would seem to indicate an instance where the court (in the form of a single judge) overlooked “directly relevant” authority even though that authority is not strictly controlling.
The Commonwealth Court’s allowance of patent inconsistency in single-judge decisions in the Reliance litigation may derail other critical liquidation activities. For example, as the Commissioner notes, an actuarial study that estimates the ultimate payout obligations to Reliance claimants in the most desirable “(b) priority” category already has been commissioned. The Commissioner uses this study’s projections to determine the appropriate interim distributions to those claimants who are clearly eligible for “(b) priority” status. If individual judges of the Commonwealth Court are free to issue inconsistent rulings, even when confronted with the existence of prior indistinguishable cases, the study projections will need to be adjusted in order to include hundreds of potential subrogation claims. Nor, the Commissioner warns, does the current scheme have procedures in place to address the likely reaction of past subrogation claimants who accepted “(g) status” under the understanding that such was the settled rule.
A failure to appreciate this disruption, or to attempt to acknowledge the issue head-on and distinguish or criticize the prior decisions, in this context, is intolerable. Of course, single-judge decisions in the context of the Reliance litigation, like single-judge decisions in any matter, may be erroneous. But, if so, the corrective measure should be the usual ones available
An additional reason supporting a directive that the Commonwealth Court pay more heed to ensuring consistency and regularity in its decisions in the Reliance liquidation derives from this Court’s supervisory authority. The fact that single-judge decisions are not precedential should not be taken as an invitation to a disruption to be passed onto this Court for forced review of an issue arising from demonstrable, doctrinal inconsistencies in single-judge decisions. In this case, the judge provided no explanation for the inconsistency his decision created. He did not suggest that the resolutions in Empire and Factory Mutual were distinguishable or in error when measured against precedent; the law has not changed; and no new evidence has come to light. The court as a whole did nothing to correct or explain the obvious inconsistency. The Commonwealth Court’s obligation to rule consistently in similarly situated cases is an institutional imperative that must be taken seriously, both by single judges and by the Commonwealth Court as a whole.
. Madame Justice Todd and Mr. Justice McCaffery join this concurrence on the point to which I write.
. The Majority does not identify the broader principles to which it adverts, nor does it cite authority to support them.
. I recognize that, under the Rules of Appellate Procedure and cases such as Great Valley, supra, the Commissioner could have taken measures short of petitioning for review by this Court to ensure the consistency he desires, i.e., by seeking formal reargument before the Commonwealth Court as a whole under Pa.R.A.P. 2541-2547. As I understand it, however, in practice, the court as a whole has an opportunity to consider the reconsideration application made to the single judge, although that practice is not generally acknowledged in the IOPs or the Rules of Appellate Procedure. That informal practice may explain why eleven copies of an application for reconsideration to the Commonwealth Court are required pursuant to Pa.R.A.P. 2541 even though the court’s IOPs say that the application is exited only to the single judge. Institutional litigants such as the Commissioner may be aware that a single-judge denial has at least some measure of approval by the Commonwealth Court as a whole. Whether my understanding is accurate or not, the Commonwealth Court should have some formal mechanism in place to better police these matters.
Concurrence Opinion
Concurring.
I differ with the majority’s position that the language of Section 544 is clear and unambiguous. See Majority Opinion at 502-03,
Principally, based on the drafting history and associated policies, I believe the NAIC persuasively demonstrates that subrogation claims were not considered the type of “loss claim” that subsection (b) priority is designed to address. See NAIC Brief at 7-11. Indeed, the NAIC observes that changes were made in 1994 which “merely make[ ] clear what was intended all along: that claims of subrogated insurers are not included in the same priority as those of [direct] third-party claimants and policyholders.” Id. at 11.
. In this regard, I do not read Northland’s argument as placing it in a "double bind.” Majority Opinion, at 504-05,