ORDER AFFIRMING IN PART AND REVERSING IN PART BANKRUPTCY COURT DECISION
I. INTRODUCTION
This is а declaratory judgment action regarding the relative rights of the Trustees of Conneaut, Lake Park, Inc. (the “Debtor”), Park Restoration, LLC (“Park Restoration”), and certain tax creditors of the Debtor (specifically, Summit Township, Crawford County, the Tax Claim Bureau of Crawford County, and Conneaut School District (collectively, “the Taxing Authorities”)) with respect to insurance proceeds in the amount of $611,000 from a casualty insurance policy on a building owned by the Debtor. On December 22, 2015, the United States bankruptcy court for the Western District of Pennsylvania determined that the Taxing Authorities are entitled to $478,260.75 of the insurance proceeds as payment for outstanding property taxes and that Park Restoration is entitled to the remaining principal balance of the proceeds after payment to the Taxing Authorities. Park Restoration appeals the -decision to this Court and Debtor filed a cross-appeal. Having reviewed the parties’ filings, the record of this case, and the relevant legal authority, this Court will affirm in part and reverse in part the bankruptcy decision. Specifically, this Court affirms that Debtor is not entitled to any of the insurance proceeds, but reverses the bankruptcy court’s conclusion that the Taxing Authorities are entitled to a portion of the proceeds; instead, the insurance proceeds, in their entirety, must be awarded to Pаrk Restoration. The reasoning for this Court’s decision is as follows.
II. BACKGROUND
The material facts of this case are not in dispute. See Dkt. No. 1, Ex. 5. Nor are they complicated. They are as follows: Debtor owns 55.38 acres of land in Crawford County that contains a number of amusement attractions, buildings, and other permanent fixtures. Pursuant to a written management agreement between Debtor and Park Restoration (“the Management Agreement”), Park Restoration operated an attraction located on Debtor’s land. The attraction is commonly referred to as the Beach Club. The Beach Club is an historic 77-year old structure located on less than one acre of Debtor’s 55.33 acre property. As such, while Debtor’s full parcel of land has an аssessed tax value of $152,195, the Beach Club itself has an assessed value of only $13,992 (i.e., the Beach Club’s assessed value is nine percent of the assessed value for the entire property). Park Restoration did not have access to the remaining approximately 54.33 acres of Debtor’s land.
In connection with its operation of the Beach Club, Park Restoration purchased, and paid insurance premiums, for a casualty insurance policy on the Beach Club structure from Erie Insurance Exchange (“Erie”). The policy insured the structure for $611,000.
At the time of the fire, Debtor owed back taxes on the entire 56.33 acre parcel in the amount of $478,260.75. The tax debt datеd back to at least 1996. Therefore, Erie notified Park Restoration that it intended to deduct $478)260.75 from the $611,000 insurance proceeds to satisfy the outstanding tax obligation on Debtor’s property. Park Restoration objected and Erie commenced an interpleader action in the Court of Common Pleas. The matter was transferred to the bankruptcy court after the Debtor instituted its bankruptcy action.
The Taxing Authorities and Park Restoration each moved for summary judgment before the bankruptcy court. The Taxing Authorities argued that pursuant to 40 Pa. Cons. Stat. § 638, Erie was required to transfer $478,260.75 to the Taxing Authorities to satisfy Debtor’s outstanding tax liability on the insured property before it could release the remainder of the insurance proceeds to Park Restoration. Park Restoration opposed the Taxing Authorities’ motion and filed its own motion for summary judgment. Park Restoration argued that 40 Pa. Cons. Stat. § 638 is not applicable to the present situation, but instead, applies only to those situations in which the insured owns the insured property and, therefore, is financially responsible for the delinquent taxes. In other words, Park Restoration argued that because it did not own the Beach Club and because it is not financially responsible for Debtor’s delinquent taxes, § 638 cannot be inyoked to force Park Restoration to assume responsibility for the debt. To do so, Park Restoration argued, would constitute an unconstitutional taking in violation of
Debtor also opposed Park Restoration’s motion for summary judgment. Debtor argued that Park Restoration is not entitled to any of the insurance proceeds, even that portion which would remain after the proceeds were applied to the tax debt. Debtor claimed that it is the beneficiary of the insurance policy (as opposed to Park Restoration) because it (Debtor) owns the Beach Club.
The bankruptcy court granted partial summary judgment in favor of the Taxing Authorities and partial summary judgment in favor of Park Restoration. The bankruptcy court concluded that: (1) 40. Pa. Cons: Stat. § 638 unambiguously mandates that the delinquent taxes be deducted from the insurance proceeds; (2) because the statute was enacted prior to the date that the insurance was purchased, Park Restoration was held to be on notice that it did not have a protected property interest in the insurance proceeds; (3) there was no “taking” of a protected property interest in violation of the Takings Clauses in the federal and Pennsylvania constitutions; (4) the Taxing Authorities are entitled to $478, 260.75 of the insurance proceeds; (5) Debt- or was not an insured beneficiary under the insurance policy, and (6) as such, the remaining $132,739.25 of thе insurance proceeds belongs to Park Restoration.
III. STANDARD OF REVIEW
When a district court reviews a decision of a bankruptcy court, it reviews the factual findings for clear error and its legal conclusions de novo. Fed. R. Bankr. P. 8013; Meridian Bank v. Alten,
IV. DISCUSSION
There are two appeals before this Court. First, Park Restoration challenges the bankruptcy court’s construction of 40 Pa. Cons. Stat. § 638 and the constitutionality of the statute’s application to this case. Park Restoration argues, for the first time on appeal, that because the insured property — the Beach Club — only constitutes nine percent of the total tax assessed value of Debtor’s 55.33 acre parcel, Park Restoration should only be responsible for nine percent of the total delinquent tax debt. Taking anymore, Park Restoration argues, would violate the Takings Clauses of the United States and Pennsylvania constitutions.
The Taxing Authorities urges this Court to disregard Park Restoration’s “pro rata share” argument. They assert that because Park Restoration did not raise this argument before the bankruptcy court, the argument is deemed waived pursuant to the Federal Rules , of Bankruptcy Procedure. It is not necessary for this Court to address the waiver issue, because, for the reasons stated below, this Court resolves Park Restoration’s appeal without reaching Park Restoration’s “pro rata share” argument.
The second appeal is brought by Debtor. It challenges the bankruptcy court’s conclusion that Park Restoration is entitled to that portion of the insurance proceeds remaining after the Taxing Authorities recovered for the delinquent taxes. It claims that Park Restoration is not entitled to any of the proceeds because it does not
The Court will first address Park Restoration’s challenges to the bankruptcy court’s decision and then it will turn to Debtor’s challenges to the decision.
A. Park Restoration’s Challenge to the Bankruptcy Court’s Decision
1. Individuals Generally Are Not Financially Responsible for the Debt of Third Parties
It is a fundamental underpinning of our legal system that individuals generally are not held responsible for the debt of others. See, e.g., United States v. Rodgers,
The Court is not persuaded by the Taxing Authorities’ argument. In order to contractually foist the liability of another onto a contracting party, the contract must be sufficiently explicit to place the contracting party on reasonable notice that it is assuming the liability of another by entering into the contract. The above quoted boilerplate language fails this test for at least two reasons. First, the boilerplate language incorporates all Pennsylvania law, not just 40 Pa. Cons. Stat.' § 638. This is significant because this means that the insurance policy also incorporated the fundamental principal that propеrty taxes are the financial ■ responsibility of the owner. See, e.g., Black’s Law Dictionary, Tax (10th ed. 2014) (property tax is: “[a] tax levied on the oumer of property (esp. real property), usually based on the property’s value.”) (emphasis added); North Philadelphia Trust Co. v. Heinel Bros.,
Accordingly, this Court concludes that Park Restoration did not agree to assume the Debtor’s tax liability simply by purchasing an insurance policy on Debtor’s property. Indeed, imposing suсh a liability on Park Restoration through such a tenuous means might give credence to Park Restoration’s constitutional challenges. However, the Court need not reach the constitutional issues because, as explained below, this Court finds 40 Pa. Cons. Stat. § 638 ambiguous.
2. 40 Pa. Cons. Stat. § 638 Is Ambiguous
40 Pa. Cons. Stat. § 638 is part of a comprehensive scheme that governs the rights and obligations of both insurance companies and their insured in the Com
In this case, $478,260.75 in delinquent property taxes had been assessed against the Beach Club and the property on which it was located at the time it was destroyed by the fire. In the bankruptcy court’s view, the foregoing statutory provisions unambiguously mandate that Erie transfer $478,260.75 from the insurance proceeds to the municipal treasurer in satisfaction of the delinquent tax debt. The bankruptcy court reached this decision by concluding that the unambiguous statutory provisions had been incorporated into the Erie insurance policy by reference and that Park Restoration agreed to be bound by the same when it purchased the insurance policy. Therefore, the bankruptcy court concluded, 40 Pa. Cons. Stat. § 638, as applied, is constitutional, and no taking occurred by virtue of its application to this case.
This Court respectfully disagrees that 40 Pa. Cons. Stat. § 638 is unambiguous. The polestar for interpreting a Pennsylvania statute is to ascertain and effectuate the intention of the General Assembly. See 1 Pa. Cons. Stat. Ann. § 1921(a)(2015); White v. Lord Abbett & Co. LLC,
Thus, this Court must first determine whether 40 P.S. § 638 has a “plain and unambiguous meaning.” Dobrek,
Of course, this inconsistency in the statute is significant. If, for the purposеs of the statute, the insured party means the “named insured” then, arguably the statute is applicable to the present situation. If, however, the term insured party means the “insured property owner,” then the statute is not applicable to this case because the parties concede that Park Restoration does not own the Beach Club or the property on which it is located. Therefore, this Court concludes that 40 Pa. Cons. Stat. § 638 is “reasonably susceptible of different interpretations.” Dobrek,
3. The Legislative History Demonstrates that the General Assembly Intended 40 Pa. Cons. Stat. § 638 to Only Apply to Insured Property Owners
Having determined that the statute is ambiguous, this Court must attempt to discern the Legislature’s intent using the tools of statutory construction. United States v. Cooper,
4. Property Taxes Are the Responsibility of the Property Owner
What is more, the statute cannot be interpreted in isolation, but must be read against other general legal principles for it is axiomatic that the General Assembly does not intend аn absurd or unreasonable result. See 1 Pa. Cons. Stat. Ann. § 1922(1) (2015). As the Commonwealth concedes in its amicus brief, under Pennsylvania law, the owner of property is the party responsible for taxes assessed against the property. Dkt. No. 17 at 4 (citing Appeals of Baltimore & O.R.R.,
There is nothing in 40 Pa. Cons. Stat. § 638 to suggest that the General Assembly intended to depart from Pennsylvania’s well-establish principle that property taxes are the financial responsibility of'the property owner. To the contrary, the fact that the statute equates the “named insured” with “the insured property owner” in subsection (b)(2)(i) suggests that the Legislature intended for the statute to apply only
Based on the foregoing, this Court concludes that the drafters of 40 Pa. Cons. Stat. § 638 did not intend to depart from basic principles of equity and tax law and instead intended for the statute to apply only in those situations where the insured party owns the insured property, and as such, any outstanding tax liability is the responsibility of the property owner. Therefore, the statute cannot be used to shift Debtor’s tax burdеn onto Park Restoration.
B. Debtor’s Challenges to the Bankruptcy Court’s Decision
1. Park Restoration Has an Insurable Interest in the Beach Club
As discussed above, Debtor argues that the bankruptcy court committed reversible error when it determined that Park Restoration has an insurable interest in the Beach Club. Dkt. No. 21 at 11. Debtor claims that in order to recover under the insurance policy, Park Restoration must have a “possessory interest” in the Beach Club and the bankruptcy court erred when it determined “that [Park Restoration] held a possessory interest in the Beach Club akin to a leasehold or license.” Id. at 14. Debtor argues that Park Restoration did not have a possessory interest in the Beach Club; rather, Park Restoration simply had a contractual right to “manage and operate” the property. Id. at 15. According to Debtor, “[t]he .fact that [Park Restoration] has a financial interest in personal property at the Beach Club or in the income that might have been generated by future Beach Club operations is irrelevant” to whether Park Restoration is entitled to the insurance proceeds. Id. at 14. Id.
Debtor’s argument rests on the faulty premise that Park Restoration must have a possessory interest in the Beach Club in order to have an insurable interest in the structure. This simply is not the law in Pennsylvania. Park Restoration need not have a possessory interest in the Beach Club in order to have an insurable interest in the struсture. See, e.g., Commonwealth v. Rodebaugh,
2. Debtor Is Not Entitled to Any Portion of the Insurance Proceeds
Next, Debtor argues that even if this Court were to determine that Park Restoration has an insurable interest in the Beach Club, Debtor is still entitled to the insurance proceeds because it owns the Beach Club. According to Debtor, the “fact that [it] is not a named insured under the policy does not preclude its recovery of the [insurance [proceeds for three reasons.” Id. at 9. First, Debtor claims that the policy contemplates that Erie may have to pay the proceeds to Debtor and not Park Restoration. Second, Debtor argues that it is the third party beneficiary of the insurance policy and therefore entitled to the proceeds. Lastly, Debtor argues that it is the entity that suffered the insured loss, so it should be awarded the proceeds. The Court rejects Debtor’s arguments for the following reasons.
. a. The Insurance Policy Language Does Not Dictate that the Proceeds Be Paid to Debtor
As an initial matter, this Court notes— and Debtor concedes — that Debtor is not listed as the named insured under the policy. Nevertheless, Debtor argues that it is entitled to the insurance proceeds because Section 10 of the policy “contemplates” payment of the insurance proceeds to the owner of the insured property regardless of whether the owner is a named insured. Section 10 states:
If we are called upon to pay a “loss” for property of others, we reserve the right to adjust the “loss” with the owner. If we pay the owner, such payments will satisfy your claims against us for the owner’s property.
Dkt. No. 10, Ex. A at 37, Art. X (Commercial Property Conditions), § 10. According to Debtor, this section applies “to the situation at issue here, i.e. where the loss to the covered property is suffered by someone other than the named insured.” Dkt. No. 21 at 20. Debtor misconstrues the meaning of Section 10. Section 10 is meant to protect Erie from having to pay twice under the policy. In the event Erie was obligated tо reimburse a third party for a loss, then, per Section 10, Erie would not also be obligated to pay Park Restoration for the same loss. However, Section 10 cannot be used as a means to convert
b. Debtor Is Not a Third Party Beneficiary of the Insurance Policy
Nor is this Court persuaded by Debtor’s claim that it is an intended third party beneficiary of the insurance policy. Under Pennsylvania law:
[A] party becomes a third party beneficiary only where both parties to the contract express an intention to benefit the third party in the contract itself, Spires v. Hanover Fire Ins. Co.,364 Pa. 52 ,70 A.2d 828 (1950), unless, [1] the circumstances are so compelling that recognition of the beneficiary’s right is appropriate to effectuate the intention of the parties; and [2] the performance satisfies an obligation of the promisee to pay money to the beneficiary, or the circumstances indicate that the promisee intends to give the beneficiary the benеfit of the promised performance.
Two Rivers Terminal, L.P. v. Chevron USA,
Under the second test, it is left up to the discretion of this Court to decide if “the circumstances are so compelling that recognition of the beneficiary’s right is appropriate to effectuate the intention of the parties.” Blue Mountain,
c. Debtor Is Not the Only Party that Suffered a Loss
Debtor’s final argument is that it “is the only party that suffered the insured loss,” so it is entitled to the remainder of the insurance proceeds after payment to the Taxing Authorities, Once again, Debt- or’s argument is unavailing. As has already been discussed above, Park Restoration suffered a pecuniary loss when the Beach Club was destroyed. The relief Debtor seeks would bring about the result that through the proceeds of an insurance policy that was procured and paid for by another, Debtor would have all of its debt extinguished and would pocket the remaining $132,739.25. The law does not require such an unjust result.
V. CONCLUSION
For the foregoing reasons, the Court affirms in part and reverses in part the bankruptcy court’s decision. Specifically, the Court hereby concludes that:
(1) The bankruptcy court’s grant of the Taxing Authorities’ summary judgment motion is REVERSED;
(2) The bankruptcy court’s denial of Park Restoration’s summary judgment motion is REVERSED;
(3) Park Restoration is entitled to the full amount of the insurance proceeds; and
(4) The bankruptcy court’s decision that Debtor is entitled to no part of the insurance proceeds is AFFIRMED.
Notes
, The policy also insured Park Restoration’s personal property located at the structure. The insurance proceeds associated with this coverage are not in dispute.
. Erie was dismissed from the interpleader action on December 9, 2013, and as such, is not a party to the bankruptcy action, or this appeal.
. The bankruptcy court certified the matter to the Attorney General of the Commonwealth of Pennsylvania pursuant to 28 U.S.C, § 2403 because Park Restoration’s claim to the insurance proceeds rests, in part, on a constitutional challenge to a Pennsylvania statute. The Commonwealth, through the Attorney General, subsequently filed an amicus brief in response to the issues raised by the parties.
. In addition, imposing such significant liability on an innocent third party based on a contractual provision that the average lay person would not read may have the effect of an adhesion contract and raises serious equitable concerns.
. While not raised by Park Restoration, this Court also notes that the doctrine of laches may be applicable in this case given that Debtor's outstanding-tax liability dates back to at least 1996. Gruca v. U.S. Steel Corp.,
. Debtor further notes that the insurance policy was organized by financial interest and covered property category. Cover I insured the building structure, Coverage 2 insured the personal property located in the structure, and Coverage 3 insured the income generated at the Beach Club. Park Restoration opted to purchase Coverage 1 and 2 only.
. Debtor also complains that Park Restoration is being paid proceeds in excess of the value of Park Restoration’s financial interest. Given that this Court has already determined that Debtor is not a party to, nor a third party beneficiary of, the insurance policy, Debtor lacks standing to raise this claim. See, e.g., Ryan v. Travelers Indem. Co.,