*3 SPAETH, Before JOHNSON, WIEAND and JJ. WIEAND, Judge: a materialman
May maintain a direct action reinsurer has who contracted with the on a surety contrac- tor’s bond to insure loss which the any be called surety may upon The trial court held that such pay? an action could not be maintained and sustained preliminary objections the nature of a demurrer to the materialman’s second amended We affirm. complaint.
H. Sons, Inc., & Rupert entered a (Rupert) written con- tract to work for the perform Bloomsburg Sewer Authority. Products, Inc., the Schuylkill herein, appellant was a materi- who alman sewer supplied pipe action, In this Rupert. alleged Rupert was indebted to it for materi- als sold and $7,407. delivered in the amount of
Prior to the work, commencement of Rupert delivered to a public bond,1 works contractor’s with Authority surety, Law, 1. See Public Works Contractors’ Bond Act of December seq. P.L. 8 P.S. 191 et § The materials. of labor for costs security providing Insurance Bonding were United that bond co-sureties on An Company. Casualty Mutual and Prudence Company recited: to the bond attached affidavit exist be- now Reinsurance (automatic) That Treaties and cer- Company Casualty Prudence Mutual tween the assumed liability which the companies by surety tain other described, is Bond above under Company said the following percentages, in accordance Reinsured Specific (or, by of Availability” “Limits or in the following Reinsurance): Facultative Participants
Reinsurers and Amount Available Amount Reinsured 1) Fidelity- Ins. Co. Newark, 62,300.00 Jersey 42,000.00 New $ $ 2) Allegheny Casualty Mutual Company Meadville, Pennsylvania 110,000.00 63.000. 3) Bonding United Company Indianapolis, Indiana 100,000.00 60.000. 4) Home Owners Insurance Company Minneapolis, 130,000.00 60,000.00 Minnesota 5) Casualty Prudence Mutual Company Chicago, 110,350.00 Illinois 63.000. 6) Emmco Insurance Bend, 180,000.00 2,900,000.00 South Indiana 7) Surety Company Wisconsin Madison, 48,000.00 Wisconsin 42.000.
One of the defendants named in appellant’s second amend ed complaint was International Company. *4 It caused preliminary objections the nature of a demurrer to be filed on the grounds that it was a reinsurer whose contract was with a However, it surety. had no contract with and no to obligation pay appellant.2 The trial court and agreed, this followed. appeal 2. Although complaint the second amended contained an averred conclusion that was a co-surety, copy the of the bond and attached affidavit which were complaint beyond peradventure attached to the establish aof doubt co-surety. that was a reinsurer and not a In cases of such contradictions, controlling. it is the attached documents which are Co., 558, See Eberhart Pa.Super. v. Nationwide Mutual Ins. 238 564
40
In order to sustain objections in the na preliminary ture of a demurrer and dismiss complaint the without leave to amend, “it must appear that, the certainty upon facts averred, the law will not permit recovery by plaintiff.” Co., Davidson Motor Inc. v. Harley Hartman, 296 37, 284, Pa.Super. 41, 442 A.2d (1982) quoting Schott v. 279, Electric Pa. Westinghouse Corp., 282, 436 259 A.2d 443, 445 Accord: (1969). Otto v. American Mutual Insur ance 202, 205, A.2d Company, 393 451 (1978); Longo 509, 510, v. 287 430 A.2d Rago, Pa.Super. 1007 (1981). contends that a reinsurer on a
Appellant bond surety issued under Public Works Contractors’ Bond Law is a proper defendant in an an party by action unpaid supplier. clear, however, The law is that there is no of right direct action a reinsurer against by except the reinsured. any party contract of reinsurance ordinary operates be solely “[T]he reinsurer, tween reinsured and no what privity creates insured, ever between reinsurer and the persons originally the contract of insurance and of that reinsurance remain distinct and totally unconnected, and reinsurer is in no liable, respect otherwise, either as or surety reinsured’s policyholders; accordingly have no of action they right against reinsurance, reinsurer on the contract of nor have action they any against of reinsurer to reform the right C.J.S., Reinsurance, policy.” The rule in is in accord: “Re-insurance Pennsylvania is to an insurance effected properly applied one under by another, writer with the latter or indemni wholly partially assumed; fying former risks which he has effected, is after insurance has been say, insurer have the subject insurance re-insured to him case, however, some other. There is such no privity re-insurer; between the insured and the latter n.6, (1976); Corp. County 362 A.2d 1097 n.6 Framlau Delaware, Pa.Super. (1972); McCoy 299 A.2d Co., Pa.Super. (1951). v. Home 84 A.2d 1019(h):2. See also Goodrich-Amram 2d §
41 former, no liable to the respect otherwise, as a or surety the contract of insurance and of re-insurance being totally Goodrich, of Appeal distinct and 523, disconnected.” 529, 209, 2 A. 211 (1885) (emphasis supplied).
This view is shared almost
the courts of
unanimously by
other
jurisdictions which have considered
actions by an
See Morris and
v.
a reinsurer.
Co.,
Skandinavia
Insurance
405, 408,
279
360,
U.S.
49 S.Ct.
Citizens
361, 73
of New
Casualty Company
(1929);
L.Ed. 762
York v. American Glass
Company,
166
91,
(7th
F.2d
94
Cir.
Keim,
v.
Taggart
1948);
194,
103 F.2d
(3rd
Cir.
1939); United
to the Use of
States
Colonial Brick
v.
Corp.
Co.,
Federal
Surety
cert.
964,
72 F.2d
(4th
967
Cir.
1934),
denied,
711,
508,
294
55
U.S.
S.Ct.
79 L.Ed.
(1935);
1245
American Cast Iron Pipe
Co.,
Co. v. Statesman Insurance
Goodrich,
of
Appeal
343
supra;
860
F.Supp.
(D.Minn.1972);
Fontenot v. Marquette
Co.,
Casualty
La.
671,
258
247 So.2d
In Re
General
Security
Co.,
572
(1971);
47,
82 S.D.
103 (1920); S.E. Globe Insurance Co., 326, 337, 104 Miss. So.
(1913); Vial v. Norwich Union Fire Insurance
Society,
930 (1913); Barnes v. Hekla Fire
355, 357,
Ill.
100 N.E.
Co.,
314 (1893). 56 Minn.
57 N.W.
also 19 Couch on Insurance
80.66;
2d
13 A. Appleman,
7694;
Insurance Law and
Practice
Annotation,
§§
Who
Enforce
May
Liability
Reinsurer,
We neither practical nor perceive reason for policy this rule in cases of altering reinsurers who contract with sureties on contractors’ bonds. The appellant, material- *6 man, with contractor, and is cpntracted Rupert, protect- ed bond, sureties, with which by the contractor filed. The contract of reinsurance was between one of the sureties and, appellee the absence of language creating rights in third vested no persons, Thus, rights appellant. appel- lant cannot maintain the action present a appellee, reinsurer.
Appellant in the alternative that argues should be from estopped assert- its ing status as a reinsurer rather than a on the co-surety bond. This we requires that review the history in the proceedings court below.
Appellant’s was filed original complaint on June 1974. It contained an incorrect averment that the attached bond had been executed by as with' appellee co-surety United Bonding the fact that an Company. Despite examination bond would have disclosed that it had not been executed by answer appellee, contained admission that had executed the appellee bond as co-surety. defense, Appellee’s matter,” set forth in “new was the statute of limitations of one year contained in the Public Works Contractors’ Bond Law at 8 P.S. 197.3 The error § was discovered a conference. during pre-trial Appellee thereafter requested and was leave of granted court to withdraw its answer and file nunc preliminary objections pro tunc. then Appellant requested and received leave to file an amended An complaint. amended was complaint filed, and preliminary objections thereto were argued and sustained with leave to to file another appellant amended complaint. Products, See Schuylkill Inc. v. H. Rupert & Sons, Inc., 13 D. & C.3d 324 (Columbia Co. 1980).
When the second filed, amended was complaint copy attached, bond and affidavit it contained an averment that was from appellee estopped that it was not a asserting co-surety reinsurer. In merely support of this conclu- repealed by April 3. This section was the Act of P.L. 2(a) [1413], No. effective June had advised that counsel sion, alleged appellee’s appellant It was also a principal surety. that was appellant and had failed to had relied thereon alleged to the bond. was not a signatory discover that appellee sustained, with- this time again were Preliminary objections file further amended pleadings. out leave to acts, representations, when one his by An arises “estoppel out, admissions, ought speak or his silence when he or induces another negligence or through culpable intentionally such other rightfully to believe facts to exist and certain if belief, so that he will be prejudiced relies and acts on such existence of such facts.” deny the former permitted A.2d Tallarico, Re Estate of *7 v. National Bank Common- (1967) Northwestern quoting 20, 192, 196, (1942) (emphasis 27 A.2d 23 wealth, 345 Pa. does not where However, arise supplied). estoppel “[a]n truth; upon the statement both are parties ignorant made with which be based must have been an estoppel Maurer v. International Union Unit- a fraudulent purpose.” Automobile, and Agricultural Implement ed Aerospace America, 731, (M.D.Pa.1979) 487 738 F.Supp. Workers of omitted). Moreover, law) (citations “[tjhere Pa. (applying act complainant’s can be no where the equitable estoppel of his own will or judgment to be rather the result appears than of what defendant did or The represented. the product immediate or act must be induced and be the by, proximate which must be such of, result conduct or representation, a to on. right as the had party claiming estoppel rely of itself have been The or conduct must representation the action of the party claiming sufficient warrant such or conduct notwithstanding representation If estoppel. facts he still for the existence of other obliged inquire was on also to sustain the course of action and to them rely the conduct of the other party he cannot claim that adopted, his action and no will arise .... estoppel was the cause of that an arises in estoppel not claim properly party may [A] or mistake.” Northwest- his favor from his own ommission Commonwealth, 197, 345 Pa. at ern Bank v. supra National 44 v.
In the instant
had attached a
copy
the contractor’s
bond to its initial
performance
complaint.
That
disclosed
even
examination
upon
copy readily
cursory
had not
the bond
was
appellee
signed
not
princi
pal
but
a reinsurer.
could not
surety
only
Appellant
proper
averments of
ly rely upon alleged conclusory
appellee’s
counsel when it had in its
the written contract
possession
which disclosed that
was not a
principal party.
action, therefore,
this
it cannot establish a “lack of knowl
and of the means of
of the truth as to the
edge
knowledge
facts in
Goodwin v. Hartford Life Insurance
question.”
Watt,
In Re
at
Estate of
Company, supra
quoting
supra
65-66,
JOHNSON, J., files a concurring opinion.
SPAETH, J., files a dissenting opinion. JOHNSON, Judge, concurring: that, WIEAND in his conclusion on I agree Judge case, instant should be af- judgment the facts of the However, I in that of his join part firmed. cannot opinion is in no liable to the respect which states that a reinsurer insured. original alia, inter case, against, instant filed suit Appellant based Fidelity Company (Fidelity), record indicates clearly
on a works contract. The public averment, was Fidelity that erroneous despite Fidelity’s of the contract between and H. Appellant a reinsurer solely I Sons, Inc. and not a therefore co-surety. agree & Rupert that was (1) Fidelity solely with J. WIEAND’S opinion contract, original (2) Appellant’s estoppel reinsurer of the merit and should be af- (3) judgment lacks argument firmed, based on the facts of the case. that I where
However, there are situations foresee should be to sue a reinsurer original permitted insured an agency An would be where relation- directly. example (the insurer) exists between the reinsured ship original the reinsurer and the reinsurer has control over significant case, the actions of the insurer. In such a the fact original that the insurance with control is labeled a “rein- company surer” not relieve it of on should con- necessarily liability tractual actions out of certain conduct of the “rein- arising surer”, bad faith. e.g., facts do not lead me to the conclusion that
The instant had, for with H. example, relationship any agency Sons, Inc., nor does fact that allege any & Rupert Appellant suit should would lead me to the conclusion that Appellant’s be permitted. in the I with the result instant
Therefore, although agree case, Judge opinion I WIEAND’S join portion cannot the rule action disallowing any concerning validity a reinsurer. *9 SPAETH, Judge, dissenting:' I am unable to subscribe to the that majority’s holding insured, not bring cause of appellant, action its reinsurer. The traditional rule barring such has been more often actions invoked than examined. The states that it can neither majority “perceive practical rule,” nor for this at but I policy altering reason[s] reasons, submit that there are such and that the rule should be reexamined and abandoned. 1800’s,
The traditional rule in the as the grew up vintage indicates, cited when rein- authority by majority surance and of insurance were not insolvency companies common. reinsurance is common. One commentator Today, considers it essential on risks. major Thompson, Critical in Will Issues of the How Trends Reinsurance Eighties: Actions, Affect 26 Forum Legal, Legislative, Regulatory in (1981) “Trends [hereinafter Reinsurance”]. also, common, if of insurance not at Insolvency companies rare, least and the of states have enacted not majority in insureds the event of legislation designed compensate Shulman, Reinsurance: A Primer for the insolvency. Practitioner, 3 L.A.Law. (1980). practical Thus considerations of the traditional rule have support changed.
The law has too. The rationale of the traditional changed, rule, is that there is no majority, privity relied on by between the and the reinsurer. At 231. Am.Jur.2d, But as ar- (1969). has discredited.” gues, privity, “largely the doctrine been Brief at 15. Appellant’s
A look at the doctrine of
law is
products liability
privity
until
instructive. From the 1800’s
about
doctrine
was
defective
injured by
prod
invoked
prevent persons
ucts from
the manufacturer of the
In Mac
product.
suing
Co.,
Pherson v. Buick Motor
217 N.Y.
Similar considerations policy argue against invoking the doctrine of First, here. the privity reinsurer’s expectations are not disturbed if a suit an original insured is brought it, in the case of the directly against insolven- intermediary’s because the reinsurer was cy, to presumably prepared pay fact, anyway. for its its share of exchange accepting risk, the the reinsurer “receives from the typically ceding intermediate insurance company an company] agreed [the amount, of the or a percentage premiums, negotiated pay- able to Shulman, the ceding company by insured.” Reinsurance: A Primer Practitioner, for the 3 L.A.Law. 34 Second, like the (1980). manufacturer, the reinsurer product is often in a better than the to position insured original know the financial health of the and, insurance company, insured, unlike the can consider this into the entering reinsurance agreement. Finally, may well in the event of of his go uncompensated insolvency insurance if suit the reinsurer is not company per- Here, mitted. although states that majority appellant bond, sureties, “is which the contrac- protected by filed,” were, tor at it not evident that that is so. If it case, would file this suit? In why any majori- it, too much: and MacPherson ty’s argument proves accept would have been decided the other way.
In this it be noted that the provisions regard, Act, Act of Association Pennsylvania Guaranty P.L. N. Art. 40 P.S. Nov. § for remedy 1701.101 et do not afford as direct seq. reinsurer, the Act’s given insureds as a suit against See, Ins. Guaranty Sands v. Pa. recovery. to prerequisites (1980). More- Ass’n, 283 Pa. Ct. 423 A.2d Superior all over, Association, property should the to which why compelled carriers are be required belong, casualty insured, when a reinsurer specific its funds to deplete pay insured, *11 from the indirectly has been receiving premiums into a entering when that reinsurer the risk of accepted and a unsound insurance reinsurance agreement financially that should in the reinsurer is the party company? Surely risk, the one that can most effective- fairness absorb the it occurring. from ly prevent one other reason has In to the lack of privity, addition from an action for the insured barring been advanced It has been said that theory the reinsurer. “[t]he the from suing the original party behind precluding no knowl- that such a has party usually reinsured is directly it cannot claim that of the reinsurance contract and edge of Housing Authority a contract . . . .” relied such upon (M.D.Pa. Lebanon v. Envirohousing, F.Supp. the however, knew of existence Here, 1978). appellant was attached for the agreement the reinsurance agreement, Thus, reasonably expect- appellant to the contractor’s bond. company insurance by that it was “doubly protected” ed the reinsurer in fact that it thought reinsurer—it argued defeats that expecta- the yet majority was a co-surety—and the from reinsurer’s asserting tion by preventing rea- view, appellant’s we should uphold obligation. my 6.3(a) Law Keeton, Insurance expectations. sonable the reasonable honoring importance (1971)(discussing explains, one commentator insured). of the As expectations of law that policyhold- the general principle Despite reinsurer, from a seek payment directly er has no right a can be mainstay that reinsurance it be evident should behind the original The individual who policy. purchases insurance is a fortified virtual network of by reinsurance companies. For example, individual who purchases million policy $10 may trigger interrelationship of American and international capital; the insurance compa- ny retain a small of the may portion it original has policy written and on the balance to an pass American reinsurer or several American reinsurers who choose to retain a part and, turn, of that risk pass the remainder markets Therefore, the world. throughout insured’s has become international. When this is security multiplied sets of many reinsurance relationships, the economic life general public strengthened and both trade and are enhanced. industry Reinsurance, Trends Thompson, supra at I should reverse the order of lower court. A.2d *12 Pennsylvania
COMMONWEALTH of ELDER, Tyrone Appellant. Pennsylvania.
Superior Court Submitted Dec. 1981.
Filed Oct.