*3 NIX, C.J., Before LARSEN, FLAHERTY, and McDERMOTT, HUTCHINSON and ZAPPALAand PAPADAKOS, JJ.
OPINION ZAPPALA, Justice.
Appellant Employers Mutual Casualty Company appeals of order the Commonwealth affirming Court the decision of the Lycoming County Pleas, Court of Common directing the Appellant provide to insurance coverage for losses arising out of surcharges imposed upon former town- ship supervisors, pursuant to liability policies issued to Lewis Township.
aAs result of actions by taken former township supervisors, Chute, Donald Deljanovan, Edward and James Remick, involving station, the a weigh construction of the auditors surcharged supervisors the in the amount of in the $801.37 1978 annual audit and report. financial No appeal taken was and judgment was on July 2, entered again imposed a sur- March, 1980, auditors In the 1979. in the 1979 audit and Deljanovan Chute and charge upon $15,278.10. appeal On of in the amount report financial Pleas, surcharge the affirmed was of Common the Court was entered that $10,833.66. Judgment of amount the 1, 1981. July amount 1981, action 28, declaratory September judgment
On
Township by
Indie
Appellees
Lewis
filed on
behalf
was
Johnston,
Remick, Ethan Mes-
Richard
James
Snyder,
E.
Simmons,
township
the
seek-
supervisors,
singer,
Veryl
insurance
surcharged
the
amounts under
coverage for
ing
The
township.
to the
by
Appellant
the
issued
policies
coverage, asserting
coverage
the
denied
Appellant
public policy
statutorily
and is
surcharges
contrary
702(XIII) The
Class Town-
Second
by Section
proscribed
amended,
1,1933, P.L.
53 P.S.
Code, Act of
ship
May
Appellant
trial court concluded
was
65713. The
Judgment
surcharges.
for the
coverage
required
provide
$11,-
in the
against
Appellant
amount
entered
was
635.03,
to reimburse the
and the
ordered
Appellant
The
fees.
Common-
township
attorney’s
for reasonable
419,
The insurance which were effective periods through from March March one-year sive 23, 1982, and legal liability coverage for loss provided in reimbursement. The named insured was defined Subsec- in policies tion of the named Municipality IV.A. “... Council, Municipal the Declarations includes each and member, appointed and other or any duly Council elected provided official of the of the Municipality.” policies Each inter alia:
I. A. The Company pay Insured, will on behalf of the or individually collectively, loss which the Insured shall become legally obligated of a pay Wrongful because occurring Act during the policy period; ... Wrongful
IV. D. Act means any and all the fol- lowing: alleged errors, actual or mis-statement or mis- leading statement, act or neglect omission or or breach of Insured, duty by the or in individually collectively, discharge of Municipal duties, or any matter claimed against solely them being having reason or been the Insured during the policy period.
E. Loss means any amount which an Insured legal- is ly obligated to pay or for which the Municipality may be permitted required or pay law to as indemnity to an Insured, for a claim or Insured, claims made against or individually collectively, for which insurance provid- however, ed except, herein subject such of loss shall not include fines imposed by law. policies provided that, also of this policy which “[t]erms
are conflict with the statutes of the State wherein this policy is hereby issued are amended to conform such statutes.”
The Appellant contends that the lacks the au- thority obtain insurance for surcharges as- against sessed supervisors, citing 702(XIII) its Section Code, the The Second Class Township P.S. 65713. This section provides, in part, relevant that a is autho- rized
to make contracts with any company, so autho- rized, insuring any public of the liability township, includ- ing insurance on every officer, official, employe liability arising from errors and omissions performance of their duties in the course of their employment, except elected or appointed or officials officers for surcharge accordance with law shall not hereby____ be affected Because each provided that policy were to con- form to the statutes of the Commonwealth wherever a *5 that for sur- arose, Appellant posits conflict definition of despite policies’ charges precluded “wrongful act.” con- argument, this rejected Court Commonwealth by 702(XIII) repealed of the Code was
cluding that Section Act Tort Claims 802(b) of the Political Subdivision Section 1399, 26, 1978, P.L. 53 P.S. (Act), Act of November was inconsist- 5311.802(b), provision as the Code insofar § determined The Commonwealth Court the Act.1 ent with for township officials liability for the exception was inconsistent provision forth in the Code surcharges set Act, 5311.703, provided2: 53 P.S. which 703 of the with § § pur- authority shall have the A political subdivision any liability for employees insurance on itself or chase of their duties within performance arising supplied.] [Emphasis scope employment. of their permit political Act subdivi- extent that the would To the for employees any itself or its insurance on purchase sion to township’s on the limitation liability, provision’s the Code of its officials liability for the authority to seek insurance the Act found to inconsistent with surcharges for thereby. repealed provi- that the Code Appellant’s argument reject We not inconsistent because of the Act are sion and Section 703 surcharges in for reference to insurance specific there is no elucidated provision Neither the Act nor the Code the Act. for which of an official specific conduct upon authority defined the Both insurance could be obtained. arising of liability in terms liability insurance purchase of his duties the course of an official’s the performance however, contained an provision, The Code employment. particular The Act removed surcharges. exception grant- by subdivisions political authority limitation on the by 802(b) subsequently repealed Section 333 of the Act was 1. Section 5,1980, 693, 1980, P.L. October Act of Act of Continuation of the JARA 42 P.S. 20043. § of the JARA repealed also Section 333 Act was Section 703 of the 2. substantially supra, re-enacted but has been Act of Continuation Code, 8564(a). 8564(a) 42 Pa.C.S. of the Judicial Section ing purchase authority insurance for any liability arising *6 from the performance of officials’ duties within scope the their employment. agree
While the we with conclusion by drawn the Commonwealth Court that the exception for surcharges Act, the repealed was do not find by we this conclusion to dispositive be of the issue of whether the losses township’s to surcharged attributable officials by were insured the Appellant.
Both the township and officials were named in under policies sureds the which were issued. By the terms policies, Appellant the the was required to pay on behalf of an insured losses which the insured became legally obligated to pay wrongful occurring because of a act during the or policy period an amount which the municipality was required or permitted law to pay indemnity to an insured. For case, the claim made this it is the township official who is responsible for the surcharged amounts. A surcharge imposed upon a township official is neither an amount which the township legally obligated to pay nor an amount it required which would to pay be as indemnity to an insured. This is the extent of coverage the provided policy. the The township officials surcharged who were have may proper been claimants under the policy, but the clearly stated, is not. Simply township is not the proper to party sue under the this policy. To find coverage claim, the township’s the language of policy would have to be rewritten coverage to extend to not amounts which the legally obligated This pay. was not agreement parties. between the While a may obtain for losses it sustains as a result of an official’s resulting actions surcharge, this was not purchased what was by the town ship this case. Accordingly, we must reverse deci sion of the Commonwealth Court. it that could premise the erroneous
Proceeding policies, these town amounts under surcharged recover of a payment recover the insurer could argues ship offi surcharged surcharged amount claim for the it is the because impossibility This be an cials. would purposes insured for the who is the surcharged only official contractually insurer claim. Since the would of this of the surcharged behalf the amount pay bound official, subrogation could exist. right no surcharged written, alia, an official protect inter were policies an surcharged. It would be for the amount is liable who insured for his an official could be result absurd his have to reimburse surcharge, to a but due *7 to sought he very liability against for that which insurer insure. a assertion that town- Appellant’s dismiss the
While we coverage surcharg- for purchase to authority lacks the ship contention that in its alternate es, agree part must with we township of offi- part on the wrongful of acts insurability contrary public policy. in to surcharges result is cials which negligent the arise out of either Surcharges may of an offi fraudulent misconduct or the or conduct willful a negligent, conduct is town hold that where the cial. We to the loss occasioned seek insurance for ship may sur But the or its officials. where township either the misconduct of or fraudulent arises from the willful charge official, may its loss and township may only the insure an To hold otherwise coverage for the official. purchase not language to the of Pa.C.S. contrary would be § 42 Tort 703 of the Political Subdivision its Section precursor Act, purchase to authorizing a Claims arising employees any liability or its for on itself their em scope their duties within the of performance official’s willful or arising out of an ployment. Surcharges arise are liabilities which necessarily fraudulent misconduct scope employment. of his outside of the It also would of public permit violative a policy against to insure the willful or fraudulent miscon- In instances, duct officials. those of a possibility surcharge is intended to act a by imposing disincentive personal liability upon official. If a would be authorized to insure an official personal liability under circumstances, such no disincentive would An exist. official could act personal repercussions without financial all at a taxpayers. cost limitation in on Pa.C.S. authority a
local agency procure insurance for its employees liability arising scope from conduct within the of their a employment strikes balance between two competing pub- lic The public interests. interest in having competent indi- public viduals seek office without an inordinate fear that negligent conduct resulting surcharge expose would them to personal satisfied, uninsurable is as is public interest providing restraint officials’ actions. No evidence was introduced this record which would indicate the township officials’ actions or were willful misconduct, fraudulent but the the policies do not encompass claims township for surcharged amounts.
The order of the Commonwealth Court re- hereby versed.
PAPADAKOS, J., dissenting filed a opinion. PAPADAKOS, Justice, dissenting.
I obliged am to dissent my brethren in this decision my because of disagreement fundamental with their charac- terization of the issue. IWhile no have objection to legal principles enunciated by the I take Majority, serious exception to their factual conclusion that the Township suffered and, no therefore, insurable loss must be denied recovery under the insurance policy.
The fatal flaw in the Majority’s reasoning is their insis- tence that the Township “suffered losses arising out of surcharges imposed upon former township supervisors.” course, In of reality, the imposition of surcharges was derived from the Township’s loss in monetary overpayments to the contractor. The surcharges thereby constituted a derivative action which was predicated upon the original financial loss suffered Township which is fully compensable under the law. Had the Township not sus- loss, tained the there would have been no surcharge. I fear, in greatly short, my colleagues have placed the cart before the horse. They magic wave a wand and make predicate disappear into thin fact, air. As a matter course, the existence of original monetary loss will go not away the obvious reason that it is the essential reality of this case.
The Township purchased insurance to those cover amounts which it legally obligated to pay. That obli- gation must specifically encompass the original monetary loss, and in respect this the Majority simply is refusing define the issue I read the properly. the insurance in light contract a which would this particular cover claim. Furthermore, the Majority fails to distinguish between the Township and its separate officials as and distinct legal entities. There is no reason why Township should not permitted be to secure insurance coverage against the ini- tial legal payments to contractors and allow the insurer to surcharged against the officials. I also
Finally, exception take to the extraneous inferences employed by the Majority it analysis. While is true they conclude this case that there is no evidence misconduct, willful or fraudulent I cannot understand why they found it necessary to juxtapose opinion within their lengthy legal delineation of the consequences which could attend such pride behavior. Civic induces our good citizens to conduct the affairs of their governments own in a virtu- ous manner. implications leading Gratuitous to guilt by association are unwarranted this record.