Acceptance Insurance v. Sloan

Opinions of the United
2001 Decisions States Court of Appeals
for the Third Circuit

8-22-2001

Acceptance Ins Co v. Sloan
Precedential or Non-Precedential:

Docket 00-2423

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Recommended Citation
"Acceptance Ins Co v. Sloan" (2001). 2001 Decisions. Paper 188.
http://digitalcommons.law.villanova.edu/thirdcircuit_2001/188

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Filed August 22, 2001

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 00-2423

ACCEPTANCE INSURANCE COMPANY

Appellant

v.

ROBERT H. SLOAN, BANKRUPTCY TRUSTEE FOR MON
VALLEY STEEL COMPANY, INC.; LARRY M. BOWERS;
GLADYS D. BOWERS, INDIVIDUALLY
AND
AS CO-ADMINISTRATORS OF THE ESTATE OF JOELENE
BOWERS, DECEASED; UTICA MUTUAL INSURANCE
COMPANY; NOBLE WINE; COMMONWEALTH
OF PENNSYLVANIA

ON APPEAL FROM THE
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA

(Dist. Court No. 98-cv-01647)
District Court Judge: William L. Standish

Argued: April 17, 2001

Before: ALITO, RENDELL, and FUENTES, Circuit Judges.

(Opinion Filed: August 22, 2001)

Russell J. Ober, Jr. (Argued)
Kelly A. Reynolds
Meyer, Unkovic & Scott LLP
1300 Oliver Building
Pittsburgh, Pennsylvania 15222
Counsel for Appellant
 Jan C. Swensen (Argued)
Alan H. Perer
Swensen Perer & Kontos
2710 Two PNC Plaza
Pittsburgh, Pennsylvania 15222
Counsel for Appellees Larry M.
Bowers and Gladys D. Bowers

Ashley W. Ward
Sites & Harbison
250 West Main Street,
Suite 2300
Lexington, Kentucky 40507
Counsel for Appellee Utica Mutual
Insurance Company

OPINION OF THE COURT

ALITO, Circuit Judge:

Acceptance Insurance Co. ("Acceptance") brought this
action seeking a declaratory judgment to resolve its rights
and duties under an insurance policy issued to Mon Valley
Steel Co. ("Mon Valley"). The policy in question was a
general liability policy for the Clyde Mine, located in
western Pennsylvania. Acceptance's potential liability arose
as a result of an action against Mon Valley brought by the
parents of Joelene Bowers, who was pushed to her death
through an open shaft in the Clyde Mine. Acceptance
sought to establish that the Clyde Mine insurance policy
was effectively terminated prior to Joelene Bowers's death
and, thus, that Acceptance is not obligated to provide a
defense for Mon Valley or to pay for any recovery.

The District Court entered summary judgment against
Acceptance, holding that under regulations of the
Pennsylvania Department of Environmental Protection
("DEP"), the Clyde Mine policy could not effectively be
canceled until the DEP was notified. The District Court
further held that no reasonable jury could find from the
undisputed facts that Acceptance had notified the DEP of
its cancellation of the Clyde Mine policy and that therefore

2
the policy was still in effect at the time of Joelene Bowers's
death. We hold that, under the applicable DEP regulations,
notification was not a necessary precondition of
cancellation. We therefore reverse.

I.

In 1994, Mon Valley contacted independent insurance
broker Phillip Harvey of Phillip J. Harvey & Co., Inc. ("PJH
& Co.") to obtain general liability insurance for mining
operations at the Clyde Mine. Harvey contacted Tri-City
Brokers ("Tri-City") to locate a policy. Through Tri-City's
brokerage agreement with Acceptance Risk Managers,
Acceptance's underwriters, Acceptance issued a policy to
Mon Valley.

On February 13, 1995, Acceptance issued a certificate of
insurance to Mon Valley for a general liability policy
covering the Clyde Mine. The policy's coverage was to be
effective from December 7, 1994, through December 7,
1995, and was subsequently extended through January 24,
1996. The insurance policy contained no provision
requiring Acceptance to notify the DEP before canceling the
policy.

Mon Valley's last valid permit to operate the Clyde Mine
had expired on October 31, 1994, and Mon Valley had
ceased all mining operations on approximately that date.
Harvey, acting on Mon Valley's behalf, submitted the
certificate of insurance to the DEP as proof of the requisite
insurance coverage in support of Mon Valley's application
for a renewal of its expired mining permit. On March 21,
1995, and again on May 3, 1995, the DEP notified Mon
Valley that its application for a mining license could not be
processed because of several deficiencies in the application
and the accompanying proof of insurance. Because Mon
Valley did not make the necessary corrections or request an
informal hearing, the DEP denied the license application on
November 9, 1995.

Mon Valley, which financed the policy through First
Premium Services, Inc. ("First Premium"), never actually
made a premium payment on the policy. On March 7,
1995, First Premium used its power of attorney pursuant to

3
an agreement with Mon Valley to notify Acceptance to
cancel the policy for nonpayment of premiums. Although it
is not clear on what date Acceptance actually canceled the
policy, it is undisputed that Acceptance took actions which,
absent a statutory or regulatory bar, would have terminated
the policy by July 15, 1995, at the latest.

PJH & Co. had a general business practice of sending
notices of cancellation to both certificate holders and state
administrative agencies. Harvey testified that a notice of
cancellation addressed to the DEP was present in PJH &
Co.'s files. However, Harvey could not testify from personal
knowledge concerning the actual preparation or mailing of
the notice. Moreover, the DEP file on Mon Valley did not
contain a copy of the notice.

In March 1998, the Bowers commenced an action in the
Court of Common Pleas of Greene County, Pennsylvania,
captioned Bowers v. Mon Valley Steel Co., Inc., et al., Case
No. AD-24 (1998) (the "Greene County suit"), to recover
damages relating to the murder of Joelene Bowers at the
Clyde Mine on January 19 or 20, 1996. Acceptance then
brought the instant action, seeking a declaratory judgment
that the Clyde Mine policy was effectively canceled prior to
Joelene Bowers's death and that Acceptance therefore had
no duty to defend or indemnify Mon Valley in connection
with the Greene County suit.

Following discovery, Acceptance moved for summary
judgment, arguing that the undisputed facts showed that
the Clyde Mine policy had been effectively terminated prior
to Joelene Bowers's death. Acceptance argued that it had
no duty to notify the DEP prior to cancellation because no
contractual provision, statute, or regulation specifically so
required. In the alternative, Acceptance argued that, by
application of the Pennsylvania "mailbox rule," the
undisputed facts gave rise to a presumption that a notice of
cancellation had been received by the DEP and that there
was insufficient evidence in the record to rebut that
presumption.

The Bowerses and Utica also moved for summary
judgment, arguing that the applicable DEP regulations
mandated that Acceptance notify the DEP before its

4
attempted cancellation became effective. The Bowerses and
Utica also argued that Acceptance had not provided
sufficient evidence to trigger the mailbox rule.
The Magistrate Judge issued a Report and
Recommendation, concluding that "the DEP's coal mining
regulations establish a strict administrative scheme which
unequivocally prohibits an insurer from cancelling a policy
without first providing notification to the agency." R. & R.
at 12, App. at 18. In reaching this conclusion, the
Magistrate Judge relied on 25 Pa. Code S 86.168(d), which
outlines the requirements for insurance policies submitted
with a permit application. The Magistrate Judge also
concluded that Acceptance had not adduced sufficient
evidence to show that notice had been given to the DEP.
The Magistrate Judge wrote that Acceptance "c[ould] not
overcome this significant and undisputed fact: the DEP's
license file for Mon Valley does not contain a cancellation
notice." R. & R. at 13, App. at 19. Accordingly, the
Magistrate Judge recommended that summary judgment be
granted to Utica and the Bowerses.

The District Court adopted the Magistrate Judge's
recommendation, and Acceptance then took this appeal.
Our standard of review with respect to the grant of
summary judgment is plenary. Waldorf v. Shuta , 896 F.2d
723, 728 (3d Cir. 1990). The Appellees in this appeal are
Utica Mutual Insurance Co. ("Utica"), the surety on
reclamation and subsidence bonds posted on behalf of Mon
Valley, and the Bowerses.

II.

Acceptance raises two issues on appeal. The first is
whether the District Court erred in concluding that the
DEP regulations require that a surface and underground
coal mining general liability insurance carrier notify the
DEP prior to canceling an insurance policy. The second
issue is whether the District Court erred in concluding that
the undisputed facts did not allow Acceptance to benefit
from the presumption of receipt accorded to items placed in
the mail under the Pennsylvania mailbox rule. We hold that
Acceptance had no duty to notify the DEP before canceling

5
the policy, and we therefore need not reach the question
whether Acceptance adduced sufficient evidence to take
advantage of the Pennsylvania mailbox rule.

A.

Pursuant to the authority granted by the Pennsylvania
Surface Mining Conservation and Reclamation Act of May
31, 1945, P.L. 1198, as amended, 52 Pa. Cons. Stat. Ann.
SS 1396.1-1396.31, the DEP has issued regulations
governing surface and underground coal mining and
reclamation activities. See 25 Pa. CodeSS 86.1 et seq.
Under these regulations, it is illegal to operate a coal mine
in Pennsylvania without a permit from the DEP. See 25 Pa.
Code S 86.11. Furthermore, 25 Pa. Code S 86.144 provides
that an applicant for a coal mining permit must provide
proof of adequate insurance:

86.144 Requirement to file a certification of liability
insurance.

Each applicant for a [mining] permit shall submit proof
to the Department [of Environmental Protection] of
liability insurance coverage for its mining and
reclamation operations issued by an insurance
company authorized to do business in this
Commonwealth. The amount, duration, form,
conditions, terms and method of proof of this
insurance coverage shall conform to [25 Pa. Code]
S 86.168 (relating to terms and conditions for liability
insurance).

25 Pa. Code S 86.144. The regulations also outline the
requirements of an applicant's insurance policy if a permit
is to be granted:

86.168. Terms and conditions for liability insurance.

(a) A permittee shall submit proof of liability insurance
coverage before a permit or license is issued. The proof
may consist of either a certificate filed at the time of
license application and renewal thereof, or, otherwise
annually filed with the Department certifying that the
permittee has a public liability insurance policy in force

6
 covering all of the permittee's mining and reclamation
operations in this Commonwealth.

. . . .

(d) The insurance shall include a rider requiring that the
insurer notify the Department 30 days prior to
substantive changes being made in the policy, or prior
to termination or failure to renew.

25 Pa. Code SS 86.168(a), (d) (emphasis added).

B.

Since the Pennsylvania Supreme Court has yet to
interpret the regulation in question in this appeal,"we
must predict how the state court would resolve these issues
should it be called upon to do so." Wiley v. State Farm Fire
& Cas. Co., 995 F.2d 457, 459 (3d Cir. 1993). We predict
that the Pennsylvania Supreme Court would interpret this
regulatory scheme, and specifically S 86.168(d), to mean
that Acceptance had no duty to inform the DEP of the
cancellation unless the insurance policy itself created a
duty to do so. Although the DEP presumably could have
issued a regulation directly requiring an insurer to notify
the DEP of cancellation of a mining insurance policy, the
DEP has not done so.

Unless a statute or regulation imposes some additional
requirement, "[w]here the right to cancel an insurance
policy is expressly reserved in the contract itself, then the
extent of the right and the conditions upon which it may be
exercised must be determined by reference to the contract."
Clairton City Sch. Dist. v. Mary, 541 A.2d 849, 851 (Pa.
Commw. Ct. 1988) (citing Hanna v. Reliance Ins. Co., 166
A.2d 877, 879 (Pa. 1961)). Neither Utica nor the Bowerses
argue that Acceptance failed to cancel the policy in
accordance with the policy's cancellation clause. Nor do
they contend that the policy contained the requisite rider or
any language equivalent to what was contained therein.
Rather, they argue that S 86.168(d) is ambiguous and that
we should interpret it to require notice to the DEP.

Pennsylvania has adopted the canon of statutory
construction that courts of the Commonwealth must

7
interpret unambiguous statutes according to their terms.
See 1 Pa. Cons. Stat. Ann. S 1921(b) (Purdon's 1995);
Anthony v. Koppers Co., 436 A.2d 181, 183 (Pa. 1991).
When interpreting a Pennsylvania statute, we are to give
the words of a statute their plain and ordinary meaning.
Commonwealth v. Neckerauer, 617 A.2d 1281 (Pa. Super.
Ct. 1992); Commonwealth v. Johnson, 612 A.2d 1382 (Pa.
Super. Ct. 1992). The words are to be considered in their
grammatical context. 1 Pa. Cons. Stat. Ann. S 1930
(Purdon's 1995). Moreover,

sections of statutes are not to be isolated from the
context in which they arise such that an individual
interpretation is accorded one section which does not
take into account the related sections of the same
statute. Statutes do not exist sentence by sentence.
Their sections and sentences comprise a composite of
their stated purpose.

Commonwealth v. Lurie, 569 A.2d 329, 331 (Pa. 1990)
(quoting Commonwealth v. Revtai, 532 A.2d 1, 5 (Pa. 1987)).
These same principles of statutory construction apply to
DEP regulations as well. See 1 Pa. CodeS 1.7; Bush v. Pa.
Horse Racing Comm'n, 466 A.2d 254, 255-56 (Pa. Commw.
Ct. 1983).

Instead of directly requiring that insurers notify the DEP
upon cancellation of a policy, the text of S 86.168(d)
provides that a permit applicant must secure a policy
having a rider mandating notice to the DEP in the event of
cancellation. The pertinent parts of S 86.168, read in
conjunction, require the following: "A permittee shall
submit proof of liability coverage . . . . The insurance shall
include a rider requiring that the insurer notify the
Department 30 days prior to substantive changes being
made in the policy, or prior to termination or failure to
renew." SS 86.168(a)-(d). The plain meaning of SS 86.168(a)
and (d) is that the permittee must obtain suitable insurance
in order to obtain a permit and that the insurance, in order
to be suitable, must contain a rider requiring notice to the
DEP. Section 86.168(d) places no direct obligation on the
insurer. Indeed, when viewed in light of S 86.168(a), all of
the provisions of S 86.168 speak to the obligations of

8
permittees and permit applicants -- not to the obligations
of insurers.

Moreover, if, as Utica and the Bowerses argue, the
regulation did directly require that the insurer provide
notice, the requirement that a rider be included in the
policy would be superfluous. "Such an interpretation would
defy the axiom of statutory construction that `whenever
possible each word in a statutory provision is to be given
meaning and not to be treated as surplusage.' "
Commonwealth v. Lassiter, 722 A.2d 657, 661 (Pa. 1998)
(quoting In re Employees of Student Servs., 432 A.2d 189,
195 (Pa. 1981)). The more logical explanation is that the
DEP chose to place the burden on the insured to have the
rider included in the policy and to have the policy form the
basis of the insurer's duty. Thus, S 86.144 states that if the
applicant wishes to have its application for a mining permit
approved, "the amount, duration, form, conditions, terms,
and method of proof of this insurance shall conform to
S 86.168." This shows that the burden is on the permit
applicant to have the rider placed in the insurance
contract. Similarly, the requirement that proof of suitable
insurance be submitted with a permit application suggests
that DEP's means of ensuring that it receives notice of
cancellation is to deny any permit application that is not
accompanied by an insurance policy imposing such a duty
on the insurer. If the interpretation of S 86.168(d) advanced
by Utica and Bowers were correct, the DEP would have no
need to deny a permit application that was not
accompanied by such a policy.

In concluding that the regulation itself imposed a notice
requirement, the Magistrate Judge relied in part on 2 Couch
on Insurance S 31:19 (3d ed. 1996), which states that
"[w]here statutory provisions require notice to a government
agency in order to effect a cancellation of policy, such
notice must be given to effect a cancellation, and conversely
there is no cancellation where notice is given merely in
accordance with the provisions of the policy." This
statement is inapplicable to Acceptance's situation. Section
31:19 concerns the effect of the failure to notify a
government agency "[w]here statutory provisions require
notice to a government agency in order to effect a

9
cancellation of a policy." As discussed above, the relevant
regulations here do not require notice to the DEP to effect
a cancellation of the policy. Rather, the regulations require
that policies contain notification riders. It is noteworthy
that none of the cases cited in Couch involved a situation
analogous to the one here, i.e., a situation in which the
law, rather than directly requiring the insurer to provide
notice, required a notification rider to be included in the
policy.

For similar reasons, Metro Transportation Co. v. North
Star Reinsurance Co., 912 F.2d 672 (3d Cir. 1990), on
which Utica and the Bowers rely, is not apposite. In Metro
Transportation, we noted that "whenever a statute or
insurance policy provides for notice of cancellation ,
Pennsylvania law has mandated that an insurer's failure to
comply with the provisions of the notice of cancellation
results in the continuation of coverage regardless of any
prescribed date of expiration." Id. at 682 (citations omitted)
(emphasis added). We do not question that, if S 86.168(d)
directly required Acceptance to provide notice of
cancellation, then a failure to provide notice would have
made an attempted cancellation ineffective. However, the
principle of Pennsylvania law stated in Metro Transportation
does not apply where, as in this case, there is no statute or
regulation requiring notification.1 And, as we have stated,
the policy contains no such requirement. We will not
convert a statutory requirement of a rider into a mandate
that the requisite language be deemed to be implicated in
the policy if the rider is not in fact attached.

Our analysis of the text of S 86.168(d) is confirmed by a
survey of analogous Pennsylvania regulations. In other
similar areas, the DEP has explicitly placed the burden of
giving notice directly on insurers. For example, the DEP has
a permit system for the handling and disposing of residual
_________________________________________________________________

1. The regulation in question in Metro Transportation required a taxi
company to file a Uniform Carrier Bodily Injury and Property Damage
Certificate of Insurance, known as a "Form E." "Form E . . . [itself]
states
that the insurance policy -- and hence the coverage provided by the
policy -- cannot be canceled without first giving[the Pennsylvania Public
Utility Commission] thirty days [sic] notice." Id. at 678.

10
waste. See 25 Pa. Code S 287.1 et seq.. Section 287.101
outlines the requirements for receiving a permit. One of the
requirements is that an applicant must "comply with the
. . . insurance requirements of Subchapter E." Section
287.375, part of Subchapter E, states:

(b) The operator shall submit proof of insurance under
S 287.373 (relating to proof of insurance coverage) . . . .

(c) The insurer may cancel or otherwise terminate an
insurance policy by sending 60 days or other period
prior written notice as may be authorized by the
Insurance Department, to the Department and the
operator, of the insurer's intention to cancel or otherwise
terminate the insurance policy. The notice shall be sent
to the Department and the insured by certified mail,
return receipt requested. Prior to the cancellation or
termination becoming effective, the operator shall
provide the Department with proof of a replacement
insurance policy sufficient to meet the requirements of
this subchapter.

25 Pa. Code S 287.375(b)-(c) (emphasis added). This
provision contrasts sharply with the regulation at issue in
the present case. Whereas 25 Pa. Code S 287.375(c) places
an obligation directly on the insurer to provide notice
regardless of the provisions of the policy, 25 Pa. Code
S 86.168 places an obligation on an applicant to have a
rider requiring notice placed in the insurance contract. See
also 25 Pa. Code S 271.383(f)(2) (regulating municipal waste
management); 25 Pa. Code S 271.392 (g)(2) (same).

Finally, we note that our interpretation of the regulation
is consistent with what we perceive to be the Legislature's
objective, viz., ensuring that mining operations are not
conducted without the type of insurance deemed by the
Legislature to be necessary.2 That goal is fulfilled by
_________________________________________________________________

2. Consideration of legislative intent is not necessary in this case since
the Pennsylvania legislature has provided that "[w]hen the words of a
statute are clear and free from all ambiguity, the letter of it is not to
be
disregarded under the pretext of pursuing its spirit." 1 Pa. Code
S 1922(b). However, we merely reconcile our interpretation with the
general intent of the regulatory scheme in order to ensure that we

11
requiring that the party applying for the mining permit
obtain liability insurance. See SS 86.67, 86.144. If the
applicant has not obtained an insurance policy with a rider
requiring notice of cancellation, the application should be
rejected, and the applicant may not legally conduct a
mining operation. See id. Thus, assuming that the DEP
ensures that mining operations are not conducted without
a permit, notification to the DEP of the cancellation of a
policy is not necessary to prevent uninsured parties from
conducting mining operations. Cf. Metro Transp. , 912 F.2d
at 681 (goal of notice requirement for cancellation of
automobile insurance policy for taxis is so that the State
may revoke the taxi license if the insurance is canceled).

III.

In sum, we hold that, under Pennsylvania law, a surface
and underground coal mining general liability insurance
carrier has a no duty to notify the DEP before effectively
canceling an insurance policy unless a notification
provision is included in the insurance policy. We therefore
reverse the District Court's July 17, 2000, order granting
summary judgment against Acceptance and remand this
case to the District Court for entry of an order granting
summary judgment in favor of Acceptance.

A True Copy:
Teste:

Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________

effectuate the Pennsylvania Legislature's other mandates that (1) "[t]he
object of all interpretation and construction of statutes is to ascertain
and effectuate the intention of the General Assembly," 1 Pa. Code
S 1921(a); and (2) "the General Assembly does not intend a result that is
absurd," 1 Pa. Code S 1922(1).
12