Insurers, Agents and Brokers Sophisticated Relationships Expensive

Barry Zalma
Aug 23, 2023

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Three sophisticated commercial parties in the insurance industry entered into what appears, in hindsight, to be a somewhat unsophisticated business arrangement. That arrangement led to complex litigation, which generally isn’t a good thing for a business arrangement to lead to.

In American Builders Insurance Company v. Keystone Insurers Group and Ebensburg Insurance Agency, No. 4:19-CV-01497, United States District Court, M.D. Pennsylvania (August 4, 2023) plaintiff American Builders Insurance Company (“ABIC”) sued Defendant Ebensburg Insurance Company (“Ebensburg”) for its allegedly tortious misrepresentations in an application to ABIC for workers’ compensation insurance coverage on behalf of Ebensburg’s customer, Custom Installations Contracting Services, Inc. (“Custom”). The misrepresentations at issue involve whether Custom was engaged in roofing work and the maximum height of its operations.

On Custom’s application, Ebensburg indicated that Custom didn’t engage in roofing work and only operated at fifteen feet above the ground or lower. On that basis, ABIC issued Custom a workers’ compensation insurance policy. Later, a Custom employee fell twenty-five feet from a rooftop while working on a commercial roofing job. The employee filed for workers’ compensation benefits, which ABIC unsuccessfully opposed.

In this action, ABIC brings several tort claims against Ebensburg. Ebensburg now moves for summary judgment on ABIC’s claims, arguing in part that they’re time barred.

BACKGROUND

ABIC is a Georgia-based insurance company that issues workers compensation insurance in the Commonwealth of Pennsylvania. Ebensburg is an independent insurance agency operating in Pennsylvania owned by Carl DeYulis, and managed in part by Carl’s son, Kurtis “Kurt” DeYulis. ABIC and Ebensburg have a relationship with Keystone Insurers Group (“Keystone”), a third insurance company.

Keystone essentially operated as a sort of “matchmaker,” connecting ABIC to its network of Retail Agencies. Ebensburg is one of the Retail Agencies that is part of the Keystone association. Its relationship with Keystone is governed by a Franchise Agreement.

ABIC Changes Its Underwriting Guidelines

ABIC could change its underwriting guidelines from time to time. In 2011, ABIC revised its prior underwriting guidelines to require that all roofing risks be pre-inspected prior to the release of a quote from the underwriting department. The new guidelines (the “2011 Roofing Underwriting Guidelines”), provided that all roofing risks would “require pre-inspection prior to release of a quote from [ABIC].”

Custom’s Relationship with Ebensburg

Because Custom had never sought workers’ compensation insurance before, it obtained a policy through the Commonwealth’s State Workers’ Insurance Fund (“SWIF”). The SWIF ACORD application indicated that:

1 Custom engaged in commercial and residential carpentry;

2 Custom didn’t perform any work over fifteen feet above the ground;

3 approximately 90% of Custom’s work was residential and the remaining 10% was commercial; and

4 Custom used “basic hand tools” for its remodeling projects and to install replacement windows.

Custom Applies for Insurance from ABIC

In 2015, Custom approached Ebensburg again to inquire about switching to a private workers’ compensation insurer for more favorable rates

Kurt DeYulis primarily relied on the SWIF ACORD and its “classification of [Custom’s] business” through Custom’s “class codes,” as provided by the PCRB. Kurt DeYulis indicated that Custom engaged in commercial remodeling, didn’t work at heights higher than fifteen feet, and wasn’t engaged in any other business other than commercial remodeling. Kurt DeYulis also applied to several other insurance carriers on Custom’s behalf. As he did with the ABIC application, Kurt DeYulis didn’t indicate that Custom did roofing work on the other applications.

The James Scott Injury

In September 2015, Custom was engaged in a commercial roofing job in New Galilee, Pennsylvania. James Scott had just began working for Custom. He stepped through a skylight and fell from over twenty feet to the ground, incurring serious injuries.

The Western District Litigation and Workers’ Compensation Proceeding

In September 2015, ABIC sued Custom in the Western District of Pennsylvania, seeking rescission of the insurance policy and alleging that Custom committed insurance fraud. The trial court concluded it did not have jurisdiction over ABIC’s claim for rescission because ABIC could obtain relief in the workers’ compensation litigation and dismissed the case.

Following Judge Gibson’s order dismissing ABIC’s federal claims, the workers’ compensation litigation continued. Judge Gallishen ultimately denied ABIC’s petitions. The Pennsylvania Workers’ Compensation Appeals Board later affirmed Judge Gallishen’s decision.

LAW

Under Federal Rule of Civil Procedure 56, summary judgment is appropriate where the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.

ANALYSIS

ABIC argued that the limitations period on its claims should be tolled under either the fraudulent concealment or inherent fraud doctrine.

The parties follow:

1 Custom was the principal,

2 Ebensburg was Custom’s legal agent, and

3 ABIC was a third party that was harmed by actions Ebensburg took on Custom’s behalf.

When an agent like Ebensburg commits tortious acts in the scope of its agency, both the agent and principal are equally liable in tort. ABIC was aware (or should have been) of the principal-agent relationship between Custom and Ebensburg because the only way for a customer like Custom to obtain ABIC’s insurance was to go through a Retail Agency (like Ebensburg) that had powers of representation with ABIC and access to eQuotes.

On the day Scott was injured ABIC was aware that Scott “fell through a roof.” On September 14, 2015, ABIC became aware of the misrepresentations in Custom’s application.

Therefore, by September 14, 2015, ABIC was aware that: "someone submitted false information to it via eQuotes and only Ebensburg, and not Custom, had access to the eQuotes system."

The Court concluded that those facts are sufficient to give ABIC inquiry notice of its potential claims against Ebensburg because it knew that Ebensburg had sole access to the mechanism that caused its injury.

The common thread in these elements is that ABIC knew that the alleged misrepresentation negligently or fraudulently came from two potential sources, Custom or Ebensburg (or both), and it knew that Ebensburg had access to eQuotes, the mechanism that caused its injury.

Rather than pursuing both potential sources, ABIC assumed that the misrepresentation originated with Custom rather than Ebensburg. ABIC eventually learned that its assumption was incorrect, but not until after the statute of limitations expired on its claims in September 2017.

CONCLUSION

Complicated business arrangements lead to complicated litigation. The Court acknowledged that litigators in these circumstances must toe a difficult line. ABIC appears to have fallen on the wrong side of that line. By failing to act on its knowledge that Ebensburg had access to eQuotes, the mechanism by which ABIC was injured, ABIC ran afoul of the statute of limitations. That error required Ebensburg’s motion for summary judgment to be granted.

ZALMA OPINION

It is axiomatic that when a litigant assumes a fact rather than obtaining and working on actual evidence the litigant becomes its own worst enemy and forgot that making an assumption should first break the word assume into its component parts. In this case the assumption let the statute of limitations run and left the insurer holding the cost of a workers’ compensation policy it did not owe.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

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