OPINION OF THE COURT
Appellants Julius and Bertha Schreiber appeal from an order of the Superior Court affirming an order of the Court of Common Pleas of Philadelphia granting the motion of appellee Pennsylvania Lumberman's Mutual Insurance Company for judgment on the pleadings. Appellants' sole contention throughout these proceedings has been that the one-year limitation of suit provision contained in their policy of fire insurance should not bar appellants from bringing suit on the policy over two years and two months after their alleged loss unless appellee insurance company can demonstrate that it has been prejudiced by appellants' delay. We find this contention to be without merit and, accordingly, affirm.
On November 12, 1975, appellants allegedly lost certain items of personal property in an internal heater explosion.
In its answer, appellee alleged that payment had been refused because appellants had "failed to prove the losses alleged" and "failed to adequately prove the damages alleged." In addition, by way of new matter, appellee contended that appellants' cause of action was barred by the one-year limitation of suit clause contained in the insurance policy.
Appellants did not answer this new matter, and on June 20, 1978, judgment on the pleadings was entered in favor of appellee. Appellants then filed a motion for reconsideration, which was granted. On September 12, 1978, appellants answered appellee's affirmative defense, alleging only that the one-year limitation of suit provision could not bar their suit because appellee had alleged no prejudice to itself from appellants' two-year delay. The trial court rejected this argument and again entered judgment on the pleadings for appellee. A unanimous panel of the Superior Court affirmed, and this Court granted allowance of appeal.
In Brakeman v. Potomac Insurance Co., 472 Pa. 66, 371 A.2d 193 (1977), this Court held that a policyholder's failure to abide by a provision in an automobile insurance contract requiring timely notice of claims would not bar suit on the policy absent a showing of prejudice by the insurer. Appellants argue that Brakeman mandates a similar conclusion with regard to the statutory limitation of suit provision at issue here.
Contrary to appellants' assertion, the rationale of our decision in Brakeman is not applicable to the present case. In Brakeman, the insurer had chosen to include in its automobile insurance policy a provision requiring that,
In examining this provision and the reasons for its inclusion in the policy, this Court stated:
472 Pa. at 72, 371 A.2d at 196. Because the above provision requiring notice "as soon as practicable" was included at the exclusive discretion of the insurer, this Court found the provision to be in the nature of a contract of adhesion. Thus this Court departed from precedent and held that an insurer must prove that it has been prejudiced by an insured's late notice before it can successfully invoke such a provision as a defense to a claim.
In contrast, the limitation of suit provision in appellants' fire insurance policy was not "dictated by the insurance company to the insured." Rather, the Legislature has mandated that every policy of fire insurance issued in this Commonwealth shall contain the proviso that
Act of May 17, 1921, P.L. 682, § 506, added August 23, 1961, P.L. 1081, § 1, 40 P.S. § 636. Such a statutory requirement can hardly be termed a "contract of adhesion," imposed unfairly by the stronger party upon the weaker. Rather, it represents a legislative determination of a reasonable period within which suits must be brought, a careful balancing of the interests of both insurers and insureds. The validity of this statutorily mandated limitation of suit provision has been consistently upheld. See, e.g., General State Authority v. Planet Insurance Co., 464 Pa. 162, 346 A.2d 265 (1975); Lardas v. Underwriters Insurance Co., 426 Pa. 47, 231 A.2d 740 (1967).
FLAHERTY, J., files a concurring opinion.
NIX, J., files a dissenting opinion.
FLAHERTY, Justice, concurring.
I agree with the rationale expressed in the dissent authored by Mr. Justice Nix, but concur in the result reached by the majority in this case. The relationship between the parties is contractual, and, notwithstanding the legislatively dictated term in the contract of insurance, equitable principles apply to this as well as other terms, and, indeed, the expectations based on the realities of custom and practice are to be considered. I would join the well-reasoned Dissenting Opinion were the pleaded facts sufficient to invoke the principle which it declares, but, in my view, the record has precluded me from doing so.
NIX, Justice, dissenting.
The issue raised in this appeal is whether a suit limitation provision in a contract of fire insurance should be enforced
In this record, it is uncontroverted that the Schreibers, the insured, fulfilled all of the conditions precedent under the terms of the existing policy to receive compensation for their loss. They had entered into the contract with the insurer for coverage for the type of loss sustained in this case, their premium was paid in full, and they had complied with the policy terms in prompt notification of the loss and submission of the proof of loss. The record does not reflect that prior to their institution of suit the insurer had in any way communicated to the insured that the claim would be rejected or that the information supplied to it, by the Schreibers, was in any way deficient or inadequate.
An appropriate analysis of the consideration of the issues raised in the instant appeal must begin with an understanding of the nature of a suit limitation clause. Our law provides for statutes of limitation which represents a societal determination that at some point in time individuals should have their exposure to liability terminated and that stale claims are inherently unfair to those required to defend against them. Estate of Gasbarini v. Medical Center of Beaver County, Inc., 487 Pa. 266, 409 A.2d 343 (1979); Insurance Company of North America v. Carnahan, 446 Pa. 48, 284 A.2d 728 (1971); Ulakovic v. Metropolitan Life Ins. Co., 339 Pa. 571, 16 A.2d 41 (1940). The law has also recognized that parties have a right in their contractual dealings to further limit the time during which resort to the courts may be had to resolve a dispute that arises from their contractual relationship. General State Authority v. Planet Ins. Co., 464 Pa. 162, 346 A.2d 265 (1975); Lardas v. Underwriters Ins. Co., 426 Pa. 47, 231 A.2d 740 (1967); Hocking v. Insurance Co., 130 Pa. 170, 18 A. 614 (1889); Northwestern
Contractural limitation of suit provisions are, like all other terms of a contract, subject to adjustment by the appropriate rules of equity. In the insurance field, the principles of equity controlling the terms of the policy have evolved under the rubric of right of expectation of payment. Brakeman v. Potomac Ins. Co., 472 Pa. 66, 371 A.2d 193 (1977); Rempel v. Nationawide Life Ins. Co., 471 Pa. 404, 370 A.2d 366 (1977); Commonwealth v. Transamerica Ins. Co., 462 Pa. 268, 341 A.2d 74 (1975). This principle suggests that strict compliance to the myriad of terms in an insurance contract will not be permitted to defeat a legitimate expectation of payment where the asserted non-compliance has in no way adversely affected the position of the insurer.
For illustration, in Brakeman v. Potomac Insurance Co., supra, we held that the insurer would not be able to defeat the right of recovery of the insured without first bearing the burden of proving that the breach of the notice provision resulted in prejudice to the insured. In Collister v. Nationwide Life Insurance Co., 479 Pa. 579, 388 A.2d 1346, cert. denied 439 U.S. 1089, 99 S.Ct. 871, 59 L.Ed.2d 55 (1979), we said that the courts should be concerned with assuring that the insurance purchasing public's reasonable expectations are fulfilled and insurers should not be permitted to enjoy the benefit of a premium being paid at the time of application, as was done here, without giving comparable benefits in return to the insured.
In August v. Stasak, 492 Pa. 550, 424 A.2d 1328 (1981) in determining whether to give Brakeman applicability to cases
In Jarvis v. Workmen's Compensation Appeal Board, 497 Pa. 379, 441 A.2d 1189 (1981) we held that an insurer breached a duty in failing to notify the insured of its intention not to offer a policy renewal of Workmen's Compensation. This result was reached despite a contrary holding in Luther v. Coal Operators Casualty Co., 379 Pa. 113, 108 A.2d 691 (1954). We reasoned the realities of insurance industry customs and the concomitant expectations of parties of insurance contracts were not reflected in the rationale employed in Luther.
The majority attempts to distinguish the instant case by virtue of the fact that the provisions of fire insurance policies are legislatively prescribed. It is argued that the expectation of payment concept is not appropriate because the element of adhesion which is normally present in contracts of insurance has been removed because of the legislative imprimatur to the policy provisions. However, our case law has made clear that although the terms are directed by the legislature to be included in such policies the relationship between the parties remains unchanged, i.e., a contractual one. General State Authority v. Planet Ins. Co., supra; Lardas v. Underwriters Ins. Co., supra; Chauvin v. Superior Fire Insurance Co., 283 Pa. 397, 129 A. 326 (1925); Gratz v. Ins. Co. of North America, 282 Pa. 224, 127 A. 620 (1925).
The fact that the legislative prescription of a policy provision may indicate its fairness in the abstract does not preclude its unfairness in a particular application. This has been recognized by our courts which have permitted equitable principles to modify and alter legislatively prescribed
I believe that this record requires the application of equitable principles to avoid the harsh and inequitable result that the majority today countenances. It first must be noted that the adversarial posture that exists where one is seeking recovery from an insurer of an alleged tort feasor is not here present. Lumbermens undertook to protect and insulate the Shreibers from the loss which occurred here. It was that very promise of protection which formed the basis for the relationship and for which Lumbermens received the full premium. As indicated earlier, the conditions imposed upon the insured to obtain recovery were met. Under the terms of the contract, a carefully designed scheme has been developed to reinforce that relationship of trust, confidence, fairness and good faith.
The "When loss payable" clause,
The scheme set forth in the policy provided that after the insured submitted evidence of the loss an opportunity would be given to the insurer to examine the materials presented and make a determination as to the legitimacy of the claim. Where a question arises as to the adequacy of the information submitted or the validity of the damage claimed, the
In this context, it is also of significance that although the limitation of suit clause describes the period within which the action is to be commenced as being "12 months next from the inception of the loss," our court decisions have interpreted the inception of the loss as being the date of the fire. General State Authority v. Planet Ins. Co., supra; Lardas v. Underwriters Ins. Co., supra. This section, as it has been judicially interpreted when placed in juxtaposition with the "When loss payable clause," reveals a potential anomaly which becomes a reality as a result of today's ruling.
The crux of the injustice in this case is that the asserted non-compliance in fact results from the confusion arising from the obvious tensions between the limitation of suit clause, as it has been judicially interpreted, and the "When loss payable clause." The inequities flowing from that confusion are reflected in the Schreibers lack of notice of the necessity of utilizing the arbitration features of the policy, the uncertainty of the ripeness of the action during the one-year period from the date of the fire and, finally, that they were ultimately deprived of suing to recover for a loss sustained where the liability for the obligation has never been contested.