Bowersox Truck Sales and Service, Inc., Appellant v. Harco National Insurance Company, 209 F.3d 273 (3d Cir. 2000)

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US Court of Appeals for the Third Circuit - 209 F.3d 273 (3d Cir. 2000) Argued: June 2, 1999Decided April 6, 2000

On appeal from the United States District Court for the Middle District of Pennsylvania D.C. Civil No. 97-cv-01874 District Judge: Hon. James F. McClure, Jr.

Attorney for Appellant: Jonathan H. Rudd, Esquire (Argued) McNees, Wallace & Nurick 100 Pine Street P.O. Box 1166 Harrisburg, PA 17108-1166

Attorney for Appellee: Todd B. Narvol, Esquire (Argued) Thomas, Thomas & Hafer 305 North Front Street P.O. Box 999 Harrisburg, PA 17108

Before: Scirica, McKee, Circuit Judges, and Schwarzer, District Judge* 


McKEE, Circuit Judge.

Harco issued a policy of commercial property insurance to BTS by which Harco insured business property of BTS. The insurance included coverage for interruption of BTS's business resulting from damage to the insured property. The policy included business interruption insurance. The policy stated, "No one may bring a legal action .. . under this Coverage Part unless: . . . [t]he action is brought within 2 years after the date on which the direct physical loss or damage occurred." App. at 19a.

On August 31, 1995, Harco and BTS formally agreed to settle BTS's claim for the replacement cost of the building. In return for payment of $250,000 from Harco, BTS and Harco entered into a settlement agreement that was affirmed by the district court. That agreement provided in pertinent part as follows:

FOR AND IN CONSIDERATION of the payment to [Bowersox] of the sum of ONE HUNDRED TWENTY NINE THOUSAND THREE HUNDRED SIXTY-NINE DOLLARS and THIRTY-FOUR CENTS ($129,369.34), . . . we . . . release . . . Harco National Insurance Company . . . of and from any and all past, present and future actions. . . including claims or suits based upon negligence, breach of contract, bad faith, and any claims (except for business interruption as described below) seeking recovery for any sums of money under Commercial Property Insurance Policy No. CFR 00 10 95-08 . . . for all damages (except for business interruption as described below) to property belonging to and owned by Bowersox.

App. at 54a-56a. However, the settlement agreement specifically reserved BTS's right to pursue any claim it may have under the business interruption coverage as follows:

It is hereby stipulated and agreed that this Settlement and Release shall apply to all claims except for business interruption damages as described below, resulting from the aforementioned accumulation of snow and ice affecting the building, including its attached office. . . . The present payment . . . in addition to two payments already made by Harco to Bowersox . . . is intended to finally settle any and all claims Bowersox may have against Harco except as related to business interruption as described as follows. Nothing in this Release shall prevent Bowersox from submitting a claim to Harco and otherwise pursuing that claim for business interruption and extra expense under [the policy] pursuant to the language of the "Business Income Coverage Form (and Extra Expense)" as provided in that policy. The parties expressly recognize that Harco continues to insure Bowersox and this Release is not intended to effect [sic] Bowersox's right to make claim under its current or any future policy with Harco for future loss or damage covered by such policies. . . .

App. at 56a (emphasis added). The agreement also contained the following language regarding BTS's right to subsequently bring a claim against Harco for the latter's bad faith:

[W]e the Releasors do further release Harco from any and all claims that we may have for the manner in which all claims under the aforementioned policy have been handled, adjusted, negotiated or settled, including, but not limited to, claims based on . . . Pennsylvania Bad Faith Insurance Law, or any other law applicable to insurance practices. . . . We additionally release Harco for any claims we have under any theory of bad faith or unfair claims handling practices.

Id. App. 56a-57a (emphasis added).

Even though the Commercial Property Conditions portion of the policy contained the aforementioned requirement that the insured bring any legal action within two years of the "direct physical loss or damage," the Business Income Coverage Form (And Extra Expenses) coverage part of the policy stated:

We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your "operations" during the "period of restoration." The suspension must be caused by direct physical loss of, or damage to property at the premises described in the Declarations, . . . resulting from any Covered Cause of Loss.

App. at 40a. The policy also states under S 3 of the Business Income Coverage Form: "We will pay any Extra Expense to minimize the suspension of business if you cannot continue `operations' . . . to the extent that it [the Extra Expense] reduces the amount of loss that otherwise would have been payable under this Coverage Form." Section 3 of the policy defines the covered "extra expense" as follows:

Extra expense means necessary expenses you incur during the "period of restoration" that you would not have incurred if there had been no direct physical loss or damage to property caused by or resulting from a Covered Cause of Loss.

App. at 40a. Under the policy, Harco also undertakes to pay:

(1) . . . any Extra Expense to avoid or minimize the suspension of business and to continue "operations":

(a) At the described premises; or

(b) At replacement premises or at temporary locations, including:

(i) Relocation expenses; and

(ii) Costs to equip and operate the replacement or temporary locations.

Id. The "Period of Restoration" as used in S 3 of the "Business Income Coverage Form (And Extra Expense)" is defined as:

the period of time that:

a. Begins with the date of direct physical loss or damage caused by or resulting from any Covered Cause of Loss at the described premises; and

b. Ends on the date when the property at the described premises should be repaired, rebuilt, or replaced with reasonable speed and similar quality.

App. at 46a.

BTS did not complete reconstruction of the building until on or about January 1, 1997. App. at 157a. On January 14, 1997, BTS's lawyer sent Harco's lawyer a letter and several documents that Harco had requested BTS to send upon completion of the reconstruction of the property. App. at 232a. On February 27, 1997, BTS submitted an evaluation of the business interruption loss, as per Harco's request. Harco did not then assert the two year limitation under the policy as it now does. Rather, on March 7, 1997, Harco requested additional information that it purportedly needed to process BTS's claim. App. at 264a. This pattern continued and Harco's investigation of BTS's claim remained open until December 10, 1997, when BTS finally filed the instant suit against Harco. The district court granted Harco's motion for summary judgment and dismissed BTS's claims and, after the district court denied reconsideration, BTS filed the instant appeal.

Our review of the grant of summary judgment is plenary. W.B. v. Matula, 67 F.3d 484, 493 (3d Cir. 1995). "Summary judgment is appropriate when there are no issues of material fact . . . and the moving party is entitled to judgment as matter of law." Id. The interpretation of an insurance contract is a question of law that is properly decided by the court, Reliance Insurance Co. v. Moessner, 121 F.3d 895, 900 (3d Cir. 1997), unless the court determines that the contract is ambiguous, in which case the interpretation of the ambiguous term is a question of fact. Sanford Investment Co. v. Ahlstrom Machinery Holdings, Inc., 198 F.3d 415, 420 (3d Cir. 1999); Hullett v. Towers, Perrin, Forster & Crosby, Inc., 38 F.3d 107, 111 (3d Cir. 1994). Here, we are concerned with the operation and application of the limitations provision to the damage BTS incurred. Accordingly, our review is plenary. See Vanguard Telecommunications v. So. New England Tel., 900 F.2d 645, 650 (3d Cir. 1990) ("The questions involved in this case are concerned `with the legal operation of the agreement,' because we . . . are not called upon to fill a gap in the agreement, but only to determine the legal effect of the agreement.").

This insurance policy clearly provides coverage for"extra expense" the insured incurs "during the period of restoration" that would not have occurred absent"physical . . . damage to the property." However, the "period of restoration" "begins with the date of direct physical . . . damage caused by . . . any Covered Cause," and"ends on the date when the property . . . should be rebuilt or replaced with reasonable speed and similar quality." App. at 46a. If Harco's assertion that any suit for business interruption coverage must be brought within two years of the date the property is damaged is correct, then such a claim would be impossible to bring when the necessary reconstruction is not completed until more than two years from the date the property is damaged. Such a reading would render Harco's coverage illusory in situations like the one before us now. As noted above, Harco was aware that the period of restoration might not end until a date that was more than two years from the time the covered property was damaged. The policy specifically provides that the two year limitation in the Commercial Property Conditions is subject to "Additional Conditions in Commercial Property Coverage Forms." App. at 19a. This appears to include the aforementioned definitions and conditions of coverage pertaining to business income, extra expense, and period of restoration, contained in the Business Income Coverage Form.

Thus, the district court could not properly conclude as a matter of law that the period for filing suit contained in the Commercial Property Conditions Part does not apply to business income loss protections. The wording of Harco's policy refers to different "parts" of the policy. As noted above, the two year limitation is contained in S D of the Commercial Property Conditions "part." That limitation states: "No one may bring a legal action against us under this Coverage Part unless . . . " (emphasis added). App. at 19a. BTS's claim for business interruption insurance arises under a different "part" of the policy entitled: "Business Income Coverage Form (And Extra Expense)", and that "part" of the policy does not contain a similar time bar. App. 40a.

Thus, we hold as a matter of law that the two year period of limitations established under the policy does not apply to BTS's claim for business interruption coverage.

The district court also held that BTS released Harco from any future bad faith claim involving Harco's handling of BTS's business interruption loss. Harco argues that" [t]he Release excepts all claims relating to BTS's business interruption claim, including any bad faith claim." BTS claims that " [t]he express language of the Release applies only to BTS's bad faith claim for Harco's past conduct, and does not apply to any future bad faith claim based on Harco's future handling of BTS's business interruption loss." Appellant's Br. at 16. We agree.

Releases are strictly construed "so as to avoid the ever present possibility that the releasor may be overreaching." Restifo v. McDonald, 230 A.2d at 201. Thus, even if we concluded that the scope of the release was ambiguous, we would still find, as a matter of law that this release did not include future claims of bad faith that accrued based upon the manner in which Harco handled BTS's claim for business interruption coverage after the release was executed. See Three Rivers, 522 F.2d at 887.

For the reasons set forth above, we will reverse the ruling of the district court and remand for further proceedings consistent with this opinion.


The Honorable William W Schwarzer, United States District Court for the Northern District of California, sitting by designation.


Additionally, BTS argues that even if the time to file did expire, "Harco waived, extended, suspended, or is otherwise estopped from relying on this provision." Appellant's Br. at 15. However, we need not reach the issue of whether Harco waived its right to assert its time limitations defense.


Harco also claims that BTS violated the policy's requirement that "No one may bring a legal action against [Harco] under this Coverage Part unless: There has been full compliance with all of the terms of this Coverage Part." App. at 19a. Harco alleged that BTS failed to submit to an examination under oath which it was obligated to do under the policy. See Appellee's Br. at 14. However, that was not the basis of the district court's ruling and that issue is not before us.


The policy also provides that " [t]he expiration date of this policy will not cut short the "period of restoration." Id.


In Murray, we were interpreting a contract of health insurance, but the analysis there is nevertheless relevant to our present inquiry given the parameters of this dispute.