Opinions of the United
2000 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


4-6-2000

Bowersox Truck Sales v. Harco National
Precedential or Non-Precedential:

Docket 98-7504




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"Bowersox Truck Sales v. Harco National" (2000). 2000 Decisions. Paper 72.
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Filed April 6, 2000

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 98-7504

BOWERSOX TRUCK SALES AND SERVICE, INC.,
       Appellant

v.

HARCO NATIONAL INSURANCE COMPANY

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.

Argued: June 2, 1999

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

(Filed: April 6, 2000)

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

        Attorney for Appellant



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


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

        Attorney for Appellee

OPINION OF THE COURT

McKEE, Circuit Judge.

Bowersox Truck Sales & Service, Inc. ("BTS") appeals the
district court's grant of summary judgment in favor of
Harco National Insurance Company on BTS's claim for
breach of contract and bad faith arising under an
insurance policy Harco had issued to BTS. For the reasons
that follow, we will reverse, and remand for proceedings
consistent with this opinion.

I.

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 March 4-5, 1994, the weight of accumulated ice and
snow on the roof of the insured building caused that
building to partially collapse. BTS attempted to shore up
the property, and then submitted an insurance claim to
Harco. In response, on October 25, 1994, Harco issued four
checks totaling $169,610.66. App. at 205a-206a. That sum
included an advance in the amount of $19,500 under the
Business Interruption and Extra Expense portion of the
policy. Harco purportedly advanced that sum in the belief
that the building could be repaired. Harco calculated the

                                2


amount of BTS's loss under the Business Interruption
coverage based upon Harco's assumption that BTS would
lose $4,000/week for three weeks, and would also have to
rent another building during those three weeks at a cost of
$2,500/week. However, BTS and Harco failed to agree on
whether the building could be repaired, or the cost of repair
if repair was possible. BTS eventually concluded that the
building had to be replaced, and it sued Harco in 1994 to
recover replacement costs of the building. In that suit, BTS
also sought a declaratory judgment that it was entitled to
recover the actual loss of the business income suffered
while the building was being replaced.

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

                               3


       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.

(emphasis added).

On or about September 27, 1995, counsel for BTS sent a
letter to Harco outlining a proposal to adjust the business
interruption and extra expense portion of BTS's claims. In
that letter, BTS explained why it was not possible to repair
the existing structure, and also outlined its intent to
construct a new, smaller facility to temporarily house its
business while the damaged building was being replaced.
The letter specifically informed Harco that "The contractor
who will be doing the work would like to begin erecting the

                               4


Addition this fall in order to be able to start replacement of
the existing building in the early spring. Accordingly, we
would like to resolve this issue as soon as possible." App at
222a. Therefore, Harco clearly knew that it was highly
improbable that BTS would not be able to complete
replacement of the damaged building before March 5, 1996,
the second anniversary of the partial collapse.

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

                                  5


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

         (i) Relocation expenses; and

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

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.

II.

From October 18, 1995, until the present litigation was
filed, Harco and BTS exchanged numerous letters in an
attempt to settle the business interruption claim. In a letter
dated October 18, 1995, Harco told BTS, "once the
reconstruction on the building is completed," Harco would
require certain financial documents before settling the
claim. App. at 224a-25a (emphasis added). Harco did not
suggest in that letter, or in any of its other numerous and
regular communications with BTS, that Harco believed that
the aforementioned two year limitation period began to run
on March 5 when the building collapsed. As noted above,
BTS's September 27 letter to Harco informed Harco that
BTS would not be able to begin construction on a
replacement building until the spring of 1996. Thus, Harco
was clearly alerted (by that letter as well as by numerous
other communications) to the possibility that BTS may not
be able to present its claim for business interruption
insurance until more than two years after the date of the
partial collapse. Nevertheless, in several of its
communications to BTS, Harco stated that it (Harco) would

                                6


address the business interruption claim upon the
termination of the reconstruction period. Indeed, in a letter
dated January 2, 1996, discussing possible settlement,
Harco advised BTS that "we can settle the business income
and extra expense claim after the loss is actually incurred
and upon our receipt of satisfactory documentation .. ."
See, generally, App. at 205a-206a, 229a-41a.

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 BTSfinally
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.

III.

Our review of the grant of summary judgment is plenary.
W.B. v. Matula, 

, 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." 

of an
insurance contract is a question of law that is properly
decided by the court, Reliance Insurance Co. v. Moessner,

, 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., 

, 420 (3d Cir. 1999); Hullett v.
Towers, Perrin, Forster & Crosby, Inc., 

, 111 (3d
Cir. 1994). Here, we are concerned with the operation and
application of the limitations provision to the damage BTS

                                7


incurred. Accordingly, our review is plenary. See Vanguard
Telecommunications v. So. New England Tel., 

,
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.").

IV.

A.

BTS argues that the district court erred in holding"that
BTS's business interruption claim was barred by the policy
provision requiring suit to be commenced within two years
of the direct physical loss or damage." Appellant's Br. at 14.
BTS claims that, "[i]n the context of a business interruption
claim, the `damage' is the business interruption loss, and
the limitation period begins to run from the date of the
business interruption." Appellant's Br. at 14. 1 The district
court found that "the date of the direct damage is the
starting point, and costs could have been estimated at that
time." Op. at 5. Harco insists that the limitation under the
policy requires that the action be filed within two years of
March 5, 1994, because that was the date of the"direct
physical loss or damage,"2 under the policy. See App. at
19a.

As noted above, the Business Income provisions of the
policy provide for the payment of "necessary expenses"
_________________________________________________________________

1. 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.

2. 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.

                                8
incurred during the " `period of restoration' that [BTS]
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. 40a. The policy further
provides that Harco will "pay any Extra Expense to avoid or
minimize the suspension of business and to continue
`operations.' " App. at 40a. Moreover, the"period of
restoration" is defined in section G of the Business Income
Coverage Form as beginning when the initial property loss
is suffered and it "[e]nds 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.3

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.
_________________________________________________________________

3. The policy also provides that "[t]he expiration date of this policy
will

not cut short the "period of restoration." 

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.

Our interpretation of the policy is corroborated by the
contemporary course of dealing of the parties. That course
of dealing clearly counsels against Harco's claim that the
two year limitations provision applied to BTS's business
interruption coverage. In Bensalem Township v.
International Surplus Lines Ins. Co., 

, 1309
(3rd Cir. 1994) we noted that Pennsylvania courts have
stated, "[c]ourts must examine the totality of the insurance
transaction involved to ascertain the reasonable expectation
of the insured." (citing Everett Cash Mut. Ins. Co. v. Krawitz,

, 216 (Pa. Super. 1993)). Here, the"totality of
the insurance transaction" includes the several requests
that Harco made for additional documentation of BTS's
business income coverage during and after the purported
two year limitation period. Given Harco's conduct, BTS
could not have reasonably expected that the two-year clock
was ticking. We will not now interpret this contract in such
a way as to negate the entire course of dealing between
Harco and BTS after March 1994. That course of dealing
reflects the parties' own interpretation of this insurance
policy, and it is very relevant to our analysis."The
interpretation of insurance contracts to accord with the
reasonable expectations of the insured, regardless of the
existence of any ambiguity in the policy, constitutes judicial
recognition of the unique nature of contracts of insurance."
Murray v. United of Omaha Life Ins. Co., 

, 154
(3rd cir. 1998) (resisting an interpretation of an insurance
policy that would "defeat, rather than promote, the purpose

                               10


of the . . . insurance. . .") (internal quotation marks and
citations omitted).4

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.

B.

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.

"A signed release is binding upon the parties unless
executed and procured by fraud, duress, accident or
mutual mistake." Three Rivers Motor Co. v. Ford Motor Co.,

, 892 (3d Cir. 1975); see also Billman v.
Pennsylvania Assigned Claims Plan, 

, 935 (Pa.
Super. 1986); ACF Produce, Inc. v. CHUBB/Pacific
Indemnity Group, 

, 1101 (E. D. Pa. 1978).
However, "a release covers only those matters which may
fairly be said to have been within the contemplation of the
parties when the release was given." Restifo v. McDonald,

, 201 (Pa. 1967). Thus, "the general words of
the release will not be construed so as to bar the
enforcement of a claim which has not accrued at the date
of release." 

those claims contemplated by
both parties at the time of execution). However, that is
exactly what the district court did here. By holding that the
general words of BTS's release applied to future claims for
loss of business income, the court stretched the language of
the Release beyond the words agreed upon by the parties,
_________________________________________________________________

4. 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.

                               11


and applied them to future claims that are not included in
the language of BTS's general release. The parties agreed
that BTS was releasing such claims for Harco's handling of
BTS's claims that "[BTS] may have under the theory of bad
faith . . . ." The parties did not agree that BTS was releasing
any such claims that it may now have, or may have at any
time in the future. "[T]he general rule for construction of
releases is that the intention of the parties must govern,
but this intention must be gathered from the language of
the release." Three Rivers Motors Co. v. Ford Motor 

. This release reflects an intention to release
claims BTS may have had at the time the release was
entered into, but not to release any such claims that may
accrue in the future. Only the present tense appears in the
relevant portions of the release. Harco's argument would
have us reword the release and insert the future tense that
is now absent.

Releases are strictly construed "so as to avoid the ever
present possibility that the releasor may be overreaching."
Restifo v. 

. 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 

.

V.

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

A True Copy:
Teste:

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

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