I. Professional Liability Issues

Pa. Supreme Court Clarifies Discovery Rule and Doctrine of Fraudulent Concealment in Professional Liability Cases

The Pennsylvania Supreme Court has issued a recent decision clarifying the discovery rule and the doctrine of fraudulent concealment in two consolidated cases involving the statute of limitations in a professional liability case. In Fine v. Checcio, 2005 WL 712029 (3/30/05), and Ward v. Rice, 2005 WL 712029 (3/30/05), the injured plaintiffs brought dental malpractice actions against two different oral surgeons after sustaining injury and damages following the surgical extraction of their wisdom teeth.

In Ms. Ward’s case, the surgery was performed on March 28, 1995, and Ms. Ward commenced an action in tort against Dr. Rice on September 26, 1997.

In its analysis of these cases, the court first focused on the Judicial Code, which provides that the limitations period are computed from the time the cause of action accrued. Under Pennsylvania law, the cause of action accrues when the plaintiff could have first maintained the action to a successful conclusion. In other words, the statute of limitations begins to run as soon as the right to institute and maintain a suit arises, and in a suit to recover for personal injuries, this right generally arises when the injury is inflicted. However, the court also focused on the exceptions that act to toll the running of the statute of limitations, and specifically, the discovery rule and the doctrine of fraudulent concealment.

The discovery rule originated in cases “in which the injury or its cause was neither known nor reasonably knowable.” The purpose of the discovery rule is “to exclude from the running of the statute of limitations that period of time during which a party who has not suffered an immediately ascertainable injury is reasonably unaware he has been injured, so that he has essentially the same rights as those who have suffered such an injury.” When the discovery rule applies, the statute of limitations does not begin to run at the instant that the right to institute suit arises, i.e. when the injury occurs. Instead, the statute of limitations is tolled, and does not begin to run until the injured party discovers or reasonably should discover that he has been injured, and that his injury has been caused by another party’s conduct.

However, the Pennsylvania Supreme Court had been evenly divided over a principle that further qualifies the discovery rule’s application. In an earlier decision, Schaffer v. Larzelere, 189 A.2d 267 (Pa. 1963), the court held that if the existence of the injury is not known to the complaining party and such knowledge cannot be reasonably ascertained within the prescribed period, the limitation does not begin to run until discovery of the injury is reasonably possible. Based on this language, some justices of the Pennsylvania Supreme Court have held that the discovery rule first requires an analysis of whether the injury and its cause were reasonably ascertainable within the prescribed statutory period. If they were, these justices have not applied the discovery rule and have not tolled the statute of limitations, even though the party did not know nor could have reasonably known of his injury and its cause at the time the injury occurred. Other justices from the Pennsylvania Supreme Court have held that the discovery rule is not restricted to those cases where an injury or its cause is not reasonably discovered until after the expiration of limitations period; rather, the discovery rule always applies to toll the statute of limitations if at the time the injury occurred, the injury or its cause is neither known nor reasonably knowable.

Concerning this issue, the Pennsylvania Supreme Court held in the Fine and Ward cases that, “it is not relevant to the discovery rule’s application whether or not the prescribed period has expired; the discovery rule applies to toll the statute of limitations in any case where the party neither knows nor reasonably should have known of his injury and its cause at the time his right to institute suit arises.”

The court also discussed the doctrine of fraudulent concealment, which provides that the defendant may not invoke the statute of limitations, “if through fraud or concealment, he causes the plaintiff to relax his vigilance or deviate from his right of inquiry into the fact.” The court held that the standard of reasonable diligence, which also applies to the running of the statute of limitations when tolled under the discovery rule, also should apply when tolling takes place under the doctrine of fraudulent concealment. (The court further concluded that a statute of limitations that is tolled by virtue of fraudulent concealment begins to run when the injured party knows or reasonably should know of his injury and its cause.)

II. Insurance Coverage Issues.

Proper Notice of Reduction in Insurance Coverage Crucial

In McClellan v. Feit, 2005 WL 819729 (4/11/05), the Superior Court of New Jersey, Appellate Division, reiterated the necessity of an insurance company notifying its insureds of any reduction in coverage.

This case arose over an underground fuel tank on a property that was subject to a residential real estate sale. In 1996, the defendants sold the property to the plaintiffs, and failed to disclose the fact that they had previously closed and abandoned their underground heating oil storage tank. Five years after the sale to the plaintiffs, while they were attempting to sell the property, an underground oil storage tank was discovered on the property. Unfortunately, the tank had been leaking, so the plaintiffs had to remove the tank and remediate the soil and underground water. The plaintiffs then filed a complaint against the defendants for misrepresentation, fraud, breach of contract, equitable fraud, failure to disclose a material fact, and breach of the New Jersey consumer fraud statute.

Upon receiving the plaintiffs’ complaint, the defendants sought a defense from their insurer, the Prudential Property & Casualty Insurance Co. of New Jersey. The insurance company took the position that the damages sought were not “property damage” as defined under the policy, and even if “property damage” occurred during the policy period, the insurer contended that the claim did not constitute an “occurrence” under the policy. The insurer also attempted to disclaim coverage for intentional acts, and also argued that the dates of the loss contained in the complaint fell outside of the defendants’ policy.

The defendants originally purchased and received the 1986 version of Prudential’s homeowner’s policy, which was renewed with the 1994 version of the policy. Both the 1986 and 1994 policies excluded coverage for intentional acts. However, the Appellate Division reviewed the plaintiffs’ complaint, finding that although the complaint was “not a model of clarity”, it sufficiently alleged a claim for negligent misrepresentation, which would possibly have been covered under the 1986 policy.

The defendants attempted to argue that the 1986 version of the homeowner’s policy applied to the plaintiffs’ claims, because Prudential altered the coverage of that policy, without proper notice to them. The court found that Prudential attempted “in the renewal to eliminate negligent misrepresentation coverage by adding occurrence language and specifically excluding negligent misrepresentation from the definition of occurrence. Because negligent misrepresentation was not even mentioned in the 1986 policy, its specific exclusion from coverage in the 1994 renewal renders the change material and requires proper notice.” Accordingly, the Appellate Division remanded the matter to the trial court to determine whether the defendants received proper notice of the changes in the definition of occurrence, which reduced the coverage of their homeowner’s policy. The court held that if the defendants did not receive proper notice of the policy change, the 1986 policy version would remain in effect, and the defendants would have been due a defense from Prudential.

III. General Liability Issues.

Bus Company’s Insurer Fully Responsible for Payment of Medical Expense Benefits Even if Injured Person Has Policy Providing PIP Benefits

In Schaefer v. Allstate NJ Insurance Co., 2005 WL 856163, April 15, 2005, the insurer of a bus company attempted to argue that it was not required to pay the medical expense benefits of an injured party who was an occupant of a bus, if the injured party is insured under an automobile policy providing personal injury protection (PIP) benefits. The plaintiffs in this matter suffered personal injuries in accidents that occurred while they were passengers on buses, and at the time of their accidents, the plaintiffs were named insureds under personal automobile insurance policies that provided PIP benefits, as required by New Jersey law. The policies issued to the owners of the buses provided motor bus passenger medical expense benefits coverage, also as required under New Jersey law.

After the plaintiffs incurred medical expenses as the result of their injuries, and submitted claims for reimbursement to both the bus company’s insurer and their own automobile insurance companies, both insurers denied coverage, arguing that the plaintiffs’ claims were covered by the other insurer’s policy.

The Superior Court of New Jersey, Appellate Division, held that the bus company’s insurer was responsible for the payment of the plaintiffs’ medical expense benefits. In its finding, the court stated that if automobile insurers were required to pay medical expense benefits to their insureds who suffered personal injuries while passengers on a bus, this would result in a decrease in the claims expenses of the bus company insurers, and consequently the premiums payable by bus companies, as well as an increase in the claims expenses of automobile insurers and premiums payable by their insureds. The court found that there was no basis in the New Jersey statute dealing with personal injury protection benefits for finding an implied legislature intent to shift responsibility for the payment of medical expense benefits from bus company insurers to automobile insurers.