THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY et al v. INTERNATIONAL GLASS PRODUCTS, LLC et al

Filing 245

OPINION resolving 207 , 211 and 213 - the parties' respective motions for summary judgment. Signed by Judge David S. Cercone on 9/29/16. (mwm)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE
COMPANY and HARTFORD
CASUALTY INSURANCE COMPANY,
Plaintiffs,
vs.
INTERNATIONAL GLASS
PRODUCTS, LLC, and FRANCISCO
A. FERNANDEZ,
Defendants.

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2:08cv1564
Electronic Filing

OPINION
This is a civil declaratory judgment and damages action filed by plaintiffs, The Hartford
Steam Boiler Inspection and Insurance Company (“HSB”) and Hartford Casualty Insurance
Company (“Hartford”), against defendants, International Glass Products, LLC (“IGP”) and
Francisco A. Fernandez (“Fernandez”). The dispute concerns the parties’ respective rights and
obligations under a business insurance policy issued by Hartford in favor of IGP. On August 30,
2007 and October 27, 2007, IGP sustained damage to certain business property for which it
sought to obtain insurance proceeds under the policy at issue. During the course of the claim
adjustment process, plaintiffs concluded that IGP and Fernandez had engaged in fraudulent
conduct relative to IGP’s claim. Consequently, on July 21, 2008, HSB sent IGP a denial letter
indicating its intent to void the subject policy and reserving its right to recover payments
previously made. Thereafter, plaintiffs commenced this lawsuit.

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Presently pending before the court are the parties’ cross-motions for summary judgment
pertaining to plaintiffs’ claims against IGP and IGP’s counter-claims against plaintiffs. For the
reasons that follow, IGP’s motion for partial summary judgment as against HSB (ECF No. 211)
will be granted. IGP’s motion for partial summary judgment as against Hartford (ECF No. 213)
will be denied. Plaintiffs’ motion for summary judgment against IGP (ECF No. 207) will be
granted in part and denied in part.
I. Background1
IGP’s Business
At times relevant to this lawsuit, IGP was in the business of manufacturing specialty
tempered glass panels for use in ovens, ranges, cook tops, and other large kitchen appliances.
(DSMF ¶1.)2 It had two main production lines for its products: “Line 1,” which manufactured
smaller specialty tempered glass panels, and “Line 2,” which manufactured larger tempered glass
panels. (Id. at ¶3.) As of August 1, 2007, IGP operated out of a facility located in Ambridge,
Pennsylvania. (Id. at ¶2.)
The Hartford Policy

1

The factual background is derived from the undisputed evidence of record and the disputed
evidence of record viewed in the light most favorable to the nonmoving party. See Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 255 (1986) (“The evidence of the nonmovant is to be
believed, and all justifiable inferences are to be drawn in his favor.”). Because the record is
voluminous and the parties are well aware of the underlying facts, the court will recite only those
facts that are material to its disposition.
2

Citations to “DSMF ¶ ___” refer to IGP’s Concise Statement of Material Facts in Support of
Defendant, International Glass Products, LLC’s Motion for Summary Judgment (ECF No. 215)
and plaintiffs’ response thereto (ECF No. 219).
2

Effective August 1, 2007, IGP held an insurance policy with Hartford (hereafter, the
“Policy”), which provided first party property loss coverage for IGP’s business personal
property, including equipment breakdown coverage, as well as business income loss and extra
expense coverage. (DSMF ¶¶ 4, 5.)3 The liability limit for business personal property was $2.6
million for any single occurrence; the limit for business income and extra expense losses was $4
million for any single occurrence. (Id. at ¶8.) The Policy expressly identified Hartford as the
“Company” providing the insurance coverage to IGP. (Id. at ¶¶ 6-7.)
At issue in this case are various provisions in the Policy that bear on the parties’
competing claims. In relevant part, the Policy allowed IGP to collect replacement costs
following an equipment breakdown accident if replacement was required. In that event, the
insurer would indemnify IGP for the amount actually spent “that is necessary to repair or replace
the ... physically damaged property.” (Pl.s’ Ex. 1 at pp. 20-21, ECF No. 210-1.) The “Loss
Payment” provision of the Policy stated that, “In the event of physical loss or physical damage
covered by this policy... We will determine the value of Covered Property.” (DSMF ¶39.) An
endorsement entitled “PENNSYLVANIA CHANGES” added the following superseding
language to the Loss Payment provision:
NOTICE OF ACCEPTANCE OR DENIAL OF CLAIM
1. Except as provided in 3. below, we will give you notice, within 15 working days after we
receive a properly executed proof of loss, that we:
a. Accept your claim
b. Deny your claim; or
c. Need more time to determine whether your claim should be accepted or denied.

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The subject policy was formally entitled “Hartford Spectrum Business Insurance Policy” and
had an assigned policy number “SBAPI1518DW.” (DSMF ¶4.)
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If we deny your claim, such notice will be in writing, and will state any policy
provision, condition or exclusion used as a basis for the denial.
If we need more time to determine whether your claim should be accepted or denied,
the written notice will state the reason why more time is required.
2. If we have not completed our investigation, we will notify you again in writing, within 30
days after the date of the initial notice as provided in 1.c. above, and thereafter every 45
days. The written notice will state why more time is needed to investigate your claim and
when you may expect us to reach a decision on your claim.
3. The notice procedures in 1. and 2. above do not apply if we have a reasonable basis,
supported by specific information, to suspect that an insured has fraudulently caused or
contributed to the loss by arson or other illegal activity. Under such circumstances, we
will notify you of the disposition of your claim within a period of time reasonable to
allow full investigation of the claim, after we receive a properly executed proof of loss.

(DSMF ¶38.) An additional, relevant, endorsement entitled “LOSS PAYABLE PROVISIONS”
provided, in part:
A. LOSS PAYABLE
For Covered Property in which both you and a Loss Payee shown in the Declarations
have an insurable interest[4], we will:
1. Adjust losses with you; and
2. Pay any claim for loss or damage jointly to you and the Loss Payee, as interests may
appear.

(DSMF ¶40.) The parties agree that, in each of these provisions, the terms “you” and “your”
referred to IGP and the terms “we” and “our” referred to Hartford. (Id. at ¶¶ 6, 41.)
Also at issue in this case is a provision set forth in the “Common Policy Conditions” -specifically, Common Policy Condition (C), which provided:
C.

Concealment, Misrepresentation or Fraud
This Policy is void in any case of fraud by you as it relates to this Policy at
any time. It is also void if you or any other insured, at any time,
intentionally conceal or misrepresent a material fact concerning: ...

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National City Bank, as IGP’s lender, was an additional insured and “Loss Payee” under the
Policy. (DSMF ¶40.)
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4. a claim under this policy.
(Pl.s’ Ex. 1, ECF No. 210-1 at p. 39 of 180.)

Hartford’s Reinsurance Treaty with HSB
Prior to August 1, 2007, Hartford had entered into a separate “treaty agreement” with
HSB (hereafter, the “Reinsurance Treaty” or “Treaty”), which remained in effect at all times
relevant to this lawsuit. Pursuant to this Treaty, HSB reinsured the “equipment breakdown”
liability of Hartford on certain covered businesses, including IGP. (DSMF ¶56.) As it pertains
to this case, the Treaty provided that HSB would reimburse Hartford one-hundred percent
(100%) for any payments that HSB authorized on equipment breakdown claims. (DSMF ¶64;
Pl.s’ Ex. 2, Reinsurance Treaty, Art. 1, ECF No. 210-3.) HSB was, in turn, reinsured under a
treaty with two other reinsurers, AIG and Hanover Re. (DSMF ¶¶87, 89.) HSB’s reinsurance
took effect on losses that reach and/or exceed $1 million, such that AIG and Hanover Re would
reimburse HSB dollar-for-dollar for loss payments made by HSB over $1million per loss,
including in this case. (Id. at ¶¶ 87-89.)
Hartford’s Reinsurance Treaty with HSB provided that HSB, at its expense, would
“investigate, negotiate and enter into settlement agreements or defend all such claims and losses
in accordance with the terms of the coverage subject to this [Treaty],” but Hartford could
“participate in any such investigation, negotiation, settlement or defense” at its own expense.
(Pl.s’ Ex. 2, Reinsurance Treaty, Art. 9(B), ECF No. 210-3.) The Treaty further provided that, in
the event that HSB settled a claim or loss arising under coverages that were subject to the Treaty,

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Hartford would make payment directly to the Insured, under the coverages subject to [the
Reinsurance Treaty].” (Id. at Art. 9(C).)
To “facilitate the handling of claims” subject to the Reinsurance Treaty, Hartford and
HSB collectively developed “Special Handling Instructions” and claim service guidelines.
(Def.’s Ex. 121, ECF No. 229-121.) These guidelines emphasize that the relationship between
Hartford and HSB is “one of carrier and reinsurer, with the ultimate responsibility to the
customer being retained by the Hartford.” (Id.) However, “[t]he expertise of HSB in equipment
breakdown losses, ... by agreement, dictates [HSB’s] role in the adjustment process.” (Id.) The
guidelines contemplated that HSB would notify Hartford’s claim handler, on a monthly basis, of
the amounts to be paid to Hartford’s insured under the Hartford policy; however, “[u]nder no
circumstances” were HSB adjusters to “engage in discussion of or make statements to the
customer or agent as to the applicability of coverage under the policy or the reinsurance
agreement.” (Id.) Instead, “[a]ll coverage inquiries or issues [were to] be referred to The
Hartford’s claim handler to address with the insured.” (Id.)
The August 30 and October 27, 2007 Incidents
On August 30, 2007, IGP’s business sustained a physical loss and damage to its
production lines and equipment after a high voltage burst of electricity surged through the
circuitry of the plant, including the data highway that connected and controlled the furnaces for
Lines 1 and 2. (DSMF ¶13.)
Hartford received notice of the incident the following day. (DSMF ¶12.) On September
11, 2007, Alan Mycek, a national general adjuster for Hartford, advised IGP through IGP’s
insurance agent, the Gleason Group, Inc., that IGP’s claim had been reassigned to the Hartford
Property Large Loss unit due to the size and nature of the loss. (Id. at ¶¶10, 14.) Mycek further
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advised that one of Hartford’s “most experienced Property Claim professionals,” Chris Correll,
would be working with IGP during the claim resolution process. (Id. at ¶14.)
Pursuant to the Reinsurance Treaty, Hartford gave HSB notice of the August 30, 2007
loss. (DSMF ¶74.) Thereafter, Hartford and HSB undertook dual investigations to determine, as
between them, which entity would be responsible for IGP’s loss and which entity would
investigate the loss, adjust the claim, and ultimately determine the amount of IGP’s loss under
the Policy. (Id. at ¶75.) On or about October 8, 2007, HSB and Hartford determined that IGP’s
loss fell within the “equipment breakdown” coverage of the Policy and thus fell under the terms
of the Reinsurance Treaty. (Id. at ¶80.)
Meanwhile, following the August 30 incident, IGP’s maintenance department undertook
repairs to the damaged equipment. The repairs involved the replacement of approximately
fifteen ceramic rollers that had been broken or damaged. These were replaced with other rollers
from IGP’s inventory. (Pl.s’ Ex. 3, Bennett Dep. at 48:16-49:10, ECF No. 210-4.) After
completing the repairs, IGP resumed production on Line 2.
On October 27, 2007, the partially repaired Line 2 suffered a more catastrophic failure
which resulted in additional damage to the rollers and other components and caused a complete
shutdown of IGP’s operations on Line 2. (DSMF ¶¶ 16, 90.) This incident led IGP to submit
additional claims to Hartford for property damage and business interruption losses.
The Alleged Fraud
The plaintiffs’ claims in this case center around various representations that were made
and/or conduct that was undertaken during the claims adjustment process by Joe Nocito (IGP’s
president), defendant Fernandez, and various individuals employed by IGP. For present
purposes, the alleged fraud concerns two issues: (i) IGP’s alleged need for additional
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replacement rollers and the purchasing and shipment thereof; and (ii) the employment status of
IGP’s maintenance supervisor, Paul Ciarrochi, Jr. Plaintiffs contend that IGP engaged in
fraudulent conduct relative to these two matters, thereby justifying the cancellation of IGP’s
insurance coverage pursuant to Common Policy Condition (C). Plaintiffs allege the following
concerning IGP’s conduct.
A. Representations Regarding Replacement Rollers
Following the events of August 30, 2007, IGP took the position that it was necessary to
replace the damaged ceramic rollers rather than simply refurbish them. (Pl.s’ Ex. 15, ECF No.
210-15.) IGP further represented that it had contacted domestic manufacturers with the
capability of replacing the ceramic rollers and that the only two domestic manufacturers,
Vesuvius USA, and Ceradyne, Inc., could not manufacture replacement rollers for at least eight
months. (Pl.s’ Ex. 17, ECF No. 210-15, and Ex. 28 at ¶5, ECF No. 210-18.)
Rather than ordering the replacement rollers domestically, IGP sought Hartford’s
approval for ordering the new rollers from a Chilean company known as Global Networking
(“Global”) which, according to IGP, could provide delivery by late November 2007. (Pl.s’ Ex.
17, ECF No. 210-15.) On the basis of these representations, plaintiffs authorized the purchase of
178 replacement rollers from Global. In support of its request to be reimbursed for the cost of
purchasing replacement rollers from Global, Nocito submitted the following documents to
plaintiffs: (i) Invoice #26753 dated September 18, 2007 from Global to IGP in the amount of
$144,180 (Pl.s’ Ex. 18, ECF No. 210-15); and (ii) Purchase Order No. 9248 from IGP to Global
(Pl.s’ Ex. 19, ECF No. 210-15). In late September 2007, HSB authorized Hartford to issue
payment to IGP for parts already ordered, including the 178 replacement rollers from Global.

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(Pl.s’ Ex. 22, ECF No. 210-18.) IGP then purportedly issued two checks to Global, totaling
$144,180.00, ostensibly in payment of the replacement rollers. (Pl.s’ Ex. 27, ECF No. 210-18.)
Thereafter, IGP informed plaintiffs that Global was having difficulty meeting its
estimated shipping date of November 19, 2007. (Pl.s’ Ex. 28 at ¶7, ECF No. 210-18.) These
delays necessarily extended the restoration period and necessitated the further continuation of
business interruption payments.
At some point, plaintiffs became suspicious of IGP’s representations concerning the
delayed shipment of the rollers. They requested documentation confirming IGP’s representation
that there had, in fact, been a long manufacturing lead time estimated by domestic suppliers.
In response to this request, IGP provided a document dated March 14, 2008 from a Vesuvius
representative named Doug Brown stating, “Due to delays in commissioning a grinding machine,
lead times can be extended up to 8 months for certain part types.” (See Pl.s’ Ex. 17, ECF No.
210-15.)
To further address the plaintiffs’ concerns, Fernandez created a written document entitled
“Roller Timeline,” (Pl.s’ Ex. 28, ECF No. 210-18), which detailed the alleged purchase and
shipment of the replacement rollers from Global. Fernandez submitted this document to Penny
Wolfe, an employee of the Gleason Group, Inc., and Wolfe then forwarded the timeline to
plaintiffs on April 21, 2008. Included in the Roller Timeline were the following representations:
(1) the replacement rollers from Global were shipped to Charleston, South Carolina from
Chile, by boat, on January 25, 2008 (Ex. 28 at ¶9);
(2) the replacement rollers arrived in the Port of Charleston, South Carolina on March 14,
2008 and were available for removal from customs on March 21, 2008 (id. at ¶ 10);
(3) the replacement rollers could not be released from customs until original shipping
documents were produced (id. at ¶11);

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(4) IGP submitted the required shipping documents so that the replacement rollers could be
released from customs on April 4, 2008 (id. at ¶12); and
(5) the replacement rollers were transported via truck, by a shipping company named Estes,
from the Port of Charleston to IGP’s new manufacturing location in Robinson township,
Pennsylvania on April 11, 2008 (id. at ¶14).
On April 22, 2008, Fernandez submitted several additional “third party” documents to
Wolfe, who then forwarded them on to plaintiffs. (Pl.s’ Exs. 30 and 34, ECF No. 210-19.) The
first document was a Spanish language bill of lading allegedly signed on January 22, 2008 and
purportedly evidencing the shipment of 178 replacement rollers from Global in Santiago, Chile
to the Port of Charleston, South Carolina. (Pl.s’ Ex. 31, ECF No. 210-19.) The second
document was a Spanish receipt from Global in Santiago, Chile dated January 25, 2008,
representing that the ceramic rollers departed Santiago on that date for ultimate delivery to IGP’s
new facility in Robinson Township. (Pl.s’ Ex. 32, ECF No. 210-19.) The third document was a
bill of lading purportedly evidencing the shipment of the new rollers from the Port of Charleston
to IGP’s new Robinson Township facility. (Pl.s’ Ex. 33, ECF No. 210-19.) Nocito was copied
on the email from Fernandez to Wolfe, which attached these documents. (Pl.s’ Ex. 34, ECF No.
210-19.)
On May 1, 2008 HSB’s engineering consultant, Ron Chauffe (“Chauffe”), visited IGP’s
Robinson Township facility for the purpose of inspecting the replacement rollers allegedly
supplied by Global. Upon inspecting the crates, Chauffe found new rollers on the top layer of
each crate and refurbished rollers throughout the rest of the crate. (Pl.s’ Ex. 8, Ciarrochi Dep. at
70:23-71:10, ECF No. 210-11.) One of the crates contained a roller bearing a Vesuvius label.
(Pl.s’ Ex. 39, Chauffe Dep. at 64:14-65:16, ECF No. 210-22; Pl.s’ Ex. 70, ECF No. 210-35.)
Thereafter, plaintiffs requested that they be able to view the damaged rollers that had been
removed from the furnace in Line 2, but they were informed that all of the damaged rollers had
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been discarded. Nocito reiterated this position to Wolfe in a May 6, 2008 email, stating that,
“[t]he rollers were crushed and put into our dumpsters” and another company had been paid “to
remove the garbage.” (Pl.s’ Ex. 41, ECF No. 210-23.)
Plaintiffs contend that, during the claims investigation process, they discovered
discrepancies in the information provided by IGP, as well as blatantly false representations. In
particular, they claim that IGP never received replacement rollers from Global, but instead sent
approximately 173 rollers to Vesuvius, USA, in Dillon, South Carolina, on February 19, 2008 to
be refurbished. The refurbished rollers were delivered back to IGP on March 29, 2008, just
thirty-five (35) days later. According to plaintiffs, the cost of refurbishment was just $39,000, or
approximately $105,000 less than the insurance coverage that was paid out.
In addition, the “third party” shipping documents that were submitted to plaintiffs by IGP
were fabrications created for the purpose of supporting IGP’s prior representation that the rollers
were being replaced and that delays in shipment had occurred. The Roller Timeline prepared by
Fernandez contained false information as well.
Plaintiffs also discovered, upon further investigation, that Fernandez had personally
negotiated the checks paid to Global and deposited them into his personal bank account.
Plaintiffs contend that, by the time they discovered the foregoing misrepresentations, Hartford
had issued payments on IGP’s claim totaling $2,407,412.18. They theorize that IGP made
intentional misrepresentations about the rollers in order to create the false impression that the
damaged rollers were being replaced and that there were delays in shipment; in this way,
plaintiffs claim, IGP could explain the period of delayed restoration and continue to receive
continued business interruption payments under the Policy.

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Plaintiffs requested that IGP provide it with an examination under oath pursuant to the
requirements of the Policy. Nocito provided the requested examination on behalf of IGP on June
30, 2008. In doing so, Nocito affirmed that Global was the manufacturer of the rollers that had
been purchased from Chile and shipped from Chile to IGP. (See generally Pl.s’ Ex. 7, ECF Nos.
210-9 and 210-10.)

B. Representations Concerning the Employment Status of Paul Ciarrochi, Jr.
Plaintiffs contend that, in an effort to explain some of the delays experienced in
connection with the furnace repair process, and in support of its request for salary payments, IGP
made several representations to Hartford and/or HSB regarding the employment status of its
maintenance supervisor, Paul Ciarrochi, Jr. (“Ciarrochi”).
By email dated January 25, 2008, Nocito represented to HSB that Ciarrochi had received
offers to work for a competitor. (Pls.’ Ex. 42, ECF No. 210-23.) Several days later, on January
29, 2008, Nocito wrote to Hartford adjuster Chris Correll, stating that “Frank and Paul are the
best candidates for getting this furnace up and running in a timely manner,” and “Paul [has]
opportunities with the competition.” (Pl.s’ Ex. 43, ECF No. 210-23.) Later, in March 2008,
Nocito sent correspondence to representatives of Hartford and HSB, stating:
I have hired Paul back to work for IGP. As everyone is well aware, he is an
extremely valuable asset to IGP. He has requested that I pay him both W2 &
1099 based on advice from his accountants. It actually works to IGP’s advantage
paying the majority of his pay as 1099. If this presents a problem please let me
know immediately. I hope HSB is as happy as I am that Paul has left the
competition and decided to come back full-time to IGP. His departure would
have been a tremendous loss to IGP and the repair process. ...
(Pl.s’ Ex. 45, ECF No. 210-23.)
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Similar representations were made by Wolfe in a March 25, 2008 email to Mycek. In
response to concerns about the ordering of heating elements for IGP’s furnace, Wolfe wrote that
“Mr. Nocito needed to order the elements but did not have either Frank or Paul on staff at the
time to arrange the order for the correct elements. He hired Paul back ... and Paul determined
what elements should be ordered by specification.” (Pl.s’ Ex. 46, ECF No. 210-23.) In
addressing the plaintiffs’ concerns over the ordering of ceramic insulators, Wolfe wrote that
“[t]hese parts were newly discovered to be needed. Joe Nocito (is not an engineer) and did not
have Frank Fernandez or Paul on staff to tell him that the old ceramic insulators would break
when the old elements were to be removed.” (Id.) Wolfe further represented that Ciarrochi
earned more than $19,000 per month. (Id.) In support of IGP’s request for insurance payments
to cover the temporary payroll expense of Ciarrochi’s salary, Wolfe wrote the following:
[Ciarrochi] is now making more than $19K a month from his original salary with
International Glass. It was discussed that the competition was willing to pay more
for Paul’s salary. ... International Glass asked if Paul’s salary can be paid by HSB.
Again we mentioned that this is probably only a 3 month period. Either way we
should like a definitive answer. HSB has requested an explanation of Paul’s
status for further consideration, however, we are not certain what documentation
satisfies that explanation.
(Id.)
Ciarrochi has testified in this case that he was employed by IGP at all relevant times and
was never, at any point, approached by a competitor about leaving IGP. (Pl.s’ Ex 8, Ciarrochi
Dep. at 112:4-6, 117:9-15, 118:2-6, 121:22-122:1, 124:18-23, 125:2-8.) Ciarrochi further
testified that he was not a 1099 employee and was actually earning less than $4,000 per month
during the relevant time period. (Id. at 117:19-118:6, 121:19-21.) Plaintiffs theorize that IGP
made false representations concerning the employment status of Ciarrochi in order to justify and

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explain the delayed restoration period and thereby extend the period during which it could obtain
business interruption payments.
C. IGP’s Counter-Version of the Events Relating to the Alleged Fraud
IGP disputes many of plaintiffs’ factual averments and assumptions and vociferously
denies that any insurance fraud occurred. Fundamentally, IGP insists that, at all relevant times,
Fernandez was acting as an agent of Global Networking and/or “FERPASO,” an entity with
whom IGP contracted to complete repairs to its furnace. With regard to the original rollers that
had been damaged in the arcing incident, IGP maintains that these rollers were, in fact,
discarded, consistent with the view of one of HSB’s own experts that the rollers had been too
badly damaged to be refurbished. According to IGP, Fernandez, in his capacity as an
independent third-party agent, placed the order for new rollers with Global Networking, but later
discovered during one of his visits to the company that Global Networking was having difficulty
making rollers that would fit IGP’s equipment. IGP claims that, upon discovering this problem,
Fernandez unilaterally decided to send rollers that he personally owned to Vesuvius for
refurbishing so that IGP could use those rollers and get its production back on line as quickly as
possible, thereby minimizing its business interruption losses while Global Networking continued
to work on the production of new rollers that would suit IGP’s needs. According to IGP,
Fernandez did this because he felt an obligation, as an associate of Global Networking, to fulfill
the company’s contract with IGP, at least temporarily until new rollers arrived; in addition, as
FERPASO’s agent, Fernandez felt an obligation to have the furnace operating quickly. IGP
insists that Fernandez, acting on behalf of FERPASO and Global Networking, deliberately kept
this arrangement from Nocito – and, to that end, secured the fraudulent shipping documents,
because Fernandez was associated with Global Networking and wanted to avoid the
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embarrassment of revealing the company’s difficulties fulfilling IGP’s order. (See ECF No. 226
at pp. 25-42; see also DSMF ¶¶ 123-124, 203-208, 211-14, DCMF at ¶¶ 10-17, 25, 33-34, 37-53,
94, ECF No. 227.)5
With regard to Mr. Ciarrochi, IGP denies that it ever made any knowingly false or
misleading statements concerning his employment status. IGP maintains that its “request” for a
higher salary concerned only a short period of time (i.e., several months) during which Ciarrochi
would assist in the repair of its furnace. IGP points out that its “request” was never honored by
HSB, and no such payments were ever approved. IGP further claims that Nocito believed
Ciarrochi was requiring the higher salary based upon a compensation figure that Chauffe (HSB’s
agent) had offered to Ciarrochi in connection with Chauffe’s own bid to repair the furnaces.
(See Doc. 226 at pp. 22-25, DCMF ¶¶ 64-77.)
The Claim Denial
On July 21, 2008, Ricky Burke, HSB’s Executive General Adjuster, sent a letter to the
Gleason Group which advised, in relevant part, that:
Based on its investigation to date, HSB has concluded that the Insured violated
[Common Policy Condition II(c)] through its submission of invoices, foreign and
domestic shipping documents and purchase orders relating to the Insured’s
alleged purchase of new ceramic rollers, upper and lower blocks and scallops for
furnace/Production Line #2 from Global Networking. HSB also believes that the
Insured violated this condition in the Policy by concealing the fact that some or all
of the damaged rollers from Furnace/Production Line #2 were actually
refurbished by a domestic supplier and installed again in the furnace rather than
being discarded as claimed by the Insured. These actions resulted in HSB making
payments to the Insured for parts (including rollers, upper and lower blocks and
scallops) which were never ordered nor delivered to International Glass Products,
LLP (“IGP”). Additionally, the misrepresentations and concealment regarding
the refurbishment of the rollers resulted in HSB continuing to make Business
Interruption payments beyond what was reasonably necessary to repair the
5

Citations to “DCMF ¶ ___” refer to IGP’s Counterstatement to plaintiffs’ Concise Statement of
Material Facts, ECF No. 227.)
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damaged furnace. Pursuant to Common Policy Condition II(c), HSB, therefore,
declares the Policy void and will not make any further payments on this claim.
Additionally, HSB reserves its right to recover back from the Insured those
payments made to IGP to date on this claim.
(Pl.s’ Ex. 55, ECF No. 210-25.)
Three days later, on July 24, 2008, Nocito executed an affidavit in which he represented
that, earlier that same day, he had been advised by Fernandez for the first time that the rollers did
not originate from Chile. The affidavit stated as follows:
I provided a copy of a letter that was written on July 21, 2008 from Ricky Burke,
Executive General Adjuster from HSB to Mr. Frank Fernandez on Wednesday,
July 23 after EMC, a representative of Hartford Steam Boiler, and Paul Bartko[,]
a Special Investigator for The Hartford[,] examined and photographed the IGP
facility at 4100 Steubenville Pike on the morning of July 23. This morning at
approximately 10:55 a.m., Mr. Fernandez came into my office at 4100
Steubenville Pike and asked to speak with me in confidence and asked to have the
door closed. Mr. Fernandez said “I have read letter from Ricky Burke dated July
21, 2008 and I have something to tell you about the rollers.” I stopped him at that
point and I asked him, “Frank, did the rollers come from Chile?” Frank
answered, “Joe, I’m sorry to tell you this information at this late date but based
upon the letter I thought it was necessary. The rollers did not come from Chile.”
I became very frustrated and angry and used several expletives and proceeded to
ask Mr. Fernandez where did the rollers come from if they did not come from
Chile. Mr. Fernandez told me not to worry about where the rollers came from. I
stopped him and said “I want to know [expletives] where the rollers came from.”
He said “Joe, I provided you with good rollers as promised by Global
Networking.” I asked where. He said “Joe, it’s none of your business where I got
the rollers. Global Networking was paid to get rollers and Global Networking did
provide rollers.” I told him that I had testified under oath that the rollers came
from Chile based upon information that he had provided to my assistant Jessica
Emark and this is now inconsistent with my examination under oath. [Fernandez
said,] “Joe, you have nothing to worry about. The rollers in the furnace are good
and as soon as we get electricity, I will be able to begin testing the furnace.” I told
him that IGP had paid his company Global Networking for new rollers that were
to come from Chile and now “you are telling me that they did not come from
Chile.” He interrupted and said “Joe whenever I went to Chile in November to
inspect the rollers, I realized that those rollers in Chile would not work in the
furnace and I had to move onto Plan B.” I asked “What was Plan B?” Frank said
Global Networking realized that it was contractually obligated to provide rollers
to IGP and he did indeed deliver upon his obligation. “The rollers are installed
and the furnace is ready to go. Joe you have nothing to worry about.”
16

I packed my stuff up and I said I have an appointment with my attorney. This was
the first I had heard any of this information. ...
(Pl.s’ Ex. 56, ECF No. 210-25.)
IGP’s Complaints Relative to HSB’s Handling of Its Claim
IGP raises numerous objections concerning the manner in which its claim was handled.
Fundamentally, it contends that Hartford breached the terms of the Policy by, in effect,
abandoning its role as insurer and substituting HSB in its place. In particular, IGP objects that
Hartford delegated to HSB numerous discretionary matters that, according to IGP, were critical
to the claims adjustment process. IGP insists that HSB’s decisions on these critical matters were
made recklessly and/or in bad faith, with HSB’s own financial interests consistently being placed
ahead of the fiduciary duties that were owed to IGP. Among other things, IGP alleges that HSB:


wrongly treated the August 30 and October 27, 2007 incidents as one loss subject to only
one set of policy limits;



improperly replaced Hartford’s professional engineers with Ron Chauffe of Electri-Mech
Corporation (“EMC”), an individual whom IGP characterizes as incompetent and
unqualified to handle the investigation of its loss;



fraudulently held out Chauffe as an “engineer” or “engineering consultant,” when
Chauffe lacked a college degree or any training as an engineer;



improperly withheld from IGP a report authored by Glenn Robinson and Thomas
Traubert, two professional engineers that HSB had retained in mid-December 2007 to
help investigate the claim; in particular, IGP insists that HSB wrongly withheld the
recommendation by Traubert and Robinson that IGP retain the specialized services of a
“process control vendor” to guide the repair process;



summarily rejected any consideration of totally replacing the damaged furnace rather
than attempting to repair it;



improperly refused to help IGP obtain quantities of raw material glass that would be
necessary to test the furnace after repairs were completed;

17



significantly undervalued IGP’s business interruption losses, thereby severely restricting
IGP’s cash flow and operations during the time its claim was being adjusted and its
furnace was being repaired;



arbitrarily and improperly suspended IGP’s business interruption loss payments when
IGP moved its business to a new facility located in Robinson Township, Pennsylvania;



conducted a shoddy investigation and arrived at an unfounded theory that IGP had
engaged in fraudulent conduct; and



improperly voided the Policy, to which it was not a party.

This Litigation
Plaintiffs initiated this litigation on November 10, 2008 with the filing of their complaint
against IGP and Fernandez. On November 20, 2008, IGP sued Hartford and HSB in the
Allegheny County Court of Common Pleas for alleged breach of contract and bad faith. IGP’s
state court action was subsequently removed to the Western District of Pennsylvania, and the
two actions were consolidated.
As the result of protracted pretrial proceedings, plaintiffs’ Third Amended Complaint
(“TAC”) is now the operative pleading for the plaintiffs. It asserts three claims against IGP: a
claim seeking to void the Policy and recover payments based on IGP’s alleged violation of
“Common Policy Condition (C)” (Count I); an alleged violation of Pennsylvania’s Insurance
Fraud Statute, 18 Pa. C.S.A. § 4117 (Count III);6 and a claim for “reverse bad faith” under the
Policy (unnumbered Count IV). (ECF No. 142.) IGP has asserted numerous counterclaims
against plaintiffs, including claims for breach of contract against Hartford (Counterclaims I and
II); a claim against HSB for alleged interference with its contractual relationship with Hartford
(Counterclaim III); and claims against both plaintiffs for statutory bad faith (Counterclaim IV),
6

Plaintiffs also assert a claim for fraud against Fernandez personally at Count II of the TAC.
That claim is not the subject of the pending motions for summary judgment and will not be
addressed further herein.
18

common law bad faith (Counterclaim V), common law fraud (Counterclaim VI), and negligence
(Counterclaim VII). (ECF No. 158.) In their answer to these counterclaims, plaintiffs asserted,
among other things, the affirmative defense of fraudulent misrepresentation on the theory that
IGP’s alleged violation of Common Policy Condition (C), relating to “Concealment,
Misrepresentation or Fraud,” is a complete bar to any recovery in this matter. (ECF No. 159.)
The parties filed their cross-motion for summary judgment and supporting materials on
June 8, 2015 (ECF No. 207, 208, 209, 210, 211, 212, 213, 214, 215, and 216). In their joint rule
56 motion (ECF No. 207), plaintiffs seek summary judgment on all claims and counterclaims in
this litigation on the grounds that “IGP, its employees, agents and/or apparent agents, made
indisputably fraudulent misrepresentations and engaged in fraudulent conduct in connection with
the insurance claim at issue, thereby voiding all coverage under the insurance policy.” (Pls.’
Mem. Law Supp. Mot. Summ. Judg. at 1, ECF No. 208.) In its cross-motion for summary
judgment against HSB (ECF No. 211), IGP seeks judgment in its favor as to all claims raised by
HSB. In its cross-motion against Hartford (ECF No. 213), IGP seeks partial summary judgment
as to liability only with respect to the breach of contract claim at Counterclaim 1.
The parties filed their respective opposition papers to the pending motions on July 24,
2015. (See ECF Nos. 219, 220, 221, 222, 223, 224, 225, 226, and 230.) Replies and related
materials were filed on August 7, 2015. (See ECF Nos. 233, 234, 235, 236, 237, 238 and 239.)
As a result of the foregoing filings, the issues raised in the parties’ cross-motions have
been adequately joined and are ripe for resolution.
II. Standard of Review
Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment shall
be granted when there are no genuine issues of material fact in dispute and the movant is entitled
19

to judgment as a matter of law. To support denial of summary judgment, an issue of fact in
dispute must be both genuine and material, i.e., one upon which a reasonable fact finder could
base a verdict for the non-moving party and one which is essential to establishing the claim.
Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986). When considering a motion for summary
judgment, the court is not permitted to weigh the evidence or to make credibility determinations,
but is limited to deciding whether there are any disputed issues and, if there are, whether they are
both genuine and material. Id. The court's consideration of the facts must be in the light most
favorable to the party opposing summary judgment and all reasonable inferences from the facts
must be drawn in favor of that party as well. Whiteland Woods, L.P. v. Township of West
Whiteland, 193 F.3d 177, 180 (3d Cir.1999), Tigg Corp. v. Dow Corning Corp., 822 F.2d 358,
361 (3d Cir.1987).
When the moving party has carried its burden under Rule 56(c), its opponent must do
more than simply show that there is some metaphysical doubt as to the material facts. See
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The nonmoving
party cannot rely on unsupported assertions, conclusory allegations, or mere suspicions in
attempting to survive a summary judgment motion. Williams v. Borough of W. Chester, 891
F.2d 458, 460 (3d Cir.1989) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)). Rather,
the non-moving party must respond “by pointing to sufficient cognizable evidence to create
material issues of fact concerning every element as to which the non-moving party will bear the
burden of proof at trial.” Simpson v. Kay Jewelers, Div. Of Sterling, Inc., 142 F.3d 639, 643 n. 3
(3d Cir.1998), quoting Fuentes v. Perskie, 32 F.3d 759, 762 n.1 (3d Cir.1994).
These rules apply with equal force to cross-motions for summary judgment. See
Lawrence v. City of Phila., 527 F.3d 299, 310 (3d Cir.2008). When confronted with cross20

motions for summary judgment, as in this case, the Court considers each motion separately. See
Coolspring Stone Supply, Inc. v. Am. States Life Ins. Co., 10 F.3d 144, 150 (3d Cir.1993)
(noting that concessions made for purposes of one party's summary judgment motion do not
carry over into the court's separate consideration of opposing party's motion).
III. Discussion
A. IGP’s Motion for Summary Judgment Against HSB [ECF No. 211]
The court will first address IGP’s motion for summary judgment (ECF No. 211) relative
to the claims that HSB has asserted in Counts I, III, and IV of the TAC. IGP seeks a declaration
that: (1) HSB was not a party to the Policy and therefore has no right to bring an action against
IGP under the Policy or to enforce any term thereof; (2) HSB was not IGP’s insurer and
therefore lacks any right to bring a claim under Pennsylvania’s insurance fraud statute, 18 Pa.
C.S.A. §4117; and (3) HSB has no legally enforceable claim against IGP for “reverse bad faith,”
because it lacks any rights under the Policy and because Pennsylvania does not recognize this
type of claim. HSB opposes such a ruling. The court will address each of these issues in turn.
1. IGP’s Alleged Violation Common Policy Condition (C) Pertaining to
“Concealment, Misrepresentation, and Fraud” (TAC Count I)
Plaintiffs’ claim against IGP in TAC Count I is based on the theory that IGP engaged in
“intentional concealment, fraud, and/or misrepresentation of facts” within the meaning of
Common Policy Condition (C), thereby voiding the Policy. (TAC ¶¶ 99-100.) Plaintiffs theorize
that, in an attempt to maximize payments under the Policy and inflate their business interruption
losses, IGP made materially false representations regarding its procurement of replacement
rollers and lied about the departure and rehiring of Ciarrochi at a higher compensation level.
(ECF No. 208 at 4-13, 24-36, 43-47.) As a result of IGP’s alleged misconduct, plaintiffs seek to
21

declare the Policy void ab initio and recover from IGP all insurance payments made to date.
(TAC at ¶ 100.)
IGP’s primary argument in moving for summary judgment against HSB is that HSB, as a
party to a reinsurance treaty with Hartford, lacks contractual privity with IGP and has no
contractual rights relative to the underlying Policy. HSB, on the other hand, argues that it should
have standing to assert the fraudulent misrepresentation claim because IGP’s alleged fraud was
perpetrated directly upon HSB during its investigation and adjustment of IGP’s claims and HSB
is the party that suffered the most harm as a result of IGP’s fraud.
Pennsylvania has long recognized the general rule that a party who is a stranger to a
contract cannot assert rights thereunder.7 See Herman v. Stern, 213 A.2d 594, 605 (Pa. 1965)
(“As a general rule only parties to a contract may enforce it and strangers to a contract acquire no
rights thereunder.”) (citing Williston on Contracts § 347 (Jaeger ed. 1959) and Corbin on
Contracts §124 (1963)); see also Howes v. Scott, 73 A. 186, 187 (Pa. 1909)(“At common law no
one could maintain an action upon a contract to which he was not a party. This rule is well
established in this country, and is recognized by both the state and federal courts.”).
By the same token, a party to a contract does not generally become liable for breach of
that contract vis-a-vis others who are not parties to that contract. See Rottmund v. Cont'l Assur.
Co., 761 F. Supp. 1203, 1208 (E.D. Pa. 1990) (“In the absence of some statutory, common law,
or equitable duty, the parties to an agreement have no obligation to a nonparty, regardless of the

7

As a federal court sitting in diversity, we are required to apply the substantive law of the state
whose law governs the action. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); Spence v.
ESAB Grp., Inc., 623 F.3d 212, 216 (3d Cir. 2010). Here, the parties agree that Pennsylvania law
governs their dispute.
22

extent to which that nonparty is interested in enforcement or abrogation of the contract.”).8
“‘When there has been no direct transaction between the plaintiff and the defendant, it is usually
expressed by saying that they are not in privity of contract.’” Carlino v. Borusiewicz, No. 15CV-0372, 2016 WL 613828, at *4 (M.D. Pa. Feb. 16, 2016)(quoting Zeno v. Ford Motor Co.,
Inc., 480 F. Supp. 2d 825, 841-42 (W.D. Pa. 2007)). “‘Privity of contract exists when there is a
connection or relationship which exists between two or more contracting parties.’” Id. (quoting
Zeno, supra, at 841-42); see also Deynzer v. Columbia Gas of Pennsylvania, Inc., 875 A.2d 298,
301 (Pa. Super. Ct. 2005) (“[P]rivity of contract is personal privity, and is confined to the
persons of the contracting parties.”).
Consistent with these principles, Pennsylvania courts have recognized that a lack of
contractual privity generally bars an insured from attempting to recover insurance benefits

8

An exception to this general rule exists where the person lacking privity can assert rights as
a third-party beneficiary of the contract. A third-party beneficiary is “one who, although not a
party to the contract, and hence, not in privity with the promisor...is permitted to enforce the
contract between the promisor and the promisee for its (the third-party beneficiary's) benefit.”
Visor Builders, Inc. v. Devon E. Tranter, Inc., 470 F. Supp. 911, 923 (M.D. Pa. 1978). Under
Pennsylvania law,
a party becomes a third party beneficiary only where both parties to the contract
express an intention to benefit the third party in the contract itself, unless, the
circumstances are so compelling that recognition of the beneficiary’s right is
appropriate to effectuate the intention of the parties, and the performance satisfies
an obligation of the promisee to pay money to the beneficiary or the
circumstances indicate that the promisee intends to give the beneficiary the
benefit of the promised performance.
Ario v. Reliance Ins. Co., 981 A.2d 950, 959 (Pa. Commw. Ct. 2009) (quoting Scarpitti v.
Weborg, 609 A.2d 147, 150 (Pa. 1992)) (emphasis added). See also Guy v. Liederback, 459 A.2d
744, 751 (Pa. 1983) (adopting Restatement (Second) of Contracts, §302(1)).
In this case, HSB has not alleged that it had enforceable rights under the Policy under a thirdparty beneficiary theory. Even if it had, HSB has not proffered evidence demonstrating that
Hartford and IGP mutually intended that IGP assume contractual duties for the benefit of HSB
under the Policy.
23

directly from a re-insurance company. In Reid v. Ruffin, 469 A.2d 1030 (Pa. 1983), the
Pennsylvania Supreme Court explained that
[t]he reason for the rule is inherent in the nature of the reinsurance contract.
Reinsurance is
the ceding by one insurance company to another of all or a portion of its risks
for a stipulated portion of the premium, in which the liability of the reinsurer is
solely to the reinsured, which is the ceding company, and in which contract the
ceding company retains all contact with the original insured, and handles all
matters prior to and subsequent to loss....
The reinsurance situation arises ... [when] the ceding company finds that it has
more risks than it cares to keep in its own portfolio.... The original insured is
not notified of the reinsurance, has no contact with the reinsuring company,
and is generally not a party to the contract and has no legal interest therein.
Reid, 469 A.2d at 1033) (emphasis in the original) (quoting 13A Appleman, Insurance Law and
Practice § 7681 (1976)).
Here, there is no dispute that the subject Policy was issued to IGP by Hartford. Although
HSB was a party to a separate Reinsurance Treaty with Hartford, it was not a party to the
underlying Policy. Thus, HSB was never in contractual privity with IGP. It is nevertheless clear
that Count I of the TAC is premised on contractual rights inherent in the Policy, since plaintiffs
seek to void the Policy and recover payments pursuant to one of its provisions – namely,
Common Policy Condition (C). Because HSB was never a party to the Policy, it did not have
rights thereunder and IGP owed it no contractual duty. Consequently HSB is not entitled, in its
capacity as Hartford’s reinsurer, to a judicial declaration that the Policy is void as against IGP,
nor is it entitled to recover payments under the Policy. See Dunkin’ Donuts Franchised
Restaurants, LLC v. Claudia I, LLC, Civil Action No. 12-2010, 2013 WL 3716525, at *3 (E.D.
Pa. July 15, 2013) (“In general, a person must be in privity of contract to sue for damages for
breach of such contract.”).
24

Despite this, HSB argues that it has standing to assert the breach of contract claim in
TAC Count I because, in essence, it is simply challenging IGP’s coverage under the Policy.
Citing North River Ins. Co. v. CIGNA Reinsurance Co., 52 F.3d 1194 (3d Cir. 1995), HSB insist
that, “as a reinsurer, HSB retains the right to question whether coverage under an insurance
policy exists, and, therefore, retains the right to challenge coverage under IGP’s insurance
policy, and its corresponding liability, in light of IGP’s fraud.” (Pls.’ Br. Opp. to Def. IGP’s
Mot. Summ. J. at 8, ECF No. 223 (citing North River Ins. Co., 52 F.3d at 1199, 1204-07, 1211).)
In North River, the Third Circuit Court of Appeals explained that “[t]he reinsurance
relationship depends on the reinsurer and the reinsured observing high levels of good faith.” 52
F.3d at 1199 (citation omitted). In particular, “[t]he reinsured must keep its interests aligned
with those of the reinsurer, ... and the reinsurer must ‘follow the fortunes’ of the reinsured...” Id.
(internal and end citations omitted). Despite this, the court recognized that a reinsurer “retains
the right to question whether the reinsured’s liability stems from an unreinsured loss.” Id. at
1199-1200. “A loss would be unreinsured if it was not contemplated by the original insurance
policy or if it was expressly excluded by terms of the certificate of reinsurance.” Id. at 1200.
Thus, the court recognized in North River that a reinsurer can decline to make payments under
the reinsurance policy if the loss at issue is not within the scope of coverage contemplated by the
reinsurer. A reinsurer can similarly refuse to make payments where its reinsured entered into a
collusive settlement with the original insured party. See 52 F.3d at 1207 (recognizing that the
“follow the fortunes” doctrine does not require a court to find reinsurance coverage where the
liability to the insured was the result of fraud and collusion). In those circumstances, the
reinsurer would be justified in refusing to make indemnification payments to its reinsured. Here,
however, HSB is not challenging the right of its reinsured to obtain indemnification under the
25

Reinsurance Treaty; rather, HSB is essentially seeking to enforce a provision in the underlying
Policy between the reinsured and its policyholder. Nothing in North River suggests that HSB
can acquire rights in a contract to which it was not a party.
HSB also argues that an exception to the general rule of privity should be recognized in
this case based on the unique factual circumstances at issue. HSB contends that this is not the
typical case in which the insured deals solely with its own direct insurer and the direct insurer is
the sole entity making coverage decisions. Rather, HSB believes that a “fact-specific exception”
to the general privity rule should apply here because HSB was actively involved in the
adjustment of IGP’s claim and IGP perpetrated the alleged fraud directly upon HSB as well as
upon Hartford.
Generally, “the burden is on one who claims under a contract to show that he has a
cognizable interest therein.” Rottmund, 761 F. Supp. at 1208 (citing Fourtees Co. v. Sterling
Equipment Corp., 363 A.2d 1229, 1232 (Pa. Super. Ct. 1976)). Here, HSB has articulated no
basis for establishing an exception in this case that would warrant recognizing a contractual right
of action against IGP under the terms of the Policy. Because HSB was never a party to the
Policy or in privity with one of the contracting parties, it did not have rights under the Policy visa-vis IGP. Consequently, IGP is entitled to judgment as a matter of law relative to HSB’s claim
against it in Count I of the TAC.
2. IGP’s Alleged Violation of the Insurance Fraud Statute (TAC Count III)
In Count III of the TAC, plaintiffs assert a claim against IGP for alleged violation of
Pennsylvania’s Insurance Fraud Statute, 18 Pa. C.S.A. §§ 4117 et seq. Here again, IGP argues
that HSB lacks standing to assert any claim under this law.
In relevant part, the Insurance Fraud Statute makes it unlawful for any person to:
26

(2) Knowingly and with the intent to defraud any insurer or self-insured, present[ ]
or cause[ ] to be presented to any insurer or self-insured any statement forming a
part of, or in support of, a claim that contains any false, incomplete or misleading
information concerning any fact or thing material to the claim[;]
(3) Knowingly and with the intent to defraud any insurer or self-insured, assist[ ],
abet[ ], solicit[ ] or conspire[ ] with another to prepare or make any statement that
is intended to be presented to any insurer or self-insured in connection with, or in
support of, a claim that contains any false, incomplete or misleading information
concerning any fact or thing material to the claim, including information which
documents or supports an amount claimed in excess of the actual loss sustained
by the claimant[;] [or]
(5) Knowingly benefit[ ], directly or indirectly, from the proceeds derived from a
violation of this section due to the assistance, conspiracy or urging of any person.
18 Pa. Cons. Stat. Ann. § 4117(a)(2)(3), and (5) (West). An insurer that is damaged as a result of
a statutory violation can sue to recover compensatory damages, “which may include reasonable
investigation expenses, costs of suit and attorney fees.” Id. at § 4117(g). Further, “[a]n insurer
may recover treble damages if the court determines that the defendant has engaged in a pattern of
violating this section.” Id. Plaintiffs allege that IGP violated the aforementioned provisions,
thereby entitling plaintiffs to recover their compensatory damages, reasonable investigation
expenses, costs of suit, attorney’s fees, and treble damages. (TAC ¶¶107-08.)
IGP argues that it is entitled to summary judgment on HSB’s claim because HSB was not
an “insurer” to IGP or a party to the Policy. The Statute defines the term “insurer” to mean:
[a] company, association or exchange defined by section 101 of the act of May
17, 1921 (P.L. 682, No. 284), known as The Insurance Company Law of 1921;[ ]
an unincorporated association of underwriting members; a hospital plan
corporation; a professional health services plan corporation; a health maintenance
organization; a fraternal benefit society; and a self-insured health care entity
under the act of October 15, 1975 (P.L. 390, No. 111), known as the Health Care
Services Malpractice Act.

27

18 Pa. Stat. and Cons. Stat. Ann. § 4117(l) (West) (footnote omitted).9 IGP claims that the
definition of “insurer” does not encompass a reinsurer.
In support of its position, IGP notes the Pennsylvania Legislature’s awareness of the
distinction between insurers and reinsurers, as evidenced by certain statutory regulations that are
applicable to insurers, but not reinsurers. See, e.g., 40 Pa. Stat. §46(a) (requiring foreign
“insurance compan[ies], association[s] [and] exchange[s]” to acquire a certificate of authority to
do business within the Commonwealth); cf. 40 Pa. Stat. §46(e) (3)(certificate of authority not
applicable to contracts of reinsurance); see also 40 Pa. Stat. §1222 (Casualty and Surety Rate
Regulatory Act applies to “all classes and kinds of insurance which may be written by stock or
mutual fire, marine or fire and marine insurance companies, associations or exchanges...”); cf. id.
at §1222(a) (stating that the Casualty and Surety Rate Regulatory Act is inapplicable to
reinsurance); see also 40 Pa. Stat. §991.1802 (defining “insurer” or “member insurer,” for
purposes of the Pennsylvania Property and Casualty Insurance Guaranty Association Act, to
mean “[a]ny insurance company, association or exchange which is licensed to write and is
9

The Insurance Company Law of 1921, in turn, defines these terms as follows:
The word “company,” as used in this act, shall be construed to include
incorporated insurance companies only, and title insurance companies, whether
incorporated under the laws of this Commonwealth, or any other state, territory,
or district, or under the laws of any foreign country.
Except where otherwise indicated, the word “association,” as used in this act,
shall be construed to include only individuals, partnerships or associations of
individuals, authorized to engage in the business of insurance in the
Commonwealth as insurers on the Lloyds plan.
The word “exchange,” as used in this act, shall be construed to include only
individuals, partnerships and corporations, authorized by the laws of the
Commonwealth to exchange with each other inter-insurance or reciprocal
insurance contracts.

40 Pa. Stat. Ann. § 361 (West).
28

engaged in writing within this Commonwealth, on a direct basis, property and casualty insurance
policies”)(emphasis supplied); see also 40 Pa. Stat.§321.1 (separate definitions provided for
“insurer[s]” and “reinsurer” in laws pertaining to reinsurance intermediaries).
More compelling than this, IGP argues, is the use of the term “insurer” in the Insurance
Fraud Prevention Act (“IFPA”), 40 Pa. Stat. §§325.3 et seq., which was enacted, in part, to
“establish, coordinate and fund activities... to improve and support insurance fraud prosecution.”
Id. at §325.2. To that end, the IFPA establishes an Insurance Fraud Prevention Authority and a
trust fund, which is administered by the state treasurer with the advice of the Authority, for the
purposes of effectuating the IFPA. 40 Pa. Stat. §§ 325.21, 325.23(a). The IFPA expressly
defines the term “insurance fraud” with reference to the Insurance Fraud Statute. See id. at
§325.3 (defining “Insurance fraud” to mean “[a]ny activity defined as an offense under 18
Pa.C.S. § 4117...”). Notably, the IFPA provides that the trust fund shall be funded by an
assessment on “each insurer” engaged in writing “[t]he following coverages: ... all fire and
casualty direct business written and accident and health and credit accident and health written
under life/annuity/accident and health direct business written.” Id. at §325.23(c)(1) and (2)
(emphasis supplied). According to IGP, this statutory reference to “direct business” makes clear
that the Legislature is knowingly using the term “insurer” in the IFPA to exclude reinsurers.
HSB counters that it is an incorporated insurance company within the meaning of the
Insurance Company Law of 1921 and, as such, it qualifies as an “insurer” within the meaning of
18 Pa. C.S.A. §4117(l). Since “insurers” who are damaged by fraud can sue under the insurance
fraud statute, HSB insists that the plain language of the statute provides it a cause of action.
HSB insists that construing the statute otherwise deprives it of recourse against IGP, despite the
fact that it (HSB) is the party most directly injured by IGP’s alleged fraud. HSB points out that,
29

by operation of its treaty with Hartford, it reimbursed Hartford for all amounts paid on the claims
and also assumed the costs of investigating, adjusting, and settling IGP’s claims and the alleged
related fraud. HSB posits that, if it is deprived of a statutory remedy, IGP may be able to evade
liability altogether on the theory that Hartford did not sustain “damages” as a result of the alleged
fraud and therefore, Hartford – like HSB – cannot sue under the Insurance Fraud Statute.
Although HSB acknowledges the various statutory provisions that distinguish between
contracts of direct insurance and contracts of reinsurance, HSB insists that these distinctions are
created based upon the type of policy issued and not the entity issuing the policy; in other words,
HSB argues, these provisions were intended to regulate insurance companies based upon the
types of policies issued. HSB contrasts these provisions with the insurance fraud statute which,
it says, “plainly refers solely to those business entities that issue insurance policies without
reference to the types of policies the entities issue.” (HSB Br. Opp. Mot. Summ. J. at 14, ECF
No. 223.) The fact that a company issues policies of reinsurance makes the company no less an
insurance company, according to HSB.
The parties’ competing interpretations of §4117 warrant this court’s resort to well
established canons of statutory construction. Under Pennsylvania's Statutory Construction Act
of 1972, “[t]he object of all interpretation and construction of statutes is to ascertain and
effectuate the intention of the General Assembly.” 1 Pa. Cons.Stat. Ann. § 1921(a). To that end,
“[e]very statute shall be construed, if possible, to give effect to all its provisions,” and a court
“should not interpret statutory words in isolation, but must read them with reference to the
context in which they appear.” Id.; O'Rourke v. Commonwealth, 566 Pa. 161, 778 A.2d 1194,
1283 (2014). “When the words of a statute are clear and free from all ambiguity, the letter of it is
not to be disregarded under the pretext of pursuing its spirit.” 1 Pa. Cons.Stat. Ann. § 1921(b).
30

On the other hand, when a provision is susceptible of differing interpretations, a court must apply
other canons of construction and look beyond the statute's text to glean the legislature's intent.
Pa. Fin. Responsibility Assigned Claims Plan v. English, 664 A.2d 84, 87 (Pa. 1995).
Here, the term “insurer” arguably is an ambiguous term as it relates to the distinction
between direct insurers and reinsurers, so the court may look elsewhere to ascertain legislative
intent. IGP urges the court to construe Section 4117(b)(2) as in pari materia with the provisions
of the Insurance Fraud Prevention Act. “Statutes or parts of statutes are in pari materia when
they relate to the same persons or things or to the same class of persons or things.” 1 Pa.
Cons.Stat. Ann. § 1932. “Laws in pari materia shall be construed together, if possible, as one
law.” Whiteman v. Degnan Chevrolet, Inc., 272 A.2d 244, 247 (Pa. Super. Ct. 1970) (citation
omitted).
IGP’s argument on this point is fairly persuasive. As noted, the IFPA creates a trust fund
designed to support prosecution of insurance fraud, among other things. The IFPA crossreferences §4117, which makes insurance fraud part of the crimes code and also provides a
private right of action for “insurers” who are damaged by insurance fraud. The IFPA’s trust fund
is funded by an assessment only on policies of direct insurance, suggesting that reinsurers – who
do not pay the assessment -- are not the intended beneficiaries of the trust. The insurance fraud
statute and the IFPA are in pari materia, and the court will therefore construe them together.
Doing so supports IGP’s argument that HSB did not act as an “insurer” to IGP within the
meaning of 4117, and it is therefore precluded from asserting a claim of statutory insurance
fraud.
This interpretation is further buttressed by the General Assembly’s admonishment, in
accordance with the rule of lenity, that penal provisions be strictly construed. 1 Pa. Cons.Stat.
31

Ann. § 1928. As a penal provision that also provides a civil cause of action, Section 4117 is
subject to this rule; consequently, any ambiguities in the statute should be interpreted strictly and
consistently in both the criminal and the civil context. See Leocal v. Ashcroft, 543 U.S. 1, 11 n.8
(2004) (“Because we must interpret the statute consistently, whether we encounter its application
in a criminal or noncriminal context, the rule of lenity applies.”); Brown v. Bureau of Prof'l &
Occupational Affairs, 18 A.3d 1256, 1259 (Pa. Commw. Ct. 2011) (“Consistent with the rule of
lenity ... 1 Pa.C.S. § 1928 requires that every penal provision, whether in a civil or criminal
statute, be construed strictly.”). See also Aetna Life Ins. Co. v. Huntingdon Valley Surgery Ctr.,
129 F. Supp. 3d 160, 170 (E.D. Pa. 2015) (applying the rule of lenity to conclude that
defendants, who were not licensed to provide health care in Pennsylvania, were not “health care
providers” under the terms of the insurance fraud statute), reconsideration denied, motion to
certify appeal granted sub nom. Aetna Life Ins. Co. v. Found. Surgery Affiliates, LLC, No. CV
13-3101, 2016 WL 354881 (E.D. Pa. Jan. 28, 2016).
HSB argues that, if it is excluded from asserting a claim for statutory insurance fraud, it
will be without a remedy despite being the party most harmed by IGP’s allegedly fraudulent
conduct. As IGP points out, though, HSB was not precluded from asserting a claim against IGP
for common law fraud. For whatever reason, it did not do so. The court is not at liberty to supply
an avenue for redress beyond the scope of what the Pennsylvania Legislature has provided.
Because HSB was not an “insurer” to IGP within the meaning of §4117,10 it lacks standing to

10

The court notes parenthetically that HSB has denied its status as an “insurer” to IGP for
purposes of IGP’s statutory and common law “bad faith” claims, as set forth in Counterclaims 4
and 5, discussed infra. HSB’s self-serving denial of “insurer” status for purposes of
Counterclaims 4 and 5, although not dispositive of TAC Count III, is nevertheless consistent
with this court’s conclusion that HSB also cannot be considered IGP’s “insurer” for purposes of
HSB’s claim for damages under the insurance fraud statute.
32

pursue a statutory claim of insurance fraud. Accordingly, IGP’s motion for summary judgment
against HSB will be granted with respect to TAC Count III.
3. IGP’s Alleged Bad Faith (TAC Count IV)
Plaintiffs’ final cause of action asserts a claim against IGP for “reverse bad faith.” Their
theory is that IGP had a duty of good faith and fair dealing under its insurance policy, which IGP
breached by “intentionally concealing material information, intentionally making false
representations of material facts, and [ ] submitting false, forged and fraudulent documents to
HSB and [ ] Hartford in its attempt to maximize its insurance recovery and extend the time
during which it could receive business interruption payments as long as possible.” (TAC ¶¶ 110111.)
IGP argues that HSB’s claim fails for two reasons. First, it insists that Pennsylvania has
not recognized a cause of action for “reverse bad faith” in the context of insurance coverage.
Second, assuming Pennsylvania did recognize such a theory, the only source for such a doctrine
would be a common law duty of good faith arising from a contractual relationship between IGP
and HSB, which does not exist here.
HSB argues that federal courts in Pennsylvania have predicted that the Supreme Court of
Pennsylvania would conclude that the duty of good faith is a reciprocal duty that runs both from
the insurer to the insured and from the insured to the insurer. (HSB Br. Opp. Mot. Summ. Judg.
at 17 (citing authority), ECF No. 223.) HSB further reasons that, because it has a cause of action
against IGP for breach of the Policy based on IGP’s alleged fraud, it would be “incongruous” to
deny HSB an otherwise viable cause of action against IGP for “reverse bad faith” based on the
same Policy. (Id. at 19.)

33

HSB’s position lacks merit. As both parties acknowledge, any duty of good faith on the
part of IGP would necessarily arise, if at all, from the common law duty of good faith and fair
dealing that is inherent in its policy with Hartford. See generally Birth Ctr. v. St. Paul. Cos.,
Inc., 787 A.2d 376, 385 (Pa. 2001); Dercoli v. Pa. Nat’l. Mut. Ins. Co., 554 A.2d 906, 906-09
(Pa. 1989); Gray v. Nationwide Mut. Ins. Co., 223 A.2d 8, 11-12 (Pa. 1966). As was previously
discussed in connection with TAC Count I, HSB was not in privity with IGP relative to the
underlying Policy and possesses no rights under the Policy. Because there is no contract
between HSB and IGP, HSB cannot maintain a claim against IGP for reverse bad faith, even if
such a claim would be recognized in Pennsylvania. Accordingly, IGP’s motion for summary
judgment against HSB will be granted as it relates to TAC Count IV.
B. IGP’s Motion for Partial Summary Judgment Against Hartford [ECF No. 213]
IGP also moves for partial summary judgment as it relates to IGP’s first counterclaim
(“Counterclaim 1”) against Hartford for alleged breach of contract.11 (See Counterclaim Count I,
ECF No. 158.) IGP asserts that Pennsylvania law affords it “two fundamental rights” as a party
to a property insurance policy: (1) the privilege of choosing the identity of the other party to the

11

Because IGP has the burden of proving Counterclaim 1 at trial, it is subject to a more
“stringent” standard of review at the summary judgment stage. See National State Bank v.
Federal Reserve Bank, 979 F.2d 1579, 1582 (3d Cir.1992) (“Where the party moving for
summary judgment is the plaintiff, or the party who bears the burden of proof at trial, the
standard is more stringent.”). The Third Circuit has explained that “where the movant bears the
burden of proof at trial and the motion does not establish the absence of a genuine factual issue,
the district court should deny summary judgment even if no opposing evidentiary matter is
presented.” Id. (citing Resolution Trust Corp. v. Gill, 960 F.2d 336, 340 (3d Cir.1992)). In other
words, in order to be entitled to summary judgment a plaintiff must “produce enough evidence to
justify a directed verdict in its favor in order to meet its initial burden.” Id. at 1582 n. 2 (quoting
with approval Celotex, 477 U.S. at 331 (Brennan, J., dissenting) and citing with approval
William W. Schwarzer et al., The Analysis and Decision of Summary Judgment Motions, 139
F.R.D. 441, 477 (1991)). See also Sallie v. Lynk, No. 2:10CV456, 2012 WL 995245, at *13
(W.D. Pa. Mar. 23, 2012).
34

contract, and (2) the right to deal exclusively with that party in negotiating a settlement of the
claim without interference from third parties. (Def.’s Br. Supp. Mot. Summ. Judg. at 3, ECF No.
214 (citing Spires v. Hanover Fire Ins. Co., 70 A.2d 828 (Pa. 1950)).) According to IGP,
Hartford’s conduct in delegating the claims adjustment process to HSB completely frustrated
these “fundamental” contract rights.
In essence, IGP’s complaint is that HSB handled the claims adjustment process in lieu of
Hartford and made many of the “judgment calls” that are inherent to that process. IGP posits
that “[b]y their very nature, the answer to many of these questions affecting the amount to be
paid to the insured lack precise answers or come down to matters of opinion, which means that
claims such as IGP’s are often resolved through a ‘give and take’ process between the insurer
and the insured...” (Br. Supp. Mot. Summ. Judg. at 2, ECF No. 214.) IGP objects to the fact
that, pursuant to the Reinsurance Treaty, HSB took over the claims adjustment process and,
along the way, made numerous discretionary decisions, such as which experts would be retained
to assist with the loss, whether certain damaged parts should be replaced or repaired, the
expected time frame for any necessary repairs and for business restoration, how delays
attributable to third party suppliers would be handled, and the like. IGP insists that its claim
would have been handled much differently, and more favorably, if Hartford, rather than HSB,
had adjusted the loss.
Hartford maintains that IGP’s motion sets forth a “revisionist history” of the claims
adjustment process which seeks to shift blame onto Hartford when, in fact, IGP’s principals
failed in their duty to cooperate during the claim process in good faith by making
misrepresentations and submitting fraudulent documents to support its claim. Hartford argues
that “[i]t is common practice for insurance companies to retain independent adjusters to
35

investigate and adjust their claims,” and, “[i]n this particular claim, rather than retaining an
independent adjuster, Hartford had the reinsurer, HSB, perform adjustment and investigation
services pursuant to a reinsurance treaty between the two companies.” (Pl. Hartford’s Br. Opp. to
Def. IGP’s Mot. Partial Summ. J. at 3, ECF No. 225.) According to Hartford, nothing in the
Policy barred Hartford from permitting HSB to “take the lead” in investigating and adjusting the
claim. While HSB did so, Hartford insists that it remained involved throughout the claims
adjustment process by monitoring communications, keeping up to date on the investigations and
claim adjustment events, and maintaining regular communications with representatives of the
Gleason Group and with IGP’s president, Joe Nocito.
Under Pennsylvania law, a plaintiff asserting a breach of contract claim must
demonstrate: (1) there was a contract; (2) the defendant breached the contract; and (3) the
plaintiff suffered damages as a result of the breach. McShea v. City of Phila., 995 A.2d 334, 340
(Pa. 2010). Both IGP and Hartford agree that the first element is satisfied here, since the Policy
constituted an enforceable contractual agreement between Hartford and IGP. They dispute
whether the remaining two elements can be demonstrated, however.
In insurance contract disputes, the proper focus is the reasonable expectations of the
insured policyholder, and, in most cases, “the language of the insurance policy will provide the
best indication of the content of the parties' reasonable expectations.” Duda v. Standard Ins. Co.,
No. 15-2302, 2016 WL 2731669, at *7 (3d Cir. May 10, 2016). Here, the Policy clearly
identified Hartford as IGP’s “insurer,” and IGP had a reasonable expectation that Hartford would
act as such. Hartford makes much of the fact that the Policy did not preclude it from obtaining
reinsurance; indeed, the Policy contemplates that Hartford’s loss of reinsurance may constitute
grounds for cancellation of the Policy. However, it is also true that, in the traditional reinsurance
36

relationship, it is the reinsured party, rather than the reinsurer, that maintains contact with the
original insured and handles adjustment of the insured’s claim; the reinsurer often has no contact
at all with the original insured. See Reid v. Ruffin, 469 A.2d 1030, 1033 (Pa. 1983)
(“Reinsurance is the ceding by one insurance company to another of all or a portion of its risks
for a stipulated portion of the premium, in which the liability of the reinsurer is solely to the
reinsured, which is the ceding company, and in which contract the ceding company retains all
contact with the original insured, and handles all matters prior to and subsequent to loss.”)
(quoting 13A Appleman, Insurance Law and Practice §7681 (1976)). While the Reinsurance
Treaty contemplated that HSB would have more active involvement in the adjustment of losses
like IGP’s, the terms of the Treaty were apparently not disclosed to IGP at the time it contracted
with Hartford. Therefore, based on the language of the Policy, IGP could reasonably expect that
Hartford, as its “insurer,” would be meaningfully involved in, and accountable for, the
investigation and settlement of its claim.
Here, the record shows that Hartford underwrote and sold the Policy in question and, at
all times, remained contractually bound to render payments thereunder. Although HSB fully
indemnified Hartford for payments that were made under the Policy, Hartford was the entity that
directly paid IGP. Under the terms of the Reinsurance Treaty, Hartford retained its right to
participate in claims adjustment and settlement proceedings, at its own expense, and did so.
Indeed, the record is replete with documentation evidencing Hartford’s regular contact with
representatives of IGP, HSB and its own insurance broker, the Gleason Agency. Its
representatives were regularly copied and included in the ongoing communications between and
among the parties. At times, Hartford representatives Chris Correll and Alan Mycek acted as
intermediaries when disputes about coverage arose. Although IGP has produced evidence
37

demonstrating Hartford’s deference to HSB in the claims adjustment process, the court finds that
there is a genuinely disputed issue of fact on this record as to whether Hartford abandoned its
role as insurer and thereby materially breached the terms of the Policy. See Creghan v. Procura
Mgmt., Inc., 91 F. Supp. 3d 631, 645 (E.D. Pa. 2015) (recognizing that the question of whether
there has been a material breach of a contract is ordinarily for a jury) (citing Cameron v. Berger,
7 A.2d 293, 296 (Pa. 1938)).
Moreover, to the extent a material breach on the part of Hartford can be established, there
are issues of fact as to when the breach occurred. The evidence which IGP has compiled in order
to demonstrate Hartford’s abandonment of IGP involved a number of incidents during the claims
adjustment process wherein key discretionary decisions were made by HSB agents rather than by
Hartford. For example, IGP objects to the fact that HSB:


decided to treat the two accidents as one loss incident subject to one set of policy limits
rather than two separate loss incidents (see Def.’s Br. Supp. Mot. Summ. J. at 39, ECF
No. 214);



selected the insurer’s expert (id. at 40-42);



withheld the advice from its professional engineers that the services of a process control
vendor be utilized (id. at 43-45);



selected the loss payment option and specifically declined to conduct its own repairs of
the damaged property (id. at 45-46);



controlled the scope and timing of the necessary repairs (id. at 46-47);



calculated IGP’s business interruption losses and, in doing so, allegedly placed an
artificially low value on those losses without the benefit of an informed analysis (id. at
47-50); and



decided to suspend IGP business income loss payments when IGP relocated its business
(id. at 50-51).

Most fundamentally, IGP objects to HSB’s decision to declare the Policy null and void in its July
21, 2008 cancellation letter. (Id. at 35-38.)
38

Because these events unfolded over the course of many months, the court cannot
determine, as a matter of law, when the alleged “breach,” if any, occurred.12 The timing of the
alleged breach is significant, however, because plaintiffs contend that IGP itself materially
breached the terms of Common Policy Condition (C), thereby creating a contractual basis for
voiding the Policy.13
Under Pennsylvania law, if a party to a contract commits a material breach, the nonbreaching party has two mutually exclusive options: it can either rescind the contract and seek
restitution or it can continue performance under the contract and seek damages. See
McCausland v. Wagner, 78 A.3d 1093, 1102 (Pa. Super. Ct. 2013) (“In a breach of contract suit,
the plaintiff either may rescind the contract and seek restitution or enforce the contract and
recover damages based on expectation. In such a case, the inconsistent nature of those actions is
obvious—one cannot attempt to terminate his contractual obligations and, at the same time, seek
to enforce the contract and enjoy its full benefits in an action for breach.”) (quoting Smith v.
Brink, 561 A.2d 1253, 1255 (Pa. Super. Ct. 1989) (emphasis in original); see also Umbelina v.
Adams, 34 A.3d 151 (Pa. Super. Ct.2011) (explaining that a party cannot maintain at one time
claims for rescission and restitution on one hand and damages for breach of contract on the same
contract, as these remedies are essentially inconsistent); Pappan Enters., Inc. v. Hardee’s Food
Sys., Inc. 143 F.3d 800, 806 (3d Cir. 1988) (“Under basic contract principles, when one party to
12

Elsewhere in its brief, IGP maintains that Hartford’s “real material breach” occurred when it
relegated control over IGP’s covered loss directly to HSB in late September or early October
2007, and IGP is therefore “not limited to those specific incidents where IGP will be able to
prove that Hartford would have adjusted IGP’s claim differently.” (Def.’s Br. Supp. Mot.
Summ. Judg. at 7, ECF No. 236.) However, the record in this case gives rise to competing
inferences concerning whether, and when, a material breach of the Policy may have occurred.
13

As is discussed in more detail below, the record here gives rise to numerous disputed issues of
material fact bearing on whether IGP engaged in fraudulent conduct. For present purposes,
however, the court finds that the evidence could reasonably support a finding of fraud.
39

a contract feels that the other contracting party has breached its agreement, the non-breaching
party may either stop performance and assume the contract is avoided, or continue its
performance and sue for damages.”). “The election of whether to continue the contract and sue
for breach or terminate the contract must be made promptly.” Weichert Co. of Pa., Inc. v. Long
& Foster Real Estate, Inc., No. 03-00849, 2005 WL 6195331 at ¶236 (C.C.P. Mont. Cty. Mar.
30, 2005) (citing Williston on Contracts §39.31 (2000)). If the non-breaching party elects to
continue the contract, it will not be relieved of its obligations thereunder. See Pappan Enters.,
143 F.3d at 806 (“Under no circumstances may the non-breaching party stop performance and
continue to take advantage of the contract’s benefits.”); Weichert Co., 2005 WL 6195331 at¶ 237
(former managers of plaintiff were not excused from honoring the restrictive covenants
contained in their employment agreements, even assuming that employer materially breached
those agreements by withholding certain payments, where managers continued with their
employment for several years following the purported breach).
In this case, IGP did not seek termination of the Policy based on Hartford’s alleged
breach; rather, it continued the contract and now seeks damages as a means to obtain the benefit
of its contractual bargain. See Birth Ctr. v. St. Paul Companies, Inc., 787 A.2d 376, 385 (Pa.
2001) (“The purpose of damages in contract actions is to return the parties to the position they
would have been in but for the breach.”) (citation omitted). IGP cannot sue to recover benefits
under the Policy and, at the same time, avoid the operation of Common Policy Conditions II(C).
Thus, even if IGP can prove a material breach on the part of Hartford, IGP’s obligations under
the “Concealment, Misrepresentation, or Fraud” provision were not discharged by virtue of
Hartford’s alleged breach. Stated differently, IGP cannot obtain the benefits of the Policy if IGP
itself materially breached Common Policy Condition (C).
40

Accordingly, at trial, the factfinder will have to determine whether each party to the
Policy materially breached the terms of their contract. These contested factual issues make
summary judgment inappropriate. Accordingly, IGP’s motion for partial summary judgment on
Counterclaim 1 will be denied.

C. Plaintiffs’ Motion for Summary Judgment Against IGP [ECF No. 207]
We next consider plaintiffs’ cross-motion for summary judgment, which is being asserted
as to every claim and counterclaim raised in this litigation. For the reasons previously discussed,
the court has already determined that IGP is entitled to summary judgment on all claims asserted
against it by HSB. Accordingly, plaintiffs’ motion for summary judgment is denied insofar as it
relates to HSB’s claims in Counts I, III, and IV of the TAC. As to those particular claims, the
court will consider only whether Hartford has established grounds for an award of summary
judgment.14
1. Hartford’s Claims for Alleged Breach of Common Policy Condition (C) Relating to
“Concealment, Misrepresentation or Fraud” (TAC Count I ), Statutory Insurance
Fraud (TAC Count III), and Reverse Bad Faith (TAC Count IV)
Counts I, III and IV of the TAC respectively assert claims against IGP for breach of
Common Policy Condition (C) relating to “Concealment, Misrepresentation and Fraud,”
statutory insurance fraud, and “reverse” bad faith. Each of these claims is premised on the
general theory that IGP, through its employees, agents, and apparent agents, made fraudulent
misrepresentations and/or engaged in fraudulent conduct in connection with its insurance claim.
14

With regard to Counts I, III, and IV of the TAC, Hartford, as plaintiff, bears the burden of
proof at trial, and the more “stringent” standard of review applies. See n. 11, supra.
41

As previously noted, the alleged fraud relates to various statements and/or conduct bearing on:
(i) the alleged need for, origin of, and shipping of replacement rollers for IGP’s damaged
furnace; and (ii) the employment status of Paul Ciarrochi, Jr.

a) TAC Count I: Breach of the Common Policy Condition (C)
In Count I of the TAC, Hartford argues that IGP’s violation of Common Policy Condition
(C) constitutes grounds for voiding the Policy, bars IGP’s attempts to recover any damages
thereunder, and permits Hartford to recover insurance payments that were made to IGP.
IGP initially argues that, as a matter of law, Hartford has no right to require adherence to the
terms of the Policy because it materially breached the Policy when it abandoned its role as IGP’s
“insurer.” By virtue of this “material breach,” IGP claims, it was relieved of any duty to perform
under the Policy.
This argument is basically a rehash of IGP’s argument in support of its own summary
judgment motion relative to Counterclaim 1. As noted, Hartford’s alleged “material breach” of
the Policy – assuming such is proven -- gave IGP the option to terminate the contract and seek a
rescission or continue with the contract and seek damages for Hartford’s alleged nonperformance. IGP has pursued the latter option and cannot now argue that its own obligations
under the Policy were excused by Hartford’s alleged breach.
IGP also contends, however, that Hartford cannot satisfy the substantive elements of its
fraud claims. In order to void an insurance policy under Pennsylvania law, the insurer must
prove that: (1) the insured made a false representation; (2) the insured knew the representation
42

was false when it was made, or the insured made the misrepresentation in bad faith; and (3) the
representation was material to the risk being insured. See Millard v. Shelby Cas. Ins. Co., No.
3:CV-02-1902, 2005 WL 2035860, at *4 (M.D. Pa. Aug. 24, 2005); Saracco v. Vigilant Ins. Co.,
No. Civ. A. 99-3502, 2000 WL 202274, at *2 (E.D. Pa. Feb. 22, 2000), aff’d, 250 F.3d 736 (3d
Cir. 2001) (Table). Here, IGP maintains that Hartford cannot demonstrate that it knowingly
made false statements relative to either Mr. Ciarrochi or the ceramic rollers.
(i) Apparent Authority
Hartford’s fraud claim relative to the rollers centers largely on the “Roller Timeline” that
was generated by Fernandez and the documentation in support of that timeline, which Fernandez
forwarded to Wolfe on April 22, 2008, while copying Nocito on the same email. (See Pl.s’ Ex.
28, ECF No. 210-18; Pl.s’ Ex. 34, ECF No. 210-19.) Wolfe then forwarded this documentation
on to HSB. (Pl.s’ Ex. 30, 210-19.) Because Hartford’s fraud claims are based largely on
Fernandez’s representations and conduct – particularly as it relates to the issue of the rollers, the
court must initially consider the extent to which Fernandez’s actions are attributable to IGP. Not
surprisingly, the parties disagree on this point. Hartford claims that, at all relevant times,
Fernandez was acting at least as the apparent agent of IGP, while IGP argues that Fernandez was
acting in his own interests in his capacity as a third-party consultant to IGP.
Under Pennsylvania law, “[a]pparent authority is power to bind a principal which the
principal has not actually granted but which he leads persons with whom his agent deals to
believe that he has granted.” Revere Press, Inc. v. Blumberg, 246 A.2d 407, 410 (Pa. 1968).
Apparent authority thus flows from acts of the principal, but is viewed from the lens of what the
other party should reasonably know. See Hartley v. United Mine Workers of Am., Robena Local
Union No. 6321, 113 A.2d 239, 247 (Pa. 1955); Restatement (Second) of Agency § 49 (1958).
43

“The authority of an agent of a corporation may be presumed from his position and the nature of
the act.” Rednor & Kline, Inc. v. Dep’t of Highways, 196 A.2d 355, 358 (Pa. 1964); Passarelli v.
Shields, 156 A.2d 343 (Pa. Super. Ct. 1959). Moreover, a principal “is not relieved from liability
by the fact that the apparent agent acts entirely for his own purposes, unless the other has notice
of this.” Restatement (Second) of Agency §262; see also Rednor & Kline, 196 A.2d at 358 (“If
the principal puts one into, or knowingly permits him to occupy, a position in which, according
to the ordinary experience and habits of mankind, it is usual for the occupant to have authority of
a particular kind, anyone having occasion to deal with one in that position is justified in inferring
that the person in question possesses such authority, unless the contrary is then made known.”)
(footnote omitted).
The question of apparent authority generally is an issue of fact for the jury. Eaglebank v.
BR Prof’l Sports Grp., Inc., No. 15-2880, 2016 WL 2946166, at *3 (3d Cir. May 20, 2016); see
also Loyle v. Hertz Corp., 940 A.2d 401, 408 (Pa. Super. Ct. 2007) (finding that the question of
apparent authority creates a genuine issue of material fact for a jury’s determination); Gizzi v.
Texaco, Inc., 437 F.2d 308, 310 (3d Cir. 1971)(“Questions of apparent authority are questions of
fact and are therefore for the jury to determine.”)(citing authority). Like other factual issues, the
court may decide that a party is clothed with apparent authority as a matter of law when the
evidence is so one-sided as to preclude a reasonable jury from deciding otherwise. See
Eaglebank, 2016 WL 2946166, at *3 (affirming summary judgment for plaintiff in a suit to
recover assets on a secured loan agreement where no reasonable jury could find that the
individual who had signed the loan agreement on behalf of the borrower had acted without
apparent authority).

44

Here, the evidence concerning Fernandez’s authority to act as an agent of IGP is mixed.
There is no dispute that Fernandez interacted with the insurance carriers on occasion in regards
to IGP’s claim, sometimes at Nocito’s express invitation. (Pl.s’ Ex. 5, Nocito Dep. at 84:5-25,
Dec. 17, 2010, ECF No. 210-6; Pl.s’ Ex. 9, ECF No. 210-12.) It is also undisputed that
Fernandez occupied an office with a desktop computer at IGP’s facility during the time period in
question. (DCMF ¶¶16-17.) In addition, Hartford has proffered evidence that Fernandez gave
Ron Chauffe, HSB’s “engineering consultant,” an IGP business card which identified Fernandez
as IGP’s “Senior VP, Operations and Sales.” (Pl.s’ Ex. 39, Chauffe Dep. at 13:14-14:9, ECF No.
210-22; Pl.s’ Ex. 6, ECF No. 210-8.) The business card, which is part of the evidentiary record,
is designed in the same format as other IGP employees and bears Fernandez’ name, along with
the email address “[e-mail].” (Pl.s’ Ex. 5, Nocito Dep. at 85:10-19, Dec. 17,
2010, ECF No. 210-6; Pl.s’ Ex. 6, ECF No. 210-8.) Hartford also points to certain third-party
documents in which Fernandez was identified as IGP’s “Senior Vice President of Operations and
Sales,” namely: (1) a letter from IGP addressed to another business entity known as Bruce
Plastics and (2) a verified “Application for Assistance” that IGP submitted to the Pennsylvania
Industrial Development Authority. (Pl.s’ Ex. 13 and 14, ECF No. 210-15.) Finally, a document
produced in discovery from IGP’s business files, entitled “Prime Organizational Chart,” depicts
Nocito at the top of the corporate structure with Fernandez immediately below Nocito. (Pls.’ Ex.
4, ECF No. 210-5.)
Notwithstanding this, IGP strongly denies that Fernandez was an officer or agent of the
company, or that he was held out as such to the plaintiffs. The record is somewhat muddled on
this point, but it suggests plaintiffs’ awareness that Fernandez wore different hats and was
employed by numerous business entities in varying capacities during the time frame relevant to
45

IGP’s claim adjustment. Fernandez and Nocito testified that Fernandez served as an independent
consultant to IGP in 2007 while also performing work for a number of different businesses,
including Global Networking and Gemtron, a competitor company. (Def.’s Ex. 8, Fernandez
Dep. at 206:22-207:27, 358:14-15, 360:2, February 10, 2014, ECF No. 229-8; Def.’s Ex. 15,
Nocito Dep. at 103:22-104:4, Dec. 17, 2010, ECF No. 229-15; Def.’s Ex. 6, Nocito Dep. at
101:1-4, June 11, 2009, ECF No. 229-6.) According to IGP, Fernandez’ role as a consultant
ended in or around December 2007. (Def.’s Ex. 6, Nocito Dep. at 101:1-8, June 11, 2009, EFC
No. 229-6; Fernandez Dep. at 359:25-360:8.) Beginning in February 2008, Fernandez served as
a furnace repair contractor to IGP through an entity known as FERPASO; he also served as a
vendor to IGP in his capacity as a representative of Global Networking during the time period in
question. (Def.’s Ex. 6, Nocito Dep. at 101:1-4, June 11, 2009, ECF No. 229-6; Def.’s Ex. 21,
Alvaro Fernandez Dep. at 9:21-10:7, Sept. 30, 2010, ECF No. 229-21; Def.’s Ex. 22, ECF No.
229-22.) According to Fernandez, he was never asked by IGP to fulfill any particular role vis-avis the insurance carriers but, as the individual who was the most knowledgeable about the
furnace, he occasionally talked to the carrier’s representatives about the equipment and any
necessary parts. (Fernandez Dep. at 211:5-212:5, ECF No. 229-8.)
Nocito and Fernandez both testified that, in conjunction with a planned expansion of the
business and its relocation to the Robinson Township facility, IGP planned to bring Fernandez
into the business as a part owner with the formal title “Vice President of Sales and Operations”;
however, this expansion never occurred due to events following the loss incidents. (Pl.’s Ex. 5,
Nocito Dep. at 87:2-88:12, ECF No. 210-6; Def.’s Ex. 8, Fernandez Dep. at 137:15-138:13, ECF
No. 229-8.) IGP contends that the business card and third-party documents which designate
Fernandez as an officer of IGP were prepared in anticipation of IGP’s future business expansion
46

and did not reflect Fernandez’ actual status vis-a-vis IGP during the claim adjustment period.
(Nocito Dep. at 87:20-88:12, 91:23-97:22, ECF No. 210-6; Def.’s Ex. 8, Fernandez Dep. at
137:16-138:15, ECF No. 229-8; see also DCMF ¶¶ 20-22.) IGP further contends that the
insurance carriers could not have been misled by the “Prime Organizational Chart,” or IGP’s
letters to Bruce Plastics or the Pennsylvania Industrial Development Authority, because the
Chart did not exist in 2007 and because there is no evidence to suggest that the carriers ever
possessed or relied on these documents. (See DCMF ¶10, 20-22.) With regard to the business
cards bearing Fernandez’ name and job title, Fernandez testified that the cards were produced in
connection with IGP’s planned expansion and his expectation of being brought into the business
as a part owner, but he denies that he used the cards or ever gave one to Chauffe. (Def.’s Ex. 8,
Ferndandez Dep. at 137:16-138:25, ECF No. 229-8.) Nocito testified that he was not even aware
that the business cards existed, as Fernandez was never authorized to hold himself out as an
officer of IGP. (Pl.s’ Ex. 5, Nocito Dep. 85:8-9, 86:2-4, ECF No. 210-6.).
Significantly, IGP has adduced evidence indicating that plaintiffs were made aware of
Fernandez’ independent status vis-a-vis IGP. They point to the fact that plaintiffs had access to
IGP’s payroll records, which reflected the fact that Fernandez was not an IGP employee. (See
DCMF ¶10.) They note Fernandez’ testimony that he informed HSB’s representatives soon after
the loss that he was a consultant and did not “answer to” Nocito. (Def.’s Ex. 8, Fernandez Dep.
at 212:20-213:22, ECF No. 229-8; Def.’s Ex. 18, Hart Dep. at 169:10-170:9, 173:14:24, ECF
No. 229-18; Def.’s Ex. 19, ECF No. 229-19.) IGP also points to evidence indicating that, at
different times during the claims adjustment period, the insurance carriers’ representatives were
made aware of the fact that Fernandez was acting in his own interests as an agent of Global
Networking or as an independent contractor operating under the business name “FERPASO.”
47

(See generally DCMF ¶¶ 13-19, ECF No. 227.) For example, Fernandez and Nocito both
testified that Fernandez disclosed his agency relationship with Global Networking in connection
with his acquisition of the rollers. (See DCMF at ¶14.) In addition, various documents in the
record – to which the carriers were privy – reflect Fernandez’ status as an independent contractor
operating under the business name “FERPASO.” (See id. at ¶¶ 13-14.) In fact, the contract
between IGP and FERPASO, which plaintiffs were asked to review and pre-approve, expressly
disclaimed Fernandez’ status as an agent of IGP and expressly indicated his status as an
independent contractor. (DCMF at ¶18; Def.’s Ex. 41, ECF No. 229-41; Def.’s Ex. 42, ECF No.
229-42.) Moreover, Chauffe testified that, during a January 17, 2008 meeting, Fernandez
expressly advised those in attendance that he was not working with IGP and was acting to protect
his own interests. (DCMF at ¶15.)
If credited by a jury, IGP’s evidence could support a reasonable inference of plaintiffs’
awareness that Fernandez was acting in his own interests and not as an actual or apparent agent
of IGP at the time he made misrepresentations and/or engaged in allegedly fraudulent conduct
concerning the rollers. Thus, there are genuinely disputed issues of fact on this record
concerning Fernandez’ alleged status as an actual or apparent agent of IGP. Because
Fernandez’s conduct relative to the claims adjustment process forms a substantial part of the
factual underpinning for Hartford’s claims in TAC Counts I, III and IV, the factual disputes
concerning Fernandez’ status vis-a-vis IGP are material to a resolution of Hartford’s claims.
(ii) Representations Concerning the Ceramic Rollers
Material issues of fact also exist relative to Hartford’s theory that IGP never ordered
ceramic rollers from Global Networking and that it simply sent the damaged rollers from its own
furnace to Vesuvius for refurbishing. In short, IGP has presented testimony and evidence
48

sufficient to support its claim that: (i) the damaged rollers were not reasonably capable of
refurbishment and were ultimately discarded; (ii) Fernandez did, in fact, order new rollers from
Global Networking, but Global had difficulty producing rollers that were suitable for IGP’s
equipment; (iii) unbeknownst to Nocito, Fernandez had approximately 178 pre-existing rollers
refurbished by Vesuvius after Global was unable to fulfill IGP’s order in a timely fashion; (iv)
some of these rollers came from IGP’s inventory, but the bulk of the refurbished rollers were
owned by Fernandez personally and not by IGP;15 (v) Fernandez undertook these measures in
order to mitigate IGP’s lost revenues while Global continued to work on the new rollers and
because he wanted to fulfill Global Networking contractual promise to produce rollers for IGP;
and (vi) Fernandez did not tell Nocito about the refurbished rollers because he wanted to avoid
the embarrassment of Nocito learning that Global Network had failed to fulfill IGP’s order in a
timely fashion. (See generally DCMF ¶¶ 10, 13, 25, 28-29, 36-38, 40, 43-48, 52-53, 56-57, 94,
203-208, ECF No. 227.)
Hartford’s fraud claim is based largely on evidence that a materially inaccurate “roller
timeline” and phony bills of lading and shipping documents were produced by Fernandez to
buttress the false narrative that new rollers had been shipped, on a delayed basis, from Global to
IGP. The record reveals that the underlying shipping documents were prepared by Lindsay
Sopher Senft, a former purchasing agent for IGP, from blank forms obtained off the internet.
(Pl.s’ Ex. 12, Senft Dep. at 18:7-19, 83:13-87:18, ECF No. 210-14.) Senft testified that she
obtained and completed these forms at the request of Fernandez, with information provided by
him. (Id.) There is no evidence to establish that Nocito was personally aware of Senft’s actions
in this regard, much less that he authorized them, and Fernandez maintains that he kept the
15

Fernandez testified that he acquired these rollers years earlier when a company known as
AccuGlass had originally purchased the furnace. (DCMF ¶57, ECF No.227.)
49

documents and information from Nocito. (See DCMF ¶48.) Senft acknowledged that she
questioned the propriety of Fernandez’ request, but she did what he asked and did not inquire
further into the circumstances. (Senft. Dep. at 83:13-20, 84:25-85:10.) Viewing the evidence in
the light most favorable to IGP, a jury could conclude that the misrepresentations presented in
the roller timeline and supporting documentation were attributable solely to Fernandez acting in
his capacity as a third-party vendor, as opposed to evidencing a fraudulent intent on the part of
IGP.
Hartford also theorizes that IGP personnel altered a document received from Vesuvius in
order to cast the false impression that lead times on new rollers would take up to eight months,
when, in fact, the lead time was only fourteen (14) to eighteen (18) weeks. Vesuvius employee
Doug Brown testified that he spoke to an IGP employee named “Jessica” and advised her of the
correct lead time, then followed up with a letter confirming this information. (Pl.s’ Ex. 35,
Brown Dep. at 8:7-10:10, ECF No. 210-20.) According to Brown, the version of his letter that
was supplied to the insurance carriers was changed to reflect a longer, inaccurate lead time for
the new rollers. (Id. at 10:2-10, 12:5-9.)
IGP flatly denies that there was any alteration of Brown’s letter. To that end, IGP notes
that Jessica Emark, the only “Jessica” employed at IGP, has denied ever speaking with Doug
Brown or receiving the letter that he sent. (See Pl.s’ Ex. 61, Emark Dep. at 126:16-135:3, ECF
No. 210-26.) She further denied having any knowledge about a possible alteration to the letter.
(Id. at 135:6-137:17.) IGP also notes that Vesuvius has not been able to produce a copy of the
alleged “correct, original” version of the letter that was supposedly altered. (See Brown Dep. at
14:19-15:2.) In addition, IGP has produced evidence establishing that Vesuvius was indeed
experiencing significant lag times as reported by some of its agents. (See DCMF ¶¶ 49-50.)
50

This conflict in the evidence gives rise to a genuinely disputed issue as to whether Brown’s letter
was altered and, if so, whether the conduct can be imputed to IGP as evidence of a fraudulent
intent.
Hartford also points to the testimony of Ciarrochi as proof that IGP intentionally
manipulated the contents of the crate in which the replacement rollers were delivered so as to
cast the false appearance that the Vesuvius-refurbished rollers had originated from Global.
Ciarocchi testified that the damaged rollers from IGP’s furnace were packed and shipped to
Vesuvius for refurbishing at the direction of Fernandez. (Pl.s’ Ex. E, Ciarrochi Dep. at 50:451:1, ECF No. 210-11.) Ciarrochi further claims that, when the refurbished rollers arrived back
at IGP’s new facility, an employee by the name of “Steve” was directed to repack the crate so
that the Vesuvius-refurbished rollers were concealed by a top layer of new replacement rollers.
(Ciarrochi Dep. at 70:23-71:22.) Chauffe then photographed the contents of the crate and
observed the “Vesuvius” label on some of the rollers. (Pl.s’ Ex. 39, Chauffe Dep. at 62:1865:17, ECF No. 210-22; Pl.s’ Ex. 69, ECF No. 210-34; Pl.s’ Ex. 70, ECF No. 210-35.)
As compelling as Ciarrochi’s testimony may prove to be, it is not uncontested. IGP has
presented testimony that the refurbished rollers came not from IGP’s damaged furnace but from
Fernandez’ own personal stock. (Fernandez Dep. at 170:17-171:20, 299:19-23.) IGP has also
produced evidence suggesting that it purchased a smaller quantity of new rollers from Vesuvius
and that this fact was known to HSB from the beginning. (See DCMF ¶¶ 26, 55.) As for the
alleged attempt to manipulate the appearance of the crate’s contents, IGP denies this accusation
and points to Fernandez’ testimony that the refurbished rollers were inspected upon receipt and
then placed back into the same “Vesuvius”-labelled crates in which they had been delivered.
(Fernandez Dep. at 284:7-285:18.)
51

If the evidence of record is viewed in the light most favorable to IGP, it is sufficient to
support an inference that IGP acted only on the basis of information provided by third parties and
did not itself knowingly make false representations to the insurance carriers concerning the need
for new rollers, the source of those rollers, or the time frame in which they were made available
to IGP. To be sure, the parties’ differing accounts about the rollers are largely in direct conflict
with one another and plaintiffs strongly dispute IGP’s version of the events. Ultimately,
however, resolution of these competing accounts will turn on credibility issues and competing
inferences that cannot be definitively resolved at the summary judgment stage. See Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 255 (1986) (“Credibility determinations, the weighing of the
evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of
a judge, whether he is ruling on a motion for summary judgment or for a directed verdict”).
Accordingly, genuinely disputed issues of material fact preclude this court from entering
summary judgment on Hartford’s claim of fraud as it relates to IGP’s acquisition of the
replacement rollers.
(iii) Representations Relating to Paul Ciarrochi, Jr.
Hartford also contends that IGP made fraudulent representations concerning the
employment status and salary of Ciarrochi. In particular, Hartford claims that Nocito and Wolfe
falsely stated in various emails that Ciarrochi had left IGP’s employment and that, in order to
complete repairs to its furnace and production line, IGP would have to pay Ciarrochi $19,000 per
month for a period of three months.
The record reflects that, in emails dated January 25 and 29, 2008, Nocito represented to
plaintiffs that Ciarrochi had opportunities to work for “the competition.” (See Pl.s’ Ex. 42 and
43, ECF No. 210-23.) In a subsequent email dated March 5, 2008, Nocito wrote:
52

...I have hired Paul back to work for IGP. As everyone is well aware, he is an
extremely valuable asset to IGP. He has requested that I pay him both W2 &
1099 based on advice from his accountants. It actually works to IGP’s advantage
paying the majority of his pay as 1099. If this presents a problem please let me
know immediately. I hope HSB is as happy as I am that Paul has left the
competition and decided to come back full-time to IGP. His departure would
have been a tremendous loss to IGP and the repair process ...
(Pl.s’ Ex. 45, ECF No. 210-23.) Nocito further stated in his email that he was attaching “payroll
registers for the past two pay periods.” (Id.) The record that Nocito attached reflected a salary
payment of $2,500.00 and a 1099 payment of $9,500.00 to Ciarrochi for the period covering
February 17, 2008 to March 1, 2008. (Id.)
Hartford contends that the representations in Nocito’s emails and payroll attachment were
fraudulent. To support this claim, they rely on the testimony of Ciarrochi, who denies that he
was contacted by an IGP competitor, denies that he ever left IGP’s employment, denies
discussing or receiving payment from IGP on a 1099 basis, and denies earning more than $4,000
per month salary while at IGP. (See generally Pl.s’ Ex. 8, Ciarrochi Dep. at 112:4-6, 117:9125:8, April 28, 2009, ECF No. 210-11.) Ciarrochi further testified that:
At the time Ron Chauffe had offered to fix the plant and move it and get
everything back and running for, I don’t know, a million dollars or someting like
that. But what they told me was that ...I was going to be working for Frank and
we would pose as a company that was going to rebuild and move the plant
because I guess that’s a quote that Frank gave them for what we were going to do,
a lot lower than Chauffe’s.
(Ciarrochi Dep. at 118:21-119:5.) When asked about Nocito’s representations to the insurance
carriers concerning his “status changing and that type tying, the 1099 stuff,” Ciarrochi
acknowledged “they did tell me that that’s what they were going to tell the insurance company.”
(Id. at 119:19-120:2.)
Here again, Ciarrochi’s testimony, though potentially damaging to IGP, is not
uncontradicted. Nocito testified that both Fernandez and Ciarrochi had told him in late 2007 or
53

early 2008 that Ciarrochi had an opportunity to work for a competitor. (Def.’s Ex. 6, Nocito
Dep. 102:1-6, 102:19-103:19, June 11, 2009, ECF No. 229-6.) According to Nocito, he advised
Ciarrochi that, if his new employment opportunity did not fully occupy his time, Ciarrochi was
welcome to work at IGP on the side, and IGP would continue to pay him. (Nocito Dep. at
102:19-104:3, ECF No. 229-6.) Nocito maintains that he learned from his human resources
manager that Ciarrochi had, in fact, resigned from IGP and, at some later point in 2008,
Ciarrochi was hired back. (Id. at 104:19-22; Nocito Dep. at 133:6-14, December 17, 2010, ECF
No. 229-15.) In support of this testimony, IGP has produced payroll records that ostensibly
document a severance payment to Ciarrochi in January 2008. (Def.’s Ex. 80, ECF No. 229-80.)
With regard to the allegedly fraudulent payroll record showing the 1099 payment, Nocito
testified that this record was merely reflective of IGP’s desire and request of HSB for permission
to pay Ciarrochi at a monthly rate of $19,000, for a limited three-month period, for services that
would be rendered by Ciarrochi in connection with repairs to the damaged furnace. (See
generally Nocito Dep. at 135:7-139:9, ECF No. 229-15; see also DCMF ¶¶ 70, 72, 75-76.)
According to Nocito, the $19,000 monthly rate was consistent with a pay rate that Chauffe
himself had previously quoted when attempting to recruit Ciarrochi and Fernandez to work for
ElectriMech, a company that was also bidding on repairs to IGP’s furnace. (Nocito Dep. at
138:16-19, ECF No. 229-15; see also Nocito Dep. at 208:8-22, ECF No. 229-6; Def.’s Ex. 83,
ECF No. 229-83, DCMF ¶¶ 72, 75-76.) Nocito testified that, while IGP issued a check payable
to Ciarrochi in the amount of $9500 as reflected on the payroll record, the payment was
understood to be contingent at all times upon approval by HSB. (Nocito Dep. at 138:21-24, ECF
No. 229-15.) Because the payment was never approved by HSB, the check was never given to
Ciarrochi; rather, it was voided, and Ciarrochi never officially became a 1099 employee. (Id. at
54

136:20-138:8, 139:5-9.) Nocito maintains that this “whole situation” was made clear to HSB’s
accountants at the time. (Id. at 139:5-9; see generally DCMF ¶¶ 70, 72.) Insofar as Nocito’s
testimony is at odds with the testimony of Ciarrochi, IGP points to Ciarrochi’s admissions that he
was under the influence of many pain killers in 2007, is “not very good with dates or times,” and
was on prescription anti-depressants at the time of his deposition. (Ciarrochi Dep. at 13:16-21,
141:3-19, ECF No. 229-7.)
Construing the evidence of record in the light most favorable to IGP, the court finds that
there are genuinely disputed issues of fact as to whether IGP knowingly made false
representations to the insurance carriers concerning Ciarrochi’s employment status and salary
and whether any such misrepresentations in this regard were material to the adjustment of IGP’s
insurance claim. To the extent Nocito’s testimony can be characterized as vague, self-serving or
contradicted by other evidence in the record, these are matters to be explored through crossexamination at trial. It is up to a factfinder, at trial, to determine what weight, if any, should be
given to Nocito’s testimony; this court may not make that determination at summary judgment.
Hartford’s fraud claim also rests, in part, on statements that Wolfe made in a March 25,
2008 email to Mycek. In that email, Wolfe discussed several aspects of HSB’s handling of IGP’s
claim, including HSB’s concerns over IGP’s ordering of certain heating elements and related
parts for its damaged furnace. With regard to the latter issue, Wolfe wrote the following:
It was noted at the 10-30-07 on site meeting that rollers and elements were needed
for furnace number 2. Mr. Nocito needed to order the elements but did not have
either Frank or Paul on staff at the time to arrange the order for the correct
elements. He hired Paul back for the one job and Paul determined which
elements should be ordered by specification ...
(Pl.s’ Ex. 46, ECF no. 210-23.) In the same email, Wolfe stated the following concerning
Ciarrochi’s salary:
55

Paul [Ciarrochi] works for International Glass not FERPASO. He is now making
more than $19K a month from his original salary with International Glass. It was
discussed that the competition was willing to pay more for Paul’s salary. Paul
also was approached by Ron Chauffe of ElectriMech to work as part of his
contractor team in bring [sic] back the furnace to pre-loss. Ron had suggested
paying Paul $150.00 an hour. This interference with a prior employee of
International Glass has created a financial difficulty. There were suggestions
made that Paul go back to work as a subcontractor for FERPASO. However in
the meantime this expense is difficult. International Glass asked if Paul’s salary
can be paid by HSB. Again we mentioned that this is probably only a 3 month
period. Either way we would like a definitive answer ...
(Id.)
To the extent that Hartford’s fraud claim is premised upon representations made by
Wolfe, the court finds that, here again, material issues of fact preclude an award of summary
judgment. Among other things, there are issues of fact concerning Wolfe’s status as an actual or
apparent agent of IGP, the falsity of her statements, and her state of mind as it bears on the truth
or falsity of her various representations. Accordingly, the evidence adduced by plaintiffs does
not warrant an award of summary judgment relative to TAC Count I.
b) TAC Count III: Statutory Insurance Fraud
In Count II of the TAC, Hartford asserts a claim for statutory insurance fraud pursuant to
18 Pa. C.S.A. §4117. As discussed previously, the statute makes it unlawful for a person to
“knowingly and with the intent to defraud any insurer... present[ ] or cause[ ] to be presented to
any insurer...any statement forming a part of, or in support of, a claim that contains any false,
incomplete or misleading information concerning any fact or thing material to the claim.” Id. at
§4117(a)(2) (emphasis added). The Act further makes it unlawful for a person, “knowingly and
with the intent to defraud,” to assist, abet, solicit or conspire with another in such conduct. Id. at
§4117(a)(3).

56

The parties argue at length about whether the Pennsylvania insurance fraud statute
incorporates detrimental reliance as a necessary element of the offense. For present purposes,
however, the court need not resolve this dispute. As the prosecuting party, Hartford must
establish, as a matter of law, that each of the elements of its claim are satisfied. Hartford has not
done so because, as discussed, there are genuine issues of fact on this record as to whether or not
IGP knowingly, and with intent to defraud, presented false or misleading information to the
carriers in connection with its insurance claim. See State Farm Mut. Auto Ins. Co. v. Lincow,
715 F. Supp. 2d 617, 632 (E.D. Pa. 2010) (noting that the statute makes it unlawful for a person
to (1) knowingly (2) present any false, incomplete, or misleading information (3) concerning any
fact or thing material to a claim; (4) to an insurer)(citing 18 Pa. C.S.A. §4117(a)(2)), aff’d 444 F.
App’x 617 (3d Cir. 2011). Accordingly, Hartford’s motion for summary judgment will be
denied with respect to TAC Count III.16
2. Breach of Contract (Counterclaims 1 and 2 – v. Hartford only)
The court will next consider plaintiffs’ motion for summary judgment as it relates to
IGP’s various counterclaims. IGP’s first two counterclaims involve breach of contract theories
asserted against Hartford only. In Counterclaim 1, IGP alleges that Hartford breached the terms
of the Policy by essentially abandoning its insured and delegating all discretionary decisionmaking to HSB. In Counterclaim 2, IGP alleges that Hartford breached the terms of the Policy
16

Count IV of the TAC asserts a claim for “reverse bad faith” on the part of IGP. This claim,
like Counts I and III, is premised on the allegation that IGP intentionally concealed material
information, intentionally made false representations of material fact, and submitted false,
forged, and fraudulent documents to the plaintiffs in an attempt to maximize its insurance
recovery and extend the time during which it could receive business interruption payments.
(See ECF No. 142.) Although plaintiffs seek summary judgment on all claims involved in the
case, including (presumably) TAC Count IV, they do not specifically address this claim in their
supporting brief. In any event, however, summary judgment is inappropriate as to TAC Count
IV, given the existing material issues of fact that the court has identified herein.
57

through the “improper performance” of its contractual duties by its agent, HSB. This alleged
improper performance includes, among other things, the decision to adjust IGP’s claim as a
single loss incident rather than as two separate loss incidents, the undervaluation of IGP’s
business interruption losses, and the carriers’ failure to pay for glass that was needed to test the
post-repair functionality of the damaged furnace.
Hartford contends that IGP’s breach of contract claims fail because the Policy itself was
rendered void by virtue of IGP’s fraudulent conduct. Thus, Hartford’s defense to Counterclaims
1 and 2 is essentially the same theory of fraudulent misrepresentations that underlie its own
claims in Counts I, II, and IV of the TAC.
For the reasons discussed herein, plaintiffs’ fraudulent misrepresentation theory raises
numerous disputed issues of material fact which cannot be resolved by this court at the summary
judgment stage. Accordingly, Hartford’s motion for summary judgment cannot be granted on
that basis.
Alternatively, Hartford seeks summary judgment relative to IGP’s estoppel theory as set
forth in the body of Counterclaim 2. (See Countercl. 2, ¶¶ 93-100, ECF No. 158.) Paragraphs
93 to 100 of Counterclaim 2 allude to communications between the parties’ respective counsel
which occurred on July 22, 2008. These communications confirmed that, notwithstanding
HSB’s July 21, 2008 letter purporting to void the Policy, the carriers still sought to go forward
with a previously-scheduled inspection of IGP’s plant on July 23, 2008 pursuant to the Policy’s
“Property Loss Condition[ ] 3(f) and (i).”17 (See id. at ¶¶ 91-95.) IGP avers in Counterclaim 2

17

This provision stated as follows:
3.

Duties in the Event of Loss or Damage
58

that “HSB and The Hartford ratified, reinstated, and reaffirmed the validity of the Policy by
demanding and exercising the Insurer’s rights under the Policy with full knowledge of the
circumstances alleged in the letter of July 21, 2008.” (Id. at ¶ 97.)
Hartford moves for summary judgment on this particular aspect of Counterclaim 2 on the
basis that the argument was previously rejected at the Rule 12(c) stage (see ECF No. 61), and
that ruling now constitutes the “law of the case.” IGP disputes that the court’s Rule 12(c) ruling,
rendered in November of 2009, is controlling at the summary judgment stage.
The “law of the case” doctrine holds that, “‘once an issue has been decided, parties may
not relitigate that issue in the same case.’” Hazen v. Modern Food Servs., Inc., 113 F. App'x 442,
444 (3d Cir. 2004) (quoting Ogbudimkpa v. Ashcroft, 342 F.3d 207 n. 7 (3d Cir.2003)). In
Hazen, the Third Circuit Court of Appeals ruled that the district court was not precluded from
granting summary judgment in favor of an employer/defendant in a Title VII action based on the
plaintiff’s failure to establish a prima facie case of retaliation, notwithstanding the fact that the
district court had previously denied the employer’s motion for judgment on the pleadings and
determined that the plaintiffs’ pleading, on its face, stated a viable cause of action. 113 F. App’x
at 444. The court explained that:
[t]he defendants' motion for judgment on the pleadings and their motion for
summary judgment obviously raised very different issues and required distinct
You must see that the following are done in the event of loss of or damage to
Covered Property: ...
f.

Permit us to inspect the property and records proving the
loss or damage. Also permit us to take samples of damaged
property for inspection, testing and analysis. ...

i.

Cooperate with us in the investigation or settlement of the
claim.
59

inquiries. In deciding the motion for judgment on the pleadings, the district court
determines from the pleadings “if it appears to a certainty that no relief could be
granted under any set of facts which could be proved.” Morse v. Lower Merion
School Dist., 132 F.3d 902, 906 (3d Cir.1997). However, when deciding a motion
for summary judgment, the district court reviews all discovery and determines
whether a genuine issue of material fact exists. Farrell v. Planters Lifesavers Co.,
206 F.3d 271, 278 (3d Cir.2000). The standard used to decide these two very
different motions is obviously not the same. In deciding a motion to dismiss on
the pleadings, the court presumes that the plaintiff will be able to prove the
allegations set forth in the pleadings, and then determines if those allegations
establish a cause of action. Summary judgment involves no such presumption.
Id.
IGP argues that the “law of the case” is similarly inapplicable here, because both the
relevant standard of review and the party bearing the burden of proof are different at this stage of
the proceedings. Whereas IGP bore the burden of proving its Rule 12(c) motion, Hartford is now
the movant and bears the burden of proving its entitlement to summary judgment. Of course, for
purposes of Rule 56, IGP must receive the benefit of every legitimate inference that arises from
the facts, which must also be viewed in its favor.
In the ordinary, run-of-the-mill situation, IGP’s position might well have merit. Here,
however, the court’s Rule 12(c) ruling went beyond a mere denial of IGP’s motion. In the
course of opining on IGP’s waiver theory, the court specifically found that “only one reasonable
conclusion [could] be drawn” from the record – namely, that “plaintiffs did not waive the right to
seek relief for breach of contract by inspecting the property IGP claimed had been repaired; nor
did they reaffirm or commit to administer the policy in a manner that would permit coverage of a
fraudulent claim.” (Mem. Order of 11/23/09 at 5, ECF No. 61.) Even though the court was
compelled to view the record in the light most favorable to plaintiffs, it noted there was “no
course of conduct that is sufficient to support a finding of a waiver of plaintiffs’ rights to claim
relief based on a breach of contract, let alone a reaffirmation of an insurance contract to be
60

performed pursuant to the commission of [alleged] insurance fraud.” (Id. at 4 (emphasis added).)
The court drew this conclusion because:
the evident purpose of the inspection was to determine whether and how the
production line had been repaired. The inspection was undertaken to assure proper
administration of IGP’s claims for coverage and that a full understanding of the
circumstances was gained in conjunction therewith. Such an undertaking had the
potential to benefit IGP in its ability to maintain all or partial coverage of the
claim and to comply with plaintiffs’ statutory and regulatory obligations. Acting
in such a manner cannot be understood as a clear, unequivocal and decisive act
undertaken with the purpose of surrendering the right to deny coverage and void
the policy based on insurance fraud. Consequently, plaintiffs did not waive any
rights they possessed under the policy prior to the inspection.
(Id. at 4.)
In essence, the court ruled, as a matter of law, that IGP could not demonstrate waiver of
the alleged breach or reaffirmation of the Policy based on the conduct alleged in Counterclaim 2.
And, although summary judgment rulings are typically rendered on a more developed factual
record, there is no indication here that the evidentiary record at this stage of the proceedings
materially alters the relevant facts. Accordingly, because the court previously determined, as a
matter of law, that waiver and/or reaffirmation could not be established based on the conduct
alleged at Paragraphs 93 through 103 of Counterclaim 2, and because no additional evidence has
been advanced in support of that theory, Hartford is entitled to summary judgment relative to this
aspect of IGP’s breach of contract claim.
3. Statutory and Common Law Bad Faith (Counterclaims 4 and 5 – v.
Hartford)
Counterclaims 4 and 5 asserts claims for statutory and common law bad faith against
Hartford.18 IGP bases these claims both on “what Hartford itself did or did not do” and “what

18

Although IGP’s Answer and Counterclaims originally asserted claims against HSB as well as
Hartford, IGP’s brief in opposition to summary judgment discusses the bad faith claims only
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Hartford allowed HSB to do.” (Def.’s Br. Opp. Mot. Summ. J. at 55 of 80, ECF No. 226.) More
specifically, IGP maintains that Hartford acted in bad faith by turning the investigation and
adjustment of IGP’s loss over to HSB under circumstances wherein HSB had the final say on
important discretionary decisions yet regarded itself as having no duty of good faith vis-a-vis
IGP and (unbeknownst to IGP) also had a financial incentive to minimize payments made under
the Policy. IGP maintains that Hartford is liable for HSB’s actions relative to its adjustment of
IGP’s claim which, according to IGP, involved HSB placing its own financial interest over those
of Hartford’s insured.
Hartford insists that there can be no bad faith on its part as a matter of law because it paid
over $2.4 million dollars toward IGP’s claim, it undertook reasonable investigatory steps
regarding the claim, and it ultimately had reasonable grounds to deny the claim and void the
Policy on the basis of fraud. Alternatively, Hartford argues that the complained-of conduct
amounts to, at most, negligence.
Under Pennsylvania common law, “an insurer may be held liable ‘if the insurer’s
handling of the claim ... was done in such a manner as to evidence bad faith on the part of the
insurer in the discharge of its contractual duty.” Reid v. Ruffin, 469 A.2d 1030, 1033-34 (Pa.
1983) (quoting Cowden v. Aetna Cas. & Surety Co., 134 A.2d 223, 227 (Pa. 1957) (emphasis in
the original)). Pennsylvania’s bad faith statute, 42 Pa.C.S.A. §8371, further provides that,
[i]n an action arising under an insurance policy, if the court finds that the insurer
has acted in bad faith toward the insured, the court may take all of the following
actions:
(1) Award interest on the amount of the claim from the date the claim was
made by the insured in an amount equal to the prime rate of interest plus
3%.
insofar as they relate to Hartford. Accordingly, IGP appears to have abandoned its bad faith
claims against HSB, and the court will not discuss them further.
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(2) Award punitive damages against the insurer.
(3) Assess court costs and attorney fees against the insurer.
42 Pa. Stat. and Cons. Stat. Ann. § 8371 (West).
While § 8371 does not define the term “bad faith,” Pennsylvania courts have defined this
concept in terms of “‘the duty of good faith and fair dealing in the parties’ contract and the
manner in which an insurer discharged... its obligation to pay [for] a loss in the first party claim
context.’” Berg v. Nationwide Mut. Ins. Co., Inc., 44 A.3d 1164, 1175-76 (Pa. Super. Ct. 2012)
(quoting Toy v. Metropolitan Life Ins. Co., 928 A.2d 186, 199 (Pa. 2007) (ellipsis in the
original). Generally, “[a] valid cause of action for bad faith requires ‘clear and convincing
evidence...that the insurer: (1) did not have a reasonable basis for denying benefits under the
policy; and (2) knew or recklessly disregarded its lack of a reasonable basis in denying the
claim.’” Treadways LLC v. Travelers Indem. Co., 467 F. App’x 143, 146-47 (3d Cir. 2012)
(quoting J.C. Penney Life Ins. Co. v. Pilosi, 393 F.3d 356, 367 (3d Cir. 2004)). The “clear and
convincing” standard requires evidence that is “‘so clear, direct, weighty and convincing as to
enable a clear conviction, without hesitation, about whether or not the defendants acted in bad
faith.’” Id. (quoting Pilosi, 393 F.3d at 367).
While typically defined in terms of an insurer’s failure to cover an insured’s loss, “[b]ad
faith encompasses a wide variety of objectionable conduct.” Brown v. Progressive Ins. Co., 860
A.2d 493, 500 (Pa. Super. Ct. 2004). See also Treadways LLC, 467 F. App’x at 147 (“Though ...
bad faith may be found in circumstances other than an insured's refusal to pay, ‘[a] reasonable
basis is all that is required to defeat a claim of bad faith.’”) (quoting Pilosi, 393 F.3d at 367);
Myerski v. First Acceptance Ins. Co., Inc., No. 3:16-CV-488, 2016 WL 3227266, at *6 (M.D.
Pa. June 13, 2016) (“Bad faith is not restricted to an insurer's denial of benefits and includes a
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wide variety of objectionable conduct including lack of good faith investigation and failure to
communicate with a client.”); O’Donnell ex. rel. Mitro v. Allstate Ins. Co., 734 A.2d 901, 906-08
(Pa. Super. Ct. 1999) (discussing the expanding nature of the applicability of the bad faith
statute).
Here, IGP’s bad faith claim rests on the premise that Hartford essentially abandoned its
insured during the claims adjustment process by turning IGP’s fate over to an unrelated third
party that, as a practical matter, was not subject to Hartford’s control, had no contractual
accountability to IGP, and had a financial incentive to minimize the amount of payments that
would be made to IGP under the Policy. IGP has produced evidence to support its theory that
HSB was given the final say on various issues that were important, if not critical, to the
adjustment of IGP’s loss and the continuation of its business, including the valuation of IGP’s
daily revenue value (which were important for purposes of calculating its business income
losses), the determination that business income payments would cease upon IGP’s relocation to
the new Robinson Township facility, and the ultimate decision to cancel the Policy. IGP has also
produced evidence from which a factfinder could infer that HSB, in exercising its discretion,
placed its own financial interests ahead of Harford’s insured. HSB’s direct contact with IGP and
decision-making on policy coverage issues were seemingly in conflict with the “Special
Handling Instructions” relative to the Reinsurance Treaty. Finally, IGP has produced evidence
to suggest that Hartford disagreed with HSB’s course of action in important respects, yet failed
to take any corrective action for the benefit of its insured. (See generally DSMF ¶¶ 51-86, 9094, 102, 108, 110, 148-57, 159,173-75, 176-188, 196.) As IGP’s direct insurer, Hartford may be
held liable to IGP for the acts committed by HSB in connection with the investigation and
adjustment of its claim. See Tippett v. Ameriprise Ins. Co., Civil Action No. 14-4710, 2015 WL
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1345442, at *5 (E.D. Pa. Mar. 25, 2015) (“Pennsylvania courts permit insureds to sue their
insurers for the actions of their insurers’ agents, including adjusters.”) (citing Bruno v. Erie Ins.
Co., 106 A.3d 48, 70 (Pa. 2014)); see also Zager v. Gubernick, 208 A.2d 45, 48-49 (Pa. Super.
Ct. 1965) (“When an insurance company delegates the power of adjustment, an adjuster so
employed has the power to make arrangements with the insured after loss, and to bind the insurer
thereby.”) (citation omitted). Under these circumstances, the court is of the view that the
evidentiary record, when construed in favor of IGP, could support a finding of bad faith on the
part of Hartford as it relates to the investigation and adjustment of IGP’s loss. Accordingly,
plaintiffs’ motion for summary judgment will be denied relative to Counterclaims 4 and 5.
4. Intentional Interference with a Contract (Counterclaim 3 – v. HSB only)
Counterclaim 3 asserts a claim against HSB for intentional interference with a contractual
relationship. IGP’s theory is that HSB, through its actions in adjusting IGP’s loss, intentionally
interfered with Hartford’s performance of contractual duties and obligations under the Policy.
Under Pennsylvania law, a tortious interference with contractual relations claim has four
elements: (1) the existence of a contractual, or a prospective contractual relation between the
complainant and a third party; (2) purposeful action on the part of the defendant, specifically
intended to harm the existing relation, or to prevent a prospective relation from occurring; (3) the
absence of a privilege or justification on the part of the defendant; and (4) the occasioning of
actual legal damage as a result of the defendant's conduct. Kepner v. Kepner, No. 835 EDA
2015, 2015 WL 7283034, at *4 (Pa. Super. Ct. Nov. 18, 2015); see also Robson Forensic, Inc. v.
Heiberg, No. CV 16-1703, 2016 WL 3078960, at *3 (E.D. Pa. June 1, 2016) (citing Crivelli v.
Gen. Motors Corp., 215 F.3d 386, 394 (3d Cir. 2000)).

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HSB contends that there is insufficient evidence to establish the second and third
elements of IGP’s claim – namely, that HSB intended to harm IGP’s contractual relationship
with Hartford and acted without privilege or justification in doing so. HSB argues that its
involvement in investigating and adjusting IGP’s claim was entirely within the confines of its
obligations under the Reinsurance Treaty. Given its contractual obligation to investigate and
settle IGP’s claims, HSB insists that it cannot be said to have improperly interfered with the
contractual relationship between Hartford and IGP. This court does not agree.
Ordinarily, the actions of a claims adjuster are not redressible under a theory of
intentional interference with the underlying insurance agreement. See Steven J., Inc. v.
Landmark Amer. Ins. Co., Civil Action No. 1:14-CV-0474, 2014 WL 4672498, at *4, 2014 WL
4672498 (M.D. Pa. Sept. 18, 2014) (noting that “the simple act of a claims adjuster investigating
and opining upon an insurance claim at the request of an insurance company, without further
well-pleaded facts, does not rise to the level of tortious interference with a contract since this
conduct does not entail ‘purposeful action on the part of the defendant, specifically intended to
harm the existing relation, [undertaken in] the absence of privilege or justification’”) (quoting
The York Grp., Inc. v. Yorktowne Caskets, Inc., 924 A.2d 1234, 1245 (Pa. Super. Ct. 2007), and
discussing other cases with similar holdings). The theory underlying this principle is that:
it is the nature of an independent claims adjuster's duties to investigate and
evaluate claims made under a contract between an insured and an insurance
company. This task, which the adjuster is itself contractually obliged to undertake,
may on occasion lead to results which the insured believes are misguided,
uninformed and wrong. In such instances, the insured may pursue relief through
litigation under the policy itself.
Id. See also OneBeacon Am. Ins. Co. v. Colgate-Palmolive Co., 995 N.Y.S.2d 35, 39 (N.Y.
App. 2014) (“No claim for tortious interference is stated because, in performing the complainedof acts, Resolute acted as a designated agent, and no action for tortious interference can lie
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against an agent acting within the scope of its duties on behalf of the principal.”) (citations
omitted).
Here, however, IGP has produced evidence which, if credited, could support an inference
that HSB acted outside the scope of its agency relationship by dictating the outcome of important
discretionary decisions and by placing its own financial interests ahead of Hartford’s fiduciary
obligations in the adjustment of IGP’s loss. At least to that extent, this case lies outside the
general rule which precludes relief against a claims adjuster for alleged tortious interference with
contractual relations. See Steven J., Inc., 2014 WL 4672498, at *4 (court noting that an
adjuster’s recommendation that a claim be denied, standing alone, would not constitute the tort
of intentional interference with a contractual relationship “in the absence of further, significant
well-pleaded facts detailing some other purposeful misconduct by the adjuster which falls
outside its privileged contractual relationship with the insurance company’); Robertson Stephens,
Inc. v. Chubb Corp., 473 F. Supp. 2d 265, 276 (D.R.I. 2007) (holding that insurer's claims
administrator, which also served as part reinsurer of risks underwritten by insurer, was
potentially liable to insured on claim of tortious interference with insurance contract, regardless
of administrator's status as “agent” of insurer where claimant alleged that administrator had puts
its interests as reinsurer ahead of its responsibilities as neutral claims handler, and thereby had
acted outside scope of its authority as administrator).
Because genuinely disputed issues of fact exist with respect to the second and third
elements of IGP’s tortious interference claim, summary judgment is not appropriate.
Accordingly, plaintiffs’ motion will be denied as to Counterclaim 3.
5. Fraud (Counterclaim 6 – v. Hartford and HSB)

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In Counterclaim 6, IGP asserts a claim against Hartford and HSB for fraud. This claim
has two facets: (a) plaintiffs’ alleged misrepresentation that Chauffe was an expert “engineering
consultant” who was qualified to provide engineering advice relative to IGP’s damaged property,
and (b) plaintiffs’ alleged concealment of the fact that a process control vendor would be needed
to oversee the repair process and to properly determine what components would be needed to
restore IGP’s facility to its pre-loss condition.
To prove a claim of common-law fraud, the following elements must be established: (1)
a representation; (2) that is material to the transaction at hand; (3) which was made falsely, and
with knowledge of its falsity or recklessness as to whether it is true or false; (4) with the intent of
misleading another into relying on it; (5) justifiable reliance on the misrepresentation; and (6)
proximate causation of injury. See Weissberger v. Myers, 90 A.3d 730, 735 (Pa. Super. Ct.
2014). The evidence of fraud must be “clear and convincing,” meaning that the fact-finder can
come to a clear conviction, without hesitation, as to the truth of the precise fact in issue. Id.
Plaintiffs contend that IGP cannot demonstrate any evidence of false and material
misrepresentations that were made with intent to mislead it, and upon which IGP justifiably
relied. Alternatively, plaintiffs argue that IGP’s fraud claim is barred by the gist-of-the-action
doctrine.
After careful review of the record, the court agrees that summary judgment is appropriate
on the basis of plaintiffs’ first argument. As it relates to Chauffe, IGP’s claim is deficient
because the record, even when construed favorably to IGP, fails to contain sufficient evidence to
support a finding, by “clear and convincing evidence,” that plaintiffs made materially false
representations about Chauffe’s professional qualifications or that they did so with an intent to
mislead IGP and induce IGP’s reliance thereon. As it relates to the need for a process control
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vendor, IGP’s claim is deficient because there is no evidence in the record of any material
misrepresentation that could support a finding of fraud. In addition, IGP has failed to identify
any persuasive authority to support the proposition that HSB or Hartford had a duty to disclose
this particular information in the context of this case. Because IGP has failed to adduce “clear
and convincing” evidence of an actionable fraud on the part of plaintiffs, summary judgment will
be entered as to Counterclaim 6.
6. Negligence (Counterclaim 7 – v. Hartford and HSB)
In Counterclaim 7, IGP asserts a claim against Hartford and HSB for alleged negligence.
This claim is premised on the plaintiffs’ conduct in hiring Chauffe to provide direction,
consultation, and advice to IGP regarding the investigation of its loss, the repair of its damaged
furnace, and the mitigation of its business interruptions, instead of utilizing a process control
vendor as HSB’s engineers had advised. In particular, IGP alleges that Chauffe acted negligently
by, among other things, misdiagnosing the source of damage to the furnace, advising IGP not to
order certain component parts for purposes of repair, and advising IGP to run the furnace on Line
1 with every other accelerator roller in place, which allegedly led to the catastrophic failure of
the Line 2 furnace. IGP asserts that the Chauffe’s lack of competence materially delayed and
prevented IGP from resuming operations. IGP’s theory implicitly assumes that plaintiffs are
liable for the harm allegedly caused by Chauffe because Chauffe was an agent of HSB and HSB,
in turn, acted as the agent of Hartford in investigating and adjusting IGP’s loss.
Plaintiffs’ only basis for seeking summary judgment relative to this claim is their
argument that the negligence claim is barred by the “gist of the action” doctrine. This doctrine
generally precludes a claimant from pursuing a tort action where the true gravamen -- or “gist of
the action” -- is one for breach of contract. In Bruno v. Erie Ins. Co., 106 A.3d 48 (Pa. 2014),
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the Pennsylvania Supreme Court explained that if “the facts of a particular claim establish that
the duty breached is one created by the parties by the terms of the contract—i.e., a specific
promise to do something that a party would not ordinarily have been obligated to do but for the
existence of the contract,” then the claim should be treated as one for breach of contract. 106
A.3d at 68. “If, however, the facts establish that the claim involves the defendant's violation of a
broader social duty owed to all individuals, which is imposed by the law of torts and, hence,
exists regardless of the contract, then it must be regarded as a tort.” Id. Thus, “a claim sounds in
negligence unless it is alleged that the party breached one of the ‘specific executory promises
which comprise the contract.’” New York Cent. Mut. Ins. Co. v. Edelstein, 637 F. App'x 70, 7273 (3d Cir. 2016) (quoting Bruno, 106 A.3d at 70). Consistent with these principles, “a
negligence claim based on the actions of a contracting party in performing contractual
obligations is not viewed as an action on the underlying contract itself, since it is not founded on
the breach of any of the specific executory promises which comprise the contract.” Bruno, 68
A.3d at 70. “Instead, the contract is regarded merely as the vehicle or mechanism, which
established the relationship between the parties, during which the tort of negligence was
committed.” Id. (citing cases).
In Bruno, the court applied these principles in considering whether the “gist of the
action” doctrine barred the plaintiffs’ negligence claim against their insurer, where the claim was
premised on advice rendered by the engineer that had been retained by the insurance company’s
adjuster to inspect and evaluate mold that the plaintiffs had uncovered while performing home
renovations. The plaintiffs argued that the engineer had negligently advised them that the mold
was harmless and that they should continue their home renovations when, in fact, the mold
ultimately proved to be toxic and posed serious health problems for the plaintiffs’ family,
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resulting in the demolition of their home. The court concluded that, under these circumstances
the negligence action could proceed; it reasoned that:
while [the insurer] had contractual obligations under its policy to investigate
whether mold was present, and also to pay for all property damage caused by
mold, the substance of the Brunos' allegations is not that it failed to meet these
obligations; rather, it is that [the insurer], during the course of fulfilling these
obligations through the actions of its agents, acted in a negligent manner by
making false assurances regarding the toxicity of the mold and affirmatively
recommending to the Brunos that they continue their renovation efforts, which
caused them to suffer physical harm because of their reasonable reliance on those
assurances. Consequently, these allegations of negligence facially concern [the
insurer’s] alleged breach of a general social duty, not a breach of any duty created
by the insurance policy itself. The policy in this instance merely served as the
vehicle which established the relationship between the Brunos and [their insurer],
during the existence of which [the insurer] allegedly committed a tort.
Bruno, 106 A.3d at 71.
Here, IGP’s negligence claim is grounded on Chauffe’s and HSB’s alleged “misfeasance
in providing operational advice to IGP with respect to the ‘intermittent problems’ IGP was
experiencing with its variable speed drive which would fail, causing the October 27 incident, and
misfeasance in directing IGP to operate its equipment with only 50% of the necessary rollers,”
which allegedly resulted in a “wasting [of] IGP’s finances” and “exhaustion” of its insurance
limits. (Def.’s Br. Opp. Mot. Summ. J. at p. 71 of 80, ECF No. 226.) This claim, like the
negligence claim in Bruno, concerns alleged misfeasance that was committed by the agent of
Hartford’s adjuster and reinsurer during the course of Hartford’s performance of its obligations
under the Policy. Counterclaim 7 thus involves the alleged violation of a general social duty, not
a breach of any duty created by the underlying Policy. As such, it is not barred by the “gist of
the action” doctrine.
Plaintiffs have asserted no other grounds for summary judgment as it relates to
Counterclaim 7. As the summary judgment movants, however, plaintiffs bear the initial burden
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of demonstrating the absence of a genuine issue of fact relative to IGP’s negligence claim. See
Fed. R. Civ. P. 56(a); Allen v. Susquehanna Twp. Sch. Dist., 233 F. App'x 149, 152 (3d Cir.
2007) (“‘Although the initial burden is on the summary judgment movant to show the absence of
a genuine issue of material fact, the burden on the moving party may be discharged by showing
... that there is an absence of evidence to support the nonmoving party's case when the
nonmoving party bears the ultimate burden of proof.’”) (quoting Singletary v. Pennsylvania
Dep't of Corrs., 266 F.3d 186, 192 n. 2 (3d Cir.2001)) (ellipsis in the original). Because
plaintiffs’ have not met their initial Rule 56 burden, their motion will be denied relative to
Counterclaim 7.
7. IGP’s Claim for Attorneys’ Fees
Finally, plaintiffs have moved for summary judgment relative to IGP’s claim for
attorneys’ fees, as it relates to Counterclaims 1, 2, 3, 5, 6, and 7. As plaintiffs observe,
Pennsylvania follows a well-established rule that parties to civil litigation generally bear their
own costs and attorneys’ fees, unless otherwise provided by statutory authority, agreement of the
parties, or some other recognized exception. See generally John T. ex rel Paul T. v. Delaware
Cnty. Intermediate Unit, 318 F.3d 545, 555 (3d Cir. 2003); Commonwealth Dep’t of
Environmental Protection. v. Bethenergy Mines, Inc., 758 A.2d 1168, 1173 (Pa. 2000); CherRob, Inc. v. Art Monument Co., 594 A.2d 362, 363 (Pa. Super. Ct. 1991).
Here, IGP has asserted a claim for recovery of counsel fees in each of its Counterclaims.
Plaintiffs contend that no statutory basis exists for IGP’s recovery of attorneys’ fees, except with
respect to Counterclaim 4, which asserts a violation of Pennsylvania’s bad faith statute. Plaintiffs
further contend that there is no evidence in the record of any agreement between the parties, or
other exception, that might provide a basis for an award of attorneys’ fees as they relate to
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Counterclaims 1, 2, 3, 5, 6 or 7. IGP, for its part, has not responded to this aspect of plaintiffs’
motion. Accordingly, plaintiffs’ motion will be granted insofar as it relates to IGP’s prayer for
counsel fees relative to all counterclaims other than Counterclaim 4.
IV. Conclusion
For the reasons stated above, IGP’s motion for summary judgment against HSB will be
granted. IGP’s motion for partial summary judgment against Hartford will be denied. Plaintiffs’
motion for summary judgment will be granted as it relates to: (a) Counterclaim 6, (b) IGP’s
theory of waiver as set forth in Paragraphs 93 through 103 of Counterclaim 2; and (c) IGP’s
request for attorneys’ fees relative to Counterclaims 1, 2, 3, 5, 6 and 7. In all other respects,
plaintiffs’ motion will be denied.
An appropriate order follows.
Dated: September 29, 2016
s/David Stewart Cercone
David Stewart Cercone
United States District Judge

cc:

Richard W. DiBella, Esquire
Paul K. Geer, Esquire
Andrew M. Roman, Esquire
Mark A. May, Esquire
John Halley, Esquire
(Via CM/ECF Electronic Mail)

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