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Daburlos v. Commercial Insurance Co.

June 24, 1975

KATHLEEN E. DABURLOS
v.
COMMERCIAL INSURANCE COMPANY OF NEWARK, NEW JERSEY AND THE FIDELITY AND CASUALTY COMPANY OF NEW YORK, APPELLANTS



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (D.C. Civil No. 69-1947).

Biggs, Van Dusen and Aldisert, Circuit Judges. Judge Van Dusen, concurring.

Author: Biggs

Opinion OF THE COURT

BIGGS, Circuit Judge.

On May 16, 1968, Kenneth and Shirley Daburlos purchased round-trip tickets from Philadelphia to Los Angeles and back. They made these purchases in Reading, Pennsylvania.

Prior to their departure from the Philadelphia International Airport on May 19, 1968, the Daburloses also purchased four (4) airline trip insurance policies, each in the face amount of $75,000, from defendants'-appellants' insurance counter at that airport and designated plaintiff-appellee Kathleen E. Daburlos as beneficiary. The cost of these policies was $2.50 each. The Daburloses then departed from Philadelphia on United Air Lines (UAL) scheduled flight 83Y, with a scheduled return flight on May 22, 1968, on Trans World Air Lines (TWA) flight 38Y, departing from Los Angeles at 9:05 A.M. At the Los Angeles International Airport, the Daburloses bought tickets for a helicopter flight on Los Angeles Airways, Inc. (LAA) to Anaheim to visit Disneyland. On the return flight by helicopter from Anaheim to the Los Angeles Airport the helicopter crashed and the Daburloses were killed at approximately 5:55 P.M. on May 22, 1968. It is obvious that the Daburloses had no intention of returning on the scheduled TWA flight 38Y on May 22, 1968.

UAL, TWA, and LAA were scheduled air carrier operators as required by decedents' policies. In fact, LAA was the only authorized air line operating between the Los Angeles Airport and Anaheim.

Kathleen Daburlos instituted this action in diversity after the insurance companies, defendants, refused to pay the sums allegedly due on the policies. The insurance companies contend that the decedents had been killed while on a side trip which was not covered by the policies since decedents had not exchanged tickets. In the district court both parties moved for summary judgment, alleging that the facts were not in dispute and that the sole issue was the legal one of whether decedents' side trip was covered under the policies. Judge Clifford Scott Green denied these motions on the ground that a crucial factual issue required further development. This issue was stated to be the practicability or possibility of the insureds' compliance with the exchange provision. See 367 F. Supp. 1017, 1021 (E.D. Pa. 1973). Subsequently, the case was tried before Judge Green without a jury and he entered judgment in favor of the plaintiff against each of the defendants, Commercial Insurance Company of Newark, New Jersey, and Fidelity and Casualty Company of New York, in the sum of $150,000. 381 F. Supp. 393 (E.D. Pa. 1974). This appeal followed. It requires a general examination of the often-litigated issue of coverage under such policies and a specific determination of whether coverage should be afforded in this case. We affirm, though on somewhat different reasoning than that of the trial court.*fn1

I.

Initially, there can be no question that under the doctrine of conflict of laws, the Pennsylvania substantive law applies for the insurance policies in this case were issued and delivered in Pennsylvania.*fn2 Accordingly, we must decide this case in the way we believe the Pennsylvania Supreme Court would determine it. The parties concede this point, and the district court's opinion approaches the case from a Pennsylvania standpoint.

We quote from Judge Green's opinion in Daburlos, 381 F. Supp. at 395-396, as follows:

"All four insurance policies involved are identical. They contain, at the top, blocks for the identification of the insured and the beneficiary. In addition, there is one block space for point of departure and one block space for point of destination and one of two squares to be checked indicating a one way or a round-trip ticket. On each policy, Philadelphia was listed as the point of departure and Los Angeles as the point of destination and the trip designated as on a round-trip ticket. Immediately above these blocks appears the following: 'I hereby apply to Company named below for Scheduled Air Carrier (Airline) Trip Insurance to insure me on one airline trip between the Point of Departure and Destination shown below.'

"The principal clauses of the policy, as relevant here are as follows:

"'2. INSURING CLAUSE: Ticket Or Pass Requirement. The Company will pay the benefits specified below if during the term of this policy the Insured suffers loss resulting directly and independently of all other causes from accidental bodily injury (hereinafter referred to as "such injury"), sustained under circumstances specified below during the first one-way or round trip flight taken by the Insured after the purchase of this policy on Aircraft Operated by a Scheduled Air Carrier as defined below from the Point of Departure to the Destination, both shown above, and return if round trip ticket is obtained before leaving said Point of Departure, provided that at the time that the Insured sustains such injury he is traveling on a ticket or pass covering the whole of said airline trip, issued to him for transportation on an Aircraft Operated by a Scheduled Air Carrier. A ticket issued to the Insured aboard such aircraft after leaving the Point of Departure but before reaching the first scheduled stop of such aircraft shall be deemed to have been issued before leaving the Point of Departure.

"'3. SUBSTITUTE TRIP COVERED IF TICKET EXCHANGED. In case of a change in the itinerary of said first airline trip referred to in Section 2 above, following issuance of this policy and after the Insured has left the Point of Departure on said trip, the insurance afforded as set forth in Section 2 above shall no longer apply on the original itinerary but shall apply on the new itinerary in the same manner and to the same extent as it would have applied on the original itinerary, provided that (1) the transportation ticket or pass issued to the Insured for said first airline trip prior to his leaving the Point of Departure has been exchanged for another ticket or pass issued for transportation on an Aircraft Operated by a Scheduled Air Carrier on the substituted trip and (2) the Point of Departure is the same as that shown above and (3) at least one other stop on the new itinerary is a stop that was scheduled on the original itinerary for said first airline trip.

"'4. DEFINITION AND DELIMITATION OF COVERAGE. This policy applies only to such injury sustained by the Insured during such first or substituted airline trip referred to in Sections 2 and 3 above. . . .'

"These three provisions are on the front of the policy. Superimposed over these clauses, primarily clause 3, appear the following words, which are printed in half-inch high letters, outlined in red ink:

"'THIS IS A LIMITED POLICY READ IT CAREFULLY.'

"The other relevant provisions of the policy are printed on the back of the policy.

"'6. POLICY TERM. This insurance shall commence on the day and hour shown above and shall terminate either upon completion of the above described airline trip or upon expiration of, or surrender for refund or credit of, the transportation ticket hereinbefore referred to but in no event shall this insurance extend beyond a period of twelve months.

"'POLICY PROVISIONS. Entire Contract; Changes: This policy, including the endorsements and the attached papers, if any, constitutes the entire contract of insurance. No change in this policy shall be valid until approved by an executive officer of the Company and unless such approval be endorsed hereon or attached hereto. No agent has authority to change this policy or waive any of its provisions.' (Emphasis added.)"

The parties agree that the sole issue is whether decedents' failure to exchange tickets requires denial of coverage pursuant to Clause 3 of the policy.

The judgment for the plaintiff beneficiary was based on alternative holdings. First, and primarily, Judge Green found that it was factually impossible for the insureds to exchange tickets for substitute flight coverage in the manner envisioned by Clause 3 of the policy.*fn3 In Judge Green's interpretation, subsection 2 of Clause 3 permitted extension of coverage to a substitute flight if, after the insured left the point of departure, the original tickets were exchanged for new tickets which showed the original point of departure.*fn4 As a factual corollary to this interpretation, the District Judge found that had the Daburloses attempted to exchange their tickets at the Los Angeles Airport for ones giving them passage to and from Anaheim, the new tickets would have read Los Angeles to Anaheim/Disneyland, Anaheim/Disneyland to Los Angeles to Philadelphia. In other words, a three-part ticket would have been issued for each traveler which would not have shown Philadelphia as the starting point. In short, only the unused portions of the original tickets would be rewritten under air line practice. From this, Judge Green concluded that impossibility under subsection 2 of Clause 3 vitiated the need to comply with the exchange requirement of subsection 1 of that clause.

We agree with this interpretation of subsection 2 of Clause 3 of the policy. See note 4, supra. In addition, we believe that the finding of factual impossibility is not clearly erroneous under Rule 52(a), F.R. Civ. P., 28 U.S.C. On the contrary, it is supported by the overwhelming weight of the evidence.*fn5

There is much less certainty whether, under Pennsylvania law, the impossibility of performance of one section of Clause 3 obviates the necessity to comply with Clause 3's other requirements.*fn6 Defendants contend that the requirements of Clause 3 are separate in nature. They conclude that the Restatement, Contracts (1932), ยง 463 mandates performance of other bargains even though one duty proves impossible.*fn7 From this, they reason that the airlines' failure to list the point of origination on exchanged tickets does not excuse the insureds' failure to exchange tickets for a side trip. The difficulty in the defendants' position is that the law of Pennsylvania, as we understand it, has not adopted the Restatement rule.

Rather, the rule in Pennsylvania is that acts of a third party (e.g., the airlines' refusal to provide new tickets noting the original point of departure) making performance impossible do not excuse failure to perform if such acts were foreseeable. Moore v. Whitty, 299 Pa. 58, 149 A. 93 (1930); Stern Enterprises, Inc. v. Penn State Mutual Ins. Co., 223 Pa. Super. 410, 302 A.2d 511 (1973); Luria Engineering Co. v. Aetna Casualty & Surety Co., 206 Pa. Super. 333, 213 A.2d 151 (1965). The rationale of this rule is that it is the contracting party's duty to provide for such foreseeable occurrences in the contract.

However, applying this rule to the case at bar in order to reach a result is not easy. In the first place, the insurance policies involved here are classic contracts of adhesion, purchased in standardized form from defendants' counter with no opportunity for bargaining between the parties. Second, it is highly unlikely that the average airline passenger, insured under such policy, understands the ticketing requirement of Clause 3, subsection 2. Consequently, it is beyond reasonable belief that an insured could foresee the airlines' failure to perform the precise ticketing requirement. Certainly, the defendants, whose business dealings necessitate knowledge of airline operations, were better positioned to foresee this impossibility.*fn8

The district court was well aware of the paucity of Pennsylvania precedent on this particular question. 381 F. Supp. at 400. Erie R. Co. v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938) requires us to apply Pennsylvania law to this diversity action. However, we deem it best to base our decision on somewhat different lines of Pennsylvania jurisprudence than did the learned District Judge because we find the approaches we will pursue clearer and more settled.

Similar reasoning compels us to avoid the district court's alternative holding that, where at the time the policy was issued, the insurance company "knows or has reason to know that one of the conditions is inconsistent with the facts, and the insured is guilty of no fraud, the company is estopped from setting up the breach of such condition" as a defense. 381 F. Supp. at 402, n.4. Assuredly, this principle would prevent the defendants from denying coverage where the exchanged tickets did not list the original point of departure. As is the case with the impossibility issue, it is uncertain whether the Pennsylvania Supreme Court would apply the foreseeability rule to the whole of Clause 3 or would merely separate the requirements of that Clause and apply it only to subsection 2 of Clause 3. In view of our disposition, we need not reach any conclusion on either the impossibility or estoppel issues.*fn9

II.

As indicated previously, the parties have raised a number of issues, some of which lie in comparatively untilled fields of Pennsylvania law where we fear, and find it unnecessary, to tread. Instead, we prefer to pursue other plainer paths of Pennsylvania law. As did the court below, we also prefer to ...


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