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J.A12038/04
2004 PA Super 381

THE INSURANCE ADJUSTMENT BUREAU, :
IN THE SUPERIOR COURT OF
INC.,





:

PENNSYLVANIA



Appellant

:







:



vs.


:







:
ALLSTATE INSURANCE COMPANY,
:
Appellee
: No.
3101
EDA
2003


Appeal from the Order dated September 11, 2003
In the Court of Common Pleas of Philadelphia County
Civil, No. 3448, November Term, 2002


THE INSURANCE ADJUSTMENT BUREAU, :
IN THE SUPERIOR COURT OF
INC.,





:

PENNSYLVANIA



Appellant

:







:



vs.


:







:
ALLSTATE INSURANCE COMPANY,
:
Appellee
: No.
3256
EDA
2003


Appeal from the Judgment entered October 6, 2003
In the Court of Common Pleas of Philadelphia County
Civil, No. 3448, November Term, 2002


BEFORE: STEVENS, MONTEMURO,* AND KELLY, JJ.
***Petition for Reargument Filed October 14, 2004***
OPINION BY KELLY, J.: Filed: September 30, 2004

***Petition for Reargument Denied December 2, 2004***
1 In this consolidated appeal, Appellant, Insurance Adjustment Bureau,
Inc. ("IAB"), appeals from the order entered in the Philadelphia County
Court of Common Pleas, which sustained the preliminary objections in the
nature of a demurrer of Appellee Allstate Insurance Company ("Allstate") to
IAB's complaint; and the judgment entered in favor of Allstate and against
* Retired Justice assigned to the Superior Court.

J.A12038/04

IAB. We are called upon to determine whether an assignee may sue an
insurer for a percentage of insurance proceeds after the insured has
terminated its relationship with the assignee prior to settlement and whether
an assignee may recover from an insurer for conversion where the insurer's
initial obligation to pay the assignee arose out of a contract between the
insured and the assignee. We hold that IAB did not retain the right to sue
Allstate because IAB's services were terminated prior to settlement.
Further, we hold that the trial court properly dismissed IAB's conversion
claim. Accordingly, we affirm the order sustaining Allstate's preliminary
objections in the nature of a demurrer and dismissing IAB's complaint with
prejudice; and we affirm the judgment entered in favor of Allstate and
against IAB.
2 The relevant facts and procedural history are as follows. In June,
2002, Blane Stufflet and Mark Gust owned real property in Blandon,
Pennsylvania. Allstate insured their property pursuant to a homeowner's
policy. On June 5, 2002, a fire damaged the insureds' residence. On June
7, 2002, the insureds enlisted the services of IAB, a public adjuster, to assist
in handling the losses from the fire. In accordance with this arrangement,
the parties signed a contract, which read in pertinent part:
The insured agrees to pay [IAB] for such services, a fee of
10% of the amount paid or agreed to be paid by the
insurance companies in settlement of the loss, and
reasonable expenses, hereby assigning to [IAB] all monies
due or to become due from the insurance companies. The
fee shall be due after proofs of loss are sworn to and/or

- 2 -

J.A12038/04

first proceeds issued. [IAB] hereby agrees to perform the
said services and to receive therefore the consideration
described above. This agreement contains the entire
agreement between the parties and may not be changed,
altered or amended except by a writing signed by all the
parties hereto.

* * *

You, the insured may cancel this contract at any time prior
to midnight of the fourth calendar day after the date of this
contract.

(Insureds' Agreement with IAB, dated June 7, 2002). IAB provided timely
notice of this agreement to Allstate and worked with Allstate in adjusting the
claim. On August 7, 2002, the insureds terminated the services of IAB.
3 Allstate subsequently issued a settlement check to the insureds for
losses sustained as a result of the fire, but did not include IAB's name as a
payee on the check. On November 25, 2002, IAB filed a complaint alleging
breach of contract, conversion, and breach of assignment against Allstate, as
IAB had not been paid for its services. Allstate raised preliminary objections
in the nature of a demurrer to IAB's complaint. On April 7, 2003, the court
sustained Allstate's objections and granted IAB a limited right to amend its
complaint to include an allegation that Allstate gave its written consent to
assignment of the proceeds. On May 5, 2003, IAB filed a motion for
reconsideration of the April 7th order. On May 9, 2003, the trial court
vacated the April 7th order and directed Allstate to respond to IAB's motion.
On June 20, 2003, the court denied IAB's motion for reconsideration, and
reinstated the April 7th order sustaining Allstate's preliminary objections.

- 3 -

J.A12038/04

4 On July 2, 2003, IAB filed a notice of appeal. This Court quashed that
appeal because the trial court failed to expressly dismiss IAB's complaint.
On remand, the trial court issued an order, entered September 11, 2003,
indicating the action would be dismissed with prejudice unless IAB amended
its complaint within twenty (20) days to include specific averments that
Allstate gave its written consent to IAB's assignment. IAB never filed an
amended complaint and on October 6, 2003, the court entered judgment in
favor of Allstate and against IAB. These consolidated appeals followed.
5 IAB raises the following issue for our review:
DID THE [TRIAL] COURT ERR IN SUSTAINING
[ALLSTATE'S] PRELIMINARY OBJECTIONS AND
DISMISSING [IAB'S] COMPLAINT ON THE BASIS THAT AN
INSURED'S TERMINATION OF THE SERVICES OF A PUBLIC
ADJUSTER, AFTER THE PUBLIC ADJUSTER PERFORMED ITS
SERVICES, SERVED, AS A MATTER OF LAW, TO
EFFECTIVELY REVOKE AN ASSIGNMENT OF INSURANCE
PROCEEDS PREVIOUSLY PROVIDED THE PUBLIC ADJUSTER
BY THE INSURED, WHICH CONSIDERATION THE PUBLIC
ADJUSTER RELIED UPON IN PERFORMING ITS SERVICES?

(IAB's Brief at 4).
6 This Court has set forth the following principles for reviewing
challenges to orders granting preliminary objections. In matters requiring
the dismissal of an action based on preliminary objections in the nature of a
demurrer, this Court's scope of review is plenary. Belser v. Rockwood
Casualty Ins. Co., 791 A.2d 1216, 1219 (Pa.Super. 2002) (internal
citations omitted). "A reviewing court must decide the merits of the
preliminary objections `solely on the basis of the pleadings' and not on

- 4 -

J.A12038/04

testimony or evidence outside the complaint." Id. (quoting Williams v.
Nationwide Mut. Ins. Co., 750 A.2d 881, 883 (Pa.Super. 2000)).
A preliminary objection in the nature of a demurrer tests
the legal sufficiency of the complaint. The standard of
review to be used in deciding such preliminary objections
is also well-settled:

When reviewing an order granting preliminary
objections in the nature of a demurrer, an appellate
court applies the same standard employed by the
trial court: all material facts set forth in the
complaint as well as all inferences reasonably
deducible therefrom are admitted as true for the
purposes of review. The question presented by the
demurrer is whether, on the facts averred, the law
says with certainty that no recovery is possible.
Where any doubt exists as to whether a demurrer
should be sustained, it should be resolved in favor of
overruling the demurrer.

Vulcan v. United of Omaha Life Ins. Co., 715 A.2d 1169, 1172
(Pa.Super. 1998) (internal citations and quotation marks omitted).
7 IAB argues the insureds assigned their contractual rights against
Allstate to IAB through the June 7, 2002 service agreement. IAB contends
the insureds' subsequent termination of IAB's services did not constitute an
effective revocation of this assignment. IAB maintains an assignment of
rights given in exchange for valuable consideration is irrevocable. IAB
believes the services it performed for the insured in exchange for the
insured's promise to assign ten (10) percent of the policy proceeds to IAB
constituted valuable consideration. Thus, IAB concludes it had a continuing

- 5 -

J.A12038/04

right to the insurance proceeds from Allstate even after the insureds
terminated IAB's services. We disagree.
8 An assignee stands in the shoes of the assignor and assumes all of his
rights. See Smith v. Cumberland G., Ltd., 687 A.2d 1167, 1172
(Pa.Super. 1997). "An assignee of a claim is an agent of the assignor only if
the latter retains an interest in, and control over, the claim." Restatement
of Agency, 2d. 14 G. "An agent represents his principal in business
dealings and is employed to establish contractual relations between the
principal and third persons...." Dorn v. Stanhope Steel, Inc., 534 A.2d
798, 803 (Pa.Super. 1987), appeal denied, 518 Pa. 656, 544 A.2d 1342
(1988) (citation omitted). Furthermore, "the principal has power to revoke
and the agent has power to renounce, although doing so is in violation of a
contract between the parties and although the authority is expressed to be
irrevocable...." Restatement of Agency, 2d. 118 (b).
9 Instantly, IAB references two documents in its complaint to support a
breach of contract action against Allstate: (1) the homeowner's insurance
policy between the insureds and Allstate, and (2) the June 7th service
agreement between IAB and the insureds. On the face of these contracts,
IAB and Allstate were not parties to the same agreement. However, IAB's

- 6 -

J.A12038/04

breach of contract claim against Allstate can survive if Allstate was obligated
to pay IAB after the insureds terminated IAB's services. 1
10 Instantly, the insureds retained control over the insurance policy itself,
having assigned a portion (10%) of the benefits to IAB. Further, IAB
represented the insureds in contractual relations with third parties while
negotiating the settlement between Allstate and the insureds. Thus, the
service agreement between IAB and the insureds created a principal-agent
relationship in which the principal/assignor retained the power of revocation
despite any language in IAB's agreement to the contrary. See id.
11 In DeBenedictis v. Hagen, 890 P.2d 529 (Wash. App. Div. 1995),
the Washington State Appellate Court found an assignment for collection of
debts created a principal-agent relationship between the assignor and
assignee. The principal then terminated the agent's services prior to
settlement with the debtor. See Restatement of Agency, 2d. 118. This
termination permitted the agent/assignee to claim damages against the

1 As the trial court noted, we recognize the conflict in this jurisdiction
regarding the validity of non-assignment clauses after a loss has occurred.
See National Memorial Services, Inc. v. Metropolitan Life Ins. Co., 48
A.2d 143 (Pa.Super. 1946), affirmed, 355 Pa. 155, 49 A.2d 382 (1946)
(holding where non-assignment clause is contained in insurance policy,
consent to assign insurance policy is not required when assignment occurred
after loss). But see Fran and John's Doylestown Auto Center, Inc. v.
Allstate Ins. Co. 638 A.2d 1023 (Pa.Super. 1994) (holding where non-
assignment clause is contained in insurance policy, written consent to assign
is required although proceeds were assigned after loss); see also High-
Tech-Enterprises, Inc. v. General Accident Ins. Co., 635 A.2d 639
(Pa.Super. 1993). However, we do not find it necessary to decide this issue
as neither the trial court nor IAB relied heavily on this preliminary matter in
their analyses.

- 7 -

J.A12038/04

principal/assignor for breach of contract. More significantly, however, the
court noted that this was the assignee's only remaining legal right and
dismissed the assignee's claim against the debtor. See DeBenedictis,
supra.
12 We recognize DeBenedictis, supra is persuasive and analogous to
the facts in the instant case. Despite the consideration provided by IAB, the
termination of its services prior to settlement would have allowed IAB to sue
the insureds for breach of contract. However, IAB no longer retained the
right to sue Allstate. Thus, the trial court properly dismissed IAB's breach of
contract and breach of assignment claims against Allstate. See id.
13 Next, IAB argues Allstate's failure to pay IAB from the insurance policy
proceeds amounted to conversion of funds that IAB had a right to possess.
We disagree.
14 In Pittsburgh Const. Co. v. Griffith, 834 A.2d 572 (Pa.Super. 2003),
appeal denied, ___ Pa. ___, 852 A.2d 313 (2004), this Court stated:
Conversion is a tort by which the defendant deprives the
plaintiff of his right to a chattel or interferes with the
plaintiff's use or possession of a chattel without plaintiff's
consent and without lawful justification. A plaintiff has a
cause of action in conversion if he or she had actual or
constructive possession of a chattel at the time of the
alleged conversion. Money may be the subject of
conversion. However the failure to pay a debt is not
conversion.

In general, courts are cautious about permitting tort
recovery based on contractual breaches. In keeping with
this principle, this court has recognized the `gist of the
action' doctrine, which operates to preclude a plaintiff from

- 8 -

J.A12038/04

recasting ordinary breach of contract claims into tort
claims.

* * *

However, a breach of contract may give rise to an
actionable tort where the wrong ascribed to the defendant
is the gist of the action, the contract being collateral.

* * *

In other words, a claim should be limited to a contract
claim when the parties' obligations are defined by the
terms of the contracts, and not by the larger social policies
embodied by the law of torts.

Id. at 581-82 (citations and quotation marks omitted) (emphasis added).
Furthermore, the Federal Court, applying Pennsylvania law, has not allowed
conversion claims to be based on a refusal to pay insurance policy proceeds.
See Leonard A. Feinberg, Inc. v. Central Asia Capitol Corp. Ltd., 974
F.Supp. 822 (E.D. Pa. 1997) (stating conversion will not lie where converter
borrowed money, collected money to satisfy a debt, refused to return
proceeds already paid under insurance contract, or refused to pay proceeds
of insurance policy).
15 In the instant case, the essence of IAB's claim is a breach of contract
action. Allstate's initial obligation to pay IAB arose out of the contract
created between the insured and IAB and not out of a separate duty in tort.
The contract claim is not collateral to the alleged wrongdoing; rather, it lies
at the center of IAB's claims. See Pittsburgh Const. Co., supra.

- 9 -

J.A12038/04

Moreover, proceeds from an insurance policy are an improper subject of a
conversion claim. See Leonard A. Feinberg, Inc., supra.
16 Based upon the foregoing analysis, we hold that IAB did not retain the
right to sue Allstate because IAB's services were terminated prior to
settlement. Further, we hold that the trial court properly dismissed IAB's
conversion claim against Allstate. Accordingly, we affirm the order
sustaining Allstate's preliminary objections in the nature of a demurrer and
dismissing IAB's complaint with prejudice; and we affirm the judgment
entered in favor of Allstate and against IAB.
17 Order and judgment affirmed.


- 10 -

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