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The mend-the-hold doctrine, as used in law, has been unheralded in Pennsylvania for nearly a century. “Mend the hold” was coined in wrestling. It was said that when wrestlers began to lose their grip on an adversary, they would “mend the hold” to reassert their position of strength. In the law, this phrase came to describe a situation in which a party to a contract at first gave one reason for non-performance, only to later proffer a different reason for the same non-performance. This sudden change in position often accompanied the onset of litigation, as the alleged breaching party sought a seemingly stronger justification for its conduct. This doctrine has, perhaps, its greatest resonance in insurance law, in which differences in bargaining power, as well as in legal, financial and investigatory resources between parties, are often severe, and good faith can be stretched to its limit. However, in insurance coverage litigation, while the mend-the-hold doctrine remained obscure, the doctrines of “reasonable expectations” and “contra proforentum” have grabbed the spotlight. The time is ripe for Pennsylvania courts and practitioners to return to this doctrine and place it in proper perspective against the broader backdrop that informs all contractual obligations: the duty of good faith and fair dealing. By reconceiving this age-old doctrine, Pennsylvania courts and practitioners will wield a powerful tool to ensure that insurance companies deal fairly with their policyholders. ORIGINATION The U.S. Supreme Court seminally applied the mend-the-hold doctrine to a contract dispute in Railway Co. v. McCarthy, 96 U.S. 258 (1877). In McCarthy, the defendant railroad took the position that it could not perform under the contract at issue because it lacked the necessary number of rail cars. Later, the railroad suggested that it was unable to perform the contract because of a state Sunday-closing law. The U.S. Supreme Court refused to consider the change of position by the railroad company, holding that “where a party gives a reason for his conduct and decision touching any thing involved in a controversy, he cannot, after litigation has begun, change his ground, and put his conduct upon another and a different consideration.” “He is not permitted thus to mend his hold,” the court continued. PENNSYLVANIA ADOPTION Citing with approval the McCarthyopinion, the Pennsylvania Supreme Court adopted the mend-the-hold doctrine. In one case, for example, an insurance company canceled a contract because of non-payment but then argued that it had the right to cancel because of the insolvency of its fellow contracting party. The state supreme court, citing Honesdale Ice Co. v. Lake Ladore Improvement Co., 232 Pa. 293, 300-01, 81 A. 306, 307 (1911), held that the insurance company could not add a reason for denial that had not been initially expressed. The court noted that “the trend of our decisions has been to hold insurance companies to good faith and frankness in not concealing the ground of defense, and thus misleading the insured to his disadvantage.” “Having specified a ground of defense, very slight evidence had been held sufficient to establish a waiver as to other grounds,” the court said. Detrimental reliance constituted this “very slight evidence,” as equitable estoppel formed the basis of the mend-the-hold doctrine in early decisions of the state supreme court, in part basing the mend-the-hold doctrine on plaintiffs’ having completed presentation of their entire case prior to defendant raising the new defense. This requirement makes sense historically. In the first years of the last century, reliance-based doctrines such as equitable and promissory estoppel were the primary sources of redistributive justice in contract law. In a word, they made the law equitable. And previously discussed, it would be decades before affirmative notions of good faith and commercial reasonableness became ubiquitous norms of contract law that could complement established reliance-based doctrines. Since these early cases, however, the mend-the-hold doctrine has disappeared from the reported decisions of Pennsylvania courts. Thus, Pennsylvania courts have not had the occasion to address the proper theoretical basis for this doctrine. Still, courts in other jurisdictions have continued to apply and scrutinize this doctrine, and it is to those courts that Pennsylvania courts should look as they bring “mend the hold” into the modern era. RECONCEPTION In a very instructive case, the 7th U.S. Circuit Court of Appeals used, and in the process clarified, the mend-the-hold doctrine to reverse a trial court ruling that refused a policyholder the opportunity to offer evidence of inconsistent positions taken by insurance companies that had sold directors and officers insurance policies, called D&O insurance policies; Harbor Ins. Co. v. Continental Bank Corp., 922 F.2d 357 (7th Cir. 1990). In Harbor, the policyholder bank collapsed, and its stock became virtually worthless. While underlying actions alleging securities fraud against the policyholder were pending, insurance companies that had sold the D&O insurance policies filed a declaratory judgment action asserting that they were not liable to the policyholder because “the behavior of the directors had been so egregious” that indemnification was “offensive to public policy.” After the policyholder had settled the underlying claims, the insurance companies changed their tune, arguing that the policyholder had settled the cases prematurely and that the directors had been guilty of no misconduct at all. Writing for the court in Harbor, Judge Richard Posner held that an insurance company cannot change the grounds upon which it bases a denial of coverage after recognizing the assailability of its original ground. In reversing the trial court’s ruling, the 7th Circuit ordered a new trial in which the insurance companies would not be permitted to manipulate their bases for denying coverage absent changed circumstances. Instead, the jury would be instructed that the insurance companies were not allowed to change their initial coverage defense unless the change was based on new information that could not have been previously obtained or on some other changed circumstance to which the insurance companies could properly respond without violating their duty of good faith. Of critical importance in Harboris this last observation of Posner that the duty of good faith and fair dealing that is found in every insurance policy is the “modern rationale” for the mend-the-hold doctrine. This point is noteworthy for several reasons. First, it is axiomatic in Pennsylvania that “every contract imposes on each party a duty of good faith and fair dealing in its performance and enforcement,” quoting the Restatement (Second) of Contracts, Section 205 (1981), and that “good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party,” quoting Restatement (Second) of Contracts Section 205. The Restatement of Contracts all but explicitly acknowledges mend the hold in its discussion of good faith in enforcement. Comment e to Section 205 describes good faith in enforcement as “asserting an interpretation contrary to one’s own understanding … and abuse of a power to determine compliance” with contractual provisions; Restatement (Second) of Contracts Section 205. The restatement goes on to state that if a buyer rejects goods “on the erroneous ground that delivery was late, [the buyer] is thereafter precluded from asserting other unstated grounds then known to the buyer which [the seller] could have cured if stated seasonably.” This is exactly how Posner posited mend the hold in Harbor: Unless the new defense was based on new information that could not have been previously obtained by the insurance company, the new defense should be precluded. Asserting the new defense would contravene the duty of good faith. Therefore, the mend-the-hold doctrine is in keeping with the duty of good faith and fair dealing and serves to enforce insurance companies’ duty to conduct a thorough and intelligent investigation, which itself derives from the duty of good faith. Identifying mend the hold with good faith is consistent historically with the development of the law of contract as well. The Pennsylvania Supreme Court last visited the mend-the-hold doctrine in 1927. In the interim, good faith has become universally accepted as an obligation imposed on all contracting parties not only in Pennsylvania, but also across the nation and the world. NO DETRIMENTAL RELIANCE While mend the hold is sometimes characterized as a rule of waiver or estoppel, it is best identified as a method of enforcing a contracting party’s duty of good faith. Unlike many “estoppels,” the mend-the-hold doctrine does not require detrimental reliance. Under equitable estoppel — the theoretical backbone of mend the hold when it was last employed by the Pennsylvania Supreme Court — a non-breaching party must prove detrimental reliance. If detrimental reliance were required for mend the hold, however, an insurance company could flip-flop justifications for its conduct, even though it knew, or should have known on the basis of its duty to conduct a thorough, intelligent investigation, of the facts that support the new justification, as long as its policyholder could not prove that it detrimentally relied on the insurance company’s original justification. Good faith, of course, asks more of contracting parties. Good faith is normative, imposing on parties a duty to act honestly, in a commercially reasonable manner, and with faithfulness to an agreed-upon, common purpose. A violation of good faith does not depend on the detrimental reliance of a non-breaching party; rather, such a violation lies when a party fails to uphold the spirit of the bargain and the expectations of the parties to a contract. To allow a party to mend the hold merely because a non-breaching party could not prove detrimental reliance would excuse an entire category of conduct that necessarily violates the duty of good faith. A party need not demonstrate reliance to prove a failure to act in good faith; so it should be with its corollary, the mend-the-hold doctrine. This is not to say that a policyholder that can prove that it relied to its detriment on an insurance company’s purported justification for a coverage denial is without redress. Such reliance will continue to support a claim of equitable estoppel, but it need not be proved to preclude an insurance company from mending its hold. An insurance company may be precluded from asserting a new defense after any original denial of coverage because of the following factors: The information necessary for the new defense was known, or could have been obtained by, the insurance company prior to its initial denial of coverage — i.e., based on the mend-the-hold doctrine and the duty of good faith. The policyholder detrimentally relied on the insurance company’s initial denial of coverage that did not contain the new defense — i.e., based on equitable estoppel. Both of the above. Put differently, while grounding mend the hold on equitable estoppel would excuse certain conduct that does not comport with the duty of good faith, grounding mend the hold in good faith does nothing to the autonomy of equitable estoppel or other reliance-based claims, while maintaining the legitimacy of good faith. By bringing the mend-the-hold doctrine within the broader purview of the duty of good faith and fair dealing, the Harboropinion reconceives and enlivens this doctrine, charting a course for Pennsylvania courts to follow. Properly construed, mend the hold is nothing more than a doctrinal mechanism for the application and enforcement of the duty of good faith and fair dealing. The mend-the-hold doctrine ensures that insurance companies are “honest in fact” and do not alter their purported justification for a coverage denial after the initial justification proves meritless or some new justification is hatched. Such mend-the-hold tactics do not comport with notions of good faith and should be treated accordingly. Hence, recognizing the mend-the-hold doctrine as a corollary of the duty of good faith not only reconceives and strengthens the doctrine, but also reinforces the historical advancement and purposive legitimacy of good faith itself. Pennsylvania law on this subject embodies an understanding that good faith cannot be ignored by parties and tortured in fits of lexical abstraction by lawyers and courts. Mend the hold fits nicely in this larger framework and should be applied more frequently in the commonwealth’s efforts to uphold the obligations imposed on insurance companies and combat insurance company bad faith. Nicholas M. Insua is a junior shareholder in the Philadelphia office of Anderson Kill & Olick. Insua’s practice concentrates on the representation of policyholders in disputes with their insurance companies.

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