J-A01041-25
NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT O.P. 65.37
SPILLED MILK, INC. D/B/A : IN THE SUPERIOR COURT OF PHILLYRUBBER.COM : PENNSYLVANIA : Appellant : : : v. : : : No. 240 EDA 2024 NAUTILUS INSURANCE COMPANY, : MICHAEL R. SHELLY, ZENITH PUBLIC : ADJUSTERS, LLC, AND LIBERTY : PUBLIC ADJUSTERS, LLC :
Appeal from the Order Entered December 11, 2023 In the Court of Common Pleas of Philadelphia County Civil Division at No(s): 220601343
BEFORE: DUBOW, J., KING, J., and SULLIVAN, J.
MEMORANDUM BY SULLIVAN, J.: FILED OCTOBER 28, 2025
Spilled Milk, Inc. d/b/a PhillyRubber.com (“Spilled Milk”), the plaintiff
below, appeals from the final judgment entered after the trial court, in
relevant part, sustained the preliminary objections in the nature of demurrer
filed by one of the defendants, Nautilus Insurance Company (“Nautilus”), and
assessed damages against the remaining defendants. Because the trial court
misapplied the standard of review when deciding Nautilus’s preliminary
objections, we vacate the judgment in part, reverse the dismissal of the
Spilled Milk’s claims against Nautilus, and remand this matter for further
proceedings.
We summarize the factual background relevant to this appeal based
upon the facts alleged in Spilled Milk’s amended complaint. Spilled Milk J-A01041-25
manufactures rubber products and had a commercial insurance policy with
Nautilus (the “policy”). See Spilled Milk’s Am. Compl., 8/16/22, at ¶¶ 2, 25.
Spilled Milk suffered a loss at a factory in Philadelphia and retained Zenith
Public Adjusters, LLC (“Zenith”) to advise and assist in the adjustment of an
insurance claim with Nautilus. See id. at ¶¶ 4, 54-58. An employee of Spilled
Milk signed a letter of representation under Zenith’s letterhead, which Nautilus
received, and which read:
This is to certify that Zenith . . . is hereby retained to advise and assist in the adjustment of the insurance claim arising from [the] loss . . ..
I/we request that all correspondence relating to this loss be directed solely to Zenith . . ..
Please include the name Zenith . . . on all drafts or checks pertaining to th[e] loss and please forward all of the same to Zenith . . . at the above address [in Newtown Square].
See id., Ex. 2 (hereinafter cited as “Ltr. of Representation, 1/23/19”).
Michael R. Shelly (“Shelly”) was an officer with Zenith, but he also
controlled an entity referred to as Liberty Public Adjusters, LLC (“Liberty”).
See id. at ¶¶ 9, 31-32. Shelly settled Spilled Milk’s insurance claim with
Nautilus, and he instructed Nautilus to pay Liberty. See id. at ¶¶ 9, 70-72.
Nautilus issued a total of $722,468.41 in checks (“the proceeds”) to Liberty,
and at least two of those checks named Spilled Milk and Liberty as joint
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payees. See id. at ¶¶ 13; see also id., Ex. 5.1 Neither Nautilus nor Shelly
informed Spilled Milk of the settlement or the payments of the proceeds, and
Shelly thereafter stole the proceeds. See id. at ¶¶ 12, 14-15. When Spilled
Milk learned of the settlement and payments to Liberty, Spilled Milk demanded
Nautilus pay Spilled Milk directly for its insurance claim. See id. at ¶ 16.
Spilled Milk’s and Nautilus’s attorneys exchanged a letter denying Spilled
Milk’s demand, a letter in response to the denial, and a letter in reply to the
response. See id. at ¶¶ 89-106; see also id., Exs. 5-7. In explaining the
denial of Spilled Milk’s demand, Nautilus’s counsel indicated Nautilus would
not reissue checks to replace the proceeds stolen by Spilled Milk’s agent. See
id., Ex. 7, at 2.2
Spilled Milk commenced the underlying action against Nautilus, Shelly,
Zenith, and Liberty. As set forth in its amended complaint, Spilled Milk
____________________________________________
1 The amended complaint included copies of two checks. See Spilled Milk’s Am. Compl., 8/16/22, Ex. 5. Those checks indicate Nautilus paid $672,486.41 of the proceeds to the order of “Spilled Milk Inc. dba PhillyRubber.com & Liberty Public Adjusters LLC.” See id. (some capitalization omitted) The backs of those checks include handwritten endorsement by Spilled Milk and “Liberty Public Adjusters dba Zenith Public Adjusters.” See id. (some capitalizations omitted). There is no indication Spilled Milk endorsed those checks.
2 The amended complaint referred to a consent order between the Insurance
Department of Pennsylvania and Shelly and Zenith which found Shelly and Zenith failed to remit $722,486.41 to Spilled Milk, as well as Shelly’s conviction for criminal offenses. See id. at ¶¶ 83-85. Although the consent order was not attached to the amended complaint, it was later added to the record as an exhibit. The consent order did not mention Liberty, and the record contains no further clarification on what, if any, corporate relationship there had been between Zenith and Liberty.
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asserted Nautilus made unauthorized payments to an improper party, i.e.,
Liberty, and failed to inform or consult with Spilled Milk before so doing. See
id. at ¶¶ 10-13. For those reasons, Spilled Milk suggested that Nautilus had
yet to properly pay for Spilled Milk’s insurance claim. In count I of the
amended complaint, Spilled Milk claimed that Nautilus’s improper payment to
Liberty and refusal to pay Spilled Milk’s subsequent demand constituted
breaches of the insurance policy and Nautilus’s duty of good faith and fair
dealing. See id. at ¶¶ 114-25. In count II, Spilled Milk claimed Nautilus’s
refusals of Spilled Milk’s demands constituted a bad faith in violation of 42
Pa.C.S.A. § 8371. See id. at ¶¶ 132-35.3 In count III, Spilled Milk raised an
alternative claim that Nautilus was unjustly enriched by keeping Spilled Milk’s
premiums without making a proper payment to Spilled Milk. See id. at ¶¶
137-40.
3 Section 8371 states:
In 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%.
(2) Award punitive damages against the insurer.
(3) Assess court costs and attorney fees against the insurer.
42 Pa.C.S.A. § 8371.
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Nautilus filed preliminary objections and, in relevant part, challenged
the legal sufficiency of the three counts against it. Nautilus maintained that
it properly paid for Spilled Milk’s loss “as directed by [Spilled Milk’s] authorized
agent, Zenith.” Nautilus’s Prelim. Objs. to Am. Compl., 9/6/22, at ¶ 30.
Nautilus noted that it included Spilled Milk as a joint payee on checks it issued,
which would have required Shelly to forge Spilled Milk’s endorsements. See
id. at ¶¶ 31-32. Nautilus further claimed that it had no duty to communicate
with Spilled Milk about the request to pay Liberty because the letter of
representation had instructed Nautilus to direct all correspondence related to
the loss solely to Zenith. See id. at ¶¶ 26-27. Nautilus concluded that Spilled
Milk’s allegations against it for breach of contract (count I) were legally
insufficient because the amended complaint established only that Spilled Milk
was a victim of the criminal actions of Spilled Milk’s own agent. See id. at ¶¶
28-30 (citing Rothman v. Fillette, 469 A.2d 543 (Pa. 1983)). Nautilus
continued that the remaining claim for bad faith (count II) failed because
Nautilus had a reasonable basis to deny Spilled Milk’s demand for a second
payment for the loss, and that the Spilled Milk could not sustain a claim for
unjust enrichment (count III) because there had been a written insurance
policy between Spilled Milk and Nautilus. See id. at ¶¶ 40, 55-56.
The trial court sustained Nautilus’s preliminary objections and dismissed
all counts against Nautilus. The trial court determined that “Nautilus fulfilled
its contractual duty and honored its insurance policy covering Spilled Milk, but
[Zenith] never transferred the money to [Spilled Milk].” Order, 1/6/23, at 1.
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Citing Rothman for the principle that “where one of two innocent persons
must suffer because of the fraud of a third, the one who has accredited him
must bear the loss[,]” the trial court reasoned that Spilled Milk bore the loss
caused by the criminal activity of its own agent. See id. (quoting Rothman,
469 A.2d at 545). The trial court concluded, “There [wa]s no breach of
contract and no bad faith,” and there could be no unjust enrichment because
Nautilus did not benefit from Zenith’s fraud. Id. Nautilus, the trial court
emphasized, could not be made to pay twice for Spilled Milk’s loss. See id.
Spilled Milk thereafter obtained default judgments against Shelly,
Zenith, and Liberty. Following a hearing on damages, the trial court entered
a judgment against Shelly, Zenith, and Liberty. 4 Spilled Milk timely appealed.
The trial court did not order a Pa.R.A.P. 1925(b) statement but filed a separate
opinion, wherein the court further reasoned:
Spilled Milk[’s] argument rests on a claim that it never authorized Nautilus to name Liberty as a payee on the checks that Nautilus sent to Shelly. The flaw is that Nautilus also named Spilled Milk as a payee and therefore Nautilus did not rely on an instruction from one of Michael Shelly’s employees to protect its policyholder. Aware that Spilled Milk had contracted with a licensed insurance public adjustor, Nautilus rightfully expected the public adjustor to honor its own duty to Spilled Milk. Even so, just in case, Nautilus made sure that Spilled Milk was named as a separate payee who would
4 Specifically, the trial court entered a judgment against Shelly, Zenith, and
Liberty, jointly and severally, awarding Spilled Milk $708,767.74. See Order, 12/11/23, at 1. We note that the amended complaint averred that Shelly had repaid Spilled Milk $143,241.29. The damages hearing also contained some evidence that Shelly made some restitution payments as part of his criminal conviction.
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have to endorse the checks before any bank could legally agree to release the money.
In short, demurrer was granted because the law does not assess Spilled Milk’s criminal loss to Nautilus.
****
Having chosen . . . Shelly and his public adjustment businesses, Spilled Milk cannot assess its loss to Nautilus which was never a party to Spilled Milk’s public adjustor contract.
Trial Ct. Op., 5/29/24, at 3-4 (footnote omitted) (emphases added).
Spilled Milk raises the following issues for our review:
A. Did the trial court commit an error of law and an abuse of discretion by failing to accept as true all well-pleaded material and relevant facts in the amended complaint and by basing its decision sustaining Nautilus’s preliminary objections on unsupported factual claims that contradict facts [Spilled Milk] pleaded?
B. Did the trial court commit an error of law and abuse its discretion by basing its decision sustaining Nautilus’s preliminary objections on the trial court’s factually unsupported causation finding, which is a determination reserved for the jury?
C. Did the trial court commit an error of law and abuse its discretion by sustaining Nautilus’s preliminary objections to count I for breach of contract?
D. Did the trial court commit an error of law and abuse its discretion by sustaining Nautilus’s preliminary objections to count II for violation of 42 Pa.[C.S.A.] § 8371?
E. Did the trial court commit an error of law and abuse its discretion by sustaining Nautilus’s preliminary objections to count III for unjust enrichment?
Spilled Milk’s Br. at 4-5 (some capitalizations omitted).
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When reviewing a decision to sustain preliminary objections in the
nature of demurrer, this Court and the trial court apply the same standard,
which our Supreme Court has summarized as follows:
A trial court may sustain a demurrer, and thereby dismiss a claim, only when the law is clear that a plaintiff is not entitled to recovery based on the facts alleged in the complaint. In determining the merits of a demurrer, all well-pleaded, material facts set forth in the complaint and all inferences fairly deducible from those facts are considered admitted and are accepted by the trial court as true; conclusions of law are neither deemed admitted nor deemed true.
Ins. Adjustment Bureau, Inc. v. Allstate Ins. Co., 905 A.2d 462, 468 (Pa.
2006) (internal citations omitted). “Preliminary objections which seek the
dismissal of a cause of action should be sustained only in cases in which it is
clear and free from doubt that the pleader will be unable to prove facts legally
sufficient to establish the right to relief.” Godlove v. Humes, 303 A.3d 477,
481 (Pa. Super. 2023) (internal citation omitted). A court should resolve any
doubts as to whether a demurrer should be sustained in favor of overruling
the preliminary objections. See id.
In its first two issues, which are related, Spilled Milk claims the trial
court misapplied the standard of review. Spilled Milk contends the trial court
predicated its decision on findings of facts which lacked support in the material
facts in the amended complaint and which were not ripe for resolution on
preliminary objections. See Spilled Milk’s Br. at 22-23.5 Specifically, Spilled
5 Because the trial court did not order a Rule 1925(b) statement, it did not
specifically address these first two issues.
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Milk challenges the trial court’s statements that Spilled Milk had chosen, as its
agent, Shelly and his businesses, a plural reference apparently to Zenith and
Liberty. See id. at 22. Further, Spilled Milk further avers the trial court’s
suggestion that Nautilus did not rely on instructions by one of Shelly’s
employees because, while Nautilus added Liberty as a payee to checks it
issued, it included Spilled Milk as a joint payee. See id. Spilled Milk suggests
the trial court also improperly found facts that Nautilus could not have
contributed or caused the theft of the proceeds because it included Spilled Milk
as a joint payee on those checks. See id. at 24-25.
Following our review, we agree the trial court misapplied the standard
of review when dismissing Spilled Milk’s claims against Nautilus. Here, the
amended complaint stated Spilled Milk had contracted with Zenith, not with
Shelly or any other of his businesses. Compare Spilled Milk’s Am. Compl.,
8/16/22, at ¶ 5 with Trial Ct. Op., 5/29/24, at 3. The letter of representation
provided that Spilled Milk had retained Zenith and instructed Nautilus to
include Zenith on drafts or checks pertaining to the loss. See Ltr. of
Representation, 1/23/19, at 1. The letter of representation also instructed
that correspondence and payments be directed to Zenith; but, according to
the amended complaint, Nautilus disregarded Spilled Milk’s instruction and
instead accepted Shelly’s instructions to issue the proceeds to Liberty. See
Spilled Milk’s Am. Compl., 8/16/22, at ¶¶ 72-77. As pleaded, these material
facts, which must be taken as true for the purpose of demurrer, could support
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a conclusion that Nautilus issued the proceeds to an unauthorized party. See
id., at ¶¶ 78-79.
Moreover, we are constrained to note that the trial court’s opinion
imputed certain motives, intentions, or expectations behind Nautilus’s decision
to name Spilled Milk as a joint payee along with Liberty. See Trial Ct. Op.,
5/29/24, at 3 (suggesting that Nautilus did not rely on instructions to pay
Liberty, named Spilled Milk as a joint payee “to protect its policyholder[,]” and
“Nautilus rightfully expected the public adjustor to honor its own duty to
Spilled Milk”). However, “fact-based defenses, even those which might
ultimately inure to the defendant’s benefit . . . are not relevant on demurrer.”
See Orner v. Mallick, 527 A.2d 521, 523 (Pa. 1987). Thus, to the extent
the trial court drew factual inferences in favor of Nautilus based on the
designation of Spilled Milk as a joint payee, the court erred.
We acknowledge the established rule, advocated for by Nautilus and
applied by the trial court, that “where one of two innocent persons must suffer
because of the fraud of a third, the one who has accredited him must bear the
loss.” Rothman, 469 A.2d at 545. However, our courts have cautioned that
the rule can be misapplied “where two persons are not equally without fault,
but one owes a duty to the other to do or to refrain from doing a particular
thing and has failed in the performance of the duty.” Vanderslice v. Royal
Ins. Co., 43 W.N.C. 381, 9 Pa. Super. 233 (1899). The facts and
circumstances of a particular case dictate where the burden of a loss caused
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by the fraudulent act of a third party will fall. See Ervin v. City of
Pittsburgh, 14 A.2d 297, 303 (Pa. 1940).
In the present case, the amended complaint properly supported the
claim that Nautilus lacked any authority to change the terms of the letter of
representation to issue checks to Liberty without consulting Spilled Milk.
Nautilus, in its preliminary objections, offered alternate conclusions based on
the same allegations—namely, that Zenith, Spilled Milk’s agent, authorized
the change in payees, that Nautilus had no duty to consult or confirm the
change in payees with Spilled Milk because the letter of representation
provided that all correspondence relating to the loss was to be sent to Zenith,
and Spilled Milk did not allege Nautilus bore any fault in Shelly’s theft of the
proceeds. See Nautilus’s Prelim. Objs. to Am. Compl., 9/6/22, at ¶¶ 26-27,
30-32.
As stated above, when resolving these competing positions raised in
preliminary objections, a court must focus on the material facts alleged by
Spilled Milk in its amended complaint and disregard fact-based defenses. See
Orner, 527 A.2d at 523. Moreover, where the parties offer different, but
reasonable, interpretations of the terms of an agreement, a court should not
sustain preliminary objections in the nature of demurrer. See Ins.
Adjustment Bureau, 905 A.2d at 469-70 (noting that a moving party does
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not establish the requisite certainty to sustain a preliminary objection in the
nature of demurrer when an underlying agreement is ambiguous). 6
Focusing on the allegations of material fact, we conclude that Spilled
Milk pleaded sufficient facts to conclude Nautilus improperly issued the
proceeds to an unauthorized party and that it was premature for the trial court
to conclude that “Nautilus fulfilled its contractual duty and honored its
insurance policy covering Spilled Milk.” See Order, 1/6/23, at 1. A proper
assessment of which party was more at fault for enabling Shelly’s theft of the
proceeds will be for further proceedings following more developed pleadings
and record evidence. See Orner, 527 A.2d at 523.
For these reasons, we agree with Spilled Milk’s first two issues that the
trial court misapplied the standard of review when reviewing Nautilus’s
preliminary objections and reached factual findings and conclusions of law that
were not ripe for decision. To determine whether these errors were
prejudicial, we turn to Spilled Milk’s specific causes of action in counts I
through III of the amended complaint. 7
6 Spilled Milk mentions in passing that the agreement between it and Zenith
also indicated that its employee “appears to have signed his name . . . on a line” intended to rescind the agreement. See Spilled Milk’s Br. at 30-31. We decline to address this argument given our conclusion that Spilled Milk pleaded adequate facts to render the application of the Rothman rule uncertain.
7 We note that Spilled Milk also separately argued that the trial court erred in
dismissing the three counts against Nautilus. See Spilled Milk’s Br. at 26-39. However, because we have agreed with its first two issues, we need not engage in a lengthy discussion of Spilled Milk’s arguments.
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With respect to breach of contract and the implied terms of good faith
and fair dealing (count I), it is well settled that payment by the insurer to a
person entitled to the money satisfies the insurer’s responsibility, such that
the insurer cannot be held liable. See Thomas v. Prudential Ins. Co. of
Am., 598, 24 A. 82 (Pa. 1892); Milner's Estate v. Prudential Ins. Co. of
Am., 173 A.2d 661, 663 (Pa. Super. 1961). Moreover, payment to an
authorized agent is payment to the principal. Savidge v. Metro. Life Ins.
Co., 110 A.2d 730, 732 (Pa. 1955).
Here, however, Spilled Milk claimed that Nautilus, by issuing the
proceeds to Liberty, paid an unauthorized party and did not take adequate
precautions to ensure it paid a proper party. As discussed above, the material
facts in the amended complaint could support a legal theory that Nautilus’s
issued payments of proceeds an improper party, namely Liberty, which would
not fulfill the terms of the insurance policy. Cf. Smith v. Metro. Life Ins.
Co. of New York, 71 A. 11, 12 (Pa. 1908); 4 Couch on Ins. § 61:10 (“The
insurer’s payment of the proceeds of insurance to a person not entitled to the
funds does not ordinarily relieve it of its liability to the proper beneficiary).
Therefore, we reverse the trial court’s decision to dismiss count I pursuant to
preliminary objections.
As to the bad faith insurance claim in count II, our Supreme Court has
held that
to prevail in a bad faith insurance claim pursuant to [42 Pa.C.S.A. §] 8371, a plaintiff must demonstrate, by clear and convincing evidence, (1) that the insurer did not have a reasonable basis for
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denying benefits under the policy and (2) that the insurer knew or recklessly disregarded its lack of a reasonable basis in denying the claim.
Rancosky v. Washington Nat’l Ins. Co., 170 A.3d 364, 377 (Pa. 2017).
Additionally, this Court has recognized that section 8371 concerns the
“manner in which insurers discharge their duties of good faith and fair dealing
during the pendency of an insurance claim.” Berg v. Nationwide Mut. Ins.
Co., Inc., 189 A.3d 1030, 1038 (Pa. Super. 2018) (internal citation, quotation
marks, and bracket omitted).
Our review establishes that the trial court’s determination that Spilled
Milk failed to state a bad faith insurance claim rested on its determinations
that Nautilus honored its obligations under the policy, and Spilled Milk had no
basis to demand Nautilus pay a second time when Shelly and Zenith stole the
funds. See Order, 1/6/23, at 1; Trial Ct. Op., 5/29/24, at 3. As discussed
above, those determination cannot stand on the material facts set forth in the
amended complaint, and it is not “clear and free from doubt that [Spilled Milk]
will be unable to prove facts legally sufficient to establish the right to relief.”
See Godlove, 303 A.3d at 481. Therefore, we reverse the order as to count
II.8 ____________________________________________
8 Nautilus, for the first time in this appeal, asserts that Spilled Milk’s bad faith
claim was time-barred. See Nautilus’s Br. at 23 n. 4. Nautilus did not raise this claim in its preliminary objections, and, in any event, such a claim should be raised in a subsequent pleading as part of new matter. See Sayers v. Heritage Valley Med. Grp., Inc., 247 A.3d 1155, 1159 (Pa. Super. 2021) (noting that “[g]enerally, a statute of limitations defense is properly raised in new matter . . .”); see also Pa.R.Civ.P. 1030(a). We decline to consider the (Footnote Continued Next Page)
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Lastly, as to unjust enrichment (count III), it is well settled that a
plaintiff may plead causes of action under the breach of contract in the
alternative with unjust enrichment so long as they are contained in separate
counts. See Lugo v. Farmers Pride, Inc., 967 A.2d 963, 970 (Pa. Super.
2009). Indeed, “[i]f the plaintiff fails to prove a cause of action on an express
contract, [it] may not then attempt to prove [its] case in quasi-contract,
unless [the] complaint originally, or as amended[,] sets forth a cause of action
in quasi contract.” Id. Nevertheless, a court may dismiss a count of unjust
enrichment, where the allegations supporting the cause of action for unjust
enrichment clearly arises from a transaction that is subject to a written or
express contract. See Khawaja v. RE/MAX Cent., 151 A.3d 626, 633 (Pa.
Super. 2016).
In the present case, the amended complaint pleaded the existence of a
written policy under which Spilled Milk paid premiums, allegations which
Spilled Milk incorporated into its alternative claim for unjust enrichment (count
III). However, we cannot conclude that Spilled Milk’s policy with Nautilus, or
the letter of representation, clearly controls the transaction at issue, namely,
whether Nautilus made improper payments to an unauthorized party, as would
render Nautilus’s retention of the premiums unjust. Accordingly, we conclude
dismissal of this alternate claim for relief at the preliminary objection stage of
merits of Nautilus’s belated reference to a statute of limitations defense where the parties have not had the opportunity to brief and argue the issue in the trial court. See Sayers, 247 A.3d at 1159.
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this proceeding would be premature, and we reverse the trial court’s dismissal
of count III. See Lugo, 967 A.2d at 970.
In sum, we reverse the trial court’s order sustaining Nautilus’s
preliminary objections. Because our decision may affect the damages
awarded under the existing judgment against Shelly, Zenith, and Liberty, cf.
Judge Tech. Servs., Inc. v. Clancy, 813 A.2d 879, 887 (Pa. Super. 2002)
(noting that “an injured party cannot recover twice for the same injury”), we
vacate that judgment as to damages only. We remand for further proceedings
in the trial court consistent with this decision.
Judgment vacated in part. Order sustaining preliminary objections
reversed. Case remanded. Jurisdiction relinquished.
Date: 10/28/2025
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