Policy Language Can Prove Fatal To Consent Judgments

The Pennsylvania Superior Court’s recent decision in Wolfe v. Ross illustrates the importance for policyholders to verify potential policy exclusions before agreeing to a consent judgment against their interests.

In Wolfe v Ross, the plaintiff’s estate sued for the wrongful death of their 19 year old son. The decedent attended a graduation party at plaintiff’s home, consumed alcohol, and left the party on the plaintiff’s dirt bike. The decedent lost control of and crashed the bike, ultimately leading to his death. Plaintiff and defendant agreed to a $200,000 consent judgment. When plaintiff attempted to collect from the defendant’s homeowner’s policy, the insurer disclaimed since the policy contained an exclusion for liability arising out of the use of a motor vehicle. Plaintiff argued that the policy did cover liability arising from furnishing alcohol to guests, thus the claim should be covered.

Both plaintiff and the insurer moved for summary judgment. Plaintiff argued that the furnishing of alcohol triggered coverage under the homeowner’s policy, and the insurer argued that the motor vehicle exclusion trumped because Wolfe’s death arose out of the operation of a motor vehicle. The main issue was whether the motor vehicle exclusion was ambiguous for failing to specify whether the exclusion-triggering injuries required proximate causation or only a causal connection to the use of a motor vehicle. The court held that the motor vehicle exclusion was not ambiguous. The court reasoned that in prior decisions, “arising out of” had been construed to mean “casually connected with,” not “proximately caused by.” Thus, the fact that plaintiff’s fatal injuries were related to a motor vehicle was enough to trigger the policy exclusion, regardless of the role alcohol played. The insurer’s denial of coverage was upheld.

This case demonstrates that insurance carriers and policyholders alike can benefit from a policyholders’ familiarity with exclusion provisions in their policies before “resolving” a matter through a consent judgment. This is especially true in Pennsylvania, where exclusions such as the motor vehicle exclusion at issue in Wolfe may be interpreted broadly.

Thanks to Rachel Freedman for her contribution to this post.



Who’s Laughing Now? Third Circuit Rules Bank Can’t Recover for Identity Theft (PA)

In an ironic twist of fate, the United States Court of Appeals for the Third Circuit recently ruled that even financial institutions face a rough road ahead when it comes to recovering damages for data security and identity theft claims.

In the case of Citizens Bank v. Reimbursement Technologies, Pennsylvania financial juggernaut Citizens Bank sued a third-party medical billing company whose employees allegedly accessed personally identifiable information belonging to over one hundred Citizen’s account holders and then used the data to illegally withdraw money from branches across six different states.  Although Citizen’s Bank suit focused on violations of the Stored Communications Act that regulates the disclosure of electronic communications and transactional records held by internet service providers, it also asserted state law causes of action for common law negligence.  However, the district court below ultimately dismissed the federal law action and, in addition, ruled that Citizens Bank’s state law claims failed to state a legally recognized theory of negligence against the defendant.

On appeal to the Third Circuit, the appellate panel was asked to determine whether Citizens Bank’s state law negligence and fraud claims could proceed independently of the federal action.  Citizens Bank argued that the district court erred in also dismissing its negligence claims against the defendant because as a data controller, Reimbursement Technologies owed its patients and their financial institutions a duty to safeguard their personally identifiable information.  The Court of Appeals concluded that Pennsylvania’s five-factor test for determining the existence of a duty required dismissal.  Specifically, the Third Circuit explained that notwithstanding Reimbursement Technologies’ failings, Citizens Bank, itself, was in the best position to prevent its claimed harm and, as a result, liability could not pass to the defendant as a matter of Pennsylvania law.

Citizens Bank represents a proverbial turning of the tables, insofar as the jurisprudence of data privacy and consumer protection has often operated in favor of protecting financial institutions that are sued for failing to protect their customers’ data.  Rarely, if ever, does the law recognize that what is good for the goose is likewise good for the gander, but Citizens Bank clearly indicates that the law concerning cyber security and identity theft is slow to develop irrespective of whether the claimant is an individual or a national corporation.  Thanks to Adam Gomez for his contribution, and please email Brian Gibbons with any questions.

Be Careful With Your Pleadings Says the PA Supreme Court.

In Liberty Mutual Insurance Company v. Domtar Paper Co. et al., the Pennsylvania Supreme Court recently affirmed the Superior Court’s ruling (which we had previously reported on) that Section 319 of the Pennsylvania Workers’ Compensation Act (“WCA”), 77 P.S. § 671, does not confer on employers or their workers’ compensation insurers a right to pursue a subrogation claim directly against a third-party tortfeasor when the compensated employee who was injured has not taken against the tortfeasor.

As we previously reported, this case arose when George Lawrence, an employee of Schneider National, Inc. fell at Domtar Paper’s parking lot while acting in the scope of his employment. In an effort to recover the amount of workers’ compensation benefits it paid out to Lawrence, Liberty Mutual designated itself a subrogee of Lawrence and brought a negligence action against Domtar Paper, who allegedly owned and maintained the parking lot. Domtar Paper filed preliminary objections on the basis that Liberty Mutual’s cause of action was barred because Pennsylvania does not recognize an independent cause of action by workers’ compensation insurers when the injured party has not brought suit in his own right and is not a party in the case. The trial court sustained the objections and the Pennsylvania Superior Court affirmed.

In affirming the Superior Court’s decision, the Pennsylvania Supreme Court noted that Liberty Mutual failed to explain why the Court should abandon Superior Court precedent that holds a right of action against the tortfeasor is indivisible and remains in the employee who suffered the entire loss. See Moltz v. Sherwood Bros., Inc., et al., 176 A, 842 (Pa. Super. 1935), Reliance Insurance Co. v. Richmond Machine Co., 455 A.2d 686 (Pa. Super. 1983), and Whirley Indus., Inc. v. Segel, 462 A. 3d 800 (Pa. Super. 1983). The court reasoned that “preventing the employer/ insurer from asserting an independent cause of action against the tortfeasor eliminates the possibility that the third-party tortfeasor could be exposed to multiple suits filed by both the employer and the injured employee, and will preserve the preferred rights of the injured employee who retains a beneficial interest in the cause of action against the tortfeasor. “ Ultimately, the Court concluded that preliminary objections were properly granted and affirmed because Lawrence did not (1) commence an action against Domtar Paper; (2) was not named in the action filed by Liberty Mutual; and (3) did not join the action filed by Liberty Mutual.

To our mind, as we told the press, this appears to be more a case of imprecise pleading and less a case of a substantive change in the law.

Special thanks to Sheri Flannery for her contributions to this post. For more information, e-mail Bob Cosgrove.

What happens in Pennsylvania stays in Pennsylvania

In McDonald v. Whitewater Challengers, Erin McDonald, a New York teacher, signed a release form to participate in a whitewater rafting school field trip conducted by Whitewater Challengers, a Pennsylvania company. Upon participation, Ms. McDonald was thrown from the raft and injured. Ms. McDonald sought to invalidate the signed liability release form by applying to New York law.

In New York, release forms immunizing recreational facilities from liability for negligence are invalid by statute, as they violate New York’s public policy. In Pennsylvania, however, such forms are permitted for the protection of the company where a participant agrees the sign a waiver and assuming the risk of the activity.

The Pennsylvania Superior Court acknowledged that New York may have an interest in recouping the costs of Ms. McDonald’s medical treatment. However, the Superior Court ultimately decided that Pennsylvania has the greater interest because a Pennsylvania company should be able to rely on Pennsylvania laws when conducting its operations.

We suspect plaintiff would have preferred to bring her claim in New York, as opposed to Pennsylvania, to take advantage of New York’s more plaintiff-friendly laws.  Unfortunately for plaintiff, the contract she signed also mandates that “Any claims or disputes arising from my participation in this program shall be venued in the Luzerne County Court in the town of Wilkes-Barre, PA, or in the Supreme Court of the State of Pennsylvania.”

Thanks to Tiffany Davis for her contribution to this post.  Please email Brian Gibbons with any questions.


A Mold Exclusion Really is a Mold Exclusion (PA)

Fungi and bacteria and mold, oh my! An insurance coverage dispute spawned by a moldy motel room in the Poconos ended  in summary judgment on behalf of the insurer. The trial court found that the defendant insurance provider had no duty to defend the plaintiff motel due to an unambiguous “fungi or bacteria” exclusion in the policy.

In Mount Pocono Motel Inc v Tuscarora Wayne Ins Co PICS Case No 15 0555 C P Mon, Luis Noriega (Noriega) rented a room at plaintiff’s mountainside getaway from 2004 – 2009. However, according to Noriega’s complaint, Noriega began to suffer from chest and breathing issues soon after checking into the budget-friendly motel. After venturing into the crawl space behind his room (in 2008) Noriega discovered that the cause of his flu-like symptoms was mold, which was concealed by a fresh layer of paint on his room’s walls. Noriega checked out soon thereafter.

Although the defendant, Tuscarora Wayne Insurance Company (Tuscarora), provided general commercial liability coverage from July 2008 to July 2009, the Monroe County Court of Common Pleas found that the policy clearly and ambiguously excluded coverage for damages relating to bacteria and fungi. The policy’s own definitions lumped mold into the definition of “fungi”, which led the court to believe that the parties intended to exclude coverage for mold-related damages.

Interestingly , the court’s granting of summary judgment relied on the Pennsylvania Supreme Court’s precedent that the primary goal in interpreting an insurance policy is to determine the parties’ intentions as manifested by the policy’s terms. Because the court found the language of the policy was clear and unambiguous, it found that Tuscarora had no duty to defend the Mount Pocono Motel in its moldy dispute with Mr. Noriega.  Thanks to Erica Woebse for her contribution to this post.  Please email Brian Gibbons with any questions.

Make Sure Your ROR Goes to Each Insured Defendant: PA Appellate Court Draws Bright Line Rule.

One question that we field from time to time is – who must get a copy of the ROR? The named insured? Each defendant who will be defended? Some other combination of parties? Erie Insurance was faced with just this issue in the case of Erie v. Lobenthal, et al.

In this case, Erie had issued an auto policy to Adam and Jacqueline Lobenthal. The Lobenthal’s daughter, Michaela, was involved in an auto accident; it appeared that, at the time of the accident, Michaela may have been under the influence of a controlled substance. Erie assigned defense counsel to defend Michaela (who qualified as an insured under the terms of the Erie policy) and issued two reservation of rights letters. The letters were only addressed to Adam and Jacqueline and a separate letter was never sent to Michaela. When it ultimately became clear that Erie had a basis to disclaim coverage (based on the controlled substances exclusion), Michaela objected on the basis that she had never personally received a reservation of rights letter. Erie responded by noting that while true, such an argument placed form over substance since Michaela’s attorney had a copy of the letter and, as a resident in her parent’s household, it was highly improbable that Michaela was unaware of the ROR. The trial court agreed with Erie and awarded summary judgment. An appeal resulted.

The Superior Court reversed the trial court. It held that:
we determine that Michaela, as the defendant, was entitled to notice of Erie’s reservation of its right to disclaim liability. Notice to Michaela’s parents, the named insureds, and to insurance defense counsel provided by Erie, was ineffective as to Michaela.

While the result may seem unfair, the case highlights the reality that form can sometimes matter more than substance as public policy favors ensuring that injured parties are compensated for their injuries.

If you have any questions about this post, please e-mail Bob .

Pennsylvania Superior Court Finds Insurer Acted In Bad Faith Based On Its Insufficient Investigation

Failure to conduct a thorough investigation before denying a claim under a policy could result in a finding of bad faith under Pennsylvania law.

In Mohney v. Am. Gen. Life Ins. Co., the insured obtained two disability policies from American General Life Insurance, which was to provide for benefits in the event he became “totally disabled” as defined by the policies.

The insured injured his back, and was unable to return to work.  Initially, American began making payments under the policies. After conducting a limited investigation into the claim (e.g. reviewing status reports from the insured and the insured’s doctor), American discontinued benefits contending that the insured was not “totally disabled,” a requirement to receive payments under the policies.

In response, the insured sued American alleging breach of contract and bad faith.  The court found that the insured produced sufficient evidence showing he was “totally disabled” as defined by the insurance policies, and found that American breached its contract.  In addition, the court reviewed the investigation American conducted in determining that the insured was not “totally disabled” and found it insufficient.  The court noted that the reports were ambiguous regarding the insured’s medical status, and American failed to clarify the discrepancies.  Additionally, although American reviewed status reports provided by the insured, it failed to gather information from other relevant medical/benefit providers.  American also failed to conduct its own independent medical examination.  Furthermore, the court noted that American was unable to cite any Pennsylvania law supporting its interpretation of “totally disabled”.  Thus, the court held that American’s denial of benefits under the policies constituted bad faith.

This case shows that to avoid potentially being found liable of bad faith, an insurer must conduct a thorough independent investigation into an insured’s claim (and not merely rely on the documentation provided by the insured and the insured’s doctors), and ensure that its interpretation of policy terms is supported by applicable and relevant case law.

Thanks to Colleen Hayes for her contribution to this post.




Plaintiff’s Negligence Claim Goes Up in Flames (PA)

In Pennsylvania, land owners owe a duty to protect business invitees from foreseeable harm.  In contrast, land owners do not owe a duty to business invitees for harm that is caused by a dangerous activity or condition on the land where the dangerousness is known and obvious to the business invitee.

In Westerholm v. Berry, the plaintiff, Matthew Westerholm, was hired by the defendant, Kevin Berry, to perform certain construction work at Berry’s home.  Pursuant to Berry’s instructions, Westerholm cleaned Berry’s property, filling two garbage cans full of scrap wood.  Subsequently, Westerholm drenched the pile of scrap wood in gasoline and lit it on fire.  Upon ignition, however, the pile exploded.  As a result, Westerholm suffered severe burns, which ultimately to a lawsuit.

The crux of Westerholm’s claim was that Berry breached a duty to warn him, a business invitee, of the danger of lighting the wood on fire.  Berry argued, however, that even if he instructed Westerholm to create the fire, he did not owe a duty to Westerholm because Berry did not possess any “superior knowledge” that put him in a better position to understand and appreciate the risk than Westerholm.  Berry further argued that the danger of lighting wood doused in gasoline would be obvious to Westerholm.

To begin, the court agreed that the relationship between Berry and Westerholm was one of land owner and business invitee, respectively.  The court disagreed with Westerholm, however, and held that Berry was not liable because the danger of igniting flammable items using gasoline is both a known and obvious danger.  Further, the court noted that a reasonable man exercising normal perception, intelligence, and judgment would have recognized this danger and properly avoided it.  Accordingly, the court granted Berry’s motion for summary judgment reasoning that Berry owed no duty to Westerholm.

Thanks to Erin Connoly for her contribution.

For more information, contact Denise Fontana Ricci at dricci@wcmlaw.com.

Insufficient Investigation Leaves Open Bad Faith Claim (PA)

Bad faith insurance lawsuits usually involve a claimant alleging that an insurance company failed to use good faith efforts to settle the underlying dispute or that an insurance company improperly denied benefits that the claimant was owed under the policy. In the latter case, an insurance company can defeat the claimant’s allegations by proving a thorough investigation and sound contract interpretation that is consistent with the jurisdiction’s case law.

In Mohney v Am Gen Life Ins Co., the plaintiff purchased disability and life insurance in connection with an automobile loan and a home mortgage. In the event that plaintiff became totally disabled, both policies provided for the payment of benefits. Shortly thereafter, plaintiff injured his back in a traffic accident and was unable to work as a coal miner. American General Life Insurance (“American”) paid benefits for the first three years but then terminated the payments because plaintiff did not allegedly meet the criteria for total disability.

The trial court entered summary judgment in favor of American on the bad faith claim and held that American proved the plaintiff was not totally disabled within the meaning of the two policies. The plaintiff appealed.

The Pennsylvania Superior Court ruled that the trial court erred in finding that American did not act in bad faith because American did not conduct a sufficient investigation and American’s interpretation of “totally disabled” was at odds with prior Pennsylvania case law. American relied on a doctor’s ambiguous responses concerning the plaintiff’s ability to work. American never sought to clarify and confirm that plaintiff was unable to work or obtain an independent medical evaluation to determine whether plaintiff was in fact totally disabled. American also relied on an investigator’s misrepresentations of fact in letters addressed to plaintiff and the plaintiff’s doctor. The Pennsylvania Superior Court also disagreed with American’s interpretation of “totally disabled” under binding Pennsylvania case law.

Overall, if an insurance company wishes to move for summary judgment on the grounds that it properly denied a claimant benefits, it is necessary to ensure that a sufficient, thorough investigation was performed. A lack of diligence up front can have the unfortunate consequence of prolonging litigation, and with it, the costs of litigation as well.

Thanks to Eric Clendening for his contribution.

For more information, contact Denise Fontana Ricci at dricci@wcmlaw.com.

Third Circuit Issues Precedential Decision on First-Party Coverage for Debris Removal from Land.

In the case of Torre v. Liberty Mutual, et al., the Torres suffered post Superstorm Sandy damage at their home in Mantoloking, NJ. The Torres sought first-party coverage for their removal of storm-generated debris from their land under their Standard Flood Insurance Policy. Liberty denied the claim. The basis for Liberty’s disclaimer was that the SFIP coverage only attached for the “removal of non-owned debris that is on or in insured property” and debris on the land outside of the house was not “on or in” “insured property.” In other words, Liberty took the position that only the house was “insured property” and not the land on which the house was located.

The Third Circuit has now endorsed Liberty’s understanding. In its precedential decision, the Court held that the “term “insured property” clearly and unambiguously means property that is insured under the SFIP, that land is not insured under the SFIP, and that the SFIP thus does not cover costs the Torres incurred in removing debris not owned by them from their land outside their home.”

As this is the first US decision on the scope of debris removal from land under a SFIP policy, we expect the case to be frequently cited in the future. It is obviously of great benefit to insurers as it significantly limits the scope of potential first-party damages that a policy might be exposed to.

If you have any questions about this post, please e-mail Bob.