PA Courts Miss Out on Opportunity to Weigh In on Video Conference EUO

After U.S. District Judge A. Richard Caputo of the Middle District of Pennsylvania denied Erie Insurance Exchange’s motion to dismiss a bad faith suit stemming from a home burglary, the plaintiff discontinued the suit.

At the heart of the controversy between Erie and its insured, is the question of whether an examination under oath by video conference satisfied the provision in the policy requiring the insured to cooperate with insurer’s investigation of the claim.

The dispute over the insured’s compliance stemmed from a request by Erie’s counsel for the insured to appear for an EUO to recount details pertaining to the burglary claim.  Following the burglary, the insured moved to Florida and insisted he could appear only by video conference.  Erie, however, refused to conduct a video conference, claiming, among other things, that it would make the use of exhibits too difficult and that since the incident occurred in Pennsylvania, the EUO should also take place in Pennsylvania.  Thereafter, the insured’s counsel emailed Erie claiming that the insured could not travel due to injuries.  In response, Erie filed a motion for summary judgment, alleging that the insured was not cooperating with its investigation under the terms of the policy and requesting that the court dismiss the insured’s bad faith claim.

Judge Caputo denied Erie’s request and made it clear that “It is a question of fact for the fact-finder as to whether or not [the insured’s] offer to submit to an EUO by video conference satisfied this provision to ‘cooperate’ with Erie in their investigation of [the insured’s] claim.”  Judge Caputo further opined that “a reasonable juror could find that EUO by video conference was sufficient to constitute cooperation, particularly given [the insured’s] medical condition.  However, a reasonable juror could also find that [the insured’s] refusal to appear in the commonwealth of Pennsylvania for the EUO, as specifically requested by Erie, failed to satisfy this provision requiring cooperation.”

The question of whether an insured’s offer to submit to an EUO by video conference satisfies insured’s obligation to cooperate with the insurer’s investigation will remain for another day.  Thanks to Hillary Ladov for her contribution to this post.  Please email Brian Gibbons with any questions.

PA Court Extends Permissive Use of Auto

In a matter of first impression, Philadelphia Court of Common Pleas Judge Mark I. Bernstein ruled that a woman’s car insurance coverage extended to her son’s girlfriend, despite not being an insured under the policy, not living in the named insured’s home, nor having express permission to drive the vehicle.

In Nationwide Insurance v. Geico Insurance, Wendy Friedman-Forlano gave her son permission to operate her vehicle while he was attending school at Temple University. The son’s live in girlfriend also used the car with his permission. However, Friedman-Forlano did not expressly give the girlfriend permission nor was she even aware that her son’s girlfriend drove the vehicle.

Under Friedman-Forlano’s Nationwide insurance policy, individuals who were given permission by the named insured to operate the vehicle were provided coverage in the event of an accident. The policy also noted that the named insured’s permission could be express or implied. Nationwide filed a declaratory judgment action requesting the court to find that no coverage was afforded under the policy because Friedman-Forlano did not give the girlfriend either express or implied permission to operate the vehicle.

Relying on case law from other courts, Judge Bernstein ruled that the girlfriend had implied permission to drive the vehicle, as Friedman-Forlano’s express permission to her son included his ability to grant subsequent permission to use the vehicle. Judge Bernstein found that the son gave his girlfriend full control over the vehicle  and also pointed to the close relationship between Friedman-Forlano and the girlfriend.

Additionally, Friedman-Forlano never instructed her son not to let anyone else drive the vehicle.  Thus, Judge Bernstein concluded that a person given full permission to use a vehicle has the right to delegate the operation of the vehicle to another person.

Thanks to Sheri Flannery for her contribution to this post and please write to Mike Bono for more information.

Pennsylvania Court Applies Employer’s Liability Exclusion

In Nationwide Mut. Ins. Co. v. Rainone, the Philadelphia County Court of Common Pleas addressed whether an insurer had a duty to defend and indemnify its insured, Sunco, in an underlying action commenced by one of its employees.

In the underlying action, the plaintiff, an employee of Sunco, alleged that her manager inappropriately touched her, and sued Sunco and the manager for negligence, negligent infliction of emotional distress, negligent hiring and failure to supervise.

In its declaratory judgment action, Nationwide argued that the policy’s employer’s liability exclusion barred coverage.  The policy’s employer’s liability exclusion stated, that no coverage was provided under the policy for bodily injury sustained by an employee while performing duties related to the conduct of the insured’s business or arising out of employment by the insured.

The court noted that in Pennsylvania, if the employee’s alleged injuries occurred within the proximate time of work, the exclusion would act as a bar to coverage.  Since the plaintiff was allegedly injured while “on the clock,” the exclusion applied.  The court held that the insurer had no duty to defend or indemnify the insured in the underlying action.

Depending on the factual circumstances of a case, the employer’s liability exclusion could provide a strong basis for an insurer to disclaim coverage.

Thanks to Colleen Hayes for her contribution to this post.




Insurer Foots Large Bill in Settlement with Homeowner Over Furnace Oil Explosion

Property damage plus a family’s benzene exposure from a home furnace oil explosion equaled a $945,000+ settlement for an insurer in Nebiol v. Erie Insurance Exchange, C.P. Bucks No. 2014-00766.

On February 7, 2013, unburned furnace heating oil exploded in an insured’s home, which contaminated the home and personal items with odor and excessive benzene levels. The insurer initially determined the loss was covered and agreed to pay for the insured’s hotel and remediation costs. After extensive remediation over the course of a year, benzene levels were still excessively high, which prevented the insured from selling the home. At a certain point, the insurer stopped paying its insured’s hotel fees, claiming that at that point the insured voluntarily chose to stay out of the home.

The insured sued claiming breach of contract, negligence, battery (for the benzene exposure), intentional infliction of emotional distress, and bad faith for failing to settle their claim. A settlement was eventually reached whereby the insurer agreed to purchase the home, transfer taxes (totaling $945,000) and cover the hotel expenses until the sale of the home occured (totaling $4,000 per month). Further, the settlement agreement allowed the insured to bring future claims against the insurer relating to benzene-related illnesses they may contract.

This settlement demonstrates the potential for inflated value of claims where extensive property damage is combined with bodily injury, or in this case, the potential for future bodily injury.

Thanks to Rachel Freedman for her contribution to this post.



PA Products Law Continues to Develop as Federal Courts Nix Strict Liability for Medical Devices

In a recent decision levied in the wake of Tincher v. Omega Flex, Inc., the United States District Court for the Western District of Pennsylvania concluded that Pennsylvania products law does not impose strict liability on medical devices such that claims of design defect, manufacturing defect and failure to warn are inapplicable.

In Cogswell v Wright Medical, plaintiff Roy Cogswell sued the manufacturer of his failed hip replacement after complications caused him to experience continuous pain and undergo additional surgeries.  More specifically, Cogswell alleged that defendant Wright Medical Technology, Inc. was strictly liable for his ongoing hip condition on theories of, among other things, design defect, manufacturing defect and failure to warn.  After removing the case to the United States District Court for the Western District of Pennsylvania, however, Wright Medical objected to Cogswell’s products claims, arguing that the hip replacement falls into a class of “unavoidably unsafe” products that social utility inoculates from strict liability.

Operating in the post-Tincher world of Pennsylvania products law, Judge Cathy Bissoon dutifully considered the Restatement (Second) of Torts to predict whether Pennsylvania’s state courts would subject medical devices to strict liability.  In particular, Judge Bissoon focused her attention on Comment k to Section 402(a) of the Second Restatement that had previously been interpreted by Pennsylvania jurists to except prescription medications from strict liability.  Even though Judge Bissoon noted that this aspect of the Restatement had not been previously interpreted in the context of medical devices, she ultimately adopted the Superior Court’s statement in dicta that there is “no reason why the same rationale applicable to prescription drugs may not be applied to medical devices” as both are inherently risky and beneficial to society.

All told, Cogswell is an interesting decision for Pennsylvania insofar as it continues to reflect the federal courts’ adherence to Tincher while also indicating that the Second Restatement’s pyrrhic victory in many ways stagnated the Commonwealth’s development of fundamental concepts in products law.  As a result, Cogswell implicitly confirms the unfortunately unpredictable cycle of products jurisprudence in Pennsylvania where there is considerable delay between the federal courts’ preliminary consideration of novel concepts and the Commonwealth’s eventual endorsement or rejection of the same.  Thanks to Adam Gomez for his contribution.  Please email Brian Gibbons with any questions.

The Wild West: PA Supreme Court Allows Insureds Being Defended Under a ROR to Settle Cases Without Carrier Consent.

Yes, you read the title of this post correctly. PA insureds being defended under a ROR can now settle their case without insurer consent. If the coverage issues are ultimately resolved against the insurer, so long as the insured’s settlement was “fair and reasonable”, the carrier is stuck with the result. Such is the 3-2 (PA’s Supreme Court is 3 judges short of a full complement because of a variety of scandals) decision in the case of Babcox & Wilcox Company, et al. v. American Nuclear Insurers, et al.

The central facts of Babcox are as follows. Class action lawsuits were filed against Babcox & Wilcox back in the 1990s. These class actions claimed that the plaintiffs had suffered bodily injury and property damage caused by emissions from nuclear facilities owned by Babcox & Wilcox. In response to the lawsuits, American Nuclear Insurers and Mutual Atomic Energy Liability Underwriters (collectively “ANI”) agreed to defend Babcox & Wilcox under a reservation of rights. ANI reserved its right to contest indemnity in respect of damages that were not caused by nuclear energy hazard, damages in excess of the policy limits, and claims for injunctive relief and punitive damages.

As the underlying class actions progressed, ANI believed that the cases were defensible because of, among other things, the lack of medical and scientific support for plaintiffs’ claims. ANI thus refused to settle the case at the demands being made. However, Babcox & Wilcox thought otherwise and decided to settle the class actions for a total of $80,000,000 – a high figure but less than the Policy limits of $320,000,000. It appears that the settlement was specific to damages that were covered by the Policy. In light of this, Babcox & Wilcox then demanded that ANI reimburse it for the $80,000,000 settlement. ANI declined and argued that Babcox & Wilcox had breached the Policy’s “consent to settle clause.” It is this argument that the PA Supreme Court has now rejected by holding that “where an insured accepts a settlement offer after an insurer breaches its duty by refusing the fair and reasonable settlement while maintaining its reservation of rights and, thus, subjects an insured to potential responsibility for the judgment in a case where the policy is ultimately deemed to cover the relevant claims”, an insurer is obligated to pay that settlement if the settlement is “fair and reasonable from the perspective of a reasonably prudent person in the same position of [the Insureds] and in light of the totality of the circumstances.”

There’s a lot to digest in the opinion (as well as the dissent), but as we told the press, we think this case is a game changer. Insurers are now faced with a no win situation. If they think a coverage issue may someday arise and they don’t reserve and defend, they face the potential of being estopped from raising the defense at a later point in time (or they might be faced with an §8371 bad faith claim for reckless claims handling). However, if a coverage concern is raised, the insurers lose the right to control the settlement negotiations as the insured can, on its own, resolve the case. In this regard, we think case values might skyrocket since a plaintiff no longer has to take a discount on her case because of a fear of coverage concerns. Rather, the plaintiff can settle and then assume the right to contest coverage. If the coverage concerns are ultimately rejected by the court, the insurer will have to pay the “fair and reasonable” settlement amount, which might well be a higher number than what the case otherwise would have settled at. In short, Pennsylvania just became a lot less hospitable to the insurance industry.

For more information about this post please e-mail Bob Cosgrove .

PA Court Says Insurance Company Employees May Be Personally Liable for Bad Faith and Other Claims.

Imagine that a policyholder makes a claim under a policy following an accident. A claims professional, an insurance company employee, then begins to handle the claim. The insured becomes disenchanted with the handling of the claim and a coverage and bad faith lawsuit is filed. Could the insured bring a negligence or consumer fraud claim directly against the claims professional? According to Judge O’Neill of the United States District Court, Eastern District of Pennsylvania (i.e. Philadelphia), the answer is “yes”.

In Kennedy v. Allstate, et al., Rachel Kennedy was injured in a car accident. Rachel Kennedy and her husband, Sean Kennedy, had an underinsured motor policy with Allstate Property and Casualty Insurance (“Allstate”). After settling with the tortfeasor, the Kennedys made a UIM claim under their Allstate policy. When they were unhappy with the results of that claim, the Kennedys instituted suit, in state court, against Allstate as well the Allstate claims professionals working on their claim. The Kennedys claimed, inter alia, that Allstate had improperly evaluated their claims and engaged in intentional delay, misrepresentation and fraud in the course of processing, investigating and arbitrating their claims. In respect of the Allstate adjusters handling their claims, the Kennedys alleged that the adjusters affirmatively misrepresented and concealed material facts so as to delay settling the Kennedys’ claims and to reduce the amount of money Allstate would ultimately have to pay for their claims. As a result, the Kennedys brought a negligence and consumer fraud claim personally against the Allstate adjusters.

In response to the Kennedys’ lawsuit, Allstate removed the case to federal court. Allstate claimed that the Kennedys had fraudulently joined the Allstate adjusters to defeat federal diversity jurisdiction and keep the case in state court; in other words, Allstate claimed that PA does not allow for insurance company employees to be personally sued for their claims decisions.

The Kennedys filed a motion to remand and Judge O’Neill was asked to decide whether the joinder of non-diverse defendants (i.e. the insurance company employees) was “fraudulent” (and designed only to defeat federal diversity jurisdiction) as there was no reasonable or legal basis to support the claims against them. Judge O’Neill ultimately ruled that the joinder was not fraudulent as a viable cause of action existed and thus remanded the case to state court.

In his opinion, Judge O’Neill concluded that there was at least “a possibility” that, under Pennsylvania law, an insurance claims professional owes a duty of care to an insured. If that duty was breached, if, for example, the adjuster failed to reasonably investigate an insured’s claims and/or made misrepresentations regarding the status of the investigation into the insured’s claims, a negligence claim could be filed.

Next, in respect of the viability of an insured bringing a consumer fraud claim against a claims professional (which opens the door to punitive or statutory damages), Judge O’Neill concluded that Pennsylvania allows consumer fraud claims directly against an insurance company’s employees.

While it is important to recognize that Judge O’Neil’s decision only dealt with the threshold issue of whether a colorable claim existed, the case will no doubt be seized upon by policyholder counsel. We fully expect to see an onslaught of claims in which both insurer and insurance professional are named as defendants. As if a claims job was not challenging enough…

Special thanks to Colleen Hayes for her contributions to this post. For more information about it, please e-mail Bob Cosgrove .

When Must You Commence a DJ in PA? New Guidance from the Appellate Court.

In 2007, a seventeen year old hotel worker was killed in a car accident after drinking on the job. A negligence based wrongful death action was thereafter commenced against the hotel operator. In 2012, on the eve of trial, Selective Way Insurance Company (“Selective”) commenced a declaratory judgment action asserting that no coverage was owed for various reasons. The insured (Hospitality Group Services (“HGS”)) answered and asserted that the declaratory judgment action was untimely as more than four years had passed since suit was filed – contract actions in PA are subject to a four year statute of limitations. Selective claimed that the action was timely as a declaratory judgment action did not need to be commenced until the carrier denied defense or indemnity coverage. The trial court rejected Selective’s position and held that “the statute of limitations for an insurance carrier to file a declaratory judgment action regarding its duty to defend and indemnify its insured begins to run at the time the insurance company receives the civil complaint in an action against its insured.” The case went up on appeal and the Superior Court of Pennsylvania has now issued its decision.

The Superior Court reversed the trial court and held that the time to commence a declaratory judgment action begins when “the insurance company had a sufficient factual basis to support its contentions that it has no duty to defend and/or indemnify the insured.” The Superior Court noted that just when that basis existed depended on the specific facts of the case and could range from when a complaint was received or when “the case develops and the claim is winnowed down to a recovery.”

As we told the press, this decision, the first of its kind in Pennsylvania, is obviously significant. What it means is that insurers need to be proactive in asserting, in litigation, their coverage position or run the risk of waiving that position – or even worse, walking themselves into a a bad faith claim based upon the commencement of untimely and thus impermissible litigation.

For more information about this post please e-mail Bob Cosgrove .

Insurer Has No Say in Drafting Verdict Slip in PA

U.S. District Judge Kim R. Gibson of the Western District of Pennsylvania recently ruled that an insurer has no say in drafting the verdict slip.  The ruling arose in the case of Ellis v. Gadley.  There, Jerry Ellis Construction was sued by Gary Gadley for the improper installation of structural insulated panels on Gary’s roof.

In an attempt to fashion the verdict slip to its advantage, Cincinnati Insurance Company filed a motion to intervene on behalf of its insured, Jerry Ellis Construction.  In its motion, Cincinnati requested that the court allow it to draft a verdict slip for the jury to show the “breakdown of damages by category.”  Cincinnati argued that the jury’s responses on the verdict slip might apply to issues in the insurer’s companion declaratory judgment action against Ellis, in which it seeks a decision that it is not obligated to defend Ellis against Gadley’s claims.  Judge Gibson denied the motion.

The Court’s reasoning for denying the motion appeared to turn on the timing of Cincinnati’s motion to intervene.  Filed on the eve of trial, Judge Gibson found Cincinnati’s argument that it only became aware of its need to intervene disingenuous, especially in light of the fact the Insurer had represented Ellis since 2012 and did not file the motion to intervene until April 8, 2015.  Judge Gibson also found reason to deny Cincinnati’s motion on the grounds that it would place an undue burden on the parties regarding discovery and delay of trial.  Judge Gibson was also concerned about confusing the jurors because it appeared that the suggested interrogatories might inject issues implicating the declaratory judgment action and unrelated to the instant case.

Ultimately, Judge Gibson’s real hang-up about the request, however, appeared to be that Cincinnati was “asking to create categories of damages on the jury verdict form consistent with its interpretation of the underlying insurance policy in the declaratory judgment action.”  Nice try, Cincinnati.  Please email Brian Gibbons with questions.  Thanks to Hillary Ladov for her contribution.

Liberal Use Of “Any” Insured In Policy Defeats Exclusion (PA)

In a recent Pennsylvania Supreme Court decision, the Court highlighted the ambiguity inherent in the use of definite and indefinite articles when associated with the term “insured”. In Mutual Benefit Ins. Co. v. Politsopoulos, et al., a restaurant leased space from property owners. An employee of the restaurant was injured when she fell on an outside set of stairs, and sued the property owners. The property owners, additional insureds under the restaurant’s insurance policy, sought defense and indemnity under the policy. The insurance carrier disclaimed coverage under the employer liability exclusion. The policy in this case included a “Separation of Insureds” clause which provided, subject to exceptions, that the policy applied separately to each insured against whom a claim had been made. At issue in this case is that the employee in the underlying action was not an employee of the property owners thus, the issue turned on the phrase “the insured”.

The Court found that the policy’s varying use of the definite “the insured” with the indefinite “any insured” created ambiguity in the exclusionary language. Because of the interchangeable use of the definite and indefinite throughout the policy, the Court found that as applicable to the exclusion, the term “the insured” could reasonably be taken as signifying the particular insured against whom the claim is asserted, thus, the employee exclusion did not exclude coverage for a non-employee of an additional insured.  Added attention to detail in the underwriting process could have avoided this scenario for the insurer.  Please email Brian Gibbons with any questions. Thanks to Tiffany Davis for her contribution.