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.

WCM to Host Data and Privacy Breach Seminar in London.

WCM Partner Bob Cosgrove, the head of WCM’s Privacy, Cybersecurity and E-Discovery practice group, will present a seminar at the International Underwriting Association of London entitled Defending Data and Privacy Breach Claims in the US. The seminar, which will take place on Wednesday, May 13, 2015, will explore the kinds of claims that can result in the US from a data or privacy breach and provide guidance on the strategies needed to successfully defend data and privacy breach litigation in the US. Special attention will be paid to both the regulatory and compliance aspects of a data breach as well as the resulting litigation from individuals whose “personally identifiable information” has been disclosed.

For more information about this seminar, please e-mail Bob, or click here.

WCM Obtains Dismissal of Constitutional Violation Claims in EDPA.

WCM Partner Bob Cosgrove and associate Eric Clendening recently obtained a FRCP 12(b)(6) dismissal in United States District Court for the Eastern District of Pennsylvania. In the case of Nona Farrar v. Hilton Worldwide, Inc., et al., Nona Farrar claimed that, as a result of her support of Mumia Abu-Jamal, the inmate convicted of the murder of Philadelphia police officer Daniel Faulkner, the United States Department of Justice, Delta Airlines, Holiday Inn, US Airlines, the Fraternal Order of Police and Hilton (our client) conspired to deprive her of her constitutional rights by denying her service and attempting to have her arrested. We moved to dismiss the case in lieu of an answer. After considering the extensive papers, USDC Judge Norma Shapiro agreed with our analysis and dismissed the case.

For more information about this case, please e-mail Bob.

Back to the Future: 3rd Circuit Relents on Interpretation of PA Product Liability Law

In DeJesus v. Knight Industries, the Third Circuit revisited the continuing debate between the Third Restatement’s modern view of product liability law and the Commonwealth’s unique and, at times, questionable interpretation of Section 402(a) of the Second Restatement.  In Dejesus, plaintiff was injured when an allegedly defective lift table designed by Knight Industries caused another piece of machinery to fall on him.  Plaintiff argued that Knight Industries defectively designed the lift table by failing to include appropriate audio or visual warnings that would alert users of the risk of falling objects.  On summary judgment, however, the United States District Court found that the evidence failed to sufficiently establish plaintiff’s theories under the Restatement (Third) of Torts that requires product manufacturers to take reasonable steps in safeguarding against foreseeable risks of harm.

For all intents and purposes, the conventional appeal to the Third Circuit that followed should have been denied in light of the Court’s long-standing belief that the Third Restatement dictates Pennsylvania product liability law.  Nevertheless, while the appeal was pending, DeJesus benefited from the highly anticipated decision in Tincher v. Omega Flex where Pennsylvania’s Supreme Court unambiguously rejected the application of the Restatement’s reasonableness standard in favor of a bespoke interpretation of Section 402(a).  In deference to the Commonwealth, therefore, the Third Circuit finally reversed its position on the primacy of the Third Restatement and found that further proceedings would be needed to determine whether Knight Industries’s alleged lack of warnings could meet the Tincher standard.

All told, the Third Circuit’s ruling in DeJesus is not a watershed comment on the substance of Pennsylvania’s product law.  However, past Pennsylvania product cases were plagued by inconsistent results, depending on whether the case was venued in federal court.  In the wake of DeJesus, it appears that the Third Circuit has brought the two judicial systems into sync as litigants now begin to explore how exactly Tincher will impact product liability law in Pennsylvania.

Thanks to Adam Gomez for his contribution.  Please email Brian Gibbons with any questions.

 

All in the Family, but not All in the “Household” (PA)

In Ripley Jr. v. Brethren Mutual, an insured’s grandson aided in the theft of personal property from the residence he shared with his grandparents. The grandparents filed a claim with their insurer, Brethren Mutual, for the loss. Brethren Mutual disclaimed coverage on the grounds that the grandson was a member of the household. The policy defined “insured” to include members of the household including relatives.

The District Court for the Eastern District of Pennsylvania found that the grandson of the insured, though he resided on the property, was not necessarily an “insured” for the purposes of a policy exclusion.  Specifically, the policy contained an exclusion for damage arising out of any act an “insured” commits, or conspires to commit, with the intent to cause a loss.

The court found that the determination of who is a member of a household is a fact-specific inquiry and is not determined solely by the fact that the individual is a relative. The court found that an essential inquiry is whether the individual was “treated as one would expect a member of the household to be treated”. The court ultimately found that a relative’s living arrangements alone was insufficient to conclude that there was no genuine issue of material fact regarding whether the policy’s exclusion applied and denied summary judgment.

The Ripleys, it seems, will be able to control their own destiny as to whether this exclusion will apply – which is the exact circumstance the insurer was trying to avoid.

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

ROR Letters Trump Estoppel Argument in DJ Action (PA)

In 2011, Randy and Erin Shearer brought suit against a group of Nationwide Mutual Fire Insurance Company policyholders (Policyholders), who all held Nationwide homeowner insurance policies with identical language. The Shearers alleged that they purchased undeveloped land to build on, but that three years after purchasing the property, they discovered that multiple sewer pipes were discharging raw sewage, effluent, and wastewater onto their property. The Shearers asserted that the sewer pipes had drained from the neighboring proprieties of the Policyholders.

From the inception of this litigation, Nationwide began to defend each of the Policyholders under a reservation of rights. The reservation of rights letters (as well as the supplemental reservation of rights letters) sent to the Policyholders stated that Nationwide would investigate the circumstances surrounding the Shearer’s claims, and noted, that Nationwide specifically “reserve[d] the right to later deny coverage on the claim at the conclusion of its investigation.” The reservation of rights letters specifically informed Policyholders that the Shearer’s claims might fall within the bounds of the pollution exclusion and/or biological deterioration or damage exclusion.

Around three years later, Nationwide filed a Declaratory Judgment Act action against the Policyholders and moved for summary judgment. Nationwide sought a declaration that it did not owe the Policyholders defense or indemnity based on the pollution exclusion and/or biological deterioration or damage exclusion, which Nationwide had repeatedly cited in its reservation of rights and supplemental reservation of rights letters. In response, the Policyholders filed a motion seeking a dismissal.

After the district court addressed jurisdictional issues, it turned its attention to the Policyholders’ argument that Nationwide should be estopped from denying coverage. The Policyholders asserted that Nationwide had been defending them for more than three years and that they would suffer prejudice if they were forced to obtain new counsel so late in the proceeding.

However, the court disagreed. The court determined that each of the Policyholders received a timely reservation of rights letter, followed by a supplemental letter. Nationwide had clearly set forth its coverage position, and had only assumed the defense of the Policyholders subject to the reservation of rights. Furthermore, the court rejected the Policyholders’ argument that Nationwide should otherwise be estopped from denying coverage because Nationwide waited too long to bring this action. Instead, the court held that the Policyholders did not meet their burden of demonstrating that they were actually prejudiced by Nationwide’s delay in disclaiming coverage.

The moral to be gleaned from this Declaratory Judgment Act action is that a good reservation of rights letter can go a long way.  Thanks to Erica Woebse for her contribution to this post, and please email Brian Gibbons with any questions.

Court Excuses Technical Defects in Policy Cancellation for Sold Property (PA)

Despite acknowledging defects in an insurer’s policy cancellation notice, the Lackawanna County Court of Common Pleas recently ruled in favor of an insurer’s declaratory action disclaiming coverage.  In HARIE v. Lackawanna County, The Housing and Redevelopment Insurance Exchange insured the Montage Ski Area and Toyota amphitheater owned by Lackawanna County. Although Lackawanna County subsequently sold the ski area, it retained ownership of the amphitheater, and reached out to the county’s agent of record for advice on how to alter its insurance obligations in light of the sale of Montage. The agent of record advised that coverage should be cancelled since the county would no longer have an insurable interest in Montage, but failed to realize that the same policy insured the amphitheater as well.

The County did not realize that coverage for both Montage and the amphitheater was cancelled until it filed an insurance claim with HARIE for damage to the amphitheater roof caused during a storm. Upon receipt of the claim, HARIE denied it, stating that the commercial policy that previously insured both structures was cancelled before the loss took place, and initiated a declaratory action. The County alleged that the policy cancellation was ineffective, so HARIE still owed a duty to indemnify the county for the amphitheater’s damages.

The Court recognized that the cancellation process deviated from insurance best practices, as the parties did not use the industry standard form for cancellation, and the notice of cancellation incorrectly listed “property sold” as the reason for cancellation despite the County’s continued ownership of the amphitheater. Furthermore, the County argued that a policy endorsement required HARIE to mail notice of policy cancellation to the first named insured on the policy: Montage. In providing notice to Lackawanna County, but not to the ski area, the County argued that HARIE failed to satisfy the endorsement and thus ineffectively attempted to cancel the policy.

Nevertheless, the Court held that Montage was not an existing legal entity, so the first insured was actually Lackawanna County. Although the Court acknowledged HARIE’s technical error in not mailing a notice of cancellation to the ski area, the Court determined that such an error was not a material breach of contract due to the County’s independent initiation of the process and receipt of actual notice. As such, the Court granted the insurer’s declaratory action.

Thanks to Nicole Pedi for her contribution to this post and please write to Mike Bono for more information.

Incorrect but Not Unreasonable: Defeating Bad Faith in Pennsylvania

When a court finds insurance policy language to be ambiguous, it may deny an insurer’s motion for summary judgment, or find in favor of coverage.  Does that mean that the insurer who got it wrong acted in “bad faith”?  Apparently not.

In Gray v. Allstate Indemnity Co., the insurer denied coverage to an insured for a fire loss claim caused by vandalism and moved for summary judgment on both the insured’s breach of contract and bad faith claims.  The policy in question excluded coverage if the property had been vacant or unoccupied for a certain period of time prior to the vandalism causing the fire damage.  Holding that the terms “vacant” and “unoccupied” were ambiguous and facts surrounding these conditions in the case were disputed, the court denied summary judgment on the breach of contract claim.

With regard to the bad faith claim, the insured argued that the insurer purposely drafted an ambiguous contract so that the ambiguous language could be used to deny future coverage. The court rejected this argument because both the insurer’s factual basis for denying coverage and interpretation of the policy were determined to be reasonable.

While the court ruled against the insurer’s interpretation of the terms for the breach of contract claim, the way the insurer construed the terms was still a reasonable view. Thus, the court held that “[b]ad faith cannot be found where the insurer’s conduct is in accordance with a reasonable but incorrect interpretation of the insurance policy.” As such, summary judgment was granted to the insurer as to the bad faith claim.

Based on this case, it would appear that a reasonable basis for denial of coverage in Pennsylvania is sufficient to defeat a bad faith claim.

Thanks to Coleen Hill for her contribution to this post.