Insurer Not Estopped From Withdrawing ROR After Defending For Several Years (PA)

The Third Circuit Court of Appeals recently dealt with a challenge by an insured to the withdrawal of a Reservation of Rights in Nationwide Ins. Co. v. Shearer.  The underlying claims arose from damage caused by the discharge of sewage and other waste by Nationwide’s policyholders, which had drained onto the Shearers’ property and subsequently contaminated their groundwater. The Policyholders were insured by Nationwide, who agreed to provide a defense but stated in Reservations of Rights letters that the claims may be subject to a pollution or biological deterioration exclusion and that it was not waiving its rights to later disclaim coverage.

Nationwide subsequently filed a declaratory judgment action and moved for summary judgment, arguing that the claims were excluded from coverage. The policyholders did not challenge the applicability of the exclusionary language and instead claimed that Nationwide should be equitably estopped from withdrawing because it had been defending them for several years and that an untimely withdrawal would be prejudicial.

The District Court rejected the policyholders’ arguments and awarded summary judgment in favor of Nationwide. The District Court noted that Nationwide’s reservation of rights letters made clear that its defense “shall not be deemed to be a waiver of or estoppel” of its rights under the policy. The District Court also rejected the policyholders’ claim that Nationwide was required to take steps to withdraw its defense within a certain period of time after issuing reservation of rights letters and that it was instead the burden of the insured to establish “actual prejudice.” Finding no allegations or evidence of prejudice, the Court held that there was no basis to estop Nationwide from asserting its coverage defenses. The policyholders appealed, and the Third Circuit affirmed. Echoing the lower court’s decision, the Third Circuit determined that Nationwide had preserved its coverage defenses in its reservation of rights letters. The appellate court also rejected the Policyholders’ claims that they would be prejudiced as a result of allowing the withdrawal of the defense at such a late stage in the case.

Thanks to Jorgelina Foglietta for her contribution to this post and please write to Mike Bono for more information.

Injured Landscaper Settles for Philadelphia Record $26.55 Million

In the largest single personal injury settlement from the Philadelphia Court of Common Pleas, plaintiff David Williams recently resolved his lawsuit for $26.55 million dollars.  Williams, a landscaper for TruGreen lawn care, was ejected from a TruGreen-owned truck after crashing in a rainstorm.  Williams suffered a fractured spinal cord, resulting in paralysis.

Plaintiff sued TruGreen, his employer who owned the truck involved in the accident; ServiceMaster, TruGreen’s parent company; and vehicle maintenance companies Dickinson Fleet Services and Brooks Auto Repair.  Williams claimed that TruGreen had a duty to ensure its work vehicles were in safe working condition, yet failed to do so.  Williams also argued that Dickinson Fleet Services was at fault as it failed to take the truck out of service when inspecting it three days prior to the accident.  Although a Dickinson field technician found that the right rear tire had insufficient tread and needed to be replaced, he neglected to “sticker” the truck to indicate that it should be taken out of service.  Williams also claimed that Brooks Auto repair failed to replace or rotate the back tires and just replaced the front tires.

TruGreen contended that Dickinson was at blame as it failed to provide adequate notice about the tire treads and further argued that Williams was contributorily negligent because he drove too fast for the road conditions.  Dickinson argued it did not have the authority to remove the truck from service and fulfilled the extent of its obligation.

Ultimately, the parties agreed that ServiceMaster and TruGreen would contribute $16.75 million to settlement, while Dickinson would contribute $9.5 million and Brooks Auto Repair $300,000.

Thanks to Chelsea Rendelman for her contribution to this post and please write to Mike Bono for more information.

Pennsylvania Court Rules On The Effectiveness of An Insurer’s Cancellation of a Policy

In Philadelphia Showcase Lounge, LLC, et al. v. Landmark American Ins. Co., et al., the Pennsylvania Superior Court was asked to analyze the effectiveness of a cancellation of an insurance policy.

Landmark American Ins. Co. insured Philadelphia Showcase Lounge, LLC, which operated a bar/restaurant.  The Policy was in effect from December 24, 2011 to December 24, 2012, at 12:01 a.m.  On November 28, 2012, Landmark sent a renewal quotation at the same price and on the same terms to Showcase.  Showcase made no effort to renew the Policy.  Rather, Showcase looked to secure quotes from other insurance companies in December 2012.

On December 24, 2012, at approximately 1:00 p.m. there was a fire at the Property.  Following the loss, on December 24, 2012 at 7:21 a.m., Showcase attempted to bind coverage with Landmark.  However, Showcase was informed that the Policy expired at 12:01 a.m. on December 24, 2012.  Showcase attempted to seek coverage under the Policy for the loss by commencing a lawsuit.

Eventually, all parties moved for summary judgment.  Showcase argued that since Landmark never sent a notice of midterm cancellation or nonrenewal pursuant to Pennsylvania statute 40 P.S. Section 3403, the Policy remained in effect.  Conversely, Landmark argued Showcase was not entitled to protection under Section 3403 and, thus, the Policy was properly cancelled.  The trial court agreed with Landmark.

On appeal, Showcase argued the lower court erred in failing to apply the protections of Section 3403.  Section 3403 requires insurers to provide written notice to insureds 60 days in advance of “midterm cancellations or nonrenewals”.  In analyzing the validity of Showcase’s appeal, the Superior Court ultimately concluded Section 3403 was not applicable.  The Court reasoned that the Policy was in effect from December 24, 2011 to December 24, 2012, 12:01 a.m.  At no time during the Policy period did Landmark terminate the Policy.  Also, Landmark did not provide notice to Showcase that it intended to non-renew the Policy.  Conversely, Landmark sought to renew the Policy by sending a renewal quotation.  However, Showcase opted not to accept the renewal offer.  Thus, the Court concluded, since Section 3403 does not prescribe a responsibility onto insurers to send out a nonrenewal notice if the insured fails to respond to or reject the insurer’s prior renewal offer, Section 3403 was not applicable under the circumstances.  Additionally, the Policy’s Cancellation Endorsement also did not require such action.  Therefore, since Landmark was not in violation of any applicable statute and had cancelled the Policy in accordance with the Policy’s terms, the Policy was not in effect at the time of the fire.

This case illustrates the importance of ensuring that policy cancellations not only comply with the language of the applicable policy but also any relevant statutes – as statutory noncompliance could result in coverage, notwithstanding an insurer’s intent to cancel.

Thanks to Colleen Hayes for her contribution to this post.

 

 

 

 

Bunk Beds Are Not Per Se Dangerous (PA)

In defense of a negligence action, whether a duty is in fact owed is a threshold question. Without duty, there can obviously be no breach let alone causation.  As the existence of a duty is a question of law to be determined by a judge, it can be a determining factor in a motion for summary judgment, as it was in the case of Yun v GREAT WOLF LODGE OF THE POCONOS, LLC,.

The plaintiffs’ family of four was given a free room upgrade for their Pocono vacation at Great Wolf Lodge, a resort with indoor water parks and attractions. The upgraded room included an adult bed, pull out sofa and bunk beds. For parents with two daughters aged four and two years, there were ample sleeping options.  The infant four year old was excited to sleep on the top bunk – she had never done so before. The parents weighed the dangers of her sleeping in the top bunk. Despite the fact that she slept in a low level bed with the side blocked off at home (for fear that she may fall out of bed), they ultimately decided that the top bunk was not dangerous.

At approximately 12:00 A.M., the parents heard a thump and rushed to the children’s room and found that their daughter had fallen from the top bunk onto the carpeted floor. She began vomiting immediately and every 2 hours thereafter. They took her to the hospital where she was diagnosed with a closed nondisplaced skull fracture.

In the lawsuit, the plaintiffs pursued premises and products liability theories based on the premise that the bunk bed was a dangerous condition. They disputed that a warning label was affixed to the bunk bed – despite the defendant’s photographic proof of a label that stated, “Never allow a child under 6 years of age on upper bunk.”

In opposition to the defendant’s summary judgment motion, the plaintiffs insisted that a question of fact existed as to the negligence of Great Wolf. They contended the free room upgrade was negligent given the age of their daughters.  They argued that there had been a failure to warn. Essentially, they contended that the bunk beds were a dangerous condition.

In Pennsylvania, the elements of a negligence claim are: (1) a duty or obligation recognized by the law requiring the defendant to conform to a certain standard of conduct for the protection of others against unreasonable risks; (2) defendant’s failure to conform to the standard required; (3) a causal connection between the conduct and the resulting injury; (4) actual loss or damage resulting to the plaintiff. However, according to the Restatement (2d) of Torts, “a possessor of land is not liable to his invitees for physical harm caused to them by any activity or condition on the land whose danger is known or obvious to them, unless the possessor should anticipate the harm despite such knowledge or obviousness.”

Great Wolf argued that bunk beds were not a dangerous condition, in support if this they pointed to two non-controlling cases: Rubin v. Olympic Resort, Inc. (New York) and Buck ex rel v. Camp Wilkes, Inc., (Mississippi) both of which stated that notwithstanding any design defects, the potential danger of a bunkbed is obvious and it is for the parents to determine whether a bunk bed is suitable for their children.  In fact, the plaintiff parents were admittedly aware of the potential danger of allowing their daughter to sleep in the top bunk. Great Wolf offered expert opinion that the bunk beds in the resort did not violate any code or regulations.  He opined that the bed was not used in accordance with the warning provided.

Even granting the plaintiffs all favorable inferences, the federal district court could not find a duty on the resort to not offer bunk beds and granted Great Wolf’s motion for summary judgment.

Thanks to Sathima Jones for her contribution.

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

 

Failure to Define Policy Term Does Not Render Policy Ambiguous

In Rapp v. Penn National Mutual Casualty Ins. Co., the Pennsylvania Superior Court was asked to opine on whether an undefined term in the insurance contract rendered it ambiguous.

Plaintiff was injured as a passenger in a two car motor vehicle accident.  Her husband was the driver of the car she was in.  Initially, plaintiff attempted to recover under the other driver’s policy.  However, the other driver’s policy had limited coverage.  Consequently, plaintiff filed an underinsured motorist claim under her husband’s policy with Pennsylvania National Mutual Casualty Company.  Plaintiff’s husband was the only named insured under the policy, but the policy also provided coverage to the named insured’s spouse, if the spouse was a resident of the named insured’s household.  Specifically, the policy stated, “[t]hroughout this policy, ‘you’ and ‘your’ refer to: ‘the named insured’ shown on the Declarations” and “[th]e spouse if a resident of the same household.”

Pennsylvania National denied coverage to plaintiff, since, at the time of the accident, she no longer resided with her husband.  In response, plaintiff filed a declaratory judgment action seeking coverage under the policy.  Pennsylvania National moved for summary judgment, and the plaintiff opposed arguing that the policy was ambiguous since the declarations page only listed plaintiff’s husband as the “insured” not the “named insured”.  As such, Pennsylvania National’s failure to have the policy’s declarations page identify plaintiff’s  husband as the “named insured” (as opposed to just the “insured”) rendered the policy’s definition of “you” and “your” ambiguous, since “named insured” was not defined under the policy.

In determining that the policy was not ambiguous, the court reasoned that the declarations page had several boxes titled “insured”, in which plaintiff’s husband’s name was listed.  Thus, the court concluded, that notwithstanding the fact that the declarations page did not explicitly define the policy’s “named insured” the policy was unambiguous as to who the named insured was.

This case illustrates that an insurance policy’s failure to define a term may not result in a carte blanche ruling that the policy or its provisions are ambiguous.  However, a policy’s failure to unequivocally define referenced terms may, under certain circumstances, result in a court finding a policy ambiguous (and thus finding coverage) where the insurer may not have intended coverage to apply.  Therefore, insurers should attempt to ensure that all referenced terms are defined as to avoid courts potentially finding ambiguities where none should exist.

Thanks to Colleen Hayes for her contribution to this post.

 

 

Court Restricts Restrictive Covenant in Employment Contract (PA)

In Lehigh Anesthesia Association vs. Mellon, a Philadelphia Superior Court issued an opinion on appeal, granting summary judgment on behalf of a nurse, Michael Mellon, who had been sued by his former employer for violation of a restrictive covenant in his employment agreement.

Michael Mellon began working for Lehigh Anesthesia Association in 2001 as a certified nurse anesthetist.  His employment agreement contained a restrictive covenant that prohibited him from working for any entity that had entered into a contract with LAA within four years prior to termination of his employment agreement. Although the covenant did not bar Mellon as to geographic area, it limited his ability to render services to any of the defined clients for up to two years after termination.

In May 2012, LAA terminated Mellon’s employment based on complaints of poor work performance and behavior. Mellon thereafter began working for Professional Anesthesia Consultants, which provided services to Carlisle Endoscopy Center, a client of LAA from 2001-2011.

LAA filed a complaint alleging a breach of its restrictive covenant against Mellon on February 28, 2013. In Pennsylvania, for a restrictive covenant to limit competition to be enforceable: it “must be: (1) ancillary to the employment relationship; (2) reasonably necessary for the protection of the employer; and (3) reasonable in duration and geographic reach.” Agreements are considered ancillary if they pertain to the employment relationship. So long as the employment restriction is “an auxiliary part of the taking of employment and not a later attempt to impose additional restrictions on an unsuspecting employee, such a covenant is supported by valid consideration and is therefore enforceable.” In Pennsylvania, post-employment restrictive covenants are subject to a higher level of scrutiny. Under this the additional scrutiny, reasonableness is determined by whether a covenant is necessary to protect particular business interests such as trade secrets or highly specialized employee training by an employee; the protection must extend beyond the mere elimination of competition.

In affirming summary judgment for Mellon, an appeals court held that the covenant was broader than necessary to protect LAA’s business interests and placed an undue hardship on the nurse in finding future employment. Notably, the lack of geographic scope added to the over-breadth of the covenant, and the court found that LAA’s broad interpretation of the term clients to include any entities with whom LAA had contracted within two years of termination, would unduly restrict the nurse’s potential employers.

Thanks to Sathima Jones for her contribution.

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

No Coverage For Bank’s Class Action Settlement For Overdraft Fees (PA)

Six class actions were filed against PNC Bank on the grounds that it manipulated overdraft fees and failed to disclose to customers that there was an “opt out” option for such fees. PNC settled the litigation for $102 million that included a $30 million attorneys’ fee component.  Axis Insurance Company, an excess insurer for PNC, denied coverage for the settlement as a refund or “reimbursement” of overdraft fees falling within the “professional services charge exception” to covered damages.

PNC put forth three arguments. First, PNC argued that the language of the “professional services charge exception” was ambiguous, and should be construed in favor of coverage. PNC also argued that the district court was mistaken in holding that the exclusion barred coverage for reimbursements. And finally, PNC argued that it was an error to categorize the settlement as a “reimbursement,” as the crux of the suit dealt with a broader issue of PNC’s overall banking policies.

 

The District Court ruled that PNC was not entitled to coverage for the settlement under the exception.  Nonetheless, it ruled that Axis was on the hook to pay the $30 million portion of the settlement that was designated for attorneys’ fees. On May 9, 2016, the U.S. Court of Appeals for the Third Circuit affirmed that PNC was not entitled to coverage, but reversed the District Court’s ruling with respect to  attorney’s fees.

The Appeals Court, led by Third Circuit Judge Thomas Vanaskie, ruled that there was no ambiguity in the professional services charge exception.  It was factually accurate to categorize the settlement as a “reimbursement,” and therefore the “professional services charge exception” applied to bar coverage under the Axis policy. Since the entire settlement could be categorized as a “reimbursement,” the $30 million earmarked for attorney’s fees also constituted a reimbursement, and Axis was not liable for such under the “professional services charge exception.”

Thanks to Melanie Brother for her contribution.

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

 

 

“What Time Will You Be Home?” Distracting a Driver Via Text Could be Actionable in PA

In a case of first impression, Judge John W. Hodge of the Lawrence County Court of Common Pleas allowed negligence and wrongful-death claims to go forward against a defendant involved in a fatal car accident.  In Gallatin v. Gargiulo, defendant Laura Gargulio was texting while driving and hit plaintiff on his motorcycle, dragging him approximately 100 feet.  The complaint included claims against Joseph Gargulio and Timothy Fend, alleging that Laura was reading and/or responding to text messages sent by either Joseph or Timothy.

Fend filed preliminary objections on the basis that plaintiff had no cause of action to recover against him. However, Judge Hodge noted a 2013 ruling by the New Jersey Court of Appeals, Kubert v. Best, which held that as a matter of civil common law, the sender of a text can potentially be liable if an accident is caused by texting and the sender knew or had reason to know the text would distract the driver. Judge Hodge allowed for the possibility that defendants Timothy and Joseph could not be held to the standard established in Kubert, but felt that the law weighed in favor of keeping the men as parties at least through the discovery period.

Although this ruling currently has limited precedential weight, it could signify a major change in motor vehicle liability law. It would provide additional avenues for a plaintiff to recover and could have a significant effect on motor vehicle coverage in the future.  We will continue to follow this case to determine if it denotes a larger trend in Pennsylvania jurisprudence.

Given the Court’s ruling that the texting / non-driving defendants would remain active defendants “through the discovery period,” we suspect these defendants will be able to seek dismissal if they can demonstrate they were not aware the driving defendant was actually driving at the time.  Thanks to Remy Cahn for her contribution to this post.  Please email Brian Gibbons with any questions.

 

 

Woman Awarded $1.19 Million “Aberration” Verdict in UIM Case (PA)

A jury in Beaver County awarded a woman $1.2 million in Alviani v. Horace Mann Insurance.  The suit arose from in a July 18, 2012 when the plaintiff, Britney Alviani, was the passenger in her boyfriend’s car when it was struck head-on by Jodi Morrison.  Alviani was thrown forward where she struck the windshield and suffered a laceration to her face and multiple abrasions and bruises.  She also suffered injuries to her right knee and elbow.  According to the pre-trial memorandum, Morrison was driving under the influence and left her lane of travel.  She was later convicted of DUI.

Follow-up care showed that Alviani had a significant injury to her right elbow.  She underwent two surgeries and various other medical treatments and was diagnosed with chronic pain syndrome.  Plaintiff’s counsel employed a medical expert who opined that Alviani’s injury is permanent and that she will not be able to return to her job as a barber’s apprentice.  The pre-trial memo also stated that Alviani is unable to lift more than one pound and has trouble engaging in recreational activities.

The defense team employed their own expert who stated that Alviani was able to be gainfully employed and pointed to her own testimony which stated that she was currently working on a full-time basis and earning more than a barber’s apprentice.

Morrison only carried $15,000 in liability coverage but Alviani was insured under five additional auto policies which provided $50,000 in UIM benefits each.  Alviani requested $65,000 for lost wages, $892,000 – $1.14 million for lost earning capacity, and a $250,000 UIM claim.  The defense offered a final settlement of $115,000.

After a four day trial, the jury deliberated for five hours and returned a $1.19 million verdict which included $65,488 in past lost earnings, $1 million in lost earning capacity, and $100,000 for pain and suffering.  Defense counsel called the verdict an “aberration” and says that he will appeal.

This case demonstrates the potential for high damages if there is a finding of a permanent injury and also the ability of plaintiffs to stack other insurers through UIM coverage.  Thanks to Peter Cardwell for his contribution to this post.  Please email Brian Gibbons with any questions.

Pennsylvania Court Addresses Whether Property Damages Occurred During the Policy Period

Generally the date of loss set forth in the complaint is the date that triggers coverage within a specific policy period.  Where discovery uncovers an earlier trigger date, coverage may apply during a prior policy period.

In Olde Glory Builders LLC v. Donegal Mut. Ins. Co., Olde Glory Builders, built a home and sold it to a third party in 2011.  The plaintiff was insured under a CGL policy from December 2010 to December 2011.  During the first year of owning the property, the buyer reported the property’s roof was leaking to Olde Glory Builders.  Olde Glory Builders was unable to correct the problem.  In June 2013, the property sustained significant water damage, which resulted in the buyer instituting suit against Olde Glory Builders.  In the buyer’s lawsuit, the buyer made claims against Old Glory Builders for negligent construction and its failure to detect and correct problems, which had become apparent in or before November 2012.

The insurer denied coverage contending that the alleged damages did not occur within the policy period.  Subsequently, Olde Glory Builders filed a declaratory judgment action.  In determining whether there was coverage under the policy, the court first reasoned that an insurer’s obligation to defend its insured was triggered when the allegations in a complaint could potentially fall within the scope of the policy’s coverage.  The court further reasoned, in Pennsylvania, an occurrence takes place when the injurious effects of a negligent act “first manifest” themselves to a reasonable person.

The court concluded that the effects of Olde Glory Builders’ alleged negligence “first manifested” themselves during the first year of the buyer owning the property (as he reported his complaints to Olde Glory Builders during that time).  Thus, because Olde Glory Builders’ policy was in effect at the time that the damages manifested (in 2011), the insurer was obligated to defend Olde Glory Builders.

This case illustrates how sometimes property damage that seemingly occurs outside the policy period may potentially be covered under a policy, under Pennsylvania law, if a court determines that the injury leading to the loss manifested itself while the policy was in effect.  As such, discovery should be conducted to determine, as best as possible, when complaints began to be made about alleged property damage – as this may ultimately play an important role in determining whether coverage is provided under a policy.

Thanks to Collen Hayes for her contribution to this post.