480 F.3d 220 (3rd Cir. 2007), 05-3730, Hammersmith v. TIG Ins. Co.

Docket Nº:05-3730.
Citation:480 F.3d 220
Party Name:Scott HAMMERSMITH, Appellant v. TIG INSURANCE COMPANY (W.D. of PA. Civil Nos. 02-cv-01829 & 03-cv-01333).
Case Date:March 15, 2007
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

Page 220

480 F.3d 220 (3rd Cir. 2007)

Scott HAMMERSMITH, Appellant


TIG INSURANCE COMPANY (W.D. of PA. Civil Nos. 02-cv-01829 & 03-cv-01333).

No. 05-3730.

United States Court of Appeals, Third Circuit.

March 15, 2007

Argued Dec. 4, 2006.

Page 221

[Copyrighted Material Omitted]

Page 222

[Copyrighted Material Omitted]

Page 223

[Copyrighted Material Omitted]

Page 224

Thomas E. Birsic, Paul K. Stockman, [Argued], Kirpatrick and Lockhart, Nicholson Graham, James D. Belliveau, Michael H. Rosenzweig, Edgar Snyder & Associates, Pittsburgh, PA, Counsel for Appellant Scott Hammersmith.

Dennis J. Roman, Marshall, Dennehey, Warner, Coleman & Goggin, Pittsburgh, PA, Peter G. Thompson, [Argued], Thompson, Loss & Judge, Washington, DC, Counsel for Appellee TIG Insurance Co.

Robert E. Dapper, Jr., Dapper, Baldasare, Benson, Behling & Kane, Pittsburgh, PA, Counsel for Appellees AON Risk Services and AON Risk Services NY.

Before RENDELL and AMBRO, Circuit Judges, and BAYLSON, [*] District Judge.


BAYLSON, District Judge.

In this dispute over insurance coverage arising out of a tragic accident at the Pittsburgh International Airport, three issues are presented for decision following the District Court's grant of summary judgment to the excess insurer, Defendant-Appellee TIG Insurance Company ("TIG"):

1. Did the District Court err in holding that New York law governs this dispute as the state in which the insurance contract was issued and delivered, applying the lex loci principle on choice of law?

2. Did the District Court err in concluding as a matter of law that late notice to TIG prevented coverage?

3. Did the District Court err in concluding as a matter of law that TIG disclaimed coverage within a reasonable period of time?

We write at some length on the choice of law issue because of confusing dictum in prior decisions of this Court. We conclude that although Pennsylvania's choice of law rules have abandoned the lex loci doctrine, the modern flexible "interest/contacts" choice of law doctrine requires application of New York law. On the issues of late notice and disclaimer, we conclude the District Court erred because a number of material facts prevent summary judgment from being granted in favor of the insurer.

I. Introduction

Understanding the issues in this case requires a brief excursion into the facts of the underlying accident and ensuing litigation. On February 21, 1998, Plaintiff-Appellant Scott Hammersmith ("Hammersmith"), an employee of Delta Airlines, was unloading bags at the Pittsburgh International Airport. As a result of the malfunctioning of the baggage handling equipment, he was severely injured and is now a quadriplegic requiring constant round-the-clock care. He instituted suit in the Court of Common Pleas of Allegheny County by suing Delta Airlines and Allegheny County in August 1998. Allegheny County then brought into the suit the manufacturer of the equipment, CCC Conveyers,

Page 225

Inc. ("CCC"), which was a wholly owned subsidiary of the Dyson-KissnerMoran Corporation ("DKM"). CCC and its parent, DKM, first became aware of Hammersmith's accident and lawsuit on October 16, 1998, when they received a copy of Allegheny County's writ of summons. However, neither the Complaint nor the Amended Complaint contained any specific damage allegations.

The record shows that DKM immediately forwarded these pleadings to its insurance broker, Aon, requesting that Aon notify DKM's insurer. DKM and its subsidiaries, including CCC, were covered by a multi-layer liability insurance program. The first $250,000 was self-insured, and the next $1,750,000 was covered under a primary policy issued by National Union Fire Insurance Company ("National Union"). Defendant-Appellee TIG then provided excess coverage for liability over $2,000,000, up to a $25,000,000 limit. After receiving DKM's request, Aon promptly notified National Union of the claim, but did not notify TIG.

Under DKM's excess insurance policy with TIG, the insured must notify TIG "as soon as practicable" of an occurrence which may result in a claim, or when a claim is made or a suit is brought. TIG. Ins. Co. No. XLB 271 23 83 § IV(F), App. 1211 a. Furthermore, in the event of claim or suit, the policy requires the insured to "[i]mmediately send U.S. copies of any demands, notices, summons or legal papers received in connection with the claim or SUIT." Id. Nonetheless, TIG was not notified of the Hammersmith claim until October 30, 2000, almost two years after DKM originally learned of the suit, when a senior claims representative from AIG Vendor Services ("AIG"), the National Union affiliate handling DKM claims, sent TIG a letter.

There are a number of factual issues in the record, discussed below, as to how AIG's claims personnel and the attorneys handling the underlying case in the Allegheny Court of Common Pleas evaluated CCC's potential liability and the settlement value of the case during pretrial proceedings. However, it appears that just prior to a mediation scheduled for November 9, 2000, Hammersmith's demand for $23,000,000 came as a surprise to CCC's defense counsel. TIG was offered, but declined, the opportunity to participate in the mediation, which was unsuccessful.

Despite a great deal of back and forth between TIG and DKM on coverage issues in the ensuing months, TIG did not formally disclaim coverage until October 5, 2001, eleven months after it was originally notified of the Hammersmith claim.

At that point, National Union agreed to settle with Hammersmith for its unexpended policy limits, paid Hammersmith approximately $1,750,000, and assigned CCC's claim against TIG to Hammersmith with an agreement for a non-jury trial to determine his damages.

At the non-jury trial on November 28, 2001, Hammersmith's total damages were set at $25,700,000, of which $19,300,000 was awarded against CCC, and subsequently increased for delay damages to $23,600,000, in which amount judgment was entered against CCC.

II. Proceedings in the District Court

Acting on his assignment of CCC's claims against TIG, Hammersmith filed suit against TIG in the District Court under diversity jurisdiction. 28 U.S.C. § 1332. TIG brought in Aon as a third-party defendant. Subsequently, Hammersmith also filed a separate suit in the District Court against Aon, alleging that Aon breached its duty to CCC by failing to give prompt notice to TIG. The two separate

Page 226

cases were consolidated, and an Amended Complaint was then filed. After discovery, TIG moved for summary judgment, based on allegedly late notice, and Hammersmith moved for partial summary judgment, asserting that TIG's delay in disclaiming coverage estopped TIG from avoiding liability.

The District Court granted summary judgment to TIG and denied Hammersmith's motion for partial summary judgment. The District Court's grant of summary judgment in favor of TIG did not resolve any of the issues concerning Aon, 1 and the Court entered an Order under Rule 54, Fed.R.Civ.P., granting final judgment as to the issues between Hammersmith and TIG. This appeal follows.

On the choice of law issue, the District Court concluded that Pennsylvania's choice-of-law rules require that an insurance contract be governed by the laws of the state in which the contract was issued and delivered, which was New York.

As to the issue of late notice, the District Court held that, under New York law, an excess insurer is entitled to receive prompt notice and need not show prejudice from delay in receiving notice. The District Court concluded that, viewing the facts in the light most favorable to Hammersmith, TIG was not timely notified of the underlying accident and/or lawsuit, and thus DKM, the insured parent of CCC, was not entitled to coverage, absent some showing that TIG was estopped from disclaiming coverage based on its delay in doing so.

In denying Hammersmith's Motion for Partial Summary Judgment on the ground that TIG failed to disclaim coverage as soon as reasonably possible, the District Court held that TIG's investigation of the facts and disclaimer were reasonable as a matter of law.

III. Choice of Law

The parties disagree as to which state law applies in this case. Hammersmith urges Pennsylvania law, which requires an insurer to prove that the notice provision contained in the insurance contract was breached, and it suffered prejudice as a result. Brakeman v. Potomac Ins. Co., 472 Pa. 66, 371 A.2d 193 (1977). TIG maintains that the District Court correctly applied New York law, which does not require an insurer to establish prejudice in order to disclaim coverage based on late notice. Security Mut. Ins. Co. of N.Y. v. Acker-Fitzsimons Corp., 31 N.Y.2d 436, 340 N.Y.S.2d 902, 293 N.E.2d 76, 78 (1972). We exercise plenary review over the District Court's choice of law determination. Berg Chilling Sys., Inc. v. Hull Corp., 435 F.3d 455, 462 (3d Cir.2006).

Because this is a diversity case, we apply the choice-of law-rules of the forum state, Pennsylvania. Klaxon v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). In this case, the District Judge erred in concluding it was "well-settled" that "[u]nder Pennsylvania choice of law rules, an insurance contract is governed by the law of the state in which the contract was made." App. 13a. Although both Pennsylvania and federal courts have dealt with this issue in a rather inconsistent fashion, we think it is now clear that Pennsylvania applies the more

Page 227

flexible, "interest/contacts" methodology to contract choice-of-law questions. 2

A. Abandonment of Lex Locus Contractus in Pennsylvania


To continue reading