American Cas. Co. of Reading, Pa. v. Phico Ins. Co.

• Decision Date: 21 July 1995
• Citation: 661 A.2d 939
• Parties: AMERICAN CASUALTY COMPANY OF READING, PA., Petitioner, v. PHICO INSURANCE COMPANY and Commonwealth of Pennsylvania, Medical Professional Liability Catastrophe Loss Fund, Joseph Pulcine, Jr., Director and Sharon Dirienzo and David Richard and Suzanne Richard, his wife as parents and natural guardians of Christopher Richard and David Richard and Suzanne Richard in their own right, Respondents.
• Court: Pennsylvania Commonwealth Court

Page 939

661 A.2d 939

AMERICAN CASUALTY COMPANY OF READING, PA., Petitioner, v. PHICO INSURANCE COMPANY and Commonwealth of Pennsylvania Medical Professional Liability Catastrophe Loss Fund, Joseph Pulcine, Jr., Director and Sharon Dirienzo and David Richard and Suzanne Richard, his wife as parents and natural guardians of Christopher Richard and David Richard and Suzanne Richard in their own right, Respondents.

Commonwealth Court of Pennsylvania.

Argued May 9, 1995.

Decided July 21, 1995.

K. Charles Gudenas, for petitioner.

David E. Sandel, Jr., for respondents.

Before McGINLEY and SMITH, JJ., and LORD, Senior Judge.

McGINLEY, Judge.

This present case is on remand from the Pennsylvania Supreme Court so that Phico Insurance Company (Phico) and American Casualty Company (American Casualty) can contest whether, under Phico's excess policy and American Casualty's excess policy, any remaining liability should be pro-rated or equally shared.

The facts as recounted in this Court's opinion American Casualty Company v. Phico Insurance Company, 145 Pa.Commonwealth Ct. 184, 602 A.2d 904 (1992), reversed in part, 537 Pa. 295, 643 A.2d 91 (1991) are as follows:

American Casualty issued to Sharon DiRienzo (DiRienzo), a delivery room nurse, a "Professional Nurse's Liability Policy" (American Casualty's policy) for the period from February 6, 1987, through February 6, 1988. American Casualty's policy provides professional and personal liability coverage for the nursing profession.1 In its policy American Casualty agrees to "pay all amounts up to the limits of liability [$1,000,000] which you [DiRienzo] become legally obligated to pay as a result of injury or damage." American Casualty's policy, Appendix to Memorandum of Law of American Casualty (Appendix), Exhibit C at 5. American Casualty's policy also provides that "[t]he injury or damage must be caused by ... a medical incident as a result of the supplying of or failure to supply professional services by you...." American Casualty's policy, Appendix, Exhibit C at 5. DiRienzo paid an annual premium of $58.00 in consideration for the insurance coverage.

Phico issued two policies of insurance to Bryn Mawr Hospital (Hospital), one a "Health Care Providers Comprehensive Liability Policy" (primary policy), and the other a "Health Care Providers Umbrella Policy" (excess policy), for the period of November 20, 1987, through January 20, 1988. The policies were extended by endorsement to February 1, 1988. Phico's primary policy provides a wide range of liability insurance coverage. Coverage C, "Institutional Professional Liability," includes up to $200,000 of coverage to the Hospital and its employes for "any act or omissions in the furnishing of professional health care services." Phico's primary policy, Appendix, Exhibit D at 11. Phico's excess policy provides up to $10,000,000 of coverage to the Hospital and its employes for "any act or omission during the policy period in the furnishing of professional health care services including the furnishing of ... medication ... in connection with such services...." Phico's excess policy, Section VII-Definitions, Appendix, Exhibit E at 8. Phico's excess policy involves coverage "in excess of the greater of ... any other underlying insurance payable with respect to or collectible by the insured...." Phico's excess policy, Appendix, Exhibit E at 9.

By statute the Cat Fund [Pennsylvania Medical Professional Liability Catastrophe Loss Fund] provides the following coverage:

There is hereby created a contingency fund for the purpose of paying all awards, judgments and settlements for loss or damages against a health care provider entitled to participate in the fund as a consequence of any claim for professional liability brought against such health care provider as a defendant ... to the extent such health care providers' share exceeds his basic coverage insurance....

Section 701(d) of the Health Care Services Malpractice Act (Act). 2 "The limit of liability of the fund shall be $1,000,000 for each occurrence for each health care provider and $3,000,000 per annual aggregate for each health care provider." Section 701(d) of the Act, 40 P.S. § 1301.701(d).

On November 28, 1989, American Casualty filed a petition seeking a declaratory judgment "[i]nterpreting the priorities of the insurance policies issued by the parties" as a result of an underlying civil action filed in the Court of Common Pleas of Montgomery County at Docket No. 89-17897.3 Petition for Declaratory Judgment, November 28, 1989, (Petition). American Casualty alleges at Count I that the American Casualty policy involves only excess insurance for DiRienzo; that Phico provides primary insurance "for liability arising out of any 'medical incident' and that term is defined to include the rendering or failure to render professional services"; that "[t]he Phico's Primary Policy states in its 'other insurance' clause that it provides primary insurance"; that Phico issued another policy to the Hospital providing "excess insurance to any professional employee of the named insured for liability arising out of any 'medical incident' "; that the "American Casualty policy and the Phico Excess Policy provide coverage for DiRienzo in excess of the amounts collectible under the Phico Primary Policy and the Cat Fund"; and that "American Casualty's and Phico's contributions should be apportioned according to the respective limits of liability stated in those policies." Petition, paragraphs 12, 15, 16, 17, 18 and 24

At Count II American Casualty alleges that DiRienzo is a "health care provider" as defined in Section 103 of the Act, 40 P.S. 1301.103; that pursuant to Section 705(a) of the Act, 40 P.S. § 1301.705(a) "an insurer issuing a professional liability policy on an excess basis is not liable for payment of any claim against a health care provider before the limits of liability of the Cat Fund have been exhausted"; that "the Cat Fund must provide ... the benefits required by the Act up to $1,000,000.00"; and that "only in the event the coverage owed DiRienzo by Phico under its Primary Policy and by the Cat Fund were inadequate ... American Casualty and Phico, under its Excess Policy, would be required to indemnify her as excess co-insurers." Petition, paragraphs 31 and 32. American Casualty seeks declaratory relief on the theory that Phico's primary policy and the Cat Fund must provide coverage with respect to the claims asserted against DiRienzo and that American Casualty's policy provides excess coverage with any contribution apportioned to the limits of its policy.

On April 19, 1991, Phico and DiRienzo moved for summary judgment pursuant to Pa.R.C.P. No. 1035. Phico and DiRienzo contend that the pleadings and the uncontested facts establish that American Casualty's insurance policy does not provide excess coverage but provides primary or co-primary insurance. American Casualty filed a cross-motion for summary judgment alleging that its insurance coverage is in excess of Phico' insurance coverage and that "the responsibility for the sums covered under both the Phico Excess Policy be prorated in accordance with the limits of those policies...." Answer of American Casualty Company to the Motion for Summary Judgment of Phico Insurance Company.

American Casualty Company, 145 Pa.Commonwealth Ct. at 187-190, 602 A.2d at 905-906. ¹

In American Casualty Company this Court determined that "[u]nder the circumstances of the present case the 'other insurance' clause contained in the Phico policy is a 'pro rata' clause and means the Phico policy should be treated as providing primary coverage to DiRienzo" and that "[b]ecause the American Casualty policy contains an unqualified excess clause it must be interpreted as providing residual primary coverage." Id. at 196, 602 A.2d at 909. This Court ordered: 1) that Phico's primary policy pay the first $200,000 of indemnity expense; 2) that American Casualty, the residual primary insurer, then pay the next $1,000,000 of indemnity expense; 3) that the Cat Fund pay up to $1,000,000 as excess coverage after the exhaustion of Phico's $200,000 policy limit and American Casualty's $1,000,000 policy limit; and 4) that after exhaustion of these policy limits Phico's $10,000,000 excess policy limit is then triggered.

On appeal the Supreme Court reversed in part, concluding that "[m]oreover, under the crystal clear language of the American Casualty's policy's 'other insurance' clause ... it is hard to see how that policy can be construed as anything but an excess policy" and that " 'if you have other insurance which applies to the loss, the other insurance must pay first' ... [t]his is an excess insurance clause...." American Casualty Company, 537 Pa. at 302-03, 643 A.2d at 95. The Supreme Court concluded that "in the instant case, the first $200,000.00 of liability must be borne by Phico's primary policy, and next the CAT Fund must kick in for its share ... [o]nly then do the excess policies of American Casualty and PHICO bear liability...." (emphasis in original). Id. at 303, 643 A.2d at 95. Although the Supreme Court stated that "liability should be pro-rated in accordance with the pro-ration clause in PHICO's excess policy", the Supreme Court noted in a footnote that the parties failed to clarify in the briefs whether excess liability under the respective excess policies should be prorated. Id. at 303, 643 A.2d at 95-96.

On remand to this Court Phico contends that any liability in excess of the $1,200,000 must be apportioned equally between the concurrent insurers. Phico asserts that prorating the loss equally up to the limits of American Casualty's lower policy limit of $1,000,000 (maximum loss approach) has been widely accepted by courts in other jurisdictions ² as well as in Pennsylvania ³, although it is the minority rule across the nation.

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