American States Ins. Co. v. Maryland Cas. Co.
| Decision Date | 21 July 1993 |
| Citation | 628 A.2d 880,427 Pa.Super. 170 |
| Parties | AMERICAN STATES INSURANCE COMPANY, a Corporation v. MARYLAND CASUALTY COMPANY, a Corporation, Appellant. AMERICAN STATES INSURANCE COMPANY, a Corporation, Appellant, v. MARYLAND CASUALTY COMPANY, a Corporation. |
| Court | Pennsylvania Superior Court |
Bernard J. McAuley, Pittsburgh, for Maryland Cas.
Louis Anstandig, Pittsburgh, for American State Ins.
Before KELLY, JOHNSON and HESTER, JJ.
In this action, we are asked to determine whether American States Insurance Company, an umbrella insurer, may maintain an action for bad faith grounded on equitable subrogation against Maryland Casualty Company, the primary insurer. Concluding that an umbrella insurer, in breach of its duty to defend, may not maintain an action for bad faith against the primary insurer based on equitable subrogation, we affirm.
American States Insurance Company brought this action against Maryland Casualty Company alleging bad faith in the defense, negotiation and settlement of the underlying personal injury action captioned Stiles v. The Pennsylvania Rural Electric Association, Docketed at No. 3278 of 1979 in the Court of Common Pleas of Westmoreland County, Pennsylvania.
On July 18, 1978, Benjamin Stiles, a lineman for Southwest Central Rural Electric Cooperative Corporation, was injured when a co-worker, in the mistaken belief that the lines were clear, energized the line which Stiles was installing. Stiles suffered electrical burns to the lower extremities, ultimately requiring amputation of both legs. Stiles sued the Pennsylvania Rural Electric Association (PREA), a non-profit trade association which provided safety training and instruction materials to members of the trade association including Stiles' employer. Stiles alleged that PREA was negligent in failing to provide adequate safety training and/or instruction to the employees of the Southwest Central Rural Electric Cooperative. Stiles further alleged that PREA's negligence was the proximate cause of his injuries, asserting that PREA's negligence in failing to provide adequate safety training and/or instruction was the sole cause of his injuries.
At the time of Stiles' injury, three separate PREA insurance policies potentially applied to his claim: (1) A one million dollar three-year multi-peril policy providing bodily-injury and property-damage liability coverage issued by Maryland Casualty on April 15, 1977. The Maryland Casualty policy contained a Professional Liability Exclusion Endorsement which excluded "bodily injury or property damage [sustained] due to the rendering or the failure to render any professional service." (2) An American States umbrella liability policy issued to PREA on April 18, 1978, with bodily injury and property damage liability limits of four million dollars. Under the umbrella policy, American States agreed to indemnify PREA for losses in excess of those claims covered by the Maryland Casualty policy. For the claims involving professional negligence, not covered by the Maryland Casualty policy, American States agreed to provide primary coverage and a defense to PREA. This last provision is known as a "drop down" clause. (3) An American States three year comprehensive liability policy issued on March 18, 1978 to Allegheny Electric Co-op., Inc. (AEC), a PREA subsidiary, with bodily injury and property damage liability in the amount of one million dollars.
Maryland Casualty, upon notice of the Stiles' suit, informed PREA that it would deny coverage based on the professional service exclusion in its policy. American States, however, refused to defend PREA and denied the applicability of the drop-down provision in its policy. American States took the position that its responsibility was limited to excess coverage on the Maryland Casualty policy. During Stiles' lawsuit, Maryland Casualty was unaware of the AEC policy and consequently did not seek the participation of American States in the defense of PREA on the basis of the AEC policy. PREA filed a declaratory judgment action in the United States District Court for the Middle District of Pennsylvania against both American States and Maryland Casualty, which was subsequently withdrawn, alleging that either one or both insurers owed it a defense. Maryland Casualty then agreed to defend PREA in the Stiles' lawsuit, subject to a nonwaiver agreement, and Maryland Casualty did defend PREA until Stiles' lawsuit was settled following the jury verdict.
The Stiles' proceedings were monitored by American States through counsel specifically employed for that purpose. However, during the Stiles' lawsuit, American States refused to participate in PREA's defense, even though American States and Maryland Casualty had, on occasion, discussed, but never resolved, the possibility of a joint settlement offer. On July 21, 1980, Stiles' counsel made a written settlement demand for one million dollars to Maryland Casualty. Following the rejection of this demand, American States' representatives were present during an ensuing pre-trial conference at which Stiles' settlement demand for three million dollars was discussed and also rejected.
On May 3, 1982, the first day of trial in the Stiles' action, the court permitted Stiles to orally amend his complaint to include allegations of negligent hiring and negligent supervision against PREA. On May 12, 1982, the jury returned a verdict in favor of Stiles for $7,500,000. While post-trial motions were pending, the Stiles' lawsuit was settled for five million dollars. American States paid $3,073,300 of the settlement and Maryland Casualty Company paid the balance, $1,926,700.
Subsequent to the Stiles' settlement, American States filed this action against Maryland Casualty alleging bad faith in the defense, negotiation and settlement of the Stiles' claim. On May 2, 1989, on cross-motions for partial summary judgment, a partial summary judgment was entered for American States. The trial court determined that since the professional service exclusion was inapplicable, Maryland Casualty's policy covered Stiles' claims against PREA. Following the trial court's refusal to certify the issue for an interlocutory appeal, this Court denied Maryland Casualty's Petition for Review on December 5, 1989.
After the denial of the Petition for Review, both American States and Maryland Casualty filed cross-motions for summary judgment on the remaining legal issues. On May 22, 1991, the trial court issued an Opinion and Order holding that under the terms of its umbrella policy, American States had a duty to defend PREA in the Stiles' lawsuit until it could confine the Stiles' claim to a recovery that was outside the scope of the "drop down" provision of the umbrella policy. The trial court also concluded that the AEC policy did not apply to the Stiles' claim and therefore, American States had no duty to defend PREA under the AEC policy.
On October 22, 1991, the trial court issued a Supplemental Opinion and Order affirming its earlier determination but concluding that American States had a duty to defend PREA in the underlying lawsuit pursuant to the terms of its umbrella policy. The trial court also granted partial summary judgment in favor of Maryland Casualty in accordance with its May 22, 1991 Opinion. Observing that American States had presumed that it was only an excess liability carrier, the trial court ordered the American States' claim against Maryland Casualty to be dismissed unless American States could establish either (i) that it confined all the Stiles' claims to a recovery outside the scope of the drop down provision of its umbrella policy or (ii) that it was involved in the defense of PREA in the Stiles' lawsuit. In addition, after consideration of the Maryland Casualty exceptions, the trial court permitted Maryland Casualty to raise a defense based on the AEC policy issued by American States if Maryland Casualty could prove that PREA was an additional named insured on the AEC policy.
On April 13, 1992, the trial court granted Maryland Casualty's Motion for Nonsuit, American States having failed to establish that it had confined all the Stiles' claims to a recovery outside the scope of the drop down provision of its umbrella policy or that it was involved in the defense of PREA in the Stiles' lawsuit. On July 13, 1992, the Honorable R. Stanton Wettick, Jr., of the Court of Common Pleas of Allegheny County dismissed the post-trial motions of both parties and entered final judgments, dismissing American States' bad faith claim against Maryland Casualty as well as dismissing Maryland Casualty's counterclaim against American States. This appeal followed.
We are initially presented with the direct appeal of American States at No. 01255 Pittsburgh 1992, and its cross-appeal at No. 01291 Pittsburgh 1992. American States argues that the trial court erred in: (1) ruling that American States had a duty under its umbrella policy to defend PREA in the Stiles' lawsuit; (2) placing the burden of proof on American States to show that the Stiles' claims were outside the scope of its drop down provision or proving that American States participated in the defense of PREA; and, (3) making certain evidentiary rulings during the Maryland Casualty counterclaim. Maryland Casualty in its cross-appeal at No. 01241 Pittsburgh 1992, contends that the trial court erred in finding that the AEC policy was inapplicable to the claims asserted against PREA in the underlying lawsuit and dismissing its counterclaim.
This Court's scope of review of a grant of summary judgment is plenary. Briggs v. Erie Insurance Group, 406 Pa.Super. 560, 594 A.2d 761 (1991). In reviewing an order granting a motion for summary judgment, we must view the record in the light most favorable to the non-moving party. Dorohovich v. West American Insurance Co....
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