American States Ins. Co. v. State Auto Ins. Co.

• Decision Date: 17 November 1998
• Citation: 721 A.2d 56
• Parties: AMERICAN STATES INSURANCE COMPANY, a Corporation, Appellant, v. STATE AUTO INSURANCE COMPANY, Pennsylvania Insurance Guaranty Association, American Mining Insurance Company, Motorists Mutual Insurance Company, Maryland Casualty Insurance Company, R.G. McIntire Coal Company, Inc., Di-Mac Enterprises, Incorporated, Just, Inc., Ronald G. McIntire, Helen McIntire, Veronica Heny, Michael Heny, Jean L. Frailey, Robert L. Frailey, and Glenn Kimmel, Appellees. STATE AUTO INSURANCE COMPANY, Appellee, v. Veronica HENY, Michael Heny, Jean L. Frailey, Robert Frailey, Glenn Kimmel, R.G. McIntire Coal Company, Inc., Ronald McIntire, Helen L. McIntire, Just, Inc., and Di-Mac Enterprises, Inc., Appellees, v. AMERICAN STATES INSURANCE COMPANY, Appellant.
• Court: Pennsylvania Superior Court

721 A.2d 56

AMERICAN STATES INSURANCE COMPANY, a Corporation, Appellant, v. STATE AUTO INSURANCE COMPANY, Pennsylvania Insurance Guaranty Association, American Mining Insurance Company, Motorists Mutual Insurance Company, Maryland Casualty Insurance Company, R.G. McIntire Coal Company, Inc., Di-Mac Enterprises, Incorporated, Just, Inc., Ronald G. McIntire, Helen McIntire, Veronica Heny, Michael Heny, Jean L. Frailey, Robert L. Frailey, and Glenn Kimmel, Appellees.

STATE AUTO INSURANCE COMPANY, Appellee, v. Veronica HENY, Michael Heny, Jean L. Frailey, Robert Frailey, Glenn Kimmel, R.G. McIntire Coal Company, Inc., Ronald McIntire, Helen L. McIntire, Just, Inc., and Di-Mac Enterprises, Inc., Appellees, v. AMERICAN STATES INSURANCE COMPANY, Appellant.

Superior Court of Pennsylvania.

Argued October 8, 1998.

Filed November 17, 1998.

Daniel P. McDyer, Pittsburgh, for American States, appellant.

Robert A. Loch, Pittsburgh, for State Auto, appellee.

James W. Kraus, Pittsburgh, for Pennsylvania Ins., appellee.

Before EAKIN, SCHILLER and OLSZEWSKI, JJ.

OLSZEWSKI, Judge:

This is an appeal of two orders resulting from summary judgment motions in consolidated declaratory judgment actions. The undisputed facts that gave rise to the declaratory judgment actions are as follows. On December 18, 1992, Veronica Heny, Michael Heny, Jean Frailey, and Robert Frailey filed a complaint in civil action in Armstrong County under Docket No. 1992-0466-Civil against Glenn Kimmel; R.G. McIntire Coal Company, Inc.; Ronald and Helen McIntire; Just, Inc.; and Di-Mac Enterprises, Inc. The complaint alleged that an automobile accident occurred on April 3, 1990, on Route 422 in Plum Creek Township, Armstrong County. At that time, plaintiff Veronica Heny was operating a motor vehicle travelling east on 422 with Jean Fraily as her passenger. Defendant Glenn Kimmel was operating his motor vehicle and travelling west on 422. Defendant Kimmel attempted to make a left hand turn into the driveway of the McIntire Coal Company and a collision occurred between his vehicle and Ms. Heny's vehicle. Both occupants of the Heny vehicle were seriously injured.

The underlying complaint alleged that defendant Glenn Kimmel was the agent, servant or employee of defendants Ronald and Helen McIntire, R.G. McIntire Coal Company, Inc., and the other corporate entities. The complaint also alleged that Ronald and Helen McIntire were directly negligent in causing the accident.

At the time of the accident the McIntires were insureds under liability insurance policies issued by four different companies. The policies included an umbrella insurance policy issued by American States Insurance Company (American States), a personal motor vehicle insurance policy issued by State Auto Insurance Company (State Auto), a farmowners' insurance policy issued by Highland Mutual Insurance Company (Highland), and a commercial motor vehicle insurance policy issued by Motorists Mutual Insurance Company (Motorists). Subsequent to the accident, Highland became insolvent and the Pennsylvania Insurance Guaranty Association (PIGA) was substituted in its place.

State Auto, PIGA, and Motorists declined to accept defense of the McIntires. As a result, American States eventually assigned defense counsel for the McIntires. On August 5, 1993, State Auto filed a declaratory judgment action in Armstrong County seeking a declaration that it had no duty to defend or indemnify. Both PIGA and Motorists took no action. American States filed a declaratory action in Allegheny County on March 30, 1994, seeking a declaration that it was the McIntires' excess insurance carrier and that the primary insurance carriers had a duty to defend before such duty arose on the part of American States. American States also sought a declaration that because the primary insurance carriers failed to defend the McIntires despite an alleged duty to do so it should be reimbursed for its defense costs. Lastly, American States sought a declaration that if a judgment was rendered against the McIntires in the underlying tort action, the burden of indemnifying the McIntires should fall on the primary insurance carriers before falling on American States.

Procedurally, American States intervened into the State Auto declaratory judgment action and the declaratory judgment action of American States was transferred to Armstrong County. These two actions were consolidated on September 28, 1995. On November 29, 1995, the plaintiffs in the underlying tort action filed a praecipe to settle and discontinue their tort action pursuant to settlement. American States paid $375,000 toward the settlement of the tort action.

Following settlement, American States filed motions for summary judgment against State Auto and PIGA seeking a declaration as a matter of law that they had breached their obligation to defend and requesting that they be directed to reimburse American States for the full amount of its settlement contribution. State Auto, PIGA, and Motorists all filed motions for summary judgment seeking a declaration as a matter of law that each had no duty to defend and no duty to reimburse American States.

In an opinion and order dated October 18, 1996, the Honorable Kenneth G. Valesek of the Armstrong County Court of Common Pleas held that State Auto had no duty to defend under the terms of the personal auto insurance policy issued to the McIntires and, therefore, no duty to reimburse American States. PIGA was found to have had a duty to defend under Highland's insurance policy. PIGA was found to have no duty to reimburse American States, however, pursuant to the provisions of the Pennsylvania Insurance Guaranty Association Act¹ that exclude claims for subrogation by insurers. Finally, Judge Valesek found that Motorists had a duty to defend.

Subsequent summary judgment motions were filed by American States and Motorists to determine if Motorists had a duty to indemnify American States for the money it paid in settling the underlying tort action. These motions resulted in an order dated January 21, 1998. Motorists was found to be liable for half of American States' defense costs because it had a duty to defend under its policy. Motorists was not found, however, to have a duty to indemnify American States for the settlement monies paid because it was determined that the underlying claim was not covered under Motorists' policy. American States appeals from these orders of October 18, 1996, and January 21, 1998.

American States presents the following issues for our review:

Whether a policy phrase, "for the ownership, maintenance, or use" (State Auto policy), that this Court had already found ambiguous, remains ambiguous?

Whether an insurance company that breaches its contract with its insured by failing to defend a claim potentially within its policy coverage is liable for the amount of settlement and estopped from denying coverage?

Whether an excess insurer's (American States') payment of a claim, due to the wrongful refusal of the Pennsylvania Insurance Guaranty Association, or its insolvent member, to defend or pay the claim, should be reimbursed to the excess insurer or should be barred by the exclusion of subrogation claims under the Insurance Guaranty Act's definition of a covered claim (40 P.S. 1701.103(5)(b) (Repealed))?

Whether, after breach of its duty to defend, and subsequent to settlement of the underlying claim, an insurer (Motorists Mutual) should be estopped from submitting evidence of the lack of coverage for the claim under its policy?

Appellant's brief at 2.

It is clear that summary judgment is proper when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Pa.R.C.P. Rule 1035. Upon review, this Court will overturn a trial court's entry of summary judgment "only if there has been an error of law or a clear abuse of discretion." Hoffman v. Brandywine Hospital, 443 Pa.Super. 245, 661 A.2d 397, 399 (1995).

Pursuant to Pennsylvania law, an

insurer agrees to defend the insured against any suits arising under the policy even if such suit is groundless, false, or fraudulent.' Since the insurer thus agrees to relieve the insured of the burden of defending even those suits which have no basis in fact, our cases have held that the obligation to defend arises whenever the complaint filed by the injured party may potentially come within the coverage of the policy.

Gedeon v. State Farm Mutual Automobile Ins., 410 Pa. 55, 188 A.2d 320, 321-22 (Pa. 1963) (emphasis in original). Moreover, "[i]f the complaint filed against the insured avers facts which would support a recovery that is covered by the policy, it is the duty of the insurer to defend until such time as the claim is confined to a recovery that the policy does not cover." Erie Insurance Exchange v. Transamerica Insurance, 516 Pa. 574, 533 A.2d 1363, 1368 (Pa.1987) (citations omitted). The "first step in a declaratory judgment action concerning insurance coverage is to determine the scope of the policy's coverage. After determining the scope of coverage, the court must examine the complaint in the underlying action to ascertain if it triggers coverage." General Accident Insurance Co. v. Allen, 547 Pa. 693, 692 A.2d 1089, 1095 (Pa.1997) (citations omitted).

The first issue involves interpreting the State Auto insurance policy to determine if it had a duty to defend under its policy coverage. State Auto issued a personal auto insurance policy to Ronald G. McIntire as the named insured for a period from March 17, 1990 to September 17, 1990. The State Auto policy provides:

Part A — Liability Coverage — Insuring Agreement

A. We will pay damages for "bodily injury" ... for which any "insured" becomes legally responsible because of an auto accident.... We will settle or

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