Hanover Ins. Co. v. State Workers' Ins. Fund of the Commonwealth of Pennsylvania

• Decision Date: 19 January 2012
• Parties: HANOVER INSURANCE COMPANY and Dependable Distribution Company, Petitioners v. STATE WORKERS' INSURANCE FUND OF the COMMONWEALTH of Pennsylvania and Department of Labor and Industry of the Commonwealth of Pennsylvania and Seabright Insurance Company and Dionis Nunez, Respondents.
• Court: Pennsylvania Commonwealth Court

35 A.3d 849

HANOVER INSURANCE COMPANY and Dependable Distribution Company, Petitioners

v.STATE WORKERS' INSURANCE FUND OF the COMMONWEALTH of Pennsylvania and Department of Labor and Industry of the Commonwealth of Pennsylvania and Seabright Insurance Company and Dionis Nunez, Respondents.

Commonwealth Court of Pennsylvania.

Argued March 9, 2011.Decided Jan. 19, 2012.

Scott M. Russ, Mt. Laurel, NJ, for petitioners.

James D. Jordan, Scranton, for respondents State Workers' Insurance Fund and Department of Labor and Industry.

BEFORE: LEADBETTER, President Judge ¹, and McGINLEY, Judge, and PELLEGRINI, Judge, and COHN JUBELIRER, Judge, and BROBSON, Judge, and McCULLOUGH, Judge, and BUTLER, Judge.²OPINION BY Judge McCULLOUGH.

Before the court is the preliminary objection filed by the Department of Labor and Industry and State Workers' Insurance Fund (SWIF) to a complaint in our original jurisdiction filed by Hanover Insurance Company and Dependable Distribution Company (together, Petitioners) pursuant to the Declaratory Judgments Act, 42 Pa.C.S. §§ 7531–7541. Petitioners are seeking a declaration of their rights under an insurance policy issued by SWIF and are asserting a breach of contract claim against Seabright Insurance Company (Seabright). The Commonwealth respondents assert that jurisdiction over Petitioners' claim against SWIF lies solely with the Board of Claims (Board). We agree.

The following summary is drawn from the allegations in Petitioners' complaint.³ Dionis Nunez (Nunez) sustained a work-related injury while working at premises occupied by Dependable Distribution Company (Dependable). Dependable leased the property from W. & W. Realty, Inc., and both parties are named as defendants in a personal injury action filed by Nunez. Dependable had liability insurance under a policy from Hanover Insurance Company (Hanover). In accordance with that policy, Hanover retained counsel and continues to defend Dependable in the personal injury action.

Nunez had been placed at his job with Dependable by Workforce USA, a temporary employment agency. While Nunez was supervised by Dependable, he was paid by Workforce. At all relevant times, Workforce had a policy of workers' compensation and employer's liability insurance issued by SWIF. The policy contained an alternate employers endorsement that identified Dependable as an alternate employer. The employer liability coverage afforded to Workforce under SWIF's policy provided coverage for bodily injury claims that fell outside the scope of the workers' compensation statute brought against Workforce by its employees. The alternate employers endorsement extended this employer liability coverage to Dependable with respect to such bodily injury claims brought against it by employees of Workforce who allegedly were injured in the course of their special or temporary employment with Dependable. Pursuant to the terms of the SWIF policy, this liability coverage was intended to be primary over any other available coverage. On behalf of Dependable, Hanover made demands of SWIF to undertake Dependable's defense and indemnity in the lawsuit, which SWIF refused.

Dependable also had its own policy of workers' compensation and employer's liability insurance issued by Seabright Insurance. Hanover made demands of Seabright to undertake Dependable's defense which Seabright has not answered.

Pursuant to the “other insurance” and “contribution” provisions of Hanover's liability policy, Hanover has a right on behalf of Dependable and/or in its stead to pursue rights of contribution or indemnity against other insurance carriers obligated to provide liability coverage to Dependable.

Petitioners filed a complaint in our original jurisdiction. In Count I of the complaint, Petitioners seek judgment against SWIF and the Department, specifically requesting: a declaration that SWIF's policy provides primary coverage to Dependable for the claims asserted by Nunez; alternatively, a declaration that SWIF's policy provides concurrent liability coverage to Dependable; a declaration that SWIF must undertake the defense of Dependable; a declaration that SWIF must reimburse Hanover for defense costs and indemnity paid; and an award to Dependable and Hanover of attorneys' fees and costs incurred in the present Declaratory Judgment action.

The Declaratory Judgments Act provides that relief will not be available under that statute with respect to any proceeding within the exclusive jurisdiction of a tribunal other than a court. 42 Pa.C.S. § 7541(a). SWIF has filed a preliminary objection to Count I of the complaint, asserting that the Board has exclusive jurisdiction to determine Petitioners' claims under the policy issued to Workforce by SWIF.

Pursuant to section 1724(a)(1) of the Procurement Code,⁴ the Board has “exclusive jurisdiction to arbitrate claims arising from ... a contract entered into by a Commonwealth agency in accordance with this part and filed with the board in accordance with section 1712.1 (relating to contract controversies).” 62 Pa.C.S. § 1724(a)(1). According to SWIF, both Dependable's claim pursuant to the alternate employers endorsement in the policy issued to Workforce by SWIF and Hanover's claim to be a beneficiary, assignee, or subrogee under that policy fall within the Board's jurisdiction. SWIF asserts that the Board's role in disputes over SWIF's coverage is well settled. State Workmens' Insurance Fund v. Caparo Real Estate, 160 Pa.Cmwlth. 581, 635 A.2d 705 (1993). SWIF also maintains that, although the legislation cited by the court in Caparo was repealed and recodified, the reenacted statute has not narrowed the scope of the Board's jurisdiction. Department of General Services v. Limbach Company, 862 A.2d 713, 717 n. 6 (Pa.Cmwlth.2004), aff'd, 586 Pa. 479, 895 A.2d 527 (2006).

Petitioners respond that section 1724 of the Procurement Code grants the Board exclusive jurisdiction over “claims ... filed with the board in accordance with section 1712.1 (relating to contract controversies)” and does not apply to the present matter. Petitioners contend that the reference to section 1712.1, which states that “[a] contractor may file a claim,” reflects that the claims over which the Board has jurisdiction are limited to those filed by a “contractor,” which the Procurement Code defines as a “person that has entered into a contract with a Commonwealth agency,” section 103 of the Procurement Code, 62 Pa.C.S. § 103, and Petitioners note that no contract exists between Petitioners and the Commonwealth respondents. In addition, Petitioners assert that all Pennsylvania cases that have analyzed this issue have involved contracts between state agencies and contractors or vendors, such as construction and building supply companies. Petitioners further contend that the cases upon which SWIF relies were decided under a predecessor statute that allowed for a considerably broader scope of jurisdiction than the current statute does.

Initially, we note that Pennsylvania courts have broadly construed the statute conferring jurisdiction of the Board of Claims. For example, in Employers Insurance of Wausau v. Department of Transportation, 581 Pa. 381, 865 A.2d 825 (2005), our Supreme Court held that where a plaintiff's claim is premised upon the assignment of rights incident to a contract entered into by the Commonwealth, both the assignment claim and any derivative equitable subrogation claim that “arises from” such contract is within the proper jurisdiction of the Board. In that case, Jack Lang, d/b/a Lang Construction Company, (Lang) entered into a contract with PennDOT for the paving and construction of a bridge. Lang obtained performance and payment bonds from Employers Insurance of Wausau (Wausau) as a surety. In accordance with the bond, Wausau and Lang executed a general indemnity agreement under which Lang assigned to Wausau the right to collect all sums due to Lang under the PennDOT/Lang contract, in the event Lang defaulted on its obligations to pay for material or labor.

Ultimately, Wausau filed suit against PennDOT asserting rights under the general indemnity agreement with Lang. Our Supreme Court rejected PennDOT's argument that Wausau was neither a party nor an intended third party beneficiary to the PennDOT/Lang contract because the PennDOT/Lang contract did not explicitly mention Wausau. The court concluded that, under the law of assignment, Wausau stepped into Lang's shoes vis-a-vis PennDOT and thus clearly presented a claim sounding in contract. Further, the court observed that the Procurement Code contained no language precluding or limiting claims based upon an assignment of rights. The court concluded that, because Wausau's claim against PennDOT sought enforcement of rights that were assigned and created by a contract with the Commonwealth, the Board was the proper forum to adjudicate the assignment claim. The court also concluded that, because the equitable subrogation claim asserted by Wausau also was based on the contract between Lang and PennDOT, that claim also should be heard by the Board.

In Hunt v. Goeckel, 713 A.2d 746 (Pa.Cmwlth.1998), employees of a joint county drug and alcohol program filed an action seeking a declaration that they were third-party beneficiaries of a personnel agreement entered into by the counties, the Department of Health, and the State Civil Service Commission, and as such, they were county employees entitled to participate in a county pension plan. This Court sua sponte raised the issue of whether the Board of Claims had jurisdiction over the matter. Ultimately, we held that the claims asserted against the Commonwealth were based on a contract entered into by the Commonwealth and therefore, the matter fell within the jurisdiction of the Board of Claims.⁵

More recently, in Department of Health v. Data–Quest, Inc., 972 A.2d 74 (Pa.Cmwlth.2009), we addressed the question of whether the Board has jurisdiction over...