Luko v. Lloyd's London

• Decision Date: 01 May 1990
• Citation: 573 A.2d 1139,393 Pa.Super. 165
• Parties: Michael LUKO and Independent Pier Company v. LLOYD'S LONDON and The Institute of London Underwriters and Pennsylvania Insurance Guaranty Association. Appeal of LLOYD'S LONDON and The Institute of London Underwriters, Appellant. Michael LUKO and Independent Pier Company v. LLOYD'S LONDON and The Institute of London Underwriters and Pennsylvania Insurance Guaranty Association. Appeal of PENNSYLVANIA INSURANCE GUARANTY ASSOCIATION, Appellant.
• Court: Pennsylvania Superior Court

Page 1139

573 A.2d 1139

393 Pa.Super. 165

Michael LUKO and Independent Pier Company v. LLOYD'S LONDON and The Institute of London Underwriters and Pennsylvania Insurance Guaranty Association.

Appeal of LLOYD'S LONDON and The Institute of London

Underwriters, Appellant.

Michael LUKO and Independent Pier Company v. LLOYD'S LONDON and The Institute of London Underwriters and Pennsylvania Insurance Guaranty Association.

Appeal of PENNSYLVANIA INSURANCE GUARANTY ASSOCIATION, Appellant.

Superior Court of Pennsylvania.

Argued Dec. 12, 1989.

Filed May 1, 1990.

[393 Pa.Super. 167] A. Robert Degen, Philadelphia, for appellant (at 1470) and appellee (at 1471).

Lise Luborsky, Philadelphia, for appellant (at 1471) and appellee (at 1470).

Charles F. Love, Philadelphia, for Luko, appellee (at 1470 and 1471).

Frank C. Bender, Philadelphia, for Independent Pier, appellee (at 1470 and 1471).

Before BROSKY, WIEAND and JOHNSON, JJ.

JOHNSON, Judge:

In this declaratory judgment action appeal is taken from an order granting summary judgment to appellees Independent Pier Company and Michael Luko. We are asked to decide whether coverage provided by the Pennsylvania Insurance Guaranty Association Act (the PIGA Act), 40 P.S. § 1701.101 et seq. can be substituted as underlying insurance for the benefit of an excess insurer when the underlying insurer becomes insolvent and where the excess policy contains an unambiguous clause providing for excess coverage to begin at a substantially lower amount should there be no underlying insurance. Because we determine that the PIGA Act was not intended to be used in this way, we affirm.

Luko was employed as a longshoreman with Independent Pier Company. He was seriously injured on March 8, 1981 when he fell through a defective dock on the premises of Independent Terminal Company. On March 2, 1983, Luko brought an action against Independent Terminal Company for his injuries. During the relevant period, Independent Terminal and Independent Pier were each named insureds under a policy issued by Midland Insurance Company with limits of liability of $1,000,000.00 for each occurrence and $1,000,000.00 in the aggregate.

During that same period, Independent Terminal and Independent Pier were also insured by a consortium composed of Lloyd's London and additional members of The Institute of London Underwriters (the Consortium) under an umbrella policy with limits of liability of $10,000,000.00 for any one occurrence or, in the alternative, the excess of $100,000.00 for any one occurrence where no underlying insurance existed. Thus, Independent Terminal and Independent Pier were completely covered for claims up to $10,000,000.00, with Midland covering the first $1,000,000.00 and the Consortium covering the excess up to $10,000,000.00.

On April 30, 1986 Midland was declared insolvent by order of the Supreme Court of New York. Addressing just such circumstances where an insurer becomes insolvent and thus exposes its policyholders to financial loss, The Pennsylvania legislature enacted the Pennsylvania Insurance Guaranty Association Act (the PIGA Act), 40 P.S. § 1701.102; Bethea v. Forbes, 519 Pa. 422, 548 A.2d 1215 (1988). As a condition to doing business in Pennsylvania, each insurer is required to participate in the Association (PIGA). The Act mandates that PIGA shall:

be obligated to make payment to the extent of the covered claims of an insolvent insurer existing prior to the determination of said insurer's insolvency ... but such obligation shall include only that amount of each covered claim which is in excess of one hundred dollars ($100), and is less than three hundred thousand dollars ($300,000).

40 P.S. § 1701.201(b)(1)(i). A covered claim:

means an unpaid claim ... which arises under a property and casualty insurance policy of an insolvent insurer....

40 P.S. § 1701.103(5)(a).

Following Midland's insolvency and its submission to liquidation proceedings, Independent Pier sought protection from PIGA with regard to Luko's claim. In response to Independent Pier's request for reimbursement to the extent of Midland's liability, PIGA required that Independent Pier first seek coverage from the Consortium on the basis that the policy with the Consortium was insurance other than the policy of the insolvent insurer under the non-duplication provision of the Act:

Any person having a claim against an insurer under any provision in an insurance policy other than a policy of an insolvent insurer which is also a covered claim, shall first be required to exhaust his right under such policy. Any amount payable on a covered claim under this act shall be reduced by the amount of any recovery under such insurance policy.

40 P.S. § 1701.503(a). When the Consortium failed to respond to Independent Pier's request for information on the extent of its policy coverage, Independent Pier on March 23, 1988 commenced the declaratory judgment action now before us. The complaint asked the court to determine the coverage for which each insurance entity was responsible. Michael Luko was added as a plaintiff by stipulation of counsel, thus bringing all necessary and indispensable parties into the action.

In answer, the Consortium asked the court to declare that they are to provide no coverage for the first $1,000,000.00 of liability because their contract with the insureds was based upon the existence of underlying coverage. PIGA answered the declaratory judgment complaint by denying any obligation to provide coverage because of an alleged exclusion in the Midland policy excepting coverage of injury sustained by an employee in the course of his employment. If it were obligated to provide coverage under the Midland policy, PIGA asserted that its obligation is limited to the amount of the claim exceeding the Midland policy deductible of $25,000.00, and less than $100,000.00, and that, in any event, the insured is required first to exhaust its rights under the excess policy with the Consortium. The defendants filed a petition for removal to the U.S. District Court on April 28, 1988, which was denied on August 29, 1988, and the case was remanded to the Court of Common Pleas.

On October 14, 1988 Independent Pier and Michael Luko filed a motion for summary judgment. The motion stated that the terms of the insurance contract with the Consortium provided coverage for any loss in excess of $100,000.00 if there was no underlying insurance. With respect to PIGA's obligation, the motion asserted that 40 P.S. § 1701.101 et seq. required PIGA to supply the coverage that the insolvent underlying insurer was contractually obligated to provide. They asserted that PIGA's obligation was any amount over the deductible of $25,000.00 and up to $100,000.00, the point at which the excess insurance coverage began.

The trial court granted the motion for summary judgment by issuing the following declaratory judgment order:

IT IS HEREBY ORDERED and DECREED that judgment is entered in favor of Plaintiffs, Michael Luko and Independent Pier Company, and against the Defendants as follows:

(a) Defendants, Lloyd's of London (sic ) and the Institute of London Underwriters, are obligated to provide coverage to the Plaintiff, Independent Pier Company, with respect to the claim of Michael Luko for any and all amounts in excess of $100,000.00 and to defend the action commenced on behalf of Michael Luko to the extent required under the policies issued by them;

(b) Defendant, Pennsylvania Insurance Guaranty Association, is obligated to provide coverage to the Plaintiff, Independent Pier Company, in accordance with the provisions of the Pennsylvania Insurance Guaranty Association Act, 40 P.S. Section 1701.101 et seq. for any and all Order of April 12, 1989. Both defendants appeal. At 1470 Philadelphia 1989, the Consortium challenges the court's conclusion that a clause in the contract requires it to "drop down" and provide some of what was primary coverage under the Midland policy when Midland became insolvent. At 1471 Philadelphia 1989, PIGA argues that an exclusion in the original Midland policy would have precluded Luko's claim entirely and that thus PIGA would not be required to supply coverage.

amounts between $25,100.00 to $100,000.00.

The Consortium mounts a two-part challenge to the trial court's decision. First, it argues that the trial court erred in deciding that its contract with the insureds provides that if no underlying insurance existed, then the Consortium's liability would drop down to begin at $100,000.00. The Consortium does not dispute that this first issue is purely one of contract interpretation. The Supreme Court of Pennsylvania has set forth the principles governing insurance contract interpretation:

The task of interpreting a contract is generally performed by a court rather than by a jury. The goal of that task is, of course, to ascertain the intent of the parties as manifested by the language of the written instrument. Where a provision of a policy is ambiguous, the policy provision is to be construed in favor of the insured and against the insurer, the drafter of the agreement. Where, however, the language of the contract is clear and unambiguous, a court is required to give effect to that language.

Standard Venetian Blind Co. v. American Empire Insurance Co., 503 Pa. 300, 304-305, 469 A.2d 563, 566 (1983) (citations omitted), quoted in State Farm Mutual Automobile Insurance Co. v. Moore, 375 Pa.Super. 470, 475, 544 A.2d 1017, 1019 (1988); appeal denied in State Farm Mutual Automobile Insurance Co. v. Ohio Casualty Insurance Co., 521 Pa. 622, 557 A.2d 725 (1989). An insurance contract must be construed as a whole, and not in discrete units. Koval v. Liberty Mutual Insurance Company, 366 Pa.Super. 415, 531 A.2d 487 (1987); appeal denied 518 Pa. 619, 541 A.2d 746.

We have reviewed the contract of insurance, the briefs and the trial court opinion and conclude that the contract language is unambiguous. The Consortium...