Pacific Indem. Co. v. Linn

• Decision Date: 25 June 1984
• Docket Number: Civ. A. No. 79-699.
• Citation: 590 F. Supp. 643
• Parties: PACIFIC INDEMNITY COMPANY v. Robert LINN, D.O., Stephen D. Moses, D.O., Robert Linn Medical Associates, David H. Smith, Individually and as Administrator of the Estate of Patricia Smith, Deceased, Jack Silberlicht, Executor of the Estate of Judith Silberlicht, Deceased, Aetna Insurance Company, William K. Myrletus, Director, Pennsylvania Professional Liability Catastrophe Loss Fund, Chicago Insurance Company, and Interstate Fire & Casualty Company v. NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Pennsylvania Professional Liability Joint Underwriting Association.
• Court: U.S. District Court — Eastern District of Pennsylvania

590 F. Supp. 643

PACIFIC INDEMNITY COMPANY v. Robert LINN, D.O., Stephen D. Moses, D.O., Robert Linn Medical Associates, David H. Smith, Individually and as Administrator of the Estate of Patricia Smith, Deceased, Jack Silberlicht, Executor of the Estate of Judith Silberlicht, Deceased, Aetna Insurance Company, William K. Myrletus, Director, Pennsylvania Professional Liability Catastrophe Loss Fund, Chicago Insurance Company, and Interstate Fire & Casualty Company v. NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Pennsylvania Professional Liability Joint Underwriting Association.

Civ. A. No. 79-699.

United States District Court, E.D. Pennsylvania.

June 25, 1984.

COPYRIGHT MATERIAL OMITTED

Henry H. Janssen, Rawle & Henderson, Philadelphia, Pa., for plaintiff.

Walter W. Rabin, Philadelphia, Pa., for Robert Linn, D.O., Stephen D. Moses, D.O. and Robert Linn Medical Associates.

Jay J. Lambert, Philadelphia, Pa., for Pennsylvania Professional Liability Joint Underwriting Ass'n.

John A. Guernsey, Philadelphia, Pa., for Interstate Fire & Cas. Co.

Kevin Canavah, Philadelphia, Pa., for Nationwide Mut. Fire Ins. Co.

Thomas C. DeLorenzo, Philadelphia, Pa., for Aetna Ins. Co.

David M. Donaldson, Philadelphia, Pa., for Pennsylvania Professional Liability Catastrophe Loss Fund.

MEMORANDUM AND ORDER

SHAPIRO, District Judge.

This is a declaratory judgment action by Pacific Indemnity Company ("Pacific") to determine which insurance company, if any, must defend and indemnify claims against Robert Linn, D.O. ("Dr. Linn") which have been or may be asserted on behalf of persons who read Dr. Linn's book, The Last Chance Diet, followed the diet program it recommended, and consequently suffered personal injury or death. Liability was asserted for malpractice, professional negligence, breach of warranty and/or products liability arising out of the purchase of Dr. Linn's book and/or a dieting protein product called "Prolinn." As notice of each of these "bookreader" claims was given to the insured, Pacific agreed to defend Dr. Linn under a reservation of rights in cases falling within its policy period. The other insurers refused to defend Dr. Linn against any of the claims. By Memorandum and Order dated July 24, 1981, and by Opinion filed December 1, 1982, the court determined obligations to defend Dr. Linn against these underlying claims and now disposes of remaining indemnity issues and motions for reimbursement filed by the parties.

The matter first came before the court on cross-motions for summary judgment by all insurance companies that were defendants to the amended complaint. Nationwide Mutual Fire Insurance Company ("Nationwide"), a third-party defendant, did not move for summary judgment. The Joint Underwriting Association ("JUA") was then a defendant; it challenged the jurisdiction of the court because JUA is an unincorporated association with some corporate members in the state of citizenship of plaintiff. The court determined that JUA was a legal entity separate from its members and a citizen only of Pennsylvania but then reconsidered. By Memorandum of September 14, 1981, the court dismissed JUA as a party defendant with leave to join JUA as a third-party defendant; JUA was subsequently so joined by agreement of the parties.

In a Memorandum and Order of July 24, 1981 on the motions, the court: denied certification of a nationwide defendant class of claimants who had not yet asserted claims against Dr. Linn; held the issues of insurance coverage were determined by Pennsylvania law; dismissed defendant Chicago Insurance Company ("Chicago") because it did not provide coverage either at the time the alleged torts occurred or at the time the claims were made; and decided issues as to the duty of the insurance companies to defend to the extent there were no material issues of fact. The complaint in each underlying case of record was analyzed in regard to each insurance policy then before the court.

But in deciding the cross-motions for summary judgment, the court limited its decision to the duty to defend and declined to determine each insurer's duty to indemnify Dr. Linn for judgments that might be entered against him. The duty to defend is distinct from the duty to indemnify; an insurance company must defend the action if the factual allegations of the underlying complaint on their face state a claim against the insured to which the policy potentially applies. C.H. Heist Caribe Corp. v. American Home Assurance Company, 640 F.2d 479, 483 (3d Cir.1981). Because factual findings not yet made in the underlying actions would affect the insurers' obligations to indemnify, this court was of the opinion that decision on the obligation to indemnify was premature and must await further developments.

By agreement of Dr. Linn and all insurance companies other than Nationwide, and in accordance with an order entered by this court on October 2, 1981, Aetna Insurance Company ("Aetna") and Interstate Fire & Casualty Company ("Interstate") each contributed the sum of $20,000 and JUA contributed $5,000 to a fund to be disbursed by counsel for Dr. Linn in payment of costs and counsel fees expended in defense of the lawsuits pending against him.

On December 14, 1981, following trial on December 7-11, 1981 of the issues remaining as to the duty to defend, in consideration of the parties' request for a prompt decision and with the agreement of all parties hereto, the court filed a Memorandum of Decision that stated its opinion of the parties' duty to defend defendants Robert Linn, D.O., Stephen D. Moses, D.O. and Robert Linn Medical Associates. Attorneys' fees, costs and expenses incurred to that date were to be awarded accordingly. Attorneys' fees, costs and expenses in the action for declaratory judgment were not awarded to that date but the court informed the parties that it might award such fees and costs from that time forward.

With the encouragement of the court considerable discussion ensued among the parties as to a modus vivendi prior to a final, appealable order. On December 4, 1981, a stipulation of procedure was filed that provided that in the event one or more of the parties was held liable to reimburse reasonable defense and investigation fees, costs and expenses incurred either in the defense of the underlying claims or the declaratory judgment itself, any dispute on the reasonableness of the amounts would be referred to final, binding Defense Research Institute Arbitration. However, all parties continued to seek final determination not only of the obligation to defend but also of the obligation to indemnify. The court granted leave to the parties to move to amend the complaints, cross-claims and third-party complaints to assert claims only as to the obligation to defend and to delete claims as to indemnification without prejudice to their reassertion in a subsequent action or actions for indemnification, but only defendant Linn so moved and his motion was opposed by others.

In accordance with and pursuant to the court's December 14, 1981 Memorandum, and following a pretrial conference, Aetna undertook to defend and settle the James, Bass, Lehman, Silberlicht, Cochran, Hudgens, Harmon, and Hunton,¹ cases without prejudice to its right to seek reimbursement and without question, objection or contest regarding the necessity or reasonableness of the sums paid by Aetna in defense or settlement; Aetna did undertake the defense of those cases, reimbursed Pacific for Aetna's proportionate shares of defense costs in the James and Bass cases, and expended certain sums in settlement of the Lehman and Silberlicht cases and in defense of the Lehman, Silberlicht, Cochran, Hudgens, Harmon, and Hunton cases.

Upon due notice to and refusal by Nationwide to advance 50% of those settlement and defense expenditures, Aetna paid and was assigned the claims of Dr. Linn against Nationwide for costs in defense of the lawsuits brought against him. Aetna filed its first motion for reimbursement in November, 1982; it was opposed by Nationwide in part on the ground that there had been no judgment filed by the court.

Thereafter, on December 1, 1982, the court filed Findings of Fact and Conclusions of Law as to the parties' duty to defend only. The court reconsidered whether it should decide the duty to indemnify because subsequent to decision on the summary judgment motions, the Court of Appeals, in ACandS Casualty and Surety Co. v. The Travelers Indemnity Co., 666 F.2d 819 (3d Cir.1981), had reversed a district court's determination of non-justiciability in a declaratory judgment action to determine which of two insurance companies had the obligation to defend and indemnify asbestos lawsuits. It held an actual case or controversy present with respect to that indemnity obligation notwithstanding uncertainty as to the amount of the insured's liability; determining the insurers' respective liabilities would permit settlement of the underlying lawsuits and avoid unnecessary costs and the risk of litigation. Id. at 823.

In ACandS, the insurance dispute was "real and concrete," because "the factors that will determine the relative duties and benefits under the insurance contracts are independent of the underlying claims." Id. at 822-23. But here not only the amount of potential liability but the factual predicate for determining coverage itself was missing; the insurers' obligations to indemnify Dr. Linn were not independent of the underlying claims. The underlying complaints stated claims for personal and professional negligence, strict products liability, breach of warranty, and misrepresentation; if a particular suit were to result in a judgment for that plaintiff against Dr. Linn, the indemnity obligation of his insurers could depend on which theory or theories might prevail at trial. ACandS was inapposite because each insurer's contractual duty to indemnify Dr. Linn was dependent on development of factual records in the underlying cases.

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