Phico Ins. Co. v. Presbyterian Medical Services Corp.

• Decision Date: 15 August 1995
• Citation: 444 Pa.Super. 221,663 A.2d 753
• Parties: PHICO INSURANCE COMPANY v. PRESBYTERIAN MEDICAL SERVICES CORPORATION, Delaware Valley Convalescent Homes, Inc. Appeal of PRESBYTERIAN MEDICAL SERVICES CORPORATION.
• Court: Pennsylvania Superior Court

Page 753

663 A.2d 753

444 Pa.Super. 221

PHICO INSURANCE COMPANY v. PRESBYTERIAN MEDICAL SERVICES CORPORATION, Delaware Valley

Convalescent Homes, Inc.

Appeal of PRESBYTERIAN MEDICAL SERVICES CORPORATION.

Superior Court of Pennsylvania.

Argued May 23, 1995.

Filed Aug. 15, 1995.

Richard F. McMenamin, Philadelphia, for appellant.

Peter J. Mooney, Philadelphia, for Phico Ins., appellee.

Before CAVANAUGH, CIRILLO and HESTER, JJ.

HESTER, Judge:

Presbyterian Medical Services Corporation appeals from the order entered in the Court of Common Pleas of Bucks County on June 10, 1994, which granted summary judgment in favor of Phico Insurance Company. For the reasons set forth below, we affirm.

The procedural history of this case may be summarized as follows. On March 15, 1993, Phico filed a declaratory judgment complaint against both appellant and Delaware Valley Convalescent Homes, Inc. In that complaint, Phico alleged that the terms of a nursing home consulting agreement required appellant, its insured under a comprehensive liability policy, to provide Delaware Valley with certain advice and assistance. In addition, Phico asserted that the terms of the agreement precluded the recovery of consequential damages and limited appellant's liability to losses resulting from either gross negligence or willful misconduct. Phico also averred that Delaware Valley utilized the agreement's language when instituting a breach of contract action against appellant. Finally, Phico contended that the matters advanced in that action fell outside the coverage provided by its policy and were excluded by a provision barring contractually-based claims. Accordingly, Phico requested, among other things, a declaration that it had no obligation to defend or indemnify appellant against the claims asserted by Delaware Valley.

On May 6, 1993, after the effectuation of service, appellant filed an answer and new matter which challenged Phico's entitlement to relief and set forth a number of defenses. More specifically, appellant contended that the claims asserted in the underlying action had not been premised upon any breach of the agreement. Rather, it alleged that they were based upon allegations of gross negligence and willful misconduct. Therefore, appellant averred that the terms of the policy obligated Phico to defend and indemnify it. Moreover, appellant alleged that Phico was estopped from denying coverage.

Phico later disputed the correctness of the estoppel claim in a reply to appellant's new matter. On March 15, 1994, relying upon the provisions of the liability policy, Phico moved for summary judgment. Several weeks later, the trial court entered the contested order. This timely appeal followed.

In Acme Markets v. Federal Armored Express, 437 Pa.Super. 41, 45, 648 A.2d 1218, 1220 (1994) (citations omitted), we noted that our scope of review from a grant of summary judgment is plenary and quoting American States Insurance Co. v. Maryland Casualty Co., 427 Pa.Super. 170, 628 A.2d 880 (1993), stated:

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. All doubts as to the existence of a genuine issue of material fact must be resolved against the moving party. Moreover, in summary judgment proceedings, it is not the court's function to determine the facts, but only to determine if an issue of material fact exists. Summary judgment should only be granted in those cases which are free and clear from doubt.

Summary judgment is proper only where the pleadings, depositions, answers to interrogatories, admissions of record and affidavits on file support the trial court's conclusion that no genuine issue of material fact exists and [that] the moving party is entitled to judgment as a matter of law.

Moreover, we will not overturn a trial court's grant of summary judgment in the absence of either an error of law or a clear abuse of discretion. Id.; see also Mellon v. Barre-National Drug Co., 431 Pa.Super. 175, 636 A.2d 187 (1993). Keeping these principles in mind, we consider the propriety of the contested summary judgment grant.

In the present case, appellant does not contend that an issue of fact existed such as to render the trial court's grant of summary judgment inappropriate. Rather, appellant's challenge to the court's decision is premised upon the claim that Phico was not entitled to judgment as a matter of law. In this regard, appellant asserts that since Phico possessed a potential duty of indemnification, Phico was obligated to defend it in the underlying action.

Preliminarily, we note:

The duty to defend is a distinct obligation, separate and apart from the insurer's duty to provide coverage. Erie Ins. Exchange v. Transamerica Ins. Co., 516 Pa. 574, 582, 533 A.2d 1363, 1368 (1987). Moreover, the insurer agrees to defend the insured against any suit arising under the policy "even if such suit is groundless, false, or fraudulent." Gedeon v. State Farm Mutual Automobile Ins. Co., 410 Pa. 55, 56, 188 A.2d 320, 321 (1963). Since the insurer agrees to relieve the insured of the burden of defending even those suits which have no basis in fact, the obligation to defend arises whenever the complaint filed by the injured party may potentially come within the coverage of the policy. Id.; see also Wilson v. Maryland Cas. Co., 377 Pa. 588, 105 A.2d 304 (1954); Biborosch v. Transamerica Ins. Co., 412 Pa.Super. 505, 603 A.2d 1050 (1992); Youngman v. CNA Ins. Co., 401 Pa.Super. 381, 585 A.2d 511 (1991). In order to determine whether a claim may potentially come within the coverage of the policy, we must first ascertain the scope of the insurance coverage and then analyze the allegations in the complaint. Biborosch, 412 Pa.Super. at 509, 603 A.2d at 1052 (citing Cadwallader v. New Amsterdam Casualty Co., 396 Pa. 582, 152 A.2d 484 (1959)).

Britamco Underwriters v. Grzeskiewicz, 433 Pa.Super. 55, 59, 639 A.2d 1208, 1210 (1994). Accordingly, we turn to the relevant provisions of the comprehensive liability policy at issue.

Pursuant to a policy provision relating to director, officer, and trustee liability, Phico promised to "pay on behalf of the insured all sums which the insured shall be legally obligated to pay as damages because of wrongful act loss ... to which this insurance applies and for which claim is first made against the insured and reported to the Company during the policy period." Answer and new matter of appellant, Exhibit A, at 1 (emphasis omitted). The phrase "wrongful act loss" includes within its scope:

any amount which the named insured or the Directors, Officers and Trustees shall be legally obligated to pay for a claim or claims made against the named insured or the Directors, Officers and Trustees, arising from any actual or alleged error or misstatement or misleading statement or act or omission or neglect or breach of duty by the Directors, Officers and Trustees in the discharge of their duties, individually or collectively, or any person acting on their behalf, or any matter claimed against them solely by reason of their being Directors, Officers and Trustees of the named insured.

Id. at 12 (emphasis omitted). In addition, we note that policy exclusion (m) precludes coverage for claims arising in connection with the breach of oral and written agreements unless they relate, among other things, to the employment of persons rendering professional health care services. Id. at 4.

Our review of the underlying complaint reveals that Delaware Valley alleged that it entered into an agreement with appellant for the management of a nursing home. Delaware Valley, which incorporated the terms of that agreement by reference, also asserted that appellant, through two of its employees, mismanaged the home in a myriad of ways. The various asserted acts of mismanagement related to nearly every aspect of appellant's administration from the quality of patient care and the excessive use of temporary nurses to the failure to ensure that the home complied with appropriate regulations. Delaware Valley contended that the challenged acts constituted either gross negligence or willful misconduct and collectively resulted in a breach of the agreement. Consequently, Delaware Valley requested both damages and the costs associated with the litigation.

Even if we assumed that the claims asserted by Delaware Valley may potentially fall within the scope of the coverage relating to director, officer, and trustee liability, such an assumption would not end our analysis. Instead, it merely would require us to turn to the next logical issue, which involves the applicability of the policy exclusion relating to contractually-based claims. As our review of Delaware Valley's complaint demonstrates, the parties were involved in a contractual relationship for the management of a nursing home. Since the contractual relationship did not relate to the employment of a person for the provision of health care services, any determination as to the applicability of the policy exclusion involves an analysis of whether the claims asserted in the complaint sound in tort or in contract.

The determination as to whether causes of action sound in contract or in tort is difficult due to the somewhat confused state of our law. See Grode v. Mutual Fire, Marine, and Inland Insurance Co., 154 Pa.Commw. 366, 623 A.2d 933 (1993) (noting the existence of confusion in this area). Indeed, we note that we have two distinct lines of case law relating to the issue. The first line arose with Raab v. Keystone Insurance Co., 271 Pa.Super. 185, 412 A.2d 638 (1979). In Raab, we considered a claim that an insurance company negligently had failed to pay benefits according to an insurance contract. Quoting the trial court, we stated:

Generally, when the breach of a contractual relationship is expressed in terms of tortious conduct, the cause of action is properly brought in assumpsit and not in...