a year in review: the pennsylvania supreme court’s most significant insurance coverage decisions...

A Year In Review: The Pennsylvania Supreme Court’s Most Significant Insurance Coverage Decisions

RIMS – Pittsburgh Chapter

November 10, 2015

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The Pennsylvania Supreme Court’s Coverage Decisions From December 2014 – November 2015:

• Pennsylvania National Mut. Cas. Ins. Co. v. St. John, 106 A.3d 1 (Dec. 15, 2014)

• The Babcock and Wilcox Co. v. American Nuclear Insurers, A.3d , 2015 WL 4430352 (July 21, 2015)

• Mutual Benefit Ins. Co. v. Politsopoulos, 115 A.3d 844 (May 26, 2015)

• Allstate Prop. & Cas. Ins. Co. v. Wolfe, 105 A.3d 1181 (Dec. 15, 2014)

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Application of the Multiple Trigger: The Penn National Decision

Presenter• Brian T. Himmel

Partner, Insurance Recovery Group

Multiple And Manifestation Triggers

● ● ● ● ● ● ●

Exposure Progression of Disease Diagnosis/Manifestation

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Penn National v. St. John

• Manifestation Trigger• Coverage triggered when the injury/damage becomes “reasonably

apparent”

• Rejecting argument that trigger takes place when the cause of injury is discoverable

• Multiple Trigger• Multiple trigger is an exception to general rule that the first manifestation

rule governs trigger determination

• Rejecting application of multiple trigger to property damage at issue in Penn National

Penn National v. St. John

< 1 Year

• Exposure (drinking contaminated water) and Manifestation of Damage (sick cows) Occurred During the Same Policy Period

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Key Factors To The Penn National Holding• Policy Language

Property damage that occurs during the policy period "includes any continuation, change or resumption of that ... 'property damage' after the end of the policy period."

• Reasonable Expectations of PartiesPenn National polices significantly post-date Pennsylvania's 1986 adoption of the first manifestation rule.

• Latency Period Before ManifestationThe negligent act, exposure, and first diagnosis of the cows' various diseases all occurred within the same one-year policy period.

• Public Policy ConsiderationsClaim "does not present the problematic scenario where a risk averse insurer takes steps to limit or terminate coverage, in anticipation of future claims ….”

Post-Penn National: Application Of The Multiple Trigger Beyond Asbestos

Environmental Contamination

Black Lung Disease

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Takeaways From Penn National

• The Multiple Trigger Theory Is Alive And Well In Pennsylvania

• Application Of The Multiple Trigger Is Not Limited To Asbestos-Related Disease

• Must Look At The Specific Facts Of Each Claim To Determine Whether The Multiple Trigger Applies

• Factual Issues Will Often Preclude Summary Disposition

• Watch For Application Of Reasonable Expectations Argument In Other Contexts

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Insurance Considerations When Settling Lawsuits: The Babcock Decision

Presenter• Traci Rea


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• Insurer defending litigation under a reservation of rights.

• Policy provision requiring the insurer’s consent to settle.

• A reasonable settlement demand within policy limits that the policyholder wants to accept.

• Insurer’s refusal to consent to settlement.

The Babcock Problem

The Policyholder’s Dilemma

• Allow the carrier to control settlement = Risk substantial financial exposure to the company

• Settle without carrier consent = Risk a forfeiture of coverage for the settlement amount

The Superior Court’s Solution

• Policyholder can reject a defense under a reservation of rights, pay for the defense and sue the carrier in coverage litigation.

• Policyholder can accept the defense under a reservation of rights, but then cedes complete control to the carrier in the settlement process.

The Pennsylvania Supreme Court’s Decision

• Insurer has the right to issue a reservation of rights letter without breaching the policy.

• When a settlement demand within policy limits is presented, insurer has a good faith obligation to accept that demand if it is reasonable and in the policyholder’s best interests.

• If insurer refuses to consent, it breaches the policy relieving the policyholder of its contractual obligation to obtain consent.

• Policyholder can recover the settlement amount if it proves the settlement was made in good faith, the amount is reasonable and the claims are covered.

Practice Tips Post-Babcock

• Always invite your carriers to the settlement table.

• Document every communications with your carriers.

• When drafting your settlement agreement, keep coverage in mind.

• Get coverage counsel involved early and often.

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The Employer’s Liability Exclusion: The Politsopoulos Decision

Presenter• Michael H. Sampson


Mutual Benefit Ins. Co. v. Politsopoulos

Mutual Benefit Ins. Co. v. Politsopoulos

Employer’s Liability Exclusion

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Are Claims For Statutory Bad Faith Damages Assignable? The Wolfe Decision

Presenter• Andrew J. Muha


Allstate Prop. & Cas. Ins. Co. v. Wolfe

42 Pa. Cons. Stat. Ann. Sec. 8371: “Actions on Insurance Policies”

In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions:

(1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%.

(2) Award punitive damages against the insurer.

(3) Assess court costs and attorney fees against the insurer.

(Effective July 1, 1990)


What is a claim for “bad faith” relief under Sec. 8371?

• Gray v. Nationwide Mut. Ins. Co., 223 A.2d 8 (Pa. 1966), recognized a contract-based bad faith claim against insurers.

• Sec. 8371 enacted in 1990, without reference to altering existing common law as to the nature of a “bad faith” claim.

• Ash v. Continental Ins. Co., 932 A.2d 877 (Pa. 2007), ruled that “an action under Sec. 8371 is a statutorily-created tort action,” at least for purposes of determining applicable statute of limitations.


Insurers: Public policy disfavors assignment of Sec. 8371 claims.

• Pennsylvania law prohibits assignment of tort claims; since Ash ruled Sec. 8371 was a tort claim, the prohibition of assignment must apply to Sec. 8371 claims.

• Assignment would create “perverse disincentive” for plaintiffs in underlying litigation – avoid reasonable tort settlement in hopes of obtaining assignment of a more lucrative Sec. 8371 claim against defendant’s insurer.

• Appropriate balance of interests preserved by limiting Sec. 8371 claims to insureds only.


Insureds: Assignment is appropriate as a matter of public policy, and as a matter of statutory interpretation.

• Common law claims for bad faith (per Gray) have always been assignable. Public policy supports efficiency; splitting types of relief for bad faith claims would be inefficient.

• Absent assignability of Sec. 8371 claims, insurer has more leverage in settlement scenarios, and can more easily abuse that leverage with less threat of repercussions.

• Rules of statutory interpretation compel conclusion that Sec. 8371 was passed to bolster Gray rights to bad faith recovery, subject to Gray claim’s assignability.


Pennsylvania Supreme Court: The issue is a matter of statutory interpretation,

and assignment is appropriate.

• Sec. 8371 is silent on assignability, but legislature clearly intended to weave Sec. 8371’s enhanced damages into Gray’s existing contract-based bad faith claim framework.

• Nothing in the statute suggests legislative intent to split Sec. 8371 damages from contract-based bad faith damages.

• Because Gray contract-based bad faith claim is assignable, legislature intended claims for Sec. 8371 damages to be assignable, too.

• Legislature can amend the statute if court has erred in discerning legislative intent.


Policyholder Takeaways from Allstate v. Wolfe

• Gives insureds more leverage in guarding their interests in settlement of underlying claims handled by insurers.

• Provides more clarity in Pennsylvania’s bad faith insurance law framework, which leads to lower costs.

• Because the decision is based on principles of statutory interpretation (rather than public policy), less chance a change in composition of the court will lead to modification in the future – although legislative action could alter the landscape.

Bonus Decision – Third Circuit

Indian Harbor Insurance Co. v. F&M Equipment, Ltd., ___ F.3d ___, 2015 WL 5973384 (3d Cir. Oct. 15, 2015)

What is a “Renewal”?

“[M]ust contain the same, or nearly the same, terms as the original contract.”

… but need not be identical

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Questions for the Speakers?

Brian T. [email protected]

Traci S. [email protected]

Michael H. [email protected]

Andrew J. [email protected]

a year in review: the pennsylvania supreme court’s most significant insurance coverage decisions...

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