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LIBERTY MUT. INS. CO. v. HOME INS. CO.

March 26, 1984

LIBERTY MUTUAL INSURANCE COMPANY, Plaintiff
v.
HOME INSURANCE COMPANY, Defendant



The opinion of the court was delivered by: TEITELBAUM

In this action Liberty Mutual Insurance Company (Liberty Mutual) seeks recovery of sums it paid on behalf of its insureds in the settlement and defense of a personal injury action. The case was tried to a jury which returned a liability verdict for Liberty Mutual. Presently before the Court are cross motions to mold the verdict as to damages.

The underlying action was for injuries sustained by a child when her pajamas caught on fire. The pajamas had been manufactured by Stone Manufacturing Co., Inc. (Stone) and sold at retail by G.C. Murphy Co. (Murphy); the fabric had been manufactured by M. Lowenstein & Sons, Inc. (Lowenstein).

 Lowenstein had a $300,000 liability insurance policy with Home Insurance Company (Home); Stone had a $500,000 liability insurance policy with Liberty Mutual; Murphy had a $40,000 liability insurance policy with Liberty Mutual. The Home policy on Lowenstein contained an endorsement naming vendors of Lowenstein's fabric as additional insureds for covered losses. Thus the Home policy, through its vendor's endorsement, insured Stone and Murphy for covered losses in connection with the sale of Lowenstein's fabric. The Liberty Mutual policy on Stone contained an endorsement naming vendors of Stone's products as additional insureds for covered losses. Thus the Liberty Mutual policy on Stone, through its vendor's endorsement, insured Murphy for covered losses in connection with the sale of Stone's products. Each of the three policies contained a clause which provided for sharing losses if there is other insurance.

 The underlying personal injury action settled with Liberty Mutual paying $146,000 on behalf of Stone and $20,000 on behalf of Murphy. Liberty Mutual paid $26,482.93 to defend the action against Stone and Murphy. Home had refused Liberty Mutual's demands to settle on behalf of Stone and Murphy, but offered to share 3/8 of Liberty Mutual's defense costs. The jury found Home acted in bad faith with respect to its obligations to Stone and Murphy.

 In Liberty Mutual's motion to mold the verdict, it seeks the $166,000 it paid to settle the action against Stone and Murphy; plus the $26,482.93 it paid to defend Stone and Murphy; plus 6% interest per year from April 9, 1981, the date it paid the settlement and defense costs; plus its counsel fees in this action.

 In Home's motion to mold the verdict, it asserts it owes only 3/8 of 1/2 of the $146,000 Liberty Mutual paid to settle the action against Stone and only 3/8.4 of 1/2 of the $20,000 Liberty Mutual paid to settle the action against Murphy; only 3/8 of the $26,482.93 Liberty Mutual paid to defend Stone and Murphy; no prejudgment interest; and no counsel fees in this action.

 Liberty Mutual contends it is entitled to the full cost of settlement and defense. Liberty Mutual contends the vendor's endorsement in the Home policy provides specific coverage to Stone and Murphy for losses resulting from defective fabric manufactured by Lowenstein. Liberty Mutual further contends its policies on Stone and Murphy provide general liability coverage. Liberty Mutual argues Home's specific coverage is prior and must be exhausted before its general coverage is reached.

 In the alternative, Liberty Mutual contends if the three policies are concurrent, under the contribution by equal shares provisions of the other insurance clauses in the policies, it is entitled to 1/2 of the $146,000 paid to settle the action against Stone; 1/3 of the $20,000 paid to settle the action against Murphy; and apportioning the cost of defense equally between Stone and Murphy, 1/2 of the amount expended to defend Stone, and 1/3 of the amount expended to defend Murphy. Liberty Mutual further contends no portion of the settlement is excluded from coverage under the Home vendor's endorsement.

 Home contends it owes only a pro rata share of the cost of settlement and defense. Home contends the rule of priority of specific coverage, relied on by Liberty Mutual, is not applicable to the present case. Home contends specific coverage is prior only if there is damage to property owned by an insured which is covered under multiple policies and the insured makes a direct claim against his insurers. Home contends costs are shared under other insurance clauses if a third party charges an insured with liability which is covered under multiple policies and the insured then proceeds against his insurers, as in the present case.

 Specifically with respect to Stone, Home contends under the contribution by limits provisions of the other insurance clauses in the policies, it owes only 3/8 of 1/2 of the $146,000 paid to settle the action against Stone. The fraction 3/8 is reached by comparing Stone's coverage under the Home policy ($300,000) to the total coverage on Stone under the Home ($300,000) and Liberty Mutual ($500,000) policies. This fraction (3/8) is then applied to 1/2 of the settlement on the assumption that 1/2 the claims against Stone were premised on allegations that the fabric was defective which Home concedes were covered under its policy and further that 1/2 the claims were premised on allegations that Stone failed to warn of the flammable properties of the fabric which Home contends were excluded from coverage under its vendor's endorsement.

 With respect to Murphy, Home contends under the contribution by limits provisions of the other insurance clauses in the policies it owes only 3/8.4 of 1/2 of the $20,000 paid to settle the action against Murphy. The fraction 3/8.4 is reached by comparing Murphy's coverage under the Home policy ($300,000) to the total coverage on Murphy under the Home ($300,000) and Liberty Mutual ($500,000 $40,000) policies. This fraction (3/8.4) is then applied to 1/2 of the settlement based on the assumption of covered and excluded claims outlined above.

 With respect to the cost of defense Home concedes it owes coverage for all claims; because the costs attributable to Stone and Murphy were not segregated, Home had agreed to pay 3/8 of $26,482.93.

 The issues are first, whether this is a case of double insurance in which the other insurance clauses are given effect; second, if so, whether contribution is by equal shares or by limits; and third whether any portion of the settlement is excluded from coverage under Home's vendor's endorsement.

 Other Insurance

 Double or other insurance exists where there are two or more insurance policies covering the same interest, the same subject matter and against the same risk. Blue Anchor Overall Co. v. Pa. Lumbermens Mutual Ins. Co., 385 Pa. 394, 398, 123 A.2d 413, 415 (1956). If there is double or other insurance the other insurance clauses are given effect.

 There is no double insurance, and hence no apportionment among insurers, if there are specific and general policies covering the damaged property. Sloat v. Royal Ins. Co., 49 Pa. 14 (1865). The specific policy must first pay in full, and if it is not sufficient to cover the loss, the general policy pays the difference up to the amount of the policy. Blue Anchor Overall Co. v. Pa. Lumbermens Mutual Ins. Co., 385 Pa. at 399, 123 A.2d at 416.

 The cases cited by the parties shed little light on the issue of whether this is a case of double insurance or priority of specific insurance. Grasberger v. Liebert and Obert, 335 Pa. 491, 6 A.2d 925 (1939) discusses the effect of escape and excess clauses in the context of double insurance.

 In Great Atlantic and Pacific Tea Co. v. Pepsi Cola Bottling, 209 F. Supp. 629 (E.D. Ill. 1962) injury plaintiffs recovered a judgment and settlement from the defendant retailer of an exploding bottle. The retailer had coverage under a liability policy and, through a vendor's endorsement, under the manufacturer's policy. The cost of the judgment and settlement and the cost of defense were prorated between the two insurers under other insurance clauses. Home cites this case as authority for ...


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