June 4th, 1993
This diversity action requires the Court to determine the extent of an excess insurer's duty to contribute toward the costs of defending its insured. The parties agree that this dispute may be resolved summarily, and each has filed an appropriate motion for summary judgment under Federal Rule of Civil Procedure 56(c).
For the following reasons, I conclude that the excess insurer in this case, defendant Safety National Insurance Company ("Safety National"), has an equitable duty to contribute on a pro rata basis toward the costs of defending its insured. I will therefore enter summary judgment in favor of the primary insurer, plaintiff General Accident Insurance Company of America ("General Accident").
The following pertinent facts are not in dispute. General Accident issued to the law firm of Blank, Rome, Comisky & McCauley ("Blank Rome") a primary lawyer's professional liability insurance policy with a coverage limit per claim and in the aggregate of $ 10 million. This policy covered the period from April 8, 1984 to April 8, 1985. Safety National also issued to Blank Rome a lawyer's professional liability insurance policy for the same period but in excess of General Accident's policy, with a coverage limit of $ 5 million per claim and in the aggregate, part of $ 25 million, excess of $ 25 million.
Some time after these policies were issued, claims were made and lawsuits were filed against Blank Rome regarding services it rendered in connection with the Sunrise Savings and Loan Association. Blank Rome subsequently sought defense and indemnification under these policies and those provided by other insurers. General Accident, Safety National, and the other insurers contested coverage for these claims and lawsuits; but subject to reservation of its rights under its policy, General Accident nonetheless undertook Blank Rome's defense.
On July 28, 1988, Blank Rome entered into an agreement with General Accident, Safety National, and the other insurers in settlement of these coverage disputes. Pursuant to the terms of that agreement, each insurer agreed to tender the full amount of its policy limits in exchange for a release from Blank Rome of any further liability or defense obligation.
General Accident now seeks contributions from the excess insurers toward the costs it incurred in defending Blank Rome,
and has initiated the instant action to recover from Safety National its pro rata share of defense costs.
Because of the parties are diverse and the amount in controversy exceeds $ 50,000, this Court has jurisdiction pursuant to 28 U.S.C. § 1332(a)(1). The issue presented is whether Safety National, as an excess insurer, is obligated to contribute toward the costs of defending its insured, Blank Rome. The parties agree that the substantive law of Pennsylvania governs resolution of this issue
and that the Pennsylvania appellate courts have not decided the question. I will therefore be required to predict how the Pennsylvania Supreme Court would rule if presented with the issue. See State Farm Mut. Auto. Ins. Co. v. Armstrong, 949 F.2d 99, 101 (3d Cir. 1991).
General Accident bases its claim that Safety National must pay a pro rata share of defense costs upon common law principles of equitable contribution.
In this connection, there is no disagreement between the parties that a growing number, if not a majority, of jurisdictions recognize that "the respective obligations as between several insurers who have covered the same risk do not arise out of contract, but are based upon equitable principles designed to accomplish ultimate justice in the bearing of a specific burden." Guaranty Nat'l Ins. Co. v. American Motorists Ins. Co., 758 F. Supp. 1394, 1397 (D. Mont. 1991), aff'd in part on other grounds, 981 F.2d 1109 (9th Cir. 1992). See also id. at 1396-98 (collecting and analyzing cases); Signal Companies v. Harbor Ins. Co., 27 Cal. 3d 359, 165 Cal. Rptr. 799, 612 P.2d 889, 895 (1980). But see Home Indemnity Co. v. General Accident Ins. Co. of Am., 213 Ill. App. 3d 319, 572 N.E.2d 962, 157 Ill. Dec. 498 (1991) (equitable contribution inapplicable in primary/excess insurer context). The equitable considerations that apply in a given case "depend upon the particular policies of insurance, the nature of the claim made, and the relation of the insured to the insurers." Signal, 612 P.2d at 895.
General Accident urges that the language of the particular insurance policies in this case gives rise to an equitable obligation on the part of Safety National to pay a pro rata share of defense costs. In support, General Accident points initially to the language of Safety National's excess liability insurance policy and makes the following observations. First, Safety National's excess policy is silent as to defense costs: It neither contains language undertaking an obligation to defend Blank Rome nor language disclaiming such a burden. Second, Safety National's policy states expressly that it "shall follow all the terms and conditions of the primary policy(ies) listed" in the policy declarations, and the only primary policy listed is General Accident's.
Thus, General Accident argues, Safety National's policy incorporates all of the terms and conditions of General Accident's policy.
Turning next to the terms and conditions of General Accident's policy, General Accident points out that provision is expressly made for the defense of Blank Rome,
as well as for the apportionment of defense costs between General Accident and other carriers on a pro rata basis "in the event payment for damages by the Insured [Blank Rome], any other carrier on behalf of the Insured and the Company [General Accident] is in excess of the amount of the limit available under this policy . . . ." General Accident argues that because the amount of damages paid on behalf of Blank Rome exceeded the limits of its policy, Safety National is obligated under this language, which has been incorporated into Safety National's policy, to share in the costs of defending Blank Rome on a pro rata basis.
Safety National offers essentially two arguments in opposition. Not disputing that its policy is silent on defense costs, Safety National first contends that its policy follows not the terms and conditions of General Accident's primary insurance policy but those contained in an excess policy issued to Blank Rome by Lexington Insurance Company ("Lexington"), which expressly disavow any defense obligation. Second, Safety National asserts that, regardless of the terms incorporated into its policy by reference, the express language of its policy states that "liability shall attach to the Company [Safety National] only after the Underlying Umbrella Insurers [General Accident and Lexington] have paid or have been held liable to pay the full amount of their respective ultimate net loss liability . . . ." As to this second contention, Safety National reasons that it cannot possibly be liable for defense costs in this case because those costs were incurred before General Accident and the other underlying insurers paid their coverage limits (July 28, 1988, the date Blank Rome's insurers agreed to tender their policy limits), thus not triggering liability under its policy.
In interpreting the language of these insurance policies, I am guided by
the well-settled principles governing the interpretation of insurance policies under Pennsylvania law, which include the following: if the language of an insurance policy is clear and unambiguous, its ordinary meaning is to be given effect; policy terms should be read to avoid ambiguities; a provision is ambiguous if reasonable persons on considering it in the context of the entire policy could honestly differ as to its meaning, if ambiguities do exist in the wording chosen by the insurance company, they must be resolved in favor of the insured; a court cannot rewrite the terms of a policy or give them a construction in conflict with the accepted and plain meaning of the language of the policy.