The opinion of the court was delivered by: DONALD E. ZIEGLER
Pending before the court are the cross-motions for summary judgment filed by plaintiffs, Mike and Margaret Devich, and defendant, Commercial Union Insurance Company ("Commercial Union"), in this civil action alleging breach of contract and bad faith. The central issue that we are called upon to resolve is whether, under Pennsylvania law, a negligence claim of "failure to warn" falls outside the coverage of the general liability insurance policy issued by Commercial Union to Maverick Mobile Equipment, Inc. ("Maverick") where the terms of the insurance policy include a "products-completed operations hazard" exclusion. For the reasons that follow, we hold that (1) the products-completed operations hazard exclusion did not exclude plaintiffs' negligence claims from coverage, and (2) defendant did not act in bad faith in investigating the claim and in refusing to defend Maverick. Summary judgment will be entered for plaintiffs in the amount of $ 500,000.00.
The undisputed material facts are as follows. Maverick Mobile Equipment, Inc., a Pennsylvania corporation, came into existence, with Robert Bajek as its president, in the summer of 1986. Maverick is the named insured in the insurance policy at issue and was the sole defendant in the underlying state court personal injury action (Devich v. Maverick Mobile Equipment, Inc., CA. No. 1808 of 1990 (C.P. Beaver County)). Maverick was formed primarily for the design, development and manufacture of aerial work platforms for sale to the U.S. Navy. Maverick's main office was located on Duss Avenue in Beaver County, Pennsylvania, and Maverick performed all work at that location.
Maverick produced the aerial platforms for the Navy and shipped them to Florida for the Navy's inspection in July, 1988. The platforms were rejected as defective and were returned to Maverick's offices in Beaver County, where Maverick unsuccessfully attempted to repair them in anticipation of a second inspection in September, 1988. After the platforms were rejected a second time, the Navy cancelled the contract with Maverick. Maverick was thereafter unable to secure a buyer for the platforms.
As a result of its inability to sell the platforms, Maverick defaulted on its financial obligations to Coop. In November 1988, Coop seized the platforms from Maverick's headquarters in the hopes that it would be able to find a buyer for the product. On December 28, 1988, Mike Devich was injured while operating one of the platforms for the benefit of a potential buyer. The platform malfunctioned and threw Devich from the basket of the unit to the ground 10-15 feet below, causing severe personal injuries.
Pursuant to its agreement with the Navy, Maverick had been required to obtain general liability insurance. Commercial Union issued a policy to Maverick for the policy years August 1, 1987 through August 1, 1989, in the amount of $ 500,000.00 per occurrence. Affidavit of Norman B. Whitton, P3. The policy was terminated by Commercial Union on February 4, 1989 due to Maverick's failure to pay the insurance premiums. Id. at P4. It is undisputed that the Commercial Union policy was in effect at the time that Mike Devich was injured.
In February of 1989, plaintiffs initiated an action against Maverick and its president, Robert Bajek, in the Court of Common Pleas of Beaver County, Pennsylvania, by filing a praecipe for summons. By letter dated August 28, 1989, counsel for Maverick notified Commercial Union's local agent of the summons, and forwarded a copy to defendant. Commercial Union opened a file on the claim on September 1, 1989. On September 14, 1989, defendant took a statement from Bajek with respect to the Devich lawsuit. Apparently in complete reliance on the facts as provided by Bajek, Commercial Union, by letter dated October 3, 1989, notified Maverick's counsel of its determination that no coverage existed because the claim was excluded from coverage pursuant to the products-completed operations hazard exclusion. Maverick sought reconsideration of the determination, without avail. Commercial Union did state, however, that it would reevaluate the claim in the event that a complaint was filed.
In January of 1991, plaintiffs filed their complaint against Maverick, asserting claims under the theories of strict liability (section 402A of the Restatement of Torts, Second), and negligence. By agreement of the parties, Bajek was dropped from the lawsuit and was not a named defendant in the complaint. Bajek, with full power of attorney granted to him by Maverick's Board of Directors in 1987, also agreed to assign all of Maverick's rights under the Commercial Union policy to plaintiffs.
By letter of January 31, 1991, Maverick's counsel sent a copy of the complaint to Commercial Union and advised the carrier that Maverick would offer no defense to the claim. After reviewing the complaint, Commercial Union again denied coverage. Defendant's only stated reason for the denial was that the claim was excluded by the products-completed operations hazard exclusion. Commercial Union acknowledged the existence of "averments of negligence" in the complaint but found them inconsequential because they did not "address anything other than the insured's product." Defendant also stated that it had no obligation to defend Maverick against the Devich's claims and instructed Maverick to retain its own attorney.
By letter of March 5, 1991, Maverick's counsel informed Commercial Union that plaintiffs intended to take a default judgment against Maverick. Again, the carrier stated that it would take no action because there was no coverage. On April 4, 1991, plaintiffs took default judgment against Maverick. Thereafter, plaintiffs' counsel continued to keep Commercial Union on notice of the status of the lawsuit. On December 4, 1992, a non-jury trial was held to liquidate damages. Defendant was informed of the date of the trial, but declined to participate on behalf of Maverick. At the trial, plaintiffs expressly withdrew all of their claims premised on strict liability and proceeded only on the negligence claims. The state court awarded plaintiffs $ 800,000.00 in damages and $ 59,078.30 in delay damages, for a total judgment of $ 859,078.30. By special interrogatories, the court ruled that plaintiffs' injuries were proximately caused by Maverick's "negligent failure to warn [Mike Devich] of known defects."
After the judgment was entered against Maverick, plaintiffs, as assignees of Maverick's rights under the Commercial Union policy, filed the instant civil action claiming that defendant is liable for payment of the entire amount of the judgment. Plaintiffs contend that the negligence claim upon which judgment was rendered was covered by the Commercial Union policy and that defendant acted in bad faith in failing to defend Maverick in the state court proceeding and in refusing to provide coverage. Commercial Union denies coverage and a duty to defend. Because we find no genuine issues as to any material fact, we agree with the parties that this case is ripe for resolution on summary judgment.
Essentially two issues are raised by the motions; first, whether the negligence claim of failure to warn, upon which judgment was rendered in the state court litigation, was excluded from coverage under the policy pursuant to the products completed operations hazard exclusion; and second, whether Commercial Union had an obligation to defend Maverick in the underlying litigation and, if so, whether the carrier's refusal to do so was an act of bad faith.
In determining whether the failure to warn claim was covered by the Commercial Union policy, we must first examine the terms of the policy under the general rules of policy construction. It is the duty of the court to interpret the intent of the parties to an insurance contract. DiFabio v. Centaur Ins. Co., 366 Pa. Super. 590, 531 A.2d 1141, 1142 (Pa.Super. 1987). In doing so, we must give the terms that are unambiguous and which clearly reflect the intent of the parties their plain and ordinary meaning. Hutchison v. Sunbeam Coal Corp., 513 Pa. 192, 519 A.2d 385 (1986). However, "overly-subtle or technical interpretations may not be used to defeat reasonable expectations of insureds", Harford Mut. Ins. Co. v. Moorhead, 396 Pa. Super. 234, 578 A.2d 492, 495 (Pa.Super. 1990), and any ambiguous terms must be resolved against the insurer or drafter of the policy. DiFabio at 1142.
The commercial general liability policy purchased by Maverick provides that coverage shall extend to all of "those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. Commercial Union Policy, § I, P1(a). Under a general liability policy, this declaration of coverage must be read broadly to include all bodily injury or property damage that occurs during the policy period, except to the extent that such coverage is specifically limited by the express exclusions found elsewhere within the policy.
The exclusion upon which defendant principally relies is the products-completed operations hazard exclusion, which states that: "This insurance does not apply to 'bodily injury' or 'property damage' included within the 'products-completed operations hazard." The ...