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11/05/97 AMERICAN CASUALTY COMPANY READING v. PHICO

November 5, 1997

AMERICAN CASUALTY COMPANY OF READING, PA, APPELLEE
v.
PHICO INSURANCE COMPANY, AND COMMONWEALTH OF PENNSYLVANIA MEDICAL PROFESSIONAL LIABILITY CATASTROPHE LOSS FUND, JOSEPH PULCINI, JR., DIRECTOR AND SHARON DIRIENZO AND DAVID RICHARD AND SUZANNE RICHARD, IN THEIR OWN RIGHT, APPEAL OF: PHICO INSURANCE COMPANY AND SHARON DIRIENZO



Appeal from the order of the Commonwealth Court entered July 21, 1995 at No. 354 M.D. 1989, Before: Flaherty, C.j., Zappala, Cappy, Castille, Nigro, JJ. Madame Justice Newman did not participate in the consideration or decision of this matter.

The opinion of the court was delivered by: Cappy

OPINION OF THE COURT

JUSTICE CAPPY

NOVEMBER 5, 1997

This direct appeal involves the question of allocation of liability payments between two excess liability insurers. More precisely, we must determine the appropriate common law rule for apportioning the loss between insurers where the policies at issue contain irreconcilable and mutually repugnant "other insurance" clauses. For the reasons that follow, we determine that apportioning liability payments by equal shares is the appropriate allocation method and therefore reverse the Commonwealth Court.

This appeal arises out of a declaratory judgment action filed in the Commonwealth Court's original jurisdiction. This is the second time this particular case has been before this court, albeit on distinct issues. As will be discussed more fully (infra), the initial appeal involved the issue of priority of obligations among three insurers for payment of a medical malpractice claim against a common insured; the current appeal involves only the apportionment of liability as between the two excess insurers.

The underlying facts are not in dispute. David and Suzanne Richard ("the Richards") filed suit against Bryn Mawr Hospital ("the Hospital") and Sharon DiRienzo ("DiRienzo"), a registered nurse employed by the Hospital. The Richards alleged that

DiRienzo, while acting in the scope of her employment as a delivery room nurse at the hospital, was negligent in providing nursing care and treatment during the delivery of the Richards' child, Christopher. The Richards alleged that as a result of DiRienzo's negligence, Christopher sustained severe and permanent brain damage.

At the time of the alleged negligence, DiRienzo was covered by policies of insurance from American Casualty Company of Reading, PA ("American Casualty") and PHICO Insurance Company ("PHICO"). She was also eligible for coverage under the Medical Professional Liability Catastrophe Loss Fund ("the CAT fund"). All three coverages were applicable to medical malpractice claims such as that of the Richards.

American Casualty had issued to DiRienzo a Professional Nurse's Liability Policy (the "American Casualty policy") which carried a limit of $1,000,000.00. That policy covered both DiRienzo's professional and non-business activities.

PHICO had issued two policies of insurance to the Hospital both of which afforded coverage to DiRienzo by virtue of her status as an employee of the hospital. The first, a Health Care Provider's Comprehensive Liability Policy (the "PHICO primary policy") provided, inter alia, "Institutional Professional Liability Coverage" for professional employees, other than physicians, for liability arising out of the rendering or failure to render professional services. A clause contained therein stated that its coverage was primary. The limit of that policy was $200,000.00. The second policy issued by PHICO ("the PHICO excess policy") provided excess coverage up to $10,000,000.00 for virtually the same liability covered under PHICO's primary policy.

Finally, the CAT fund provided a maximum of $1,000,000.00 coverage to DiRienzo by virtue of her status as an employee of the hospital. *fn1

The Richards' action ultimately settled. *fn2 Prior to settlement, American Casualty filed a petition in the Commonwealth Court seeking a declaratory judgment regarding the priority of each of the three insurers' obligations with respect to the payment of the medical malpractice claim against their common insured, DiRienzo. The Commonwealth Court ultimately determined that the PHICO primary policy was to pay the first $200,000.00; that the American Casualty policy was a "residual primary policy" and as such, was to pay the next $1,000,000.00; that the CAT fund was obligated to pay the next $1,000,000.00; and that if the judgment in the underlying action should exceed those limits, the PHICO excess policy would then apply. American Casualty Co. of Reading, PA v. PHICO Ins. Co., 145 Pa. Commw. 184, 602 A.2d 904 (1992).

On appeal, this court reversed the decision and remanded for further proceedings, holding that the American Casualty policy was an excess policy, not a primary policy, and that as such it occupied the same level of insurance coverage as the PHICO excess policy. Accordingly, this court held that the first $200,000.00 of liability was to be borne by PHICO's primary policy, that the next $1,000,000.00 be paid by the CAT fund, and that only then did the American Casualty policy and the PHICO excess policy assume liability. American Casualty Co. of Reading, PA v. PHICO Ins. Co., 537 Pa. 295, 643 A.2d 91 (1994). We specifically noted that the issue of the proper allocation between American Casualty and PHICO with respect to excess ...


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