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PHILADELPHIA INDEMNITY INSURANCE v. FEDERAL INSURANCE CO.

United States District Court, E.D. Pennsylvania


May 26, 2004.

PHILADELPHIA INDEMNITY INSURANCE COMPANY, Plaintiff,
v.
FEDERAL INSURANCE COMPANY and CHUBB CORPORATION, Defendants

The opinion of the court was delivered by: JAMES KELLY, Senior District Judge

MEMORANDUM AND ORDER

Presently before the Court is a Motion for Summary Judgment filed by Defendant Federal Insurance Company ("Federal"), the Response filed by Plaintiff Philadelphia Indemnity Insurance Company ("Philadelphia Indemnity"), and Federal's reply thereto. Philadelphia Indemnity is an insurance company that was reinsured by The Chubb Corporation and its subsidiary, Federal, (collectively, the "Defendants") under a professional liability insurance policy (the "Policy"). On January 30, 2001, Philadelphia Indemnity was sued by its insured, Insureon.com, but did not notify the Defendants of the Insureon.com complaint until May 2002. Philadelphia Indemnity and Insureon.com settled the suit for $1.6 million on or about June 6, 2002. The Defendants refused to provide authority and contribution for the settlement due to its concern that, pursuant to the terms of the Policy, Philadelphia Indemnity's notice of the "Claim," which by definition included the Insureon.com complaint, may have been untimely. Philadelphia Indemnity filed this suit against the Defendants seeking declaratory relief, alleging state common law claims of breach of contract and promissory estoppel, and breach of fiduciary duty and bad faith pursuant to 42 Pa. Cons. Stat. § 8371 (the "Bad Faith statute").

The Defendants argue that summary judgment is appropriate here because, pursuant to the Policy terms, Philadelphia Indemnity failed to provide notice of the Insureon.com complaint, as soon as practicable, permitting the Defendants to disclaim coverage for the Insureon.com "Claim." Consequently, the Defendants contend that Philadelphia Indemnity's bad faith claim and accompanying request for punitive damages must fail as a matter of law. For the following reasons, Federal's Motion is GRANTED.

  I. UNDISPUTED FACTS

 A. The Policy

  Philadelphia Indemnity was an insured under the Policy by the Defendants that provided coverage from July 20, 2000 to July 20, 2002.*fn1 Under the Policy, Philadelphia Indemnity would receive $10 million for each covered loss during each "Policy Period" and was subject to a $250,000.00 deductible. (Pl.'s Mem. Opp'n Mot. Summ. J., at 2.) The Policy obligated the Defendants

 

1. To pay on behalf of the Insureds for Loss which the Insureds shall become legally obligated to pay as a result of any Claim first made against the Insureds during the Policy Period or, if elected, the Extended Reporting Period, arising out of any Wrongful Act committed by the Insureds or any person for whose acts the Insureds are legally liable during or prior to the Policy Period while performing Insurance Services including the alleged failure to perform Insurance Services.
(Am. Compl., Ex. B (emphasis in original).)*fn2 The Policy defines "Claim" to include "a civil proceeding commenced by the service of a complaint or similar pleading," and defines "Wrongful Act" as:
any error, misstatement, misleading statement, act, omission, neglect or breach of duty committed, attempted, or allegedly committed, or attempted, by the Insureds or any person for whose acts the Insureds are legally liable, . . . performing Insurance Services or Financial Services including alleged failure to perform Insurance Services or Financial Services.
(Id. at Definitions 1 26.) Endorsement 5 of the Policy (the "notice provision") makes timely notice of a "Claim" a condition precedent to coverage under the Policy:
The Insured(s) shall, as a condition precedent to exercising their rights under this Policy, give to the Company written notice as soon as practicable . . . of any Claim made against the Insured(s) for a Wrongful Act, of which the Insured's General Counsel or equivalent officer first becomes aware of such Claim. (Id. at Endorsement No. 5.)
  The Vice President of Claims for Philadelphia Indemnity, William Benecke ("Benecke"), testified that he is responsible for providing notice to the Defendants under the Policy, and that he sometimes delegates that responsibility to the Assistant Vice President of Philadelphia Indemnity in the professional liability group, Michael Barrile ("Barrile"). (Mot. Summ. J. Statement of Undisputed Facts ("SUF") ¶ 69.)

  Under the terms of the Policy, Philadelphia Indemnity was to obtain the Defendants approval before incurring "Defense Costs." (Am. Compl., Ex. B, "Defense and Settlement" ¶ 7.):

Defense Costs means that part of the Loss consisting of reasonable costs, charges, fees (including but not limited to attorneys' fees and experts' fees) and expenses (other than regular or overtime wages, salaries or fees of the directors, officers or employees of the Insured Organization) incurred in defending or investigating Claims and the premium for appeal, attachment or similar bonds.
(Id., "Definitions" ¶ 26.)

 B. Insureon.com's Claim Against Philadelphia Indemnity

  Insureon.com was insured under a directors and officers policy issued by Philadelphia Indemnity. During this policy's period, Warrior Insurance Group ("Warrior") filed a lawsuit against Insureon.com. After suit was filed, Insureon.com made a claim for coverage to defend the Warrior matter with Philadelphia Indemnity under the directors and officers policy. A Claims Counsel for Philadelphia Indemnity, Sheryl Jordan ("Jordan"), was assigned to Insureon.com's claim for coverage. (SUF ¶ 4.) Philadelphia Indemnity retained the law firm of Arter & Hadden to assess the claim and the firm recommended that coverage be denied. (Pl.'s Opp'n SUF ¶ 5.) Pursuant to this recommendation, Benecke received for review and signature a declination of coverage letter to Insureon.com that explained the denial. (Id. ¶ 6.) Benecke signed this letter on August 23, 2000. (Id. ¶ 7.)

  In response to Benecke's August 23, 2000 letter, subsequent letters were exchanged between counsel for Insureon.com and counsel for Philadelphia Indemnity, and of which were carbon copied to Jordan. (SUF ¶ 8, 9.) On January 24, 2001, five months after being denied coverage, Insureon.com filed a complaint against Philadelphia Indemnity in the Superior Court of the State of California in the County of Alameda ("Alameda Superior Court"). (Id. ¶ 12.) The complaint contained four counts, two of which were against Philadelphia Indemnity.*fn3 (Am. Compl., Ex. A.) Insureon.com labeled these four causes of action with headers, set off from the numbered paragraphs of allegations, centered, bolded, and capitalized: the first cause of action was styled, "BREACH OF CONTRACT (Against Philadelphia)," and the third cause of action was styled, "TORTIOUS BREACH OF COVENANT OF GOOD FAITH & FAIR DEALING (Against Philadelphia)." (Id.)

 C. Insureon.com Complaint Against Philadelphia Indemnity

  On or about January 30, 2001, Insureon.com's complaint was served on Philadelphia Indemnity, addressed to James J. Maguire, Jr., President and Chief Operating Officer ("Maguire") of Philadelphia Insurance Companies. (Pl.'s Opp'n SUF ¶ 15.) The Insureon.com complaint was forwarded from Maguire to Benecke, who then forwarded it to Jordan. (SUF ¶ 16.) Both Maguire and Benecke testified that they did not read the complaint before forwarding it on. (SUF ¶ 17, 18.)

 D. Legal Bills Incurred from the Insureon.com Matter

  A March 9, 2001 invoice from Arter & Hadden, representing work performed by the law firm in February 2001, billed Philadelphia Indemnity for analyzing the Insureon.com complaint and specifically labels the lawsuit as one for "bad faith." (Pl.'s Opp'n SUF ¶ 11.)

  Philadelphia Indemnity retained the law firm of Borton, Petrini & Conron, LLP ("Borton Petrini") to defend against the Insureon.com matter. (SUF ¶ 21.) Borton Petrini invoiced Philadelphia Indemnity for worked performed on the Insureon.com matter. (Id. ¶ 22.) Borton Petrini identifies the Insureon.com matter as a "bad faith" suit on the first page of each bill to Philadelphia Indemnity. (Id.) On or before July 5, 2001, Jordon forwarded Borton Petrini's bills for approval to her supervisor, Barrile. (Id. ¶ 27.) Barrile contends that he did not read the "bad faith" identifier because his practice was to rely on Jordan's coverletter, which would typically be attached to the bill, approving or disapproving the amount billed. (Pl.'s Opp'n SUF ¶ 22.)

 E. Preparing for Insureon.com Trial

  In April 2001, Philadelphia Indemnity filed a counterclaim against Insureon.com, petitioned for removal to Federal court, and served written discovery on Insureon.com. (SUF ¶ 26.) In August 2001, after a motion to stay was filed by Insureon.com, the Insureon.com matter was stayed by Alameda Superior Court pending the resolution of the underlying Warrior matter. (Id. ¶ 28.) The stay was lifted in December 2001 and discovery resumed. (Id. ¶ 30, 31.) On March 11, 2002, Barrile signed written discovery responses. (Id. ¶ 31.) Trial was set for June 7, 2001. (Id. ¶ 29.)

  On March 18, 2002, Insureon.com made a settlement offer to Philadelphia Indemnity of $600,000.00, which it withdrew on April 19, 2002. (Id. ¶ 35, 44.) Two days after the settlement offer, on March 20, 2002, William Welzenbach, Esquire, an attorney at Borton Petrini, wrote a letter to Jordan concerning his draft summary judgment motion on behalf of Philadelphia Indemnity in the Insureon.com matter. (Id. ¶ 37, 39.) The letter lists Benecke as a carbon copy recipient, however, Benecke testified that he did not receive this letter. (Id. ¶ 38.) Then, on or about April 3, 2002, Borton Petrini filed a summary judgment motion and a motion to compel arbitration in the Insureon.com matter. (Id. ¶ 40.) On April 4, 2002, Mr. Welzenbach mailed another letter to Jordan, on which Benecke was listed as a carbon copy recipient. (Id. ¶ 42.) Benecke testified that he did not receive this letter either. (Id.) On April 15, 2002, Benecke sent a hand-written note "RE: Insureon" to the Assistant VP stating: "We should discuss this case ASAP." (Id. ¶ 43.)

  On April 23, 2002, Borton Petrini filed a motion to continue the trial date to allow for the completion of discovery. (Id. ¶ 46.) On April 26, 2002, Richard E. Morton, Esquire ("Morton"), an attorney at Borton Petrini, telephoned and emailed Benecke to inform him that he had been noticed for deposition by Insureon.com. (Id. ¶ 48.) Morton later followed-up with a letter, dated April 29, 2002, requesting a meeting with Benecke to prepare for his deposition. (Id. ¶ 49.) On April 29, 2002, Mr. Morton and Benecke had a discussion, 1.1 hours in duration, to bring Benecke up to speed on the Insureon.com matter. (Pl.'s Opp'n SUF ¶ 50.) Morton testified that he and Benecke discussed a lot of things, but that he did not know whether they discussed the bad faith claim. (Id. ¶ 50, Ex. F, at 31.)

 F. Philadelphia Indemnity Notifies The Defendants of Insureon.com Matter

  By letter dated May 13, 2002, Barrile first provided notice of the Insureon.com "Claim" to the Defendants on behalf of Philadelphia Indemnity. (SUF ¶ 65.) Philadelphia Indemnity avers that, even though it was sent the Insureon.com Complaint in January 2001, no officer or director knew of the alleged "Wrongful Act" until approximately sixteen months later, May 7, 2002. (Pl.'s Opp'n SUF ¶ 65.) Benecke contends that it was not until May 7, 2002, at his deposition preparation, that he discovered that the Insureon.com matter contained allegations of bad faith and claims for extra-contractual damages. (Id.) After discovering Insureon.com's bad faith claim against it, Philadelphia Indemnity provided the Defendants with the aforementioned written notice of the claim and then sought to initiate settlement negotiations and mediation with Insureon.com. (SUF ¶ 67, 75; Pl.'s Opp'n SUF ¶ 75.) Although Philadelphia Indemnity invited the Defendants to attend, in a letter dated May 31, 2002, the Defendants declined to participate, and recommended that Philadelphia Indemnity "act to protect its interest" during negotiations with Insureon.com. (SUF ¶ 73, 74.) In the letter, the Defendants advised Philadelphia Indemnity that it would "accept coverage for this matter" subject to certain reservations of rights set forth in the letter. (Id. ¶ 74.)

 G. Philadelphia Indemnity's Coverage Claim to the Defendants

  On June 7, 2002, Philadelphia Indemnity agreed to settle Insureon.com's claim for $1.6 million and sought contribution toward the $1.6 million from the Defendants, but the Defendants refused to contribute. (Pl.'s Opp'n SUF ¶ 75.) By letter dated June 12, 2002, Barrile requested a final coverage position in the Insureon.com matter from the Defendants. (SUF ¶ 77.) By letter dated June 27, 2002, the Defendants notified Philadelphia Indemnity that it was still evaluating its request for contribution and requested additional information from Philadelphia Indemnity to complete the investigation. (Id. ¶ 78.) When Philadelphia Indemnity did not receive payment, it filed this suit in this Court, which the Defendants received on September 10, 2002. (Id. ¶ 84.) On the same day, the Defendants delivered to Philadelphia Indemnity a check for $350,000.00 and a letter explaining that the Defendants's refusal to pay Philadelphia Indemnity the full amount of contribution toward the Insureon.com settlement was due to its belief that, had Philadelphia Indemnity "timely notified Federal of the [Insureon.com] claim," the Defendants could have accepted the March 18, 2002 settlement offer of $600, 000. 00.*fn4 (Id. ¶ 82-84.) Philadelphia Indemnity sought clarification from the Defendants as to its ability to negotiate the check without prejudice. (SUF ¶ 85.) The Defendants retained defense counsel, who advised Philadelphia Indemnity that the Defendants would not assert that Philadelphia Indemnity had waived any rights in connection with this litigation by cashing the check. (Id. ¶ 86.)

  In this matter, the Defendants contend that Philadelphia Indemnity failed to provide the Defendants with prompt notice of Insureon.com's "Claim" in accordance with the Policy terms and, for that reason, the Defendants refused further contribution to Philadelphia Indemnity's settlement in the Insureon.com matter.

  II. STANDARD OF REVIEW

  Under Federal Rule of Civil Procedure 56(c), summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). For a dispute to be genuine, the evidence must be such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In making this determination, the evidence of the nonmoving party is to be believed, and the district court must draw all reasonable inferences in the non-movant's favor. See id. at 255. If the moving party establishes the absence of a genuine issue of material fact, the burden shifts to the non-moving party to "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). While the movant bears the initial responsibility of informing the court of the basis for its motion, and identifying those portions of the record which demonstrate the absence of a genuine issue of material fact, Rule 56(c) requires the entry of summary judgment "after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Although courts are to resolve any doubts as to the existence of genuine issues of fact against the moving party, the non-moving party may not rely merely upon bare assertions, conclusory allegations, or suspicions to rebut the movant's motion for summary judgment. Fireman's Ins. Co. v. DuFresne, 676 F.2d 965, 969 (3d Cir. 1982).

  The parties do not dispute that Pennsylvania law governs the substance of this dispute. Procedurally, however, this case is governed by Federal law. Hanna v. Plumer, 380 U.S. 460, 473-74 (1965).

  III. DISCUSSION

  Against the foregoing undisputed factual backdrop, Philadelphia Indemnity argues that the notice provision of Endorsement 5 of the Policy is ambiguous. That Maguire, Benecke, and Barrile were each aware or should have been aware of the Insureon.com complaint, by virtue of the internal procedure regarding the provision of notice to insurance carriers of "Claims," months before the May 13, 2002 letter that provided the Defendants with notice of the Insureon.com "Claim," a condition precedent to coverage, it practically borders on bad faith to make such a disingenuous legal argument.

  The interpretation of an insurance policy is a question of law properly decided by the court. Medical Protective Co. v. Watkins, 198 F.3d 100, 103 (3d Cir. 1999); Standard Venetian Blind Co. v. American Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983). Principles of insurance policy interpretation are well-settled under Pennsylvania law, and are governed by the rules of contract interpretation. See Medical Protective, 198 F.3d at 103-04; United Services Auto. Assoc. v. Elitzky, 517 A.2d 982, 986 (Pa. Super. 1986). Those principles include the following: (1) the terms of the insurance policy must be given their ordinary meaning; (2) a term is ambiguous only if reasonably intelligent men, on considering it in the context of the entire policy, would honestly differ as to its meaning; and (3) the parties' true intent must be determined not only from the language but from all the circumstances. See Elitzky, 517 A.2d at 986. Unambiguous exclusionary provisions contained in the policy will be given effect. See McCaffery v. Travelers Ins., Civ. A. No. 02-1059, 2003 U.S. Dist. LEXIS 4685, at *6 (E.D. Pa. March 4, 2003).

  While we would typically engage in a contract interpretation analysis here as to the ambiguity argument, the undisputed facts of this particular case do not warrant such an analysis. Instead, this Court has been presented with factual admissions by Philadelphia Indemnity that, as explained below, are contradictory to the legal argument it presents in support of relief. Indeed, Philadelphia Indemnity admits that Benecke's knowledge of a "Claim," as defined by the Policy, would trigger his assigned responsibility to provide notice under the Policy. Therefore, the threshold question is whether Benecke knew, or should have known, that service of the Insureon.com complaint on the President and Chief Operating Officer of Philadelphia Indemnity presented a reportable "Claim" under the notice provision of the Policy.

 A. Declaratory Relief and Breach of Contract Claims

  1. Legal Argument Cannot Be Supported By Undisputed Facts.

  Philadelphia Indemnity admits that the Policy requires Philadelphia Indemnity to provide notice when "the Insured's General Counsel or equivalent officer first becomes aware of such Claim," but contends that this is ambiguous because Philadelphia Indemnity does not have a General Counsel. Without further analysis, this legal argument fails where Philadelphia Indemnity admits that it had an authorized officer, Benecke, specifically assigned the responsibility of providing notice to the Defendants under the terms of the Policy.

  The Policy defines "Claim" to include "a civil proceeding commenced by the service of a complaint or similar pleading," and "Wrongful Act" to include "any error . . . [or] omission . . . allegedly committed, or attempted" by Philadelphia Indemnity. As the notice provision of the Policy required Philadelphia Indemnity to provide notice of "Claims" for "Wrongful Acts," under the notice provision, a complaint against Philadelphia Indemnity would be the document that represents the existence of such a reportable "Claim" under the terms of the Policy. Once Maguire was served with the Insureon.com complaint and he forwarded it on to Benecke, Philadelphia Indemnity's obligation to provide notice of this Claim was triggered. The undisputed facts support the finding that Benecke was aware of the complaint months before providing the Defendants with notice of this Claim pursuant to the terms of the Policy's notice provision.

  Benecke testified that, as the Vice President of Claims, he is in charge of the overall management of Philadelphia Indemnity's claims department, which includes the directing of communications to and from the claims department within the organization and other reporting responsibilities concerning claims evaluation, claims payment and other claims issues. Significantly, Benecke also testified that, although he sometimes delegates the responsibility to Barrile, he is solely responsible for providing timely notice to its "insurance errors and omissions carrier," such as the Defendants, in the event that Claims are filed against Philadelphia Indemnity.

  Whether or not Benecke actually read the Insureon.com complaint, Benecke was familiar with Philadelphia Indemnity's relationship with Insureon.com. Prior to Insureon.com's suit against Philadelphia Indemnity, Benecke reviewed the underlying Insureon.com request for coverage, and in his August 23, 2000 letter denied coverage to Insureon.com for the Warrior matter. Further, there is no dispute that Maguire received Insureon.com's complaint filed against Philadelphia Indemnity on January 30, 2001, then forwarded it to Benecke, who then forwarded it to Jordan, who then retained Arter and Hadden, which then billed Philadelphia Indemnity for its February 6, 2001 review of the complaint. There can be no dispute that Benecke received the Insureon.com complaint at some point after its January 30, 2001 service on Maguire, and before its review by Arter and Hadden on February 6, 2001. Thus, it is clear that Benecke had sufficient notice of the Insureon.com complaint, whether he actually read it or not, to trigger the notice requirement, and that he failed to timely notify the Defendants of Philadelphia Indemnity's receipt of the complaint.

  2. Notice of Claim Imputed to Benecke Regardless of Whether He Read the Insureon.com Complaint.

  Instead, Philadelphia Indemnity contends that Benecke's mere receipt of Insureon.com's complaint, without having read it, is insufficient to satisfy the "first becomes aware" language in the notice provision of the Policy, as Benecke was not aware of the actual contents of the complaint. Philadelphia Indemnity seems to argue that the contents of Insureon.com's complaint be brought to Benecke's personal attention before imputing Benecke with "awareness" of such Claim. We disagree with Philadelphia Indemnity's unduly narrow and strained interpretation of the Policy's "first becomes aware" notice language. While Benecke admits that he did not read the Insureon.com complaint, his direct involvement with denying coverage in the underlying Warrior matter just five months earlier, coupled with the seriousness of a suit for coverage, and his actual receipt of the Insureon.com complaint placed him on such inquiry notice of the matter that we must charge him with knowledge of the Insureon.com complaint's contents.

  Benecke had the responsibility to provide notice to the Defendants "of any Claim made against the Insured(s) [Philadelphia Indemnity] for a Wrongful Act." Even if he was not actually aware of the contents of the complaint, he should have known that the complaint, similar to most every complaint, likely alleged the occurrence of a "Wrongful Act," as defined under the terms of the Policy. Specifically, he should have been aware that the Insureon.com complaint likely alleged adverse action by Philadelphia Indemnity, or, at the very least, that the matter had the potential to become a liability for Philadelphia Indemnity such that it would seek insurance coverage under the Policy.*fn5 As there were only four causes of action contained in Insureon.com's complaint, the titles for which were visually distinct from the remainder of the text — centered, bolded, and capitalized — even a cursory review of the complaint would have revealed the causes of actions stated against Philadelphia Indemnity. The first cause of action is styled, "BREACH OF CONTRACT (Against Philadelphia)," and the third cause of action is styled, "TORTIOUS BREACH OF COVENANT OF GOOD FAITH & FAIR DEALING (Against Philadelphia)." Whether they read Insureon.com's complaint or not, as officers of Philadelphia Indemnity, Maguire and Benecke's mere receipt of the complaint put them on inquiry notice of its contents. See generally Hagner v. United States, 285 U.S. 427, 430 (1932) (stating that a properly directed letter is presumed received by the person to whom it was addressed).

  Philadelphia Indemnity, nevertheless, argues that it can remain unaware of the claims contained in a complaint that has been served on the President and Chief Operating Officer of that company, be forwarded to the person in charge of reporting claims of alleged errors or omissions, then be forwarded to lower-ranking employees and have litigation ensue, so long as no one reads the complaint before it reaches the company's lower-ranks. Philadelphia Indemnity appears to seek refuge in some kind of ostrich farm defense, and we do not accept this defense as a legitimate legal principle to permit avoidance of a notice provision contained in an insurance policy. Accordingly, we find that when Benecke received the Insureon.com complaint, whether he actually read it or not, he knew or should have known of the likelihood of that this complaint was a Claim under the notice provision of the Policy. Thus, we impute awareness to Benecke.

  Under the undisputed facts of this case, which include the January 2001 service of Insureon.com's complaint on Maguire which was forwarded to Benecke, and Philadelphia Indemnity's ensuing appointment of defense counsel, filing of counterclaim and motions, signed discovery responses, letters written and exchanged, offers for settlement, approval of litigation bills, hand-written note from Benecke to Barrile that they should discuss the Insureon.com claim "ASAP," scheduled trial date, and participation in a mediation, we find that a sixteen month-delay until May 13, 2002 before notifying the Defendants of the Insureon.com complaint was unreasonable and, as the terms of the Policy require notice be given "as soon as practicable," Philadelphia Indemnity's notice was untimely. See Women's Christian Alliance v. Exec. Risk Indem., Inc., Civ. A. No. 02-2594, 2003 U.S. Dist. LEXIS 12188, at *13 (E.D. Pa. July 3, 2003) (finding that evaluation of the term "as soon as practicable" in a notice provision requires examination of when "the insured knew or should have known of the likelihood of a claim and the point at which the insured notified the insurer") (citation omitted)). Under the explicit terms of the Policy, the parties agree that timely notice was a condition precedent to coverage. We find that Philadelphia Indemnity's May 13, 2002 notice of the Insureon.com complaint to the Defendants was untimely, and, therefore, Philadelphia Indemnity did not fulfill the condition precedent to coverage under the Policy, and the Defendants properly refused Philadelphia Indemnity's request for contribution toward the Insureon.com settlement. Summary judgment is entered in favor of the Defendants and against Philadelphia Indemnity in Philadelphia Indemnity's declaratory relief and breach of contract claims.

 B. Promissory Estoppel

  Philadelphia Indemnity bases its claim for promissory estoppel on the purported promises made in the Defendants's May 31, 2002 Reservation of Rights letter. The Defendants petition this Court to find as a matter of law that the Defendants did not promise, in its May 31, 2002 letter, to accept coverage for the Insureon.com suit. "Under the doctrine of promissory estoppel, plaintiff has the burden of establishing that he detrimentally relied upon the promise of another, such promise would reasonably be expected to induce action or forbearance, and injustice can only be avoided by enforcement of the promise." Nabisco, Inc. v. Ellison, Civ. A. No. 94-1722, 1994 U.S. Dist. LEXIS 16041, at *19 (E.D. Pa. Nov. 9, 1994). We agree with the Defendants that, as a matter of law, the letter did not promise coverage, and fail to understand how a sophisticated insurer like Philadelphia Indemnity could have so concluded. See Id. (holding that reliance for promissory estoppel must be reasonable in relation to sophistication of plaintiff). The letter states that "[t]he Defendants will accept coverage for this matter, subject to [a] reservation of rights." The letter then provides reasons for why the Defendants would not participate in the mediation and might not provide coverage. The only evidence in the record even remotely relating to Philadelphia Indemnity's detrimental reliance on the Reservation of Rights letter weighs against Philadelphia Indemnity's promissory estoppel argument. Counsel for Borton Petrini testified that their defense of Philadelphia Indemnity would not have changed if they knew the Defendants would deny coverage. Based on this evidence, we do not find that Philadelphia Indemnity met its burden of showing the existence of a promise in the Reservation of Rights letter nor do we find that Philadelphia Indemnity acted in detrimental reliance on the Reservation of Rights letter. Thus, summary judgment is entered in favor of the Defendants and against Philadelphia Indemnity in Philadelphia Indemnity's promissory estoppel claim.

 C. Bad Faith Claim and Punitive Damages Request

  Finally, Philadelphia Indemnity's claim that the Defendants acted in bad faith pursuant to Pennsylvania's Bad Faith Statute must fail. See 42 Pa. Cons. Stat. § 8371. The Bad Faith statute provides:

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
(2) Award punitive damages against the insurer.
(3) Assess court costs and attorney fees against the insurer.
Id. To demonstrate that an insurer acted in bad faith, the claimant must demonstrate that: (1) the insurer lacked a reasonable basis for denying benefits under the policy and (2) that the insurer knew or recklessly disregarded its lack of a reasonable basis. See Frog, Switch & Manufacturing Co. v. Travelers Insurance Co., 193 F.3d 742, 751 (3d Cir. 1999); Berks Mutual Leasing Corp. v. Travelers Property Casualty, Civ. A. No. 01-6784, 2002 U.S. Dist. LEXIS 23749, *17 (E.D. Pa. Dec. 9, 2002); Terletsky v. Prudential Property & Casualty Insurance Co., 649 A.2d 680, 688 (Pa. Super. 1994). Upon receiving notice from Philadelphia Indemnity, the Defendants learned that Philadelphia Indemnity had been defending the Insureon.com lawsuit for nearly sixteen months. Under the terms of the Policy, Philadelphia Indemnity was required to obtain the Defendants' approval before incurring "Defense Costs."*fn6 Philadelphia Indemnity did not seek such approval. Moreover, Philadelphia Indemnity admits that the notice provision, a condition precedent to coverage, required notice to the Defendants of a "Claim" for a "Wrongful Act," which, as explained earlier, would include a complaint, and that this notice be provided as soon as practicable. It was reasonable of the Defendants to presume that, after sixteen months of litigation, defense costs were incurred and Philadelphia Indemnity should have been aware of the Insureon.com suit sooner. The Defendants issued the Reservation of Rights letter and found Philadelphia Indemnity to be in technical breach because Philadelphia Indemnity had indisputably incurred defense costs without receiving prior approval as required under the Policy. The Defendants also reasonably believed that Philadelphia Indemnity had forfeited coverage under the Policy by failing to timely comply with the notice provision. Thus, the Defendants' actions cannot be the basis for a bad faith claim.*fn7

  As discussed above, the facts of this case speak for themselves. The Defendants had a reasonable basis to deny Philadelphia's Indemnity's coverage claim in the Insureon.com matter, and since that denial was neither reckless nor malicious, summary judgment is entered in favor of the Defendants and against Philadelphia Indemnity in Philadelphia Indemnity's bad faith claim.

  For the foregoing reasons, Federal's Motion for Summary Judgment is GRANTED. ORDER

  AND NOW, this ___ day of May 2004, in consideration of the Motion for Summary Judgment filed by Defendant Federal Insurance Company ("Federal"), the Response filed by Plaintiff Philadelphia Indemnity Insurance Company ("Philadelphia Indemnity"), and Federal's reply thereto, it is ORDERED that the Motion for Summary Judgment (Doc. No. 42) is GRANTED.

  It is further ORDERED that all outstanding motions, including, the Motion for Summary Judgment filed by Defendant The Chubb Corporation (Doc. No. 41), Motion for Partial Summary Judgment filed by Plaintiff (Doc. No. 59), and Motion to Strike Plaintiff's Motion for Partial Summary Judgment filed by Defendants Federal and The Chubb Corporation (Doc. No. 61), are DISMISSED AS MOOT.

  The Clerk of Court shall enter judgment in favor of Defendants Federal Insurance Company and The Chubb Corporation and against Plaintiff Philadelphia Indemnity Insurance Company.


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