On February 7, 2008, Plaintiff Benjamin Post ("Post") filed an amended complaint against St. Paul Travelers Insurance Company ("St. Paul) alleging Breach of Contract (the insurance policy), Breach of Contract (agreement to pay the costs of the sanctions proceeding), Bad Faith Refusal to Provide Insurance Coverage, Promissory Estoppel, and asking for a Declaratory Judgment. On June 30, 2008, St. Paul filed a Motion for Partial Summary Judgment on all counts except Promissory Estoppel. On July 31, 2008, Post responded to St. Paul's Motion and also filed a Motion for Partial Summary Judgment on Count I (Breach of Contract as to the insurance policy), Count II (Breach of Contract as to the agreement to pay the costs of the sanctions proceeding), and Count V (Declaratory Judgment). For the reasons that follow, Post's Motion for Summary Judgment is granted with respect to Counts I and V and denied with respect to Count II. St. Paul's Motion for Partial Summary Judgment is denied.
In 2003, Post and Tara A. Reid ("Reid") were defense counsel representing Mercy Hospital ("Mercy") in a medical malpractice suit in the Common Pleas Court of Luzerne county, captioned Bobbett, et al. v. Mercy Hospital, et al. (the "Bobbett case"). During trial, Mercy and the Bobbett plaintiffs reached a settlement agreement; Mercy claimed this was due, at least in part, to allegations of discovery abuse by defense counsel (Post and Reid). On or about October 2005, Catholic Health Partners Vice-President for Risk and Insurance, Michael Williams ("Williams") sent letters to Post advising him not to destroy any documentation from the Bobbett case and to place Post on notice that Mercy intended to sue Post for malpractice. On October 20, 2005, Williams asked Post to notify his professional liability carrier and have someone from that company contact Williams. In early November 2005, Post's counsel George Bochetto ("Bochetto") contacted St. Paul to put them on notice of a claim or potential claim against Post and included the October 20 letter from Williams. St. Paul opened a claims file for Post and Michael Spinelli ("Spinelli") assumed responsibility for this claim.
On November 21, 2005, the Bobbett plaintiffs filed a Petition for Sanctions ("sanctions petition") against Post and Reid. Soon after, Mercy filed an answer to the sanctions petition but did not bring an independent suit against Post and Reid at that time. In the sanctions petition, the Bobbetts sought sanctions against Post and Reid and "any other relief this court deems just and equitable under the unique and serious circumstances presented before it." (St. Paul's Motion for Summary Judgment, Exhibit C Part 2, p. 59). Mercy sought the same relief in their Answer. On November 28, 2005 Bochetto advised St. Paul of the sanctions petition. Post and Reid sought a defense to the sanctions petition and to Mercy's Answer from St. Paul under a Professional Liability Policy ("Liability Policy"). Post contends that Mercy made a malpractice claim that was covered by the Liability Policy and that Mercy joined the sanctions petition in anticipation of their malpractice suit. St. Paul's position was and is that the sanctions petition only sought relief in the form of sanctions, which are excluded under the Liability Policy.
In December 2005, St. Paul retained counsel, Mark Anesh ("Anesh"), to advise them on their coverage obligations toward Post. Anesh was not advised of Mercy's potential malpractice claim, but was provided with information regarding the sanctions petition. Under Anesh's guidance, St. Paul continued to decline coverage but in March and April 2006, Anesh met twice with Post's attorneys to discuss an offer by St. Paul to pay certain attorneys' fees. On May 3, 2006, Anesh sent a letter to Bochetto saying that St. Paul would pay "bills as regards or relates to time expended to defend potential malpractice claims."*fn2 (Post Motion for Summary Judgment, p. 21). At that time, Bochetto's fees for representation of Post exceeded $400,000. Anesh, on behalf of St. Paul, offered to pay $36,220.26. Post responded that this offer was unacceptable and made in bad faith.
On November 19, 2007, Mercy filed a praecipe for writ of summons against Post in the Court of Common Pleas of Luzerne County. To date, Post alleges that over $600,000 was spent in attorneys' fees to defend against the sanction petition and Mercy's malpractice claim.
The Liability Policy included a "duty to defend any protected person against a claim or suit for loss covered by this agreement." (Exhibit E of St. Paul's Motion for Summary Judgment, p. 27). A "claim" was defined as a "demand that seeks damages," while a "suit" was defined as "a civil proceeding that seeks damages." The Liability policy further stated that a claim was considered to have been first made or brought against a protected person on the date that St. Paul or any protected person "first receives written notice of such claim" or when St. Paul received written notice from a protected person "of a specific wrongful act that caused the loss which resulted in such claim or suit." Id. at 30. Damages included "compensatory damages imposed by law" and "punitive or exemplary damages imposed by law if such damages are insurable under the law that applies," but specifically did not include "civil or criminal fines, forfeitures, penalties, or sanctions." Id. at p. 25-26. The Liability Policy further stated that when St. Paul defends a protected person against a claim or suit, they will pay defense expenses. Defense expenses included "fees, costs, and expenses that result directly from the investigation, defense, or appeal of a specific claim or suit." Id. at 28. Also included in defense expenses were attorneys fees, costs of proceedings involved in the suit, and fees for witnesses, investigators and experts.
This court has jurisdiction to hear this case under 28 U.S.C. § 1332 because there is complete diversity between the parties and the amount in controversy exceeds $75,000. The court has the authority to grant declaratory relief pursuant to 28 U.S.C. § 2201. Both parties agree that Pennsylvania law applies to this case.
IV. SUMMARY JUDGMENT STANDARD
Summary judgment must be granted 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). Facts are material if they might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue exists when the evidence is such that a reasonable jury could return a verdict in favor of the non-moving party. Id. at 248-52.
Summary judgment is appropriate as a matter of law when the non-moving party has failed to make an adequate showing on an essential element of his case, as to which he has the burden of proof at trial. Cleveland v. Policy Management Sys. Corp., 526 U.S. 795, 804 (1999). To overcome a summary judgment motion, a plaintiff may not rely on allegations or denials; a plaintiff must set out specific facts showing a genuine issue for trial. Fed. R. Civ. P. 56(e).
A. Count I: Breach of Contract
The interpretation of an insurance contract, including an analysis of coverage, is a question of law generally determined by the court. Donegal Mutual Ins. Co. v. Baumhammers, 938 A.2d 286, 291 (Pa. 2007) (citations omitted). When the terms of the policy are unambiguous, they control, but when the terms are ambiguous they must be interpreted in favor of the insured. Id. (citations omitted). The duty to defend under an insurance policy is broader than the duty to indemnify, in that the duty to defend is triggered whenever the allegations in a complaint may potentially come within the insurance coverage. Lucker Mfg., Inc. v. Home Ins. Co., 23 F.3d 808, 813 (3d Cir. 1994). The insurer's duty to defend remains until the insurer is able to show that the factual allegations in the complaint, even if true, do not fall within the scope of the policy. Id. (citations omitted). "If the complaint against the insured avers facts that would support a recovery covered by the policy, then coverage is triggered and the insurer has a duty to defend until such time that the claim is confined to a recovery that the policy does not cover." ...