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Pennsylvania County Risk Pool v. Northland Insurance

February 27, 2009

PENNSYLVANIA COUNTY RISK POOL (PCORP), COUNTY OF MONROE, PENNSYLVANIA, AND COUNTY OF BEAVER, PENNSYLVANIA, PLAINTIFFS AND COUNTERCLAIM DEFENDANTS
v.
NORTHLAND INSURANCE, DEFENDANT AND COUNTERCLAIM PLAINTIFF



The opinion of the court was delivered by: (Chief Judge Kane)

MEMORANDUM

Before the Court are cross-motions for summary judgment brought, on the one hand, by Plaintiffs Pennsylvania Counties Risk Pool;*fn1 County of Monroe, Pennsylvania; and County of Beaver, Pennsylvania and, on the other, by Defendant Northfield Insurance.*fn2 (Doc. Nos. 29, 32.) For the reasons that follow, the Court will grant Defendant Northfield Insurance's motion for summary judgment and deny Plaintiffs' cross motion.

I. JURISDICTION Plaintiff Pennsylvania Counties Risk Pool ("PCoRP") is an intergovernmental trust organized pursuant to title 28, sections 2301--16 of the Pennsylvania Consolidated Statutes, 53 Pa. Cons. Stat. Ann. §§ 2301--16 (West 2008), with its offices in Harrisburg, Pennsylvania. (Doc. No. 1 at 1.) Plaintiffs County of Monroe, Pennsylvania, ("Monroe") and County of Beaver, Pennsylvania, ("Beaver") are political subdivisions of the Commonwealth of Pennsylvania, 16 Pa. Stat. Ann. § 201. Defendant Northfield Insurance ("Northfield") is an Iowa corporation with its principal place of business in St. Paul, Minnesota. (Id.) Plaintiffs claim monetary damages in excess of $113,799.71. (Id. at 12.) Because the parties are citizens of different states and the amount in controversy exceeds $75,000, the Court has jurisdiction over this action pursuant to 28 U.S.C. §§ 1332, 2201.

II. STANDARD OF REVIEW

Federal Rule of Civil Procedure 56 provides that summary judgment should be granted when "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. As the Supreme Court of the United States has explained, this standard, by its very terms, "provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247--48 (1986). In making this determination, the Court must "view the facts in the light most favorable to the nonmoving party and draw all inferences in that party's favor." Norfolk S. Ry. Co. v. Basell USA, Inc., 512 F.3d 86, 91 (3d Cir. 2008) (quoting Abramson v. William Paterson Coll. of N.J., 260 F.3d 265, 276 (3d Cir. 2001)). Thus, "summary judgment will not lie if the dispute about a material fact is 'genuine,' that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248. For the purposes of summary judgment, a factual dispute is "material" only if the dispute, as a matter of substantive law, has the potential to affect the outcome of the suit. Id. at 248. "Factual disputes that are irrelevant or unnecessary will not be counted." Id. Absent a genuine issue of material fact, the determination of coverage under an insurance contract is a question of law to be decided by the Court. Pacific Indem. Co v. Linn, 766 F.2d 754, 760 (3d Cir. 1985).

III. BACKGROUND

A. Factual Background

PCoRP is an intergovernmental trust, the purpose of which is to provide various insurance coverages to Pennsylvania counties by "pooling," or sharing, risk and resources. (Doc. No. 29 at 1 ¶ 2.) Two of those counties are Monroe and Beaver. (Id. at 1 ¶ 3.) At some point prior to June 1, 2000, PCoRP set aside a reserve of $100,000 and purchased from Northfield a Public Entity All Lines Aggregate Insurance Policy (the "Policy"), a reinsurance policy for all liability above the reserve and up to $1,000,000. (Id. at 1 ¶ 4.) PCoRP provided insurance coverage to Monroe and Beaver under the Policy from June 1, 2000, to June 1, 2001. (Id.)

On or about September 8, 2000, PCoRP received notice of a class-action lawsuit seeking injunctive and declaratory relief that had been instituted against numerous parties, including Plaintiffs Monroe and Beaver, in the United States District Court for the Eastern District of Pennsylvania. (Id. at 2 ¶ 5.) The lawsuit is captioned Anderson, et al v. County of Monroe, County of Beaver, et al. ("Anderson Lawsuit"). In their complaint, the plaintiffs-adults caring for the children of relatives and friends, or "kinship care givers"-alleged that various state and county agencies and officials had "failed to provide mandated financial support, in the form of per diem foster care payments, to abused and neglected children in their care." (Doc. No. 29-4 at 3 ¶ 1--2.)

David Harman ("Harman"), a claims supervisor with the County Commissioners Association of Pennsylvania ("CCAP"), the umbrella organization that administers PCoRP, alerted Northfield to the Anderson Lawsuit in a report dated January 14, 2002. (Id. at 2--3 ¶ 6; see also Doc. No. 29-5 at 2.) Northfield acknowledged receipt of the report in a letter dated July 19, 2002 ("Reservation-of-Rights Letter"), whereby Northfield advised PCoRP that it was "reserv[ing its] rights to refuse indemnification of any damages and expense that PCoRP becomes legally obligated to pay on behalf of Monroe or Beaver . . . because the policy conditions have not been met because CCAP did not immediately notify [it of the Anderson Lawsuit]." (Doc. No. 29-5 at 3.) Northfield further advised PCoRP that it was reserving its rights, under an exclusion applicable to the "Errors and Omissions" section of the Policy, "to refuse indemnification for losses PCoRP may be liable to pay that are based upon or attributable to Monroe or Beaver County gaining in fact any personal profit or advantage to which they [are] not legally entitled." (Id.) Finally, Northfield also advised PCoRP that it was reserving its rights, under Endorsement No. 17 (the "Endorsement") to the Policy, "to refuse indemnification for any costs or expense incurred by PCoRP that arise solely out of any awards of declaratory, injunctive, or equitable relief, including the cost of defending such actions as well as the attorneys' fees and expenses of the plaintiffs." (Id. at 4.) On September 16, 2002, PCoRP responded with a letter to Northfield seeking "a detailed explanation of how [Northfield] was prejudiced" by the late notice, a issue which Northfield has since conceded.*fn3 (Doc. No. 29 at 3 ¶ 7; Doc. No. 29-6 at 2--4; Doc. No. 34 at 3 ¶ 7.)

During the pendency of the Anderson Lawsuit, Harman regularly apprised Northfield by e-mail of the aggregate costs and expenses of defending against the lawsuit. (Doc. No. 29 at 3 ¶ 9; Doc. No. 34 at 4 ¶ 9.) The Anderson Lawsuit ultimately settled, with the result that PCoRP incurred "a total aggregate cost, including the settlement and attorneys' fees and litigation expenses," of $213,799.71. (Doc. No. 29 at 4 ¶ 11.) At some time point prior to November 7, 2006, PCoRP submitted to Northfield a claim for $113,799.71, the total aggregate cost of defending against the suit less the $100,000 reserve. In a letter dated November 7, 2006, Northfield informed PCoRP that it was not obligated to provide coverage for the claim under the Policy ("Disclaimer Letter"), and asserted four reasons in support of its decision:

(1) It is our position there is no coverage under [the comprehensive general liability section of the Policy] for any damages or expenses that PCoRP is obligated to pay on behalf of Monroe or Beaver because the damages or expenses:

Do not fall within the scope of ultimate net loss caused by bodily injury, property damage, personal injury, advertising injury, products liability, and/or completed operations, host/liquor liability or incidental malpractice or Violation of Civil Rights or First Aid; or Do not arise out of performance of law enforcement activities; or Arose out of acts of fraud or dishonesty committed by the Assured.

(2) It is our position there is no coverage under the [Policy] for any damages or expenses that PCoRP is obligated to pay on behalf of Monroe or Beaver because the damages or expenses were:

Based upon or attributed to Monroe and Beaver County gaining in fact any personal profit or advantage to which they were not legally entitled; or Brought about or contributed to by fraud, dishonesty, or criminal act of an Assured.

(3) It is our position there is no coverage under the [Policy] for any damages or expenses that PCoRP becomes legally obligated to pay on behalf of Monroe or Beaver because the policy conditions have not been met in that CCAP did not immediately notify Underwriters of this occurrence.

(4) It is our position that there is no coverage under the [Policy] for any costs or expenses incurred by PCoRP because the costs or expenses arise solely out of any awards of declaratory, injunctive, or equitable relief, including the cost of defending such actions as well as the attorneys fees and expenses of the plaintiff. (Doc. No. 29-8 at 3--6.) In stating its positions, Northfield referred PCoRP to the language of the Policy and the Endorsement. (Id.)

B. Procedural Background

Plaintiff commenced this action by filing a complaint on May 17, 2007. (Doc. No. 1.) On August 21, 2007, the Court referred this action to mediation, and on December 12, 2007, the mediator assigned to this case reported that mediation had been unsuccessful. On January 10, 2008, Defendant Northfield Insurance filed an answer, together with a counterclaim. Plaintiff and Defendant each filed cross motions for summary judgment on June 23, 2008. (Doc. Nos. 29, 32.) On October 30, 2008, the Court entered an order staying this action pending adjudication of the pending cross motions for summary judgment.

IV. DISCUSSION

In its motion for summary judgment, Plaintiffs contend that the "Insuring Agreement and the Definitions contained in the [Policy], clearly provide coverage for the claims made in the Anderson Lawsuit." (Doc. No. 30 at 7--8.) Characterizing Northfield's obligations under the Policy as arising from the duty to defend rather than the relatively limited duty to indemnify, Plaintiffs maintain that "the duty to defend attaches when the allegations of the complaint against the insured 'may potentially come within the policy's coverage.'" (Id. at 10 (quoting Allstate Ins. Co. v. Drumheller, 185 F. App'x. 152, 154 n.2 (3rd Cir. 2006)).) Northfield recognized the breadth of this duty, Plaintiffs contend, inasmuch as "it did not disclaim but merely provided a reservation of rights," and Northfield is, therefore, "responsible for all defense costs up to the date of the disclaimer letter." (Id. at 11.)

For its part, Northfield contends that under the policy it had no duty to defend Plaintiffs in the Anderson Lawsuit because the policy was one for indemnification and not defense. More fundamentally, Northfield contends that the Policy expressly excluded coverage for underlying lawsuits that seek only declaratory or injunctive relief, and Northfield maintains that the Anderson Lawsuit sought only such relief. Moreover, Northfield asserts that the Policy expressly excludes coverage for suits in which the insured received a profit or ...


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