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Nationwide Mutual Insurance Co. v. Garzone

September 17, 2009

NATIONWIDE MUTUAL INSURANCE COMPANY,
v.
GERALD GARZONE, ET AL.,
NATIONWIDE MUTUAL INSURANCE COMPANY., ET AL.
v.
GERALD GARZONE, ET AL.



The opinion of the court was delivered by: Baylson, J.

MEMORANDUM RE: MOTIONS FOR SUMMARY JUDGMENT

There are several outstanding motions in two related insurance coverage dispute cases that are currently before this Court. In the first case, Civil Action No. 07-4767, Nationwide Mutual Insurance Company ("Nationwide") initiated a declaratory judgment action against Defendants Gerald Garzone, Louis Garzone, James McCafferty, Jr., Liberty Cremation, Inc. ("Liberty") (collectively,"Liberty Defendants"), and Defendants Jan Schaming, as guardian of the person of Harry W. Malloch, III, an incapacitated person, Jan Schaming, David Schaming, Daniel Oprea, and Mary Rose Oprea (collectively, "07-4767 Underlying Plaintiffs").

In the second, Civil Action No. 08-3895, Nationwide initiated a declaratory judgment action against the Liberty Defendants, Margaret McCafferty d/b/a James A. McCafferty Funeral Home, and several other sets of underlying plaintiffs ("08-3895 Underlying Plaintiffs").*fn1 In both cases, Nationwide seeks to have this Court render a judgment on the extent of its duty to defend and/or duty to indemnify the Liberty Defendants and Margaret McCafferty in several cases instituted by the Underlying Plaintiffs that are ongoing in the Court of Common Pleas of Philadelphia County, in New York state court, and cases consolidated in the U.S. District Court for the District of New Jersey. The primary motions before this Court are Nationwide's Motions for Summary Judgment, filed in both cases.

I. Background and Procedural History

During the period of time at issue, Defendants Gerald Garzone, Louis Garzone, and James McCafferty, Jr. were joint owners and officers of Liberty Cremation, Inc. (07-4767, 08-3895 Statement of Undisputed Facts ¶¶ 4, 5). Liberty held itself out to the public as a provider of crematory services with a principal place of business at 2778 Ruth Street in Philadelphia, Pennsylvania. (07-4767, 08-3895 Statement of Undisputed Facts ¶ 2). On October 17, 2004, Nationwide started providing insurance coverage to Liberty under a commercial general liability insurance policy, which was renewed for one-year periods until October 17, 2007. (07-4767, 08-3895 Statement of Undisputed Facts ¶ 1). Nationwide provided insurance coverage to James McCafferty, Sr. d/b/a James A. McCafferty Funeral Home on April 21, 2005 for two one-year periods. (08-3895 Pl.'s Mot. Summ. J. at 10). The policy was renewed annually by Margaret McCafferty starting April 21, 2007. (Id.).

According to Nationwide, at some point prior to the alleged conduct that is the subject of the underlying lawsuits, Liberty made a complaint to Nationwide that the policy it was issued was not the one that it had ordered. (07-4767 Statement of Undisputed Facts ¶¶ 11-12; 08-3895 Statement of Undisputed Facts ¶ 8; Pl.'s Mot. Summ. J. at 7-8). The initial policy contained an exclusion for "Funeral Services." (Id.). Liberty complained to Nationwide that this exclusion was improperly included in the policy and that their policy should instead include the Morticians' Professional Liability Coverage endorsement. (Id.). In response, Nationwide voluntarily reformed the policy to include the Morticians' endorsement. (Id.; Pl.'s Mot. Summ. J. Ex. F).

A. Allegations of the Underlying Complaints

While Liberty was publicly presenting itself as a crematorium, the underlying complaints*fn2 (and many others that are not currently the subject of these lawsuits) allege that the Liberty Defendants were involved, either intentionally or by their negligence, in a scheme to harvest the organs of deceased individuals, whose bodies were entrusted to the care of Liberty, the Garzone Funeral Home, or the James McCafferty Funeral Home for burial or cremation,*fn3 without the consent of the deceased or their families. The underlying complaints allege that the Liberty Defendants and the McCafferty Funeral Home gave an organization, Biomedical Tissue Services ("BTS"), and its employees, access to the bodies entrusted to the care of the Liberty Defendants and the McCafferty Funeral Home for burial or cremation. Once they were permitted access to the bodies, BTS and its employees allegedly harvested body organs without the consent of the deceased or the deceased's family members and sold the organs by falsifying consent forms, the deceased's medical documentation, and documents for the deceased's identification. The Underlying Plaintiffs also allege that the Liberty Defendants either facilitated or ignored the falsification of medical documentation by the BTS agents, which permitted BTS to sell the body organs by, for example, misrepresenting the age of the deceased or failing to disclose that the deceased had been infected with hepatitis C.

The underlying complaints typically contain the following counts, usually with this numbering, against the Liberty Defendants and the McCafferty Funeral Home: (1) civil conspiracy; (3) negligence; (6) negligent infliction of emotional distress; (7) breach of fiduciary duty; (8) fraud/deception under the Pennsylvania Unfair Trade Practices and Consumer Protection Law ("UTPCPL"); (9) misrepresentation of product benefits under the UTPCPL; (10) misrepresentation of product quality under the UTPCPL; (11) false advertising under the UTPCPL; (12) negligent misrepresentation; (13) intentional misrepresentation; (14) deceit; and (17) loss of consortium, in some of the cases. For purposes of the Court's analysis, additional detail for some of these counts is necessary.

Count 3 of the underlying complaints, the negligence claim, alleges that the Liberty Defendants and the McCafferty Funeral Home were professionally negligent in the care, preparation, and disposal of the decedents. (Schaming Compl. ¶¶ 60-63; Oprea Compl. ¶¶ 58-61).*fn4 In particular, the underlying plaintiffs allege that the Liberty Defendants and the McCafferty Funeral Home failed to obtain and/or verify consent before allowing decedent's tissue to be harvested (Schaming Compl. ¶¶ 63(a)-(c); Oprea Compl. ¶¶ 61(a)-(c)), improperly prepared, provided, and relied upon inaccurate documentation (Schaming Compl. ¶¶ 63(d)-(h), (k); Oprea Compl. ¶¶ 61(d)-(h), (k)), entrusted the decedents to BTS for tissue harvesting, or failed to prevent BTS from harvesting tissue when the Liberty Defendants and the McCafferty Funeral Home knew the decedents were not candidates for tissue harvesting (Schaming Compl. ¶¶ 63(i)-(j); Oprea Compl. ¶¶ 61(i)-(h)), and concealed these activities (Schaming Compl. ¶ 63(l); Oprea Compl. ¶ 61(l)).

Count 6 of the underlying complaints, the negligent infliction of emotional distress claim, alleges that the conduct of the Liberty Defendants and the McCafferty Funeral Home caused the Underlying Plaintiffs severe emotional distress and anguish. (Schaming Compl. ¶ 85; Oprea Compl. ¶ 83).

Count 7 of the underlying complaints, the breach of fiduciary duty claim, alleges that the Liberty Defendants and the McCafferty Funeral Home created a fiduciary relationship with the Underlying Plaintiffs when they contracted to cremate the decedent's remains. (Schaming Compl. ¶¶ 91-92; Oprea Compl. ¶¶ 90-91). The Liberty Defendants and the McCafferty Funeral Home allegedly breached these fiduciary duties by concealing material facts concerning the organ harvesting and by permitting BTS's organ harvesting. (Schaming Compl. ¶¶ 93-94; Oprea Compl. ¶¶ 91-92). The complaints also allege that the Liberty Defendants and the McCafferty Funeral Home were negligent in breaching the fiduciary duty, though they do not identify what acts were negligent, as opposed to intentional. (Schaming Compl. ¶ 96; Oprea Compl. ¶ 94).

Count 12 of the underlying complaints, the negligent misrepresentation claim, generally alleges that the Underlying Plaintiffs justifiably relied on the Liberty Defendants' and the McCafferty Funeral Home's representations of their service in selecting them to handle their decedent's remains. (Schaming Compl. ¶ 130; Oprea Compl. ¶ 128). Specifically, the Underlying Plaintiffs allege that the Liberty Defendants and the McCafferty Funeral Home negligently misrepresented that: the casket would not be opened (Schaming Compl. ¶ 131; Oprea Compl. ¶ 129), the decedent would be cremated without any organ harvesting (Schaming Compl. ¶ 132; Oprea Compl. ¶ 130), and the Underlying Plaintiffs' directives would be honored in the decedent's disposition (Schaming Compl. ¶ 133; Oprea Compl. ¶ 131). They also allege that the Liberty Defendants and the McCafferty Funeral Home knew or should have known that the decedent's tissue and organs would be harvested while in their care. (Schaming Compl. ¶ 134; Oprea Compl. ¶ 132). Alternatively, the Underlying Plaintiffs allege that the misrepresentations were reckless or intentional. (Schaming Compl. ¶¶ 134, 135; Oprea Compl. ¶¶ 132, 133).

B. Schaming Complaint

As for the first set of 07-4767 Underlying Plaintiffs, the Schaming Plaintiffs (Malloch, Jan Schaming, and David Schaming) brought suit against the Liberty Defendants and others in the Pennsylvania Court of Common Pleas of Philadelphia County. (Schaming Compl.).*fn5 The Schaming Plaintiffs allege that the body of Eleanor Jan Malloch, who was the deceased mother of Jan Schaming and Henry Malloch, III, was entrusted to the care of Liberty for purposes of cremation. (Schaming Compl. ¶ 18). At the time, neither the deceased nor any of her family members ever notified Liberty that it was permitted to harvest her organs for transplant or other purposes. (Schaming Compl. ¶ 20). Despite the lack of consent, the Schaming Plaintiffs allege that the Liberty Defendants, either intentionally or negligently, permitted BTS to harvest the organs of the deceased and, either intentionally or negligently, permitted or facilitated the other defendants in forging, falsifying, or altering the documentation of death and consent for organ harvesting.

C. Oprea Complaint

The Oprea Plaintiffs (Daniel Oprea and Mary Rose Oprea) brought an almost identical lawsuit against the Liberty Defendants and others in the Pennsylvania Court of Common Pleas of Philadelphia County. (Oprea Compl.). In that lawsuit, the Oprea Plaintiffs allege that the body of Rose M. Oprea, the deceased mother of Daniel Oprea, was entrusted to the care of Liberty for cremation. (Oprea Compl. ¶ 16). Similar to the Schaming action, the complaint alleges that neither Rose Oprea nor any of her family members ever consented to donating her organs upon her death. (Oprea Compl. ¶ 18). Despite the lack of consent, the Oprea Plaintiffs similarly allege that the Liberty Defendants, either intentionally or negligently, permitted BTS to harvest the organs of the deceased and, either intentionally or negligently, permitted or facilitated the other defendants in forging, falsifying, or altering the documentation of death and consent for organ harvesting.

D. Procedural History

In response to the underlying lawsuits, Nationwide is currently providing a defense to the Liberty Defendants and Margaret McCafferty under a reservation of rights. (07-4767 Statement of Undisputed Facts ¶ 9; 08-3895 Statement of Undisputed Facts ¶ 7). However, seeking a determination on whether it is legally obligated to continue defending and/or indemnify the Liberty Defendants and the McCafferty Funeral Home, Nationwide brought the declaratory judgment action in 07-4767 against both the Liberty Defendants and the 07-4767 Underlying Plaintiffs on November 13, 2007. (07-4767, Doc. 1). Nationwide brought the second declaratory judgment action in 08-3895 against the Liberty Defendants, Margaret McCafferty, and the 08-3895 Underlying Plaintiffs on August 15, 2008. (08-3895, Doc. 1). In both of these actions, Nationwide contends that the terms of the insurance policy issued to Liberty, including the Morticians' endorsement, and the terms of the policy issued to Margaret McCafferty d/b/a James

A. McCafferty Funeral Home do not require Nationwide to defend or indemnify the Liberty

Defendants or Margaret McCafferty for any of the claims brought by the Underlying Plaintiffs in the underlying lawsuits.

While the Underlying Plaintiffs answered the original complaint in both cases, Louis Garzone, James McCafferty, and Liberty Cremation did not respond in both cases, and Gerald Garzone failed to respond in 08-3895. Default judgment was entered against each of the those absent parties. (07-4767, Doc. 31; 08-3895, Doc. 49).

Nationwide then filed a Motion for Summary Judgment in 07-4767 on May 27, 2008. (07-4767, Doc. 30). In the 08-3895 action, Margaret McCafferty filed a Motion to Dismiss on November 7, 2008. (08-3895, Doc. 34).

This Court held oral argument on Nationwide's Motion for Summary Judgment on December 1, 2008. (07-4767, Doc. 42). During that argument, the Court raised concerns about the underlying complaints in the Schaming and Oprea lawsuits. In particular, the argument focused on certain pleading issues in the underlying complaints that the Court viewed as problems for the 07-4767 Underlying Plaintiffs' legal arguments. The 07-4767 Underlying Plaintiffs agreed to amend their underlying complaints. The Court therefore denied Nationwide's Motion for Summary Judgment without prejudice pending those amendments on December 4, 2008. (07-4767, Doc. 41).

On December 23, 2008, the Court held oral argument on Margaret McCafferty's Motion to Dismiss. (08-3895, Doc. 61). During the argument, the same issues in the underlying complaints were raised, and the parties again agreed to amend the underlying complaints. In anticipation of these changes, Margaret McCafferty's Motion to Dismiss was denied without prejudice. (08-3895, Doc. 59).

After the Underlying Plaintiffs amended the underlying complaints, Nationwide filed a Second Amended Complaint*fn6 on February 12, 2009 in both cases. (07-4767, Doc. 44; 08-3895, Doc. 63). The Underlying Plaintiffs and Margaret McCafferty answered the complaints and filed counterclaims against Nationwide, seeking their own declaratory judgment regarding the insurance coverage. (07-4767, Doc. 45) (07-4767 Underlying Plaintiffs); (08-3895, Doc. 64) (08-3895 Underlying Plaintiffs); (08-3895, Doc. 65) (Margaret McCafferty); (08-3895, Doc. 67) (Nancy Gibson, one of the 08-3895 Underlying Plaintiffs, answered the complaint without filing a counterclaim). After answering each of the counterclaims, Nationwide filed the current Motion for Summary Judgment in both actions. (07-4767, Doc. 47; 08-3895, Doc. 68). Each party remaining in the case responded to the motion. (07-4767, Doc. 51, 52; 08-3895, Doc. 75, 84, 86, 87).

In addition, Margaret McCafferty filed two motions that are also before the Court: a Motion to Sever (08-3895, Doc. 76) and a Motion to Stay the Proceedings Pending Additional Discovery (08-3895, Doc. 77). Nationwide filed a response in opposition to each. (08-3895, Doc. 83, 85).

On June 15, 2009, non-parties, Regeneration Technologies, Inc. and Tutogen Medical, Inc. filed a Motion to Intervene and for a Protective Order pursuant to Rules 24 and 25 of the Federal Rules of Civil Procedure. (08-3895, Doc. 88). The Motion focuses on a subpoena that Nationwide served on the District Attorney of Philadelphia concerning the criminal investigation of the alleged activities of the Liberty Defendants. Nationwide responded in opposition to the Motion on July 2, 2009. (08-3895, Doc. 92).*fn7

On July 20, 2009, Nationwide sent a letter, which was placed on the record, notifying the Court of recent developments in the underlying litigation of the Samanns and Laberta matters. (07-4767, Doc. 53; 08-3895, Doc. 93). Margaret McCafferty responded to Nationwide's letter on August 5, 2009. (08-3895, Doc. 96). On August 7, 2009, counsel for the Underlying Plaintiffs in both actions responded to Nationwide's letter. (07-4767, Doc. 54; 08-3895, Doc. 94).

The Court held oral argument on all of the outstanding motions on August 28, 2009. (07-4767, Doc. 56; 08-3895, Doc. 102). During the oral argument, several issues arose that required supplemental briefing. The parties submitted the first round of supplemental briefing on September 4, 2009. Nationwide first provided two affidavits attesting to the policies applicable to the James A. McCafferty Funeral Home. (08-3895, Doc. 104, 105). Nationwide then filed parallel supplemental briefs on the issues raised at oral argument concerning the Liberty Defendants in both civil actions, (07-4767, Doc. 58; 08-3895, Doc. 108), and the Underlying Plaintiffs filed their own supplemental brief on the same day, (07-4767, Doc. 60; 08-3895, Doc. 111). In addition, Nationwide filed a supplemental brief concerning issues raised that were particularly related to Margaret McCafferty d/b/a James A. McCafferty Funeral Home. (08-3895, Doc. 109). Margaret McCafferty responded with her own supplemental brief on September 10, 2009. (08-3895, Doc. 112).

II. Terms of the Insurance Policies

A. Liberty Policy

1. Commercial General Liability Coverage Form

As discussed above, Nationwide provided insurance coverage to Liberty Cremation, Inc. under Policy No. 58 PR 184634-3001. (07-4767 Statement of Undisputed Facts ¶ 1). The more traditional portion of the policy at issue is the Commercial General Liability ("CGL") Coverage Form.*fn8 Under that portion of the policy, Nationwide agrees to: pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. (CGL at 1). The insurance is deemed to apply "to 'bodily injury' and 'property damage' only if

(1) The 'bodily injury' or 'property damage' is caused by an 'occurrence' . . . ." (Id.). The CGL then provides the following definitions.

"Bodily injury" means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time. . . .

"Occurrence" means an accident . . . . "Property damage" means: (a.) Physical injury to tangible property . . . . (CGL at 11, 13, 14).

The CGL Policy also provides several other relevant conditions. First, the Policy creates an exclusion for expected or intended harms: "This insurance does not apply to: (a.) 'Bodily injury' or 'property damage' expected or intended from the standpoint of the insured." (CGL at 2). The CGL Policy also contains an exclusion for particular types of property damage: "This insurance does not apply to . . . (j.) 'Property damage' to . . . (4) Personal property in the care, custody or control of the insured." (CGL at 4).

In defining who is "an insured," the CGL Policy provides that:

1. If you are designated in the Declarations as: . . . .

d. An organization other than a partnership, joint venture or limited liability company, you are an insured. Your "executive officers" and directors are insureds, but only with respect to their duties as your officers or directors. . . .

2. Each of the following is also an insured:

a. Your . . . "employees," other than . . . your "executive officers" . . . , but only for acts within the scope of their employment by you or while performing duties related to the conduct of your business. However, none of these "employees" or "volunteer workers" are insureds for: . . .

(2) "Property damage" to property . . .

(b) Rented to, in the care, custody or control of, or over which physical control is being exercised for any purpose by you, any of your "employees," [or] "volunteer workers" . . . . (CGL at 8).

Finally, the original policy issued to Liberty also contained an exclusion for "Funeral Services." The Funeral Services exclusion stated that "[t]his insurance does not apply to 'bodily injury,' 'property damage' or 'personal and advertising injury' arising out of errors or omissions in the handling, embalming, disposal, burial, cremation or disinterment of dead bodies." (Pl.'s Mot. Summ. J. Ex. D-2 at 39).

2. Morticians' Professional Liability Coverage Endorsement

Liberty was also covered by the Morticians' Professional Liability Coverage endorsement, which was an amendment to the terms of the CGL. (Pl.'s Mot. Summ. J. Ex. E). Several of the provisions in the Morticians' endorsement are relevant. First, the Declarations of the coverage required the insured to "not use the premises for any undisclosed purposes, and [to] not conduct any business operations at any undisclosed locations." (Pl.'s Mot. Summ. J. Ex. E at 1). Where the terms of the Declarations are satisfied: We will pay those sums that the insured becomes legally obligated to pay as damages arising out of an occurrence caused by:

1. bodily injury including mental anguish,

2. property damage to urns, caskets, linings or fittings, casket cases, crypts, mausoleums or other facilities for the care or burial of a deceased human body, belonging to others and in the care, custody or control of the insured, for the purpose of buying [sic] or caring for a deceased human body; or

3. property damage to property of others which is not in the care, custody or control of the insured, due to any professional malpractice or mistake in the embalming, disposition, burial, disinterment or removal of any deceased human body or any conduct of any memorial service by the insured even though no deceased human body actually be present, or because of any injury to, destruction of or interference with the right of burial of a deceased human body.

(Id.).

However, as with the other parts of the policy, the Morticians' endorsement also contains an exclusion.

This insurance does not apply:

1. To bodily injury or property damage arising out of the willful violation of a penal statute or ordinance committed by or with knowledge or consent of any insured; but this exclusion does not apply to any act done in good faith at the request of a public official having apparent authority to require or permit such act.

(Pl.'s Mot. Summ. J. Ex. E at 2). A "deceased human body" is defined as including "any part of a human body severed therefrom and also ashes of a deceased human body after legal cremation." (Id.). The coverage also notes that "[t]his insurance shall apply only as excess insurance over any other valid and collectible insurance which would apply in the absence of this coverage, except insurance written specifically to cover excess over the Limits of insurance to this endorsement." (Pl.'s Mot. Summ. J. Ex. E at 3). Finally, the form states: "All other provisions applicable to the coverage part or policy attached, not in conflict with the provisions of this endorsement, shall apply." (Id.).

B. McCafferty Funeral Home Policy Terms

The policies that covered the McCafferty Funeral Home are, for the most part, identical to the Liberty policies. The specific terms of the McCafferty Funeral Home policies, and the analysis of those policies, will be provided in more detail in the section ...


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