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NIA Learning Center, Inc. v. Empire Fire and Marine Insurance Companies

October 1, 2009

NIA LEARNING CENTER, INC., ET AL.
v.
EMPIRE FIRE AND MARINE INSURANCE COMPANIES



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

MEMORANDUM RE: MOTION FOR JUDGMENT ON THE PLEADINGS

Presently before this Court is Defendant's Motion for Judgment on the Pleadings. Plaintiffs NIA Learning Center ("NIA"), Carol Lloyd ("Lloyd"), and Karla Cruel ("Cruel") allege bad faith, breach of contract, unfair practices, violation of Pennsylvania's Unfair Trade Practices and Consumer Protection Law, and fraud against their insurance company, Empire Fire and Marine Insurance Companies ("Empire"), arising out of a car accident in 2002 and Defendant's subsequent settlement of two claims leading to exhaustion of NIA's policy limit. For the foregoing reasons, Defendant's Motion will be granted.

I. Factual Background and Procedural History

A. Facts

On February 21, 2002, Plaintiff Cruel, an "agent, servant and/or employee of [NIA], acting within the course and scope of such agency and/or employment," was driving a vehicle owned by NIA and was involved in an accident with Kimberly Stewart. (Compl. ¶¶ 4, 9.) As a result of the accident Stewart's vehicle was damaged and a pedestrian, Aaron Jones, was struck and injured. (Compl. ¶¶ 10, 11.)

At the time of the accident, NIA was insured by Defendant Empire under a commercial automobile policy, policy number CL270162. (Compl. ¶ 7, Ex. A.) The policy "provided coverage in the amount of $100,000 for all claims arising out of the same accident." (Compl. ¶ 12). The policy Declarations page states that the limit is "$100,000 CSL," which Defendant maintains is commonly known in the insurance industry to mean "Combined Single Limit" and included both property damage and bodily injury liability. (Def.'s Mot. J. Pleadings ¶ 4.) The policy states as follows with regards to the policy limit:

We will pay all sums an "insured" legally must pay as damages because of "bodily injury" or "property damage" to which this insurance applies... We have the right and duty to defend any "insured" against a "suit" asking for such damages or a "covered pollution cost or expense." However, we have no duty to defend any "insured" against a "suit" seeking damages for "bodily injury" or "property damage" or a "covered pollution cost or expense" to which this insurance does not apply. We may investigate and settle any claim or "suit" as we consider appropriate. Our duty to defend or settle ends when the Liability Coverage Limit of Insurance has been exhausted by payment of judgments or settlements. Regardless of the number of covered "autos", "insured", premiums paid, claims made or vehicles involved in the "accident," the most we will pay for the total of all damages and "covered pollution cost or expense" combined, resulting from any one "accident' is the Limit of Insurance for Liability Coverage shown in the Declarations. (Def.'s Mot. J. Pleadings Ex. A 26, 30 §§ II.A,C.)*fn1 (emphasis added).

After the accident, Plaintiffs allege that Defendant "voluntarily exhausted the policy limits by paying a total of $100,000 to settle the personal injury claims of Aaron Jones and the property damage claim brought by Kimberly Stewart." (Compl. ¶ 14.) Defendant's brief specifies that on April 5, 2002, Stewart's car insurance company, Progressive Insurance, made a subrogation claim, which Defendant settled for approximately $13,000 on May 8, 2002. (Def.'s Memo. Law Support Mot. J. Pleadings 2.) In addition, on July 29, 2002, a "policy limits" demand was made on behalf of pedestrian Jones, a minor, based on $43,000 of medical bills he incurred from the accident. Defendant paid $87,739.68 to Jones for his bodily injuries and obtained a joint tortfeasor release executed November 14, 2002. (Id.) Plaintiff alleges that Defendant voluntarily exhausted the policy limit "despite the fact that it knew or should have known that there were other potential claims," thereby "knowingly and intentionally exposing its insured to loss that would not be indemnified under the policy." (Compl. ¶ 15-16.)

About two years after the accident, on February 19, 2004, Stewart sued NIA and employee Cruel for personal injury damages from the accident in a suit, Stewart v. NIA, Inc., et al., filed in the Philadelphia County Court of Common Pleas. (Compl. ¶ 17, Ex. B.) Defendant received notice of the suit, and on March 17, 2004, Defendant sent a letter to NIA and Cruel that it would not provide a defense to Plaintiffs in the lawsuit. (Compl. ¶¶ 19, 20.) On March 24, 2004, after being contacted by NIA's corporate counsel, Defendant again refused to provide a defense. (Compl. ¶ 23.) NIA then retained private counsel to defend the suit. (Compl. ¶ 24.) Stewart filed an Amended Complaint on August 5, 2004, which added Lloyd*fn2 as a defendant in her lawsuit. (Compl. ¶ 25.)

On November 12, 2004, Stewart was awarded $20,000 in arbitration against Cruel only; the arbitrator found in favor of NIA and Lloyd. (Compl. ¶ 31.) On March 3, 2005, Stewart filed a Praecipe to Take Judgment Upon Award of Arbitrators. (Compl. ¶ 33, Ex. I.) Plaintiffs allege that "Stewart would not have prevailed at the arbitration and obtained a judgment in her favor and against Cruel, if Defendant had presented a defense to Cruel." (Compl. ¶ 34.) As a result, there is a $20,000 judgment against Cruel, and NIA and Lloyd incurred attorney fees. (Compl. ¶ 36.)

B. Procedural History

Plaintiffs' Complaint was filed in the Court of Common Pleas, Philadelphia County in July 2005. Plaintiffs allege the following claims: bad faith under the Pennsylvania Bad Faith Insurance Statute, 42 Pa.C.S.A. § 8371 (Count I), breach of contract (Count II), violation of the Unfair Practices and Consumer Protection Law (Count III), and fraud (Count IV). Defendant removed the case to federal court on September 29, 2005 (Doc. No. 1) and answered the Complaint on October 11, 2005 (Doc. No. 2).

Defendant filed this Motion for Judgment on the Pleadings on February 24, 2006 (Doc. Nos. 9, 10). Plaintiffs responded on March 14, 2006 (Doc. No. 11). Defendant replied on March 16, 2006 (Doc. No. 12), and Plaintiffs filed a sur-reply on March 27, 2006 (Doc. No. 13). Defendant filed a supplemental memo on November 8, 2006 (Doc. No. 14), to which Plaintiffs responded on November 9, 2006 (Doc. No. 15).

The case was reassigned to the undersigned on April 28, 2009 (Doc. No. 16). Due to the significant lapse of time since this Motion was briefed, the undersigned ordered supplemental letter briefs on any updated caselaw on May 8, 2009 (Doc. No. 20).

The Court held oral argument on the Motion on June 8, 2009. At the hearing, and in a subsequent Order dated June 12, 2009 (Doc. No. 24), the Court required Defendant to produce promptly its claims file, its claims log and other documents on its disposition of the claims made and requested, allow Plaintiffs to serve interrogatories, and required Plaintiffs to file a brief on what prima facie evidence of bad faith, if any, they found in the Defendant's documents or answers to interrogatories and whether Plaintiffs requested additional discovery. In that Order, the Defendant's Motion for Judgment on the Pleadings was denied without prejudice.

Plaintiffs filed their brief on August 26, 2009 (Doc. No. 27), and the Defendant's brief was filed pursuant to an unopposed extension of time on September 24, 2009. The Court will consider Defendant's Motion for Judgment on the Pleadings as refiled.

II. Jurisdiction

The Court has jurisdiction pursuant to 28 U.S.C. § 1332 based on diversity of citizenship. Plaintiffs are residents of Pennsylvania and Defendant is incorporated and with its principal place of business in Nebraska. (Compl. ¶¶ 1-5; Notice of Removal ¶ 5.) Defendant alleges a good faith belief that the amount in controversy exceeds $75,000 based on damages claimed in the Complaint. (Notice of Removal ¶ 6.)

III. Parties' Contentions

A. Defendant's Motion

Defendant argues that Plaintiffs' entire claim should be dismissed because its duty to defend and indemnify was terminated when Plaintiffs' policy limit was exhausted based on the explicit language in the insurance policy concerning Defendant's duty. Defendant claims that Pennsylvania law has adopted the "first in time, first in right" doctrine, whereby it is valid for an insurer to settle claims piecemeal even though this may reduce or exhaust the policy limit. This doctrine further stands for the proposition that an insurer do not have to wait for all potential claims arising out of an accident to be filed before it may settle certain claims. Defendant cites two state court cases for the adoption of this proposition and the additional proposition that an insurer may withdraw its defense "mid-course" of the underlying litigation as long as the insured is not prejudiced. Defendant also cites to two Third Circuit cases that have adopted this proposition.

Defendant further describes the implied duty of good faith that all insurers must comply with before their duty to defend may be terminated. Defendant argues that it has clearly met that duty in this case.

B. Plaintiffs' Response

Plaintiffs argue that multiple factual issues exist such that the motion for judgment on the pleadings cannot be granted.

First, Plaintiffs argue that the policy limit may not be $100,000, and thus, the policy may not be exhausted. Plaintiffs base this argument on Jones's potential entitlement to first-party medical benefit benefits under the policy, which would constitute $5,000 on top of the $100,000 limit. Further, Plaintiffs argue that all Pennsylvania policies must include $5,000 in property damage coverage, which would also be on top of the limit. Finally, Plaintiffs claim that "$100,000 CSL" is not defined in the policy and is therefore ambiguous as to its meaning regarding the policy limit.

Second, Plaintiffs argue that many factual issues exist as to Defendant's good faith in settling the Stewart property damage and Jones bodily injury claims. Because the Complaint alleges that Defendant knew or should have known of additional claims, factual discovery is necessary concerning what Defendant knew at the time of settlement, when Defendant settled, the reasonableness of Defendant's investigation of the claims, and the reasonableness of the settlements. Based on the standard for a statutory bad faith claim, Plaintiffs argue that Defendant's good faith is an issue of intent, which is a factual inquiry.

Third, Plaintiffs argue that there is a factual issue about whether the policy in existence at the time of the accident was a renewal policy or, instead, was the original policy issued. If the policy is a renewal policy, it may not be enforceable if the insured was not notified of the renewal and understood it.

Finally, Plaintiffs argue that factual issues exist as to releases obtained in settling the first two claims. Plaintiffs want fact discovery on the nature of the release received by ...


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