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Dale Corp. v. Cumberland Mutual Fire Insurance Co.

June 30, 2010

DALE CORPORATION
v.
CUMBERLAND MUTUAL FIRE INSURANCE COMPANY



The opinion of the court was delivered by: O'neill, J.

MEMORANDUM

Plaintiff Dale Corporation filed a declaratory judgment action against defendant Cumberland Mutual Fire Insurance Company with respect to two underlying suits filed by Robert Francis in the Philadelphia County Court of Common Pleas. Dale seeks declarations that under an insurance policy issued by Cumberland to Nesmith & Co., Inc., Cumberland had a duty to defend and an obligation to indemnify Dale for settlement and defense costs incurred by or on behalf of Dale as a result of the underlying Francis suits. Both parties have moved for summary judgment and their motions have been fully briefed.

BACKGROUND*fn1

Dale Corporation was hired by Westrum Development Co. as a construction manager for the Brewerytown construction project at 31st and Thompson Streets in Philadelphia. Dale retained Nesmith as a subcontractor to perform construction services and provide related materials. Dale also retained Chisom Electrical Contractors, Inc. to install an electrical cable for security lighting at the construction site.

The Dale/Nesmith subcontract required Nesmith to add Dale as an additional insured on Nesmith's Comprehensive General Liability Insurance policy. Nesmith obtained an insurance policy from Cumberland for the period of May 1, 2005 to May 1, 2006 with a limit of $1,000,000 for each occurrence and a $2,000,000 general aggregate limit. The policy provides coverage for an additional insured which is defined as: any person or organization for whom you [Nesmith] are performing operations when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy. Such person or organization is an additional insured only with respect to liability for "bodily injury", "property damage" or "personal and advertising injury" caused, in whole or in part, by:

1. Your [Nesmith's] acts or omissions; or

2. The acts or omissions of those acting on your [Nesmith's] behalf; in the performance of your [Nesmith's] ongoing operations for the additional insured.

A person's or organization's status as an additional insured under this endorsement ends when your [Nesmith's] operations for that additional insured are completed.

An additional insured is entitled to certain coverage under the policy. Specifically, "[Cumberland] will pay those sums that the [additional] insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies. [Cumberland] will have the right and duty to defend the [additional] insured against any 'suit' seeking those damages."

Along with the additional insured provision, the Dale/Nesmith subcontract also required Nesmith to defend and indemnify Dale from claims "arising out of or resulting from performance of [Nesmith]'s Work under this Subcontract, provided that any such claim, damage, loss or expense is attributable to bodily injury . . . but only to the extent caused by the negligent acts or omissions of [Nesmith] . . . or anyone for whose acts they may be liable." The subcontract required Nesmith to "take reasonable safety precautions with respect to performance" of the subcontract.

Nesmith rented a Genie lift and brought it to the construction site solely for its use in performing its duties on the site. John Russell, Nesmith's foreman for the carpenters at the site, testified that the Genie lift at that site "was solely for Nesmith" and that other than he and the carpenters no other trade used the lift. Joint Stip. (D. 24) Ex. O (Dep. J. Russell) at 21-22.

On June 21, 2005, however, Robert Francis, who was employed as an electrician by Chisom Electrical, was operating the Genie lift at the construction site under the supervision of his foreman, Alton Ming. Francis and Ming were using the lift to hang temporary electrical lines on three PECO power poles. The lift was used by Francis and Ming without Nesmith's permission or knowledge. While Ming was using the lift to install the third eye bolt on the power pole, Francis sustained a high-voltage electrical shock as a result of working in close proximity to an uninsulated energized overhead power line. He suffered severe burns.

Subsequently, Francis filed two lawsuits in the Philadelphia County Court of Common Pleas. The first suit, filed August 29, 2006, named Dale, among others, as a defendant. On April 17, 2007, Dale filed a joinder complaint against Nesmith seeking common law contribution, common law indemnification, contractual indemnification, counsel fees, costs and insurance coverage. Thereafter, on June 20, 2007, Francis filed a second suit naming Nesmith, among others, as a defendant. In the second suit, Francis levied a charge of negligence against Nesmith alone averring that Nesmith failed to secure the lift and keys and take other reasonable precautions which would have prevented Francis' injuries. On September 27, 2007 the two suits were consolidated.

The parties attempted to mediate the dispute. The first mediation took place on October 16, 2008 and did not result in a settlement. On October 31, 2008 and November 4, 2008, Dale tendered its defense to Nesmith and Cumberland in the underlying litigation. Cumberland denied the request on November 11, 2008. Subsequently, a second mediation took place on March 17, 2009. Nesmith offered $10,000 towards Francis' initial $7 million demand. The underlying litigation ultimately settled for $2 million. Neither Cumberland nor Nesmith contributed any sum towards the $2 million settlement amount.

STANDARD OF REVIEW

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment is proper "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." An issue of material fact is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Summary judgment will be granted "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 (1986). The party moving for summary judgment has the burden of demonstrating that there are no genuine issues of material fact. Id. at 322-23. If the moving party sustains the burden, the nonmoving party must set forth facts demonstrating the existence of a genuine issue for trial. See Anderson, 477 U.S. at 255.

When a properly supported motion for summary judgment is made, "an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). The adverse party must raise "more than a mere scintilla of evidence in its favor" in order to overcome a summary judgment motion and cannot survive by relying on unsupported assertions, conclusory allegations, or mere suspicions. Williams v. Borough of W. Chester, 891 F.2d 458, 460 (3d Cir. 1989). However, the "existence of disputed issues of material fact should be ascertained by resolving all inferences, doubts and issues of credibility against" the moving party. Ely v. Hall's Motor Transit Co., 590 F.2d 62, 66 (3d Cir. 1978) (citations and quotation marks omitted).

DISCUSSION

Dale moves for summary judgment seeking declarations that: 1) it is an additional insured under the Nesmith insurance policy; 2) its settlement in the underlying litigation was reasonable; 3) Cumberland had a duty to defend Dale in the underlying litigation; 4) Cumberland had a duty to indemnify Dale in the underlying litigation; and 5) Dale is entitled to be reimbursed for settlement costs and defense costs incurred by or on behalf of Dale in the underlying litigation. Conversely, Cumberland moves for summary judgment seeking a declaration that it owed no duty to defend or indemnify Dale. I will address each question in turn.

A. Dale Was An Additional Insured Under the Policy

I will grant Dale's motion seeking a declaration that it was an "additional insured" under the policy as unopposed because Cumberland does not dispute that Dale was an additional insured. As discussed infra, however, Cumberland disputes that its duty to defend or indemnify was triggered by the underlying litigation.

B. Cumberland's Duty to Defend

An insurer's duty to defend is triggered if the allegations in the underlying complaint state at least "one cause of action [which] may potentially fall within the scope of [the policy's] coverage . . . ." Augenblick v. Nationwide Ins. Co., 1999 U.S. Dist. LEXIS 16183, No. 99-3419, at *6 (E.D. Pa. Oct. 8, 1999); see also Air Prods. & Chems. v. Hartford Accident & Indem. Co., 25 F.3d 177, 179 (3d Cir. 1994) ("Under Pennsylvania law, the issuer of a general liability insurance policy has a duty to defend its insured when the allegations in the complaint against it could potentially fall within the coverage of the policy.").

"In order to determine whether a claim may potentially come within the coverage of the policy, [I] must first ascertain the scope of the insurance coverage and then analyze the allegations in the complaint." Britamco Underwriters, Inc. v. Grzeskiewicz, 639 A.2d 1208, 1210 (Pa. Super. Ct. 1994) (citations and quotation marks omitted); see also Erie Insurance Exchange v. Claypoole, 673 A.2d 348, 355 (Pa. Super. Ct. 1996) (in a declaratory judgment action, "the allegations raised in the underlying complaint alone fix the insurer's duty to defend."). I may look to the underlying factual allegations and not just the particular cause of action pleaded to determine the extent of coverage. See Mutual Benefit Ins. Co. v. Haver, 725 A.2d 743, 745 (Pa. 1999) "This duty to defend, however, is not activated by every allegation raised against the insured . . . . [O]nly allegations contained within the underlying complaint pertaining to injuries which are either actually or potentially within the scope of the insurance policy obligate the insurer to defend the insured." Erie Ins. Exchange, 673 A.2d at 355-356 (citing Aetna Cas. and Sur. Co. v. Roe, 650 A.2d 94, 98-99 (Pa. Super. Ct. 1994); see also Gen. Accident Ins. Co. of America v. Allen, 692 A.2d 1089, 1095 (Pa. 1997) (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."). Furthermore, "[t]he duty to defend remains with the insurer until the insurer can confine the claim to a recovery that is not within the scope of the policy." Pac. Indemnity Co. v. Linn, 766 F.2d 754, 760 (3d Cir. 1985) (internal citations omitted).

1. "Caused In Whole Or In Part By"

First, I must examine the scope of the policy language because Dale was entitled to a defense from Cumberland only if the allegations contained within Francis' complaints pertain to injuries that are either actually or potentially within the scope of the insurance policy. The additional insured endorsement states, in relevant part, that Dale is an additional insured only with respect to liability for 'bodily injury' . . . caused, in whole or in part, by: 1. Your [Nesmith's] acts or omissions; or 2. The acts or omissions of those acting on your [Nesmith's] behalf [] in the performance of your [Nesmith's] ongoing operations for the additional insured [Dale].

In order to determine the scope of the policy, I must decide what it means for a bodily injury to be "caused, in whole or in ...


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