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Hanover Insurance Company and v. State Workers' Insurance Fund of the Commonwealth of Pennsylvania and

January 19, 2012

HANOVER INSURANCE COMPANY AND DEPENDABLE DISTRIBUTION COMPANY, PETITIONERS
v.
STATE WORKERS' INSURANCE FUND OF THE COMMONWEALTH OF PENNSYLVANIA AND DEPARTMENT OF LABOR AND INDUSTRY OF THE COMMONWEALTH OF PENNSYLVANIA AND SEABRIGHT INSURANCE COMPANY AND DIONIS NUNEZ, RESPONDENTS



The opinion of the court was delivered by: Judge McCULLOUGH

Argued: March 9, 2011

BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, President Judge*fn1 HONORABLE BERNARD L. McGINLEY, Judge HONORABLE DAN PELLEGRINI, Judge HONORABLE RENEE COHN JUBELIRER, Judge HONORABLE P. KEVIN BROBSON, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE JOHNNY J. BUTLER, Judge*fn2

OPINION BY

Before the court is the preliminary objection filed by the Department of Labor and Industry and State Workers' Insurance Fund (SWIF) to a complaint in our original jurisdiction filed by Hanover Insurance Company and Dependable Distribution Company (together, Petitioners) pursuant to the Declaratory Judgments Act, 42 Pa. C.S. §§7531-7541. Petitioners are seeking a declaration of their rights under an insurance policy issued by SWIF and are asserting a breach of contract claim against Seabright Insurance Company (Seabright). The Commonwealth respondents assert that jurisdiction over Petitioners' claim against SWIF lies solely with the Board of Claims (Board). We agree.

The following summary is drawn from the allegations in Petitioners' complaint.*fn3 Dionis Nunez (Nunez) sustained a work-related injury while working at premises occupied by Dependable Distribution Company (Dependable). Dependable leased the property from W.&W. Realty, Inc., and both parties are named as defendants in a personal injury action filed by Nunez. Dependable had liability insurance under a policy from Hanover Insurance Company (Hanover). In accordance with that policy, Hanover retained counsel and continues to defend Dependable in the personal injury action.

Nunez had been placed at his job with Dependable by Workforce USA, a temporary employment agency. While Nunez was supervised by Dependable, he was paid by Workforce. At all relevant times, Workforce had a policy of workers' compensation and employer's liability insurance issued by SWIF. The policy contained an alternate employers endorsement that identified Dependable as an alternate employer. The employer liability coverage afforded to Workforce under SWIF's policy provided coverage for bodily injury claims that fell outside the scope of the workers' compensation statute brought against Workforce by its employees.

The alternate employers endorsement extended this employer liability coverage to Dependable with respect to such bodily injury claims brought against it by employees of Workforce who allegedly were injured in the course of their special or temporary employment with Dependable. Pursuant to the terms of the SWIF policy, this liability coverage was intended to be primary over any other available coverage. On behalf of Dependable, Hanover made demands of SWIF to undertake Dependable's defense and indemnity in the lawsuit, which SWIF refused.

Dependable also had its own policy of workers' compensation and employer's liability insurance issued by Seabright Insurance. Hanover made demands of Seabright to undertake Dependable's defense which Seabright has not answered.

Pursuant to the "other insurance" and "contribution" provisions of

Hanover's liability policy, Hanover has a right on behalf of Dependable and/or in its stead to pursue rights of contribution or indemnity against other insurance carriers obligated to provide liability coverage to Dependable.

Petitioners filed a complaint in our original jurisdiction. In Count I of the complaint, Petitioners seek judgment against SWIF and the Department, specifically requesting: a declaration that SWIF's policy provides primary coverage to Dependable for the claims asserted by Nunez; alternatively, a declaration that SWIF's policy provides concurrent liability coverage to Dependable; a declaration that SWIF must undertake the defense of Dependable; a declaration that SWIF must reimburse Hanover for defense costs and indemnity paid; and an award to Dependable and Hanover of attorneys' fees and costs incurred in the present Declaratory Judgment action.

The Declaratory Judgments Act provides that relief will not be available under that statute with respect to any proceeding within the exclusive jurisdiction of a tribunal other than a court. 42 Pa. C.S. §7541(a). SWIF has filed a preliminary objection to Count I of the complaint, asserting that the Board has exclusive jurisdiction to determine Petitioners' claims under the policy issued to Workforce by SWIF.

Pursuant to section 1724(a)(1) of the Procurement Code,*fn4 the Board has "exclusive jurisdiction to arbitrate claims arising from ... a contract entered into by a Commonwealth agency in accordance with this part and filed with the board in accordance with section 1712.1 (relating to contract controversies)." 62 Pa. C.S. §1724(a)(1). According to SWIF, both Dependable's claim pursuant to the alternate employers endorsement in the policy issued to Workforce by SWIF and Hanover's claim to be a beneficiary, assignee, or subrogee under that policy fall within the Board's jurisdiction. SWIF asserts that the Board's role in disputes over SWIF's coverage is well settled. State Workers' Insurance Fund v. Caparo Real Estate, 635 A.2d 705 (Pa. Cmwlth. 1993). SWIF also maintains that, although the legislation cited by the court in Caparo was repealed and recodified, the reenacted statute has not narrowed the scope of the Board's jurisdiction. Department of General Services v. Limbach Company, 862 A.2d 713, 717 n.6 (Pa. Cmwlth. 2004), aff'd, 586 Pa. 479, 895 A.2d 527 (2006).

Petitioners respond that section 1724 of the Procurement Code grants the Board exclusive jurisdiction over "claims ... filed with the board in accordance with section 1712.1 (relating to contract controversies)" and does not apply to the present

matter. Petitioners contend that the reference to section 1712.1, which states that "[a] contractor may file a claim," reflects that the claims over which the Board has jurisdiction are limited to those filed by a "contractor," which the Procurement Code defines as a "person that has entered into a contract with a Commonwealth agency," section 103 of the Procurement Code, 62 Pa.C.S. §103, and Petitioners note that no contract exists between Petitioners and the Commonwealth respondents. In addition, Petitioners assert that all Pennsylvania cases that have analyzed this issue have involved contracts between state agencies and contractors or vendors, such as construction and building supply companies. Petitioners further contend that the cases upon which SWIF relies were decided under a predecessor statute that allowed for a considerably broader scope of jurisdiction than the current statute does.

Initially, we note that Pennsylvania courts have broadly construed the statute conferring jurisdiction of the Board of Claims. For example, in Employers Insurance of Wausau v. Department of Transportation, 581 Pa. 381, 865 A.2d 825 (2005), our Supreme Court held that where a plaintiff's claim is premised upon the assignment of rights incident to a contract entered into by the Commonwealth, both the assignment claim and any derivative equitable subrogation claim that "arises from" such contract is within the proper jurisdiction of the Board. In that case, Jack Lang, d/b/a Lang Construction Company, (Lang) entered into a contract with

PennDOT for the paving and construction of a bridge. Lang obtained performance and payment bonds from Employers Insurance of Wausau (Wausau) as a surety. In accordance with the bond, Wausau and Lang executed a general indemnity agreement under which Lang assigned to Wausau the right to collect all sums due to Lang under the PennDOT/Lang contract, in the event Lang defaulted on its obligations to pay for material or labor.

Ultimately, Wausau filed suit against PennDOT asserting rights under the general indemnity agreement with Lang. Our Supreme Court rejected PennDOT's argument that Wausau was neither a party nor an intended third party beneficiary to the PennDOT/Lang contract because the PennDOT/Lang contract did not explicitly mention Wausau. The court concluded that, under the law of assignment, Wausau stepped into Lang's shoes vis-a-vis PennDOT and thus clearly presented a claim sounding in contract. Further, the court observed that the Procurement Code contained no language precluding or limiting claims based upon an assignment of rights. The court concluded that, because Wausau's claim against PennDOT sought enforcement of rights that were assigned and created by a contract with the Commonwealth, the Board was the proper forum to adjudicate the assignment claim. The court also concluded that, because the equitable subrogation claim asserted by Wausau also was based on the contract between Lang and PennDOT, that claim also should be heard by the Board.

In Hunt v. Goeckel 713 A.2d 746 (Pa. Cmwlth. 1998), employees of a joint county drug and alcohol program filed an action seeking a declaration that they were third-party beneficiaries of a personnel agreement entered into by the counties, the Department of Health, and the State Civil Service Commission, and as such, they were county employees entitled to participate in a county pension plan. This Court sua sponte raised the issue of whether the Board of Claims had jurisdiction over the matter. Ultimately, we held that the claims asserted against the Commonwealth were based on a contract entered into by the Commonwealth and therefore, the matter fell within the jurisdiction of the Board of Claims.*fn5

More recently, in Department of Health v Data-Quest, Inc., 972 A.2d 74 (Pa. Cmwlth. 2009), we addressed the question of whether the Board has jurisdiction over quasi-contract claims against the Commonwealth that are not based on a written agreement under section 1724(a) of the Procurement Code, 62 Pa. C.S. §1724(a). In that case, Data Quest, Inc. filed an action seeking damages from the Department of Health (Department) under promissory estoppel and quasi-contract theories for services Data Quest performed in connection with the development of a software system for the Department's Bureau of Drug and Alcohol Programs. Like Petitioners here, the Department cited the specific language of the Procurement Code and alleged that the Board of Claims lacked subject matter jurisdiction over quasi-contract claims against the Commonwealth that are not based on a written agreement, where the Procurement Code defines a "contract" as a "type of written agreement...," 62 Pa. C.S. §103, and the Department had not entered into a written contract with Data Quest. Relying, inter alia, on Wausau and Limbach Co., we rejected the Department's arguments:

The Court begins its analysis by emphasizing that the Board and its predecessors have exercised jurisdiction over quasi- contract claims since 1811. See [Miller v. Department of Environmental Resources, 578 A.2d 550 (Pa. Cmwlth. 1990)]. The Board was established in furtherance of a public policy extending more than 200 years ago to allow claimants who ordinarily would have been barred by sovereign immunity to have a method of redress against the Commonwealth. Lowry v. Commonwealth, 365 Pa. 474, 76 A.2d 363 (1950). The Supreme Court in Wausau construed the Board's equity jurisdiction under the Procurement Code and expounded on its legislative scheme as follows:

[The legislature] recognized that claims arising from contracts involving the Commonwealth could sound in both assumpsit and equity, and expressly provided that, regardless of form, these claims should be decided by the Board of Claims. It is thus readily apparent that Pennsylvania's legislative scheme intended to vest the Board of Claims with expansive jurisdiction to decide disputes concerning contracts involving the Commonwealth...

Data Quest at 78-79, quoting Wausau, 581 Pa. at 393, 865 A.2d at 832-33 (emphasis added). Adopting Petitioners' view would repudiate long standing public policy to provide a method of redress to claimants who contract with the Commonwealth.

Moreover, in Data-Quest we also observed that statutory provisions that decrease the jurisdiction of a court of record must be strictly construed, 1 Pa. C.S. §1928(b)(7), and we cited the well settled principle that when the Legislature seeks to depart from salutary public policy principles, it must express its intention to do so explicitly. Data-Quest, 972 A.2d at 79.

Following well-reasoned case law precedent, the Court concludes that the provision "claims arising from ... [a] contract" in Section 1724(a)(1) of the Procurement Code must be construed to include claims arising from contracts implied-in-law, or quasi-contract claims. Section 1724(a)(1) is substantively identical to the now repealed Section 4 of the Board of Claims Act, which was construed as providing jurisdiction over quasi-contract claims. See Wausau; Limbach. Notwithstanding the Section 103 definition of "contract," the Court observes that Section 103 provides in its introductory clause that words in the Procurement Code may have different meanings than those defined therein if the context clearly indicates otherwise. In Pennsylvania Associated Builders the court determined that the phrase "unless the context clearly indicates otherwise" signals the legislature's contemplation that a term defined in Section 103 may have a meaning that is different from the definition given it, thereby directing the courts to pay attention to what surrounds the term in order to determine whether the Procurement Code's definition applied.

Under Wausau the Board's jurisdictional provisions must be construed broadly, and under Section 1702(b) of Procurement Code sovereign immunity is waived as a bar to claims brought pursuant to provisions in Chapter 17 ("Legal and Contractual Remedies"). See n.3. Viewing Chapter 17's remedial provisions as a whole and having examined what surrounds the term "contract" in Chapter 17, the Court cannot accept the premise that the definition of "contract" in Section 103 applies to Chapter 17 provisions. The definition is incompatible with the remedial provisions of Sections 1711.1(a), 1711.2(1), 62 Pa. C.S. §§1711.1(a), 1711.2(1).

Data Quest, 972 A.2d at 80 (emphasis added) (footnote omitted).

In addition, we note that interpreting the Procurement Code as severely restricting the Board's jurisdiction to matters involving the Commonwealth's purchase of goods or services arguably deprives all parties who enter into other types of agreements with the Commonwealth, including those who purchase goods or services from the Commonwealth, of a remedy in the event of a breach.*fn6 Our courts have long recognized the significance of sovereign immunity in determining that the legislature intended the Board to have broad jurisdiction in claims against the Commonwealth. Lowry v. Commonwealth, 365 Pa. 474, 76 A.2d 363 (1950) (stressing the need for those whose claims ordinarily would have been barred by the prerogative of sovereign immunity to have a method of redress against the Commonwealth); Data-Quest.

Our Supreme Court emphasized the importance of an available forum in Shovel Transfer:

Our finding that jurisdiction of this matter lies with the Board of Claims is supported by the fact that otherwise there would be no forum available to establish the fact of a valid contract against the Commonwealth. Since at common law sovereign immunity barred a claimant from asserting a claim against the Commonwealth based upon a contract, 1 Pa. C.S. §2310, no other forum would be available to test the validity of an alleged contract if it did not fit within the exception of the statute provided to exempt the immunity. Thus, any time the Commonwealth challenged the existence of the underlying contract, the claimant would have no forum to establish its legitimacy. The statute creating the Board of Claims would thus be construed as allowing a claimant to sue only if the Commonwealth conceded the existence of a valid contract in the first instance. We find no basis for such a limited construction.

523 Pa. at 240-41, 565 A.2d at 1155-56.

Based on the foregoing, specifically, in light of well-settled precedent and the lack of clear legislative intent, we agree that the provisions of the Procurement Code have not altered or limited the exclusive ...


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