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C-H. v. State Farm Fire & Casualty Company

March 2, 2012

C.C.-H. AND T.G.,
PLAINTIFFS,
v.
STATE FARM FIRE & CASUALTY COMPANY,
DEFENDANT.



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

MEMORANDUM

In 2000, John Scaruzzi and Joseph Fabrizzio, Jr. sexually assaulted T.G. At that time, Scaruzzi and Fabrizzio lived with their parents, who had homeowners insurance policies with State Farm. T.G.'s mother C.C.-H. sued Scaruzzi and Fabrizzio for assault and battery, and State Farm initially defended Scaruzzi and Fabrizzio subject to a reservation of rights. Scaruzzi and Fabrizzio subsequently assigned their rights against State Farm to C.C.-H. and T.G.. C.C.-H. and T.G. sued State Farm in the Philadelphia Court of Common Pleas on September 2, 2011 alleging breach of contract, breach of the duty of good faith and fair dealing, and fraud. State Farm removed the case to this Court and moved to dismiss. On November 8, 2011, the Court converted State Farm's motion to dismiss to a motion for summary judgment and ordered supplemental briefing. Presently before the Court is Defendant's motion for summary judgment. For the reasons that follow, the Court will T.G. State Farm's motion.

I. BACKGROUND

A. The Underlying Action and State Farm's Initial Reservation of Rights

On August 9, 2000, Scaruzzi and Fabrizzio sexually assaulted eleven-year-old T.G. at a Philadelphia Phillies baseball game. At the time of the incident, Fabrizzio and Scaruzzi were minors who lived with their parents who were insured under homeowners insurance policies issued by State Farm. On August 8, 2002, C.C.-H., as parent and natural guardian of T.G., sued Scaruzzi and Fabrizzio and their parents, among others, in the Philadelphia Court of Common Pleas, alleging assault and battery ("the underlying action").

On August 22, 2002, State Farm sent Scaruzzi a Reservation of Rights ("ROR") letter advising him that an attorney, Pamela Carlos, had been retained to defend him and that State Farm reserved [its] right to deny a defense and indemnity to [him] . . . for the following reasons: It is questionable whether this claim involves bodily injury or property damage which is either expected or intended by the insured or whether there was bodily injury or property damage to any person or property which is the result of willful and malicious acts of the insured. (Def.'s Mot. for Summ. J. Ex. 7 [Scaruzzi ROR, Aug. 22, 2002].) The letter also advised Scaruzzi that "[i]n view of this possible personal liability, it will be agreeable with this Company for you, if you so elect, to procure attorneys of your own choosing, at your own expense, to represent you personally." (Id.) In another letter, Scaruzzi's attorney Carlos advised Scaruzzi of his right to retain personal counsel, stating that Scaruzzi could be personally liable because the complaint sought damages in excess of the policy's coverage as well as punitive damages. (Def.'s Mot. for Summ. J. Ex. 8 [Letter from Carlos to Scaruzzi, Sept. 17, 2002].)

On October 24, 2002, State Farm sent Fabrizzio an ROR letter advising him that Gary Bender had been retained to defend him and that State Farm reserved its "right to deny a defense and indemnity." (Def.'s Mot. for Summ. J. Ex. 6 [Fabrizzio ROR, Oct. 24, 2002] .) State Farm stated the following reasons for its reservation for rights: whether the bodily injury or property damage was either expected or intended by the insured, whether it was the result of willful and malicious acts of the insured, or whether there was an "occurrence" as defined by the policy. (Id.) The letter further emphasized that State Farm's defense in the underlying action by the attorney "is not to be considered a waiver of such policy defense or of any policy defense(s) which may be involved in this suit. If we do not hear from you to the contrary, we will assume that it is acceptable for us to continue handling the suit on these terms." (Id.) The ROR letter advised Fabrizzio to procure his own attorney because "there may be a personal liability upon your part." (Id.)

B. Declaratory Judgment Action and November 24, 2003 Court Order

On January 30, 2003, State Farm filed a Complaint in this District seeking a declaratory judgment that State Farm had no duty to defend or indemnify Scaruzzi and Fabrizzio in the underlying action. State Farm contended that the conduct involved in the alleged assault and battery was specifically excluded from coverage under the homeowners insurance policies because the acts were intended by Scaruzzi and Fabrizzio and because they were willful and malicious. (Def.'s Mot. for Summ. J. Ex. 9 [Declaratory J. Compl.].) Scaruzzi and Fabrizzio never answered the Complaint, and on October 9, 2003, a default was entered. On October 27, 2003, Carlos informed Scaruzzi of the default judgment entered against him and that unless he retained personal counsel immediately and petitioned the Court to remove the default judgment, his defense in the underlying action would be greatly damaged. She noted that State Farm might instruct her to withdraw from the underlying action, which would prejudice Scaruzzi's interests. (Def.'s Mot. for Summ. J. Ex. 12 [Letter from Carlos to Scaruzzi, Oct. 27, 2003].) Scaruzzi contacted Carlos on November 4, 2003 to further discuss the default, and Carlos continued to advise him to retain counsel. (Def.'s Mot. for Summ. J. Ex. 13 [Carlos to Scaruzzi, Nov. 4, 2003].) On November 24, 2003, a default judgment was entered against Scaruzzi and Fabrizzio. The Order stated that:

1) Plaintiff State Farm has no obligation to indemnify Defendants John Scaruzzi and Joseph Fabrizzio, Jr., pursuant to the terms of the Homeowner's Policies . . . for any damages or other legal obligations which they have incurred or which they may incur as a result of claims asserted by the Plaintiff in [the underlying action];

2) Plaintiff State Farm has no obligation under the policies to continue defending Defendants John Scaruzzi and Joseph Fabrizzio, Jr. in the underlying action; and,

3) To the extent any party in the underlying action has obtained a judgment or in the future obtains a judgment against Defendants John Scaruzzi and/or Joseph Fabrizzio, Jr., requiring the payment of damages, expenses, costs or fees, State Farm has no obligation to pay any such amounts pursuant to the policies. (Def.'s Mot. for Summ. J. Ex. 11 [November 24, 2003 Court Order].)

C. State Farm's Continued Defense Following November 24, 2003 Court Order

On December 1, 2003, Carlos wrote to Scaruzzi, enclosing a copy of the November 24, 2003 Court Order in the declaratory judgment action, and asked Scaruzzi to give the Order to his personal counsel if he had retained one. (Def.'s Mot. for Summ. J. Ex. 14 [Letter from Carlos to Scaruzzi, Dec. 1, 2003].) On December 9, 2003, State Farm sent a second ROR letter to Scaruzzi, stating that while State Farm had no obligation to defend or indemnify him for damages based on the November 24, 2003 Court Order, it would continue to provide a defense, but would not indemnify Scaruzzi. (Def.'s Mot. for Summ. J. Ex. 15 [Scaruzzi ROR, Dec. 9, 2003].) State Farm sent a similar ROR letter to Fabrizzio. (Def.'s Mot. for Summ. J. Ex. 16 [Fabrizzio ROR, Feb. 20, 2004].)

A trial was held in the underlying action in February and March 2005. (Def.'s Statement of Undisputed Facts in Supp. of Mot. for Summ. J. [Def.'s SOF] ¶ 45.) During the trial, the plaintiff requested, but the court refused to give, a jury instruction based on the Pennsylvania criminal code that a child under the age of thirteen could not consent to sexual conduct. (Def.'s Mot. for Summ. J. Ex. 19 [Supreme Court of Pa. Op., Feb. 19, 2008]. ) The trial court also ruled that T.G.'s consent to sexual contact was relevant to a defense. (Id.) On March 18, 2005, the jury returned a verdict in favor of Scaruzzi and Fabrizzio. (Def.'s Mot. for Summ. J. Ex. 2 [Underlying Action Docket].) The plaintiff appealed the verdict on December 8, 2005. (Id.)

On January 9, 2006, State Farm sent a third ROR letter to Scaruzzi. State Farm stated that although it was no longer obligated to defend or indemnify Scaruzzi pursuant to the November 24, 2003 Court Order, it had instructed Carlos to continue to defend him through the appeal, subject to the ROR.(Def.'s Mot. for Summ. J. Ex. 17 [Scaruzzi ROR, Jan. 9, 2006].) The letter noted, however, that should the plaintiff win a new trial, State Farm would cease providing Scaruzzi with a defense. (Id.) On January 17, 2006, State Farm sent a similar ROR letter to Fabrizzio. (Def.'s Mot. for Summ. J. Ex. 18 [Fabrizzio ROR, Jan. 17, 2006].)

The Superior Court of Pennsylvania affirmed the verdict, and the plaintiff appealed the Superior Court's decision. (Def.'s SOF ¶¶ 52, 53.) The Supreme Court of Pennsylvania T.G.ed allocator on a single issue: "Whether the defense of consent is available in civil cases stemming from sexual contact with a minor under the age of 13 where the Legislature has precluded such defense by statute in criminal proceedings?" (Id. ¶ 54, Supreme Court of Pa. Op., Feb. 19, 2008.) On February 19, 2008, the Supreme Court of Pennsylvania reversed the Superior Court's decision and remanded the case for a new trial. (Def.'s SOF ¶ 55, Supreme Court of Pa. Op., Feb. 19, 2008.) The Supreme Court held that consent is not an available defense in civil proceedings arising from sexual contact with a minor under thirteen years of age and ruled that ...


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