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Mega Construction Corporation and Harleysville Insurance Company of New Jersey v. Quincy Mutual Fire Insurance Company

September 12, 2012


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


This case involves a defense and indemnification insurance coverage dispute stemming from a construction site accident. Presently before the Court are the cross-motions for summary judgment filed by Plaintiffs, Harleysville Insurance Company of New Jersey ("Harleysville") and Mega Construction Corporation ("Mega"), and Defendant, Quincy Mutual Fire Insurance Company ("Quincy"). For reasons set forth below, we conclude that Quincy was obligated to defend and indemnify its insured. We also conclude that sufficient facts exist that could establish that Quincy acted in bad faith.

I. Factual and Procedural Background

Mega, a general contractor, was hired to perform work on a retirement community located in Glen Mills, Pennsylvania. Mega subsequently entered into a subcontract with Dobek Contracting, Inc. ("Dobek"), wherein Dobek agreed to, among other things, "[i]nstall all interior trim as per specifications." (Pl.'s Mem. Ex. C.) The contract between Mega and Dobek required Dobek to add Mega as an "additional insured" to its general liability policy as follows:

The Subcontractor shall name the "Contractor, and/or the Owner and/or any other interested parties as designated by the Owner", as Additional Insureds on a primary basis on all Liability Policies of the Subcontractor, throughout the duration of the Project . . . . (Pl.'s Mem. Ex. C, § 8.9.6.)

As required, Dobek added Mega to its general liability policy, which was procured through Quincy. The result was an endorsement that provided:

Who Is An Insured (Section II) Is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured. (Pl.'s Mem. Ex. D. (emphasis added).)

On the morning of August 10, 2006, Victor Tavares, an employee of Dobek, was installing door frames in one of the buildings at the Glen Mills project. (Pl.'s Mem. Ex. B, ¶¶ 10, 12.) The work on the frames was nearly completed, and a truckload of doors was expected to arrive. (Tavares Dep., Pl.'s Mem. Ex. L, pp. 69-72.) Tavares's supervisor told him that a truck was nearby, and asked Tavares to look for it so that they could unload the truck and begin installing the doors. (Id., pp. 76-77.)

Tavares went out the front door on the first floor of the building to locate the truck. When he could not see the truck from that location, he "went upstairs" in order to "see better." (Id., p. 77.) Looking out the window, Tavares could still not see the truck, and thus leaned out, putting his weight on a fall protection bar. (Id., p. 90.) The bar gave way, causing Tavares to fall, and resulting in traumatic and severe "orthopedic, neurological, psychological, and psychiatric injuries,"which rendered him permanently disabled. (Pl.'s Mem. Ex. B, ¶ 22.)

Approximately two years later, on April 4, 2008, Tavares filed a complaint against Mega and several other entities, alleging that their negligence caused his injuries. (Pl.'s Mem. Ex. A, ¶ 1.) Specifically, Tavares alleged that Mega breached its duty to provide a reasonably safe work environment by failing to, among other things, install and maintain adequate fall protection. (Pl.'s Mem. Ex. B, ¶ 27.) In April 2007, prior to the filing of that suit, Harleysville, as the general liability insurer for Mega, sent correspondence to Quincy advising of Tavares's injury, citing the additional insured clause in the subcontract, and requesting a copy of the "general liability insurance policy in effect on the date of loss." (Quincy Opp. Mem. Ex. 3.) The assigned claims adjuster for Quincy responded on April 25, 2007, writing, "Quincy . . . is in receipt of your request that we provide the defense and indemnification for your insured." (Id.) Quincy's correspondence further informed Harleysville that Quincy had begun investigating the claim, and stated that "Quincy Mutual will advise you of our position as soon as possible." (Id.)

When it received no response from Quincy, Harleysville sent follow-up correspondence on June 28, 2007, requesting an update from Quincy on the status of its investigation, and again requesting a copy of the Quincy policy. (Quincy Opp. Mem. Ex. 3.) Quincy again failed to respond. (Bissanti Dep., Pl.'s Mem. Ex. T, pp. 66-67.) Quincy's claims adjuster later explained that he "might have had a lot of mail come in at the same time, [or] other claims that needed working on." (Id., p. 67.) Importantly, Quincy's claims adjuster acknowledged that he "just didn't get to it." (Id.)

Approximately one year later, Harleysville again contacted Quincy after Tavares had filed his lawsuit. (Pl.'s Mem. Ex. I.) In this correspondence, Harleysville formally tendered the defense of Mega to Quincy, and demanded indemnification for Mega as an additional insured. (Id.) Quincy did not respond to this correspondence, and the claims adjuster again acknowledged that he "just didn't get to it." (Bissanti Dep., p. 95.) When asked why he did not respond to either of Harleysville's inquiries, and why Quincy did not make a coverage decision, the adjuster explained:

At this point, I still felt that really nothing had changed; I could not make a decision on the contractual indemnification, and I could not make a decision, come to a conclusion on the additional insured aspect of it. I should have responded to let them know that . . . additional information was needed, but I did not do that. (Id., p. 96.)

Ultimately, Mega instituted this declaratory judgment action. On July 15, 2009, over two years after being contacted by Harleysville, and more than a year after Tavares instituted the underlying action, Quincy denied coverage, contending that "it remains questionable whether Mr. Tavares's accident arose out of the ongoing operations of the named insured, Dobek." (Pl.'s Mem. Ex. M.) After receiving a response from Harleysville urging Quincy to reconsider, Quincy wrote a clarification letter, in which it articulated the primary position it has taken in this case: coverage for Mega as an additional insured only exists "when the allegations involve the negligence of the named insured's (Dobek) operations." (Pl.'s Mem. Ex. F.)

Meanwhile, on September 21, 2010, the underlying litigation concerning Tavares's injuries was settled for a total of $7,887,500. Mega's portion of the settlement was $1.1 million, and Mega was defended and indemnified by Harleysville. (Pl.'s Mem. Ex. J.) Quincy also participated in the underlying action, including settlement negotiations, but on behalf of Dobek only. (Id.) When asked to explain why Harleysville agreed to that settlement amount, Louis Kozloff, a Harleysville representative, testified:

Harleysville believed . . . $1.1 million was a reasonable settlement given all factors considered in evaluating its insured's exposure in the case, everything from the nature and extent of Mr. Tavares'[s] injuries which were significant and catastrophic, the demands and evidence that Mr. Tavares'[s] attorneys had been making, and the evidence and experts that they had lined up to support their claim.

The demands were I think as high as $25 million. And as mediation began in June of 2009, the demand was $18 million something, maybe $19 million. Mr. Tavares was represented by very competent and capable counsel who have a reputation of being among the strongest plaintiffs personal injury attorneys in the Philadelphia area . . . .

The case was venued in the Court of Common Pleas for Philadelphia County, which is a challenging venue for defendants.

In Pennsylvania, there is-in terms of joint liability, any defendant that is found at one percent fault in the accident can be on the hook-or responsible I should say-to the plaintiff [for] the full amount of any verdict or judgment entered. (Kozloff Dep., Pl.'s Mem. Ex. P, pp. 77-78.) This testimony was mirrored by one of Harleysville's litigation associates, who stated: "We have a very competent plaintiff[s'] attorney who's known to have obtained very high verdict[s] on similar cases. I think something like $75 million. And the facts of the case; the catastrophic injury involved. And it's Philadelphia, so a runaway verdict is not out of reality." (Khan Dep., Pl.'s Mem. Ex. Q, p. 38.)

Having funded Mega's defense and settlement in the underlying action, on January 6, 2011, Harleysville moved to join this declaratory judgment action as a real party in interest. (Doc. No. 47.) The Court granted Harleysville's motion, permitting it to seek a declaration that Quincy had a duty to defend and indemnify Mega for the Tavares litigation. (Doc. No. 54.) The Court permitted Mega to remain as a Plaintiff in this action in order to pursue its claim that Quincy's handling of its insurance claim, and its coverage positions, amounted to bad faith. (Id.) The parties subsequently filed cross-motions for summary judgment on both Harleysville's duty to defend and indemnify claims, and Mega's bad faith claim.

II. Summary Judgment Standard

Under Federal Rule of Civil Procedure 56(a), summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." A party seeking summary judgment always bears the initial responsibility of informing the court of the basis for its motion and identifying those portions of the record that it believes demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Where the non-moving party bears the burden of proof on a particular issue at trial, the movant's initial Celotex burden can be met simply by "pointing out to the district court that there is an absence of evidence to support the non-moving party's case." Id. at 325. After the moving party has met its initial burden, summary judgment is ...

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