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Peerless Ins. Co. v. Pennsylvania Cyber Charter School

United States District Court, W.D. Pennsylvania

May 13, 2014

PEERLESS INSURANCE COMPANY, Plaintiffs,
v.
THE PENNSYLVANIA CYBER CHARTER SCHOOL, Defendant

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For PEERLESS INSURANCE COMPANY, Plaintiff: Michael J. Kurtis, LEAD ATTORNEY, PRO HAC VICE, Nelson, Levine, de Luca & Hamilton, LLC, Blue Bell, PA.

For THE PENNSYLVANIA CYBER CHARTER SCHOOL, Defendant: Jennifer McLoughlin, Mark G. Morford, PRO HAC VICE, Maria C. Ramola, Latsha Davis & McKenna, P.C., Exton, PA.

OPINION

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Mark R. Hornak, United States District Judge.

This is a declaratory judgment action brought pursuant to 28 U.S.C. § 2201 [1] to resolve whether Plaintiff Peerless Insurance Company (" Peerless" ) has a duty to defend and indemnify Defendant The Pennsylvania Cyber Charter School (" PA Cyber" ) under the terms of a policy of liability insurance and a commercial umbrella policy (collectively " Policy" ) PA Cyber purchased from Peerless against a lawsuit filed by four Pennsylvania school districts in the Fayette County Court of Common Pleas,

Pending before the Court are the parties' cross-motions for summary judgment. ECF Nos. 25 and 26. The Court has considered

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the Motions, the parties' briefs in support, ECF Nos, 28 and 30, responses, ECF Nos. 31 and 33, and replies, ECF Nos. 34 and 35, and their respective statements of material facts. ECF Nos. 27 and 32. For the reasons that follow, the Court will grant summary judgment for the Defendant to the extent that it concludes as a matter of law that Peerless has a duty to defend PA Cyber under the policies at issue.

I. BACKGROUND

This insurance coverage dispute originates in the language of the Pennsylvania Charter School Law (" the Charter School Law" ), 24 Pa. Cons. Stat. § 17-1701-A, et seq. That law established charter schools -- " independent public schools" funded by payments from the school district where each charter school student resides. 24 Pa. Cons. Stat. § § 17-1703-A, 17-1725-A(a)(2)-(3), (5). PA Cyber is a charter school. Defendant's Concise Statement of Material Facts (" DSOF" ), ECF No. 27, ¶ 6. For its kindergarten program, PA Cyber has accepted children as young as four years of age. Id.

In 2006, the Slippery Rock Area School District (" Slippery Rock" ) objected to PA Cyber's request of payments for students who enrolled in its kindergarten program but were too young to be eligible for Slippery Rock's own kindergarten program, which began at age five. Id. Pursuant to the procedure established in the Charter School Law, the Pennsylvania Department of Education (" PDE" ) held a hearing to determine whether Slippery Rock should pay those funds to PA Cyber. See 24 Pa. Cons. Stat. § 17-1725-A(a)(5)-(6). The PDE decided that PA Cyber was indeed entitled to payments for such students. DSOF ¶ 6. Slippery Rock challenged the PDE's decision in Pennsylvania Commonwealth Court, but in 2009, the Commonwealth Court upheld it. Slippery Rock Area Sch. Dist. v. Pa. Cyber Charter Sch., 975 A.2d 1221 (Pa. Commw. Ct. 2009). Slippery Rock then appealed to the Pennsylvania Supreme Court, which in 2011 reversed the Commonwealth Court and held that while the Charter School Law gave PA Cyber the authority to set its own minimum admission age, school districts only had a duty to fund the education of students who were age-eligible to enroll in their own kindergarten programs. Slippery Rock Area Sch. Dist. v. Pa. Cyber Charter Sch., 612 Pa. 486, 31 A.3d 657, 667 (Pa. 2011).[2]

In response to the Pennsylvania Supreme Court's decision in Slippery Rock, the PDE released a statement which adopted new policies regarding the submission of invoices by charter schools for payments for four-year-old students. ECF No. 26-5 at 8-9. That statement included the following declaration concerning the Slippery Rock holding:

Because the Court did not explicitly state that its decision was retroactive, the Department will process subsidy deductions from school districts and make payment to charter schools for any 4-year-old kindergarten students enrolled in charter schools for any time period prior to November 23, 2011. In addition, the Department will not provide refunds to school districts for deductions made from school districts and subsequent payments to charter schools for 4-year-old kindergarten students enrolled in charter schools for any time period prior to November 23, 2011.

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Id. In March 2012, four western Pennsylvania school districts sued PA Cyber in the Fayette County Court of Common Pleas (" the Underlying Lawsuit" ). ECF No. 1 at ¶ 31. The plaintiffs later filed an amended complaint (" the Underlying Complaint" ) asserting causes of action for conversion, restitution, and " mistake of law" [3] and requesting class action certification. ECF No. 26-5. That Complaint alleges that from the 2002-03 school year through the 2010-11 school year, PA Cyber requested and received certain payments from school districts who believed such payments were required under the Charter School Law, but to which PA Cyber was not entitled (the Complaint does not explicitly mention the Slippery Rock decision, but the plaintiffs attached the PDE's statement concerning the effect of Slippery Rock ). Id. at 4-5. According to that Complaint, the plaintiffs filed suit as a result of the PDE's declaration that it would not provide refunds for any payments for four-year old students issued prior to November 23, 2011. Id. at 5.[4]

At the time the Underlying Lawsuit was filed, PA Cyber was insured by Peerless under a School Leaders Errors and Omissions Liability Insurance Policy, No. CBP 8890270 (" the liability policy" ), and a Commercial Umbrella Liability Coverage Policy, No. CU 8890470 (" the umbrella policy" ). DSOF, ¶ ¶ 1-2. Both policies covered the period of February 20, 2012 through February 20, 2013. Id. Under the terms of the liability policy, Peerless has a duty to defend and indemnify PA Cyber against any lawsuit involving a " loss" because of a " wrongful act" committed by PA Cyber. ECF No. 25-4 at 7. The umbrella policy covers any sums in excess of the retained limit on the underlying insurance (the liability policy) up to the limits of the umbrella coverage. Id. at 34-35. Pursuant to those policies, Peerless agreed to defend PA Cyber in the Underlying Lawsuit subject to a reservation of rights. ECF No. 30-7. Peerless then launched this action seeking a declaration of its rights and obligations under the policies. ECF No. 1 at ¶ ¶ 1-2.

II. LEGAL STANDARD

The standard for summary judgment in a declaratory judgment action is the same as for any other type of relief. Pellegrino Food Products Co., Inc. v. Am. Auto. Ins. Co., 655 F.Supp.2d 569, 574-75 (W.D. Pa. 2008) (citing Transguard Ins. Co. of America, Inc. v. Hinchey, 464 F.Supp.2d 425 (M.D. Pa. 2006) (citing Cloverland-Green Spring Dairies, Inc. v. Pa. Milk Marketing Board, 298 F.3d 201, 210 n.12 (3d Cir. 2002)). Summary judgment is appropriate when " there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett,

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477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The parties must support their position by " citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), ...


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