United States District Court, W.D. Pennsylvania
CATHY BISSOON, District Judge.
This case was referred to United States Magistrate Judge Maureen P. Kelly for pretrial proceedings in accordance with the Magistrates Act, 28 U.S.C. §§ 636(b)(l)(A) and (B), and Rules 72.C, 72.D and 72.G of the Local Rules for Magistrates.
On May 21, 2014, the Magistrate Judge issued a Report and Recommendation (Doc. 61), which recommended that Plaintiffs' Motion for Judgment on the Pleadings (Doc. 47) be granted and Defendants' Motion for Judgment on the Pleadings (Doc. 50) be denied. Service of the Report and Recommendation was made on the parties, and Defendants timely filed objections (Doc. 62).
After a de novo review of the record, the Court adopts the Report in part and rejects the Report in part. Specifically, the Court adopts Sections A ("Procedural Background"); B ("Standard of Review"); and C ("Factual Background") of the Report as the opinion of the District Court and incorporates those sections as if fully restated herein. However, for the reasons stated below, the Court does not adopt the remainder of the Report, and instead finds the following:
1. Policy Construction
Under Pennsylvania law, the "interpretation of an insurance contract regarding the existence or non-existence of coverage is generally performed by the court." Gardner v. State Farm Fire & Cas. Co. , 544 F.3d 553, 558 (3d Cir. 2008) (quoting Donegal Mut. Ins. Co. v. Baumhammers , 938 A.2d 286, 290 (Pa. 2007)). "When the language of the policy is clear and unambiguous, [the Court] must give effect to the language." Id . However, "where a provision of a policy is ambiguous, the policy provision is to be construed in favor of the insured and against the insurer, the drafter of the agreement." Id . (quoting Standard Venetian Blind Co. v. Am. Empire Ins. Co. , 469 A.2d 563, 566 (Pa. 1983)). "Contractual language is ambiguous if it is reasonably susceptible of different constructions and capable of being understood in more than one sense.'" Id . (quoting Hutchison v. Sunbeam Coal Corp. , 519 A.2d 385, 390 (Pa. 1986)).
"The burden is on the insured to establish coverage under an insurance policy." Nationwide Mut. Ins. Co. v. Cosenza , 258 F.3d 197, 206 (3d Cir. 2001) (citing Erie Ins. Exchange v. Transamerica Ins. Co. , 533 A.2d 1363, 1366-67 (Pa. 1987)). However, it is the insurer "that bears the burden of establishing the applicability of an exclusion in an insurance contract, and exclusions are always strictly construed against the insurer and in favor of the insured." Id . (internal citations omitted).
Here, PNC seeks to obtain a declaration of its right to obtain coverage for defense and indemnity payments under the HCC and Axis policies, and also asserts breach of contract claims against the Insurers for their failure to make such payments. As a preliminary matter, the Court agrees with the Magistrate Judge that PNC has met its initial burden to establish coverage for the underlying claims. See R&R (Doc. 61) at 20. However, the Court disagrees with the Magistrate Judge's reading of the exceptions to the definition of Damages. Instead, the Court agrees with the Insurers that, given the nature of the policy and the language of the Damages definition, the exceptions must be read to apply to "third party" losses. See Def.'s Objections (Doc. 62) at 7. Accordingly, the Court will now turn to the Insurers' original arguments as to why PNC is not entitled to coverage for the settlements.
2. The Fee Exception
The Insurers' first and strongest argument against coverage for the overdraft settlements is that the settlements fall within the "Fee Exception" to Damages. The relevant policy provision is as follows:
The Underwriter will pay on behalf of the Insured: (A) all Loss for which the Insured becomes legally obligated to pay on account of any Claim first made against the Insured during the Policy Period or, if applicable, the Discovery Period, for a Wrongful Act which takes place during or prior to the Policy Period; provided, however, the Insured shall report such Claim to the Underwriter as soon as practicable, but in ...