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Transportation Insurance Co. v. Motorists Mutual Insurance Co.

United States District Court, M.D. Pennsylvania

January 9, 2017




         Before the Court is a motion for partial summary judgment filed by Plaintiffs Transportation Insurance Company, Continental Insurance Company, and Continental Casualty Company (collectively, “the Plaintiffs”) against Defendant Motorists Mutual Insurance Company (“Motorists Mutual”). (Doc. 88). The movants assert they are entitled to a reimbursement of costs in the amount of $456, 383.50, incurred as legal fees and costs in the defense of AAA Mid-Atlantic, Inc. (“AAA”), whom the Plaintiffs and Defendant mutually insured. (Doc. 88, at 2; Doc. 92, at 1).

         I. Background and Procedural History

         On May 19, 2011, the estate of Denise Polinchak filed suit in the Luzerne County Court of Common Pleas against Defendants AAA, JH Auto, and Robert Wickham after she was killed while receiving assistance for her broken down vehicle (the “underlying action”). (Doc. 90, at 1). The Plaintiffs brought the instant action seeking “a judicial determination of the coverage issues between the parties.” (Doc. 88, at 2; Doc. 92, at 2). On April, 19, 2016, this Court found Motorists Mutual breached the duty to defend its insured, causing the Plaintiffs to step in and undertake the defense obligations. (Doc. 82; Doc. 83). In so finding, the Court found Motorists Mutual was not alleviated of its duty to defend where the complaint contained at least one claim potentially within the scope of coverage, even though Motorists Mutual would also have to defend claims outside the scope of coverage. (Doc. 82, at 5-6).

         The Plaintiffs now move for summary judgment on the issue of damages, asserting the right to reimbursement for fees and costs in defending AAA in the underlying action. (Doc. 88). The Plaintiffs have provided length billing summaries, invoices, and receipts in support of their motion. Motorists Mutual challenges the reasonableness and necessity of the fees incurred, asserting a right to conduct discovery on the reasonableness of the fees. (Doc. 92, ¶ 8).

         II. Summary Judgment Standard

         Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment should be granted only if “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). A fact is “material” only if it might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute of material fact is “genuine” only if the evidence “is such that a reasonable jury could return a verdict for the non-moving party.” Anderson, 477 U.S. at 248. In deciding a summary judgment motion, all inferences “should be drawn in the light most favorable to the non-moving party, and where the non-moving party's evidence contradicts the movant's, then the non-movant's must be taken as true.” Pastore v. Bell Tel. Co. of Pa., 24 F.3d 508, 512 (3d Cir. 1994).

         A federal court should grant summary judgment “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Farrell v. Planters Lifesavers Co., 206 F.3d 271, 278 (3d Cir. 2000). In making this determination, “a court must view the facts in the light most favorable to the nonmoving party and draw all inferences in that party's favor.” Armbruster v. Unisys Corp., 32 F.3d 768, 777 (3d Cir. 1994). The Court need not accept mere conclusory allegations, whether they are made in the complaint or a sworn statement. Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888 (1990). In deciding a motion for summary judgment, the court's function is not to make credibility determinations, weigh evidence, or draw inferences from the facts. Anderson, 477 U.S. at 249. Rather, the court must simply “determine whether there is a genuine issue for trial.” Anderson, 477 U.S. at 249.

         III. Discussion

         Under Pennsylvania law, [1] “[a]n insurer's duty to defend an insured in litigation is broader than the duty to indemnify.” Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 746 (3d Cir. 1999) (citing Erie Ins. Exch. v. Claypoole, 673 A.2d 348, 355 (Pa. Super. Ct. 1996)). “[W]hen an insured tenders multiple claims to an insurer for defense, the insurer is obligated to undertake defense of the entire suit so long as at least one claim is potentially covered by the policy.” Caplan v. Fellheimer Eichen Braverman & Kaskey, 68 F.3d 828, 831 n. 1 (3d Cir. 1995).

         A. The Plaintiffs may recover fees and costs incurred defending the insured following the refusal of Motorists Mutual to provide defense.

         “A failure without cause by an insurer to defend-whether willful or not-gives rise to a cause of action.” King v. Auto. Underwriters, Inc., 187 A.2d 584, 585 (Pa. 1963) (citing Cadwallader v. New Amsterdam Cas. Co., 152 A.2d 484 (Pa. 1959)). “An insurer who refuses to defend its insured from the outset does so at its peril.” Aetna Cas. and Sur. Co. v. Roe, 650 A.2d 94, 99 (Pa. Super. Ct. 1994). “The measure of recovery for a breach of this obligation is the cost of hiring substitute counsel and other costs of the defense.” King, 187 A.2d at 585. See Am. Contract Bridge League v. Nationwide Mut. Fire Ins. Co., 752 F.2d 71, 76 (3d Cir. 1985); Gedeon v. State Farm Mut. Auto. Ins. Co., 188 A.2d 320, 322 (Pa. 1963). See also Kiewit E. Co., Inc. v. L & R Const. Co., Inc., 44 F.3d 1194, 1205 (3d Cir. 1995) (“When an insurer erroneously denies its duty to defend, fulfillment of the duty requires the insurer to pay for any defense costs already incurred); Imperial Cas. & Indem. Co. v. High Concrete Structures, Inc., 858 F.2d 128, 131 n.2 (3d Cir. 1988) (“[i]f an insurer has a duty to defend a suit and is requested to provide a defense, then that insurer is clearly obligated to pay fees and costs incurred by the insured in defending the suit, ” including reimbursing the insured for fees and costs already paid); Pittsburgh Plate Glass Co. v. Fidelity & Cas. Co. of N.Y., 281 F.2d 538, 542 (3d Cir. 1960); Carpenter v. Fed. Ins. Co., 637 A.2d 1008, 1013 (Pa. Super. Ct. 1994) (“If a duty to defend is found on the part of an insurer, it is also the insurer's responsibility to pay for attorneys' fees and costs incurred by the insured in the underlying action.”).

         Pennsylvania courts find the same measure of recovery extends to excess liability carriers asserting claims against primary insurers for a failure to defend. See F.B. Washburn Candy Corp. v. Fireman's Fund, 541 A.2d 771, 774 (Pa. Super. Ct. 1988); Aetna Cas. & Sur.Co. Pers. Fin. Sec. Div. v. Hertz Corp., No. CIV.A. 91-5238, 1993 WL 276853, at *5 (E.D. Pa. July 21, 1993) (“It is well settled that where a secondary insurer defends an action it may seek recovery for both its costs and the amount of claim paid from a primary carrier that had the initial obligation to defend and hold harmless”). In F.B. Washburn, the Superior Court of Pennsylvania reversed a trial court decision finding that an excess carrier providing the defense of an insured where the primary failed was merely protecting its own interests. 541 A.2d at 774. Instead, the Superior Court applied the doctrine of equitable subrogation, “which places the subrogee in the precise position of the one to whose rights and disabilities he is subrogated.” F.B. Washburn, 541 A.2d at 774 (quoting Allstate Ins. Co. v. Clarke, 527 A.2d 1021, 1024 (Pa. Super. Ct. 1987)). The Court found the excess carrier's duty to defend “was activated under inappropriate circumstances.” F.B. Washburn, 541 A.2d at 774. “The goal is to place the burden of the debt upon the person who should bear it.” F.B. Washburn, 541 A.2d at 774 (quoting Clarke, 527 A.2d at 1023). “[U]nder the guidance of Kelmo Enterprises v. Commercial Union Insurance Co., ” the Superior Court awarded the counsel fees incurred by the excess carrier in defense of the underlying action, before remanding for a ruling on whether attorney's fees for the declaratory judgment action were available due to bad faith by the primary insurer. F.B. Washburn, 541 A.2d at 774.

         In Kelmo, the Superior Court of Pennsylvania affirmed the order of the trial court awarded attorney's fees to an insured forced to bring a declaratory judgment action against an insurer, following the insurer's bad faith refusal to defend a third party action brought against the insured. Kelmo Enter., Inc. v. Commercial Union Ins. Co.,426 A.2d 680, 685. In the adopted opinion, Judge Hoffman eschewed the traditional American rule mandating a litigant pay their own expenses. Kelmo, 426 A.2d at 684. Instead, the Court found such a position “unfair, ” and stated that an insurer who “guessed wrong as to its duty[] should be compelled to bear the consequences thereof.” Kelmo, 426 A.2d at 684 (quoting 7C J. Appleman, Insurance Law & Practice, § 4691 (Berdal ed. 1979)). “That is, the insured has a contract right to have actions against him defended by the insurer, at its expense.” Kelmo, 426 A.2d at 684 (quoting Appleman) (emphasis added). Under the doctrine of subrogation, the excess carrier stepping into the shoes of the insured is afforded the same right. SeeF.B. Washburn, 541 A.2d at 774. The doctrine of subrogation is grounded in principles of equity, whether expressly mentioned in a contractual relationship or not. SeeValora v. Pa. Emps. Benefit Trust Fund, 939 A.2d 312, 320 (Pa. 2007). See alsoEmp'rs. ...

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