United States District Court, M.D. Pennsylvania
KAROLINE MEHALCHICK, UNITED STATES MAGISTRATE JUDGE
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).
Background and Procedural History
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).
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, ¶
Summary Judgment Standard
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).
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.
Pennsylvania law,  “[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).
The Plaintiffs may recover fees and costs incurred
defending the insured following the refusal of Motorists
Mutual to provide defense.
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.”).
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
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. ...