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Falo v. Travelers Personal Insurance Co.

United States District Court, W.D. Pennsylvania

May 22, 2017

JENNIFER FALO, JAMES E. KELLEY, JR. Administrator of the estate of PAUL LUTZ, Plaintiffs,
v.
TRAVELERS PERSONAL INSURANCE COMPANY, Defendant.

          MEMORANDUM OPINION ON SUMMARY JUDGMENT

          Arthur J. Schwab United States District Judge

         I. Introduction

         This declaratory judgment action, being the third “related” case either brought or removed to this Court, has a lengthy and storied procedural history. Although the background facts and procedural history will be recited below, the current issue, as set forth in the summary judgment briefing, is centered around the question of whether a stipulation signed in a prior (the first) declaratory judgment action, by the deceased prior uncounseled Defendant, James Lutz (Lutz), the tortfeasor in this matter, can be held against current Plaintiff, Jennifer Falo (Falo), who is the injured party, such that she is precluded from pursuing her current independent claims against Travelers Personal Insurance Company (Travelers), on the basis of res judicata (and other defenses), when she was neither a party or in privity with the parties in the prior action, nor had knowledge of it until after its conclusion.

         Travelers bases its Motion for Summary Judgment of all three claims in this matter primarily on the fact that Plaintiff Falo is an assignee of Lutz's claims and therefore has no greater rights than he would at this juncture, and that decedent Lutz already signed a Stipulation prepared by Travelers, when he was incarcerated and without the benefit of counsel, whereby he agreed to Travelers' requested relief, to wit, that he was excluded from seeking coverage because he was “using the vehicle without a reasonable belief that [he] [was] entitled to do so.” Doc. 71 at ¶ 7 (emphasis added).

         This Court disagrees with Travelers, and finds that Falo has standing and may pursue a declaratory judgment claim in her own right, and as applied to her, she is not precluded from seeking a declaratory judgment that the tortfeasor has insurance coverage in this case.[1]

         In fact, as set forth below, the Court (and counsel for Travelers) flagged the implications of this predicament during the course of the first declaratory judgment action, but Travelers chose to proceed to have a Stipulation signed by Lutz, which the Court therefore entered, thereby closing that case without any involvement of an attorney for Lutz, and more importantly, without knowledge of Falo, even though an action in state court by Falo against Lutz was already pending for which Travelers had appointed an attorney to represent Lutz in a negligence action. Falo emphasizes, and this Court agrees, that Falo, as the only directly injured party, has a claim in her own right, and that her interests in this lawsuit are independent of Lutz (the alleged insured). American Auto Ins. Co. v. Murray, 658 F.3d 311, 319 (3d Cir. 2011).

         While there are other issues raised in the current Motion for Summary Judgment, the Court finds that Travelers is not entitled to summary judgment on the defense of res judicata as a matter of law; however, the assigned claims of breach of contract/bad faith are barred by the statute of limitations. Therefore, Travelers' Motion for Summary Judgment will be GRANTED only as to Counts Two and Three, and DENIED as to Count One.

         II. Background Facts/Procedural History

         Although the parties have amassed over 35 pages of concise material facts, the facts/procedural history may be fairly summarized as follows. Plaintiffs, Jennifer Falo (Falo) (the injured party)(formerly Jennifer Borza), and James Kelley, Jr. (administrator of the estate of Paul Lutz) brought the current action in Westmoreland County, Pennsylvania, immediately following a judgment obtained by Falo in state court for injuries she sustained in an automobile accident on September 8, 2006, when the car in which she was driving was struck by a car driven by Lutz.

         Lutz was not the owner of the vehicle that he drove; instead, the vehicle was owned by Stephen Karas (the insurance policy-holder), who was the ex-boyfriend of Nicole Terrinoni. Lutz was then the current live-in boyfriend of Terrinoni, and he used the vehicle on the morning in question and, in the process of using the car, he committed the robbery of a convenience store (for which he was charged, found guilty and served a term of imprisonment). Additionally, during a high speed chase, Lutz caused the vehicular accident which resulted in severe injuries to Falo, who, at the time of the accident was a college student on her way to work at the Walmart in Jeannette, Pennsylvania. Falo was catastrophically injured, having been life-flighted to the hospital, where she remained on life support for approximately two days, underwent at least five operations for her serious injuries, and was admitted for inpatient treatment for three weeks.

         A. 2007 State Court Negligence Action - Borza v. Lutz (case number 7685 of 2007)

         On September 14, 2007, Falo commenced a negligence action in the Court of Common Pleas of Westmoreland County, and on October 18, 2007, Travelers hired Ms. Elizabeth Deemer, Esquire, a panel counsel for Travelers who had served in that capacity for approximately 30 years, to represent Lutz in the underlying negligence action (doc. no. 7685 of 2007) (hereinafter referred to as “the 2007 negligence action”). Doc. 63-1 at p. 1; Doc. 71 at ¶ 1. Travelers issued automobile insurance policy number 94517325 1011 to named insured Karas, which was effective April 19, 2006 to April 19, 2007, with a bodily injury limit of $100, 000. Doc. 71 at ¶ 2-3. Prior to the receipt of the 2007 negligence action complaint, Travelers had denied liability coverage to Lutz in a letter dated February 2, 2007; and, Falo's counsel disputed that denial in a letter dated February 20, 2007, and requested that Travelers reassess its position “as it may well result in an extremely large verdict in excess of coverage and an assigned bad faith claim.” Doc. 71 at ¶ 4-5. Travelers provided a defense to Lutz in the 2007 negligence action under the policy under a reservation of rights clause. Doc. 71 at ¶ 6.

         Importantly, in the 2007 negligence action, Falo (then-Borza) pled in her complaint that Lutz was authorized to use the vehicle on the date of the accident. Specifically, in paragraph 7 of the 2007 negligence action complaint, Falo pled that “the vehicle had been loaned by Stephen Karas to, among others, Paul Lutz and Lutz was authorized to operate the vehicle at the time this accident occurred.” Doc. 71 at ¶ 47.

         Meanwhile, on November 5, 2007, Lutz spoke with Deemer via telephone from the jail, and according to claim log notes, he told her that “no one ever told him that he was not allowed to use the vehicle as of the date of the accident.” Doc. 71 at ¶ 44. Later on that day, Deemer sent an email to Norbert Johnson, who was an adjuster at Travelers assigned to Lutz's file. Memorializing her conservation with Lutz, she wrote, “[Lutz] said that he doesn't want to make any trouble for anyone else but that he was not told that he could not use the car and he has used the car in the past. He is very concerned that if his saying that causes [Karas] any difficulty he will take it out on Nicole [Terrinoni]. He said since he is already in trouble there is no sense causing trouble for anyone else.” Doc. 71 at ¶ 44.[2]

         Approximately one month later, on December 13, 2007, Deemer filed an Answer and New Matter, in the 2007 negligence action, without reviewing this pleading with Lutz in person, who again, was imprisoned. Importantly, the Lutz Answer responded to paragraph 7 of the negligence action, by denying “that Stephen Karas loaned the vehicle to Lutz or authorized Lutz to use the vehicle.” Despite Deemer's knowledge of what Lutz told her as noted in the November 5, 2007 email to Norbert Johnson, Deemer (on behalf of Lutz, who verified the answer) did not admit, and instead, denied, that Lutz was authorized to use the vehicle. Doc. 71 at ¶ 48. Deemer stated in her recent deposition that she must have had subsequent conversations with Lutz on this point and that was the reason for her response on his behalf, that he did not have authority from Karas, and thus, her answer was not inconsistent. Id. at ¶ 49-50. No such notes of any other conversations have been produced.

         Deemer, Lutz's counsel in the 2007 negligence action, sought leave from the Westmoreland County Court of Common Pleas to withdraw as Lutz's counsel, which leave was denied, due to the filing of the immediately hereinbelow action Doc. No. 64 and 68 at ¶ 74. Deemer continued on as counsel pro bono until March 12, 2010.

         B. 2008 “First” Declaratory Judgment Action - Travelers v. Lutz (08-cv-319)

         On March 3, 2008, three months after the Lutz Answer was filed in the 2007 negligence action, Travelers filed the “first” declaratory judgment action against Lutz before this Court. 08 cv-319. In those proceedings, Travelers sought a declaration that it had no obligation to defend or indemnify Lutz against the claims in the 2007 negligence action. Doc. No. 71 at ¶ 7.

         Critically, in ¶ 12 of the Complaint filed by Travelers in the “first” declaratory judgment action, Travelers pled “Lutz filed a verified answer to the Borza Complaint (the “Underlying Lutz Answer”), in which he denies that Stephen Karas loaned the vehicle to Lutz or authorized Lutz to use the vehicle.” Travelers then attached a copy of Lutz's Answer to the Complaint in that matter, presumably in support of its position that Travelers was entitled to a declaration from this Court that Lutz was operating the vehicle without a reasonable belief that he was entitled to do so. In the Complaint at the “first” declaratory judgment action, Travelers specifically referenced ¶ 7 of the 2007 negligence action Complaint therein.

         At the Initial Case Management Conference (ICMC), which took place on April 30, 2008, Lutz was un-represented and the Court had ordered Travelers to arrange for Lutz to participate by telephone from SCI Forest, in Marienville, Pennsylvania. Doc. 71 at ¶ 9. During the conference, Lutz represented to the Court that it was his belief that the Policy's coverage applied to him. The Court inquired:

THE COURT: Do you intend to oppose the requested relief? In other words, do you agree that the plaintiff should receive the relief they're asking for or do you disagree and want to continue on with the case?
THE DEFENDANT: I'm currently trying to procure representation. I really have no knowledge in the area of law myself. I have several letters out trying to accomplish this. Thus far, I have not gotten any response bearing that matter, so I'm really not sure what to do.
THE COURT: Do you believe that the insurance policy that's in dispute here applies to you or not?
THE DEFENDANT: Yes, sir, it does.

Doc. 18 -3.

         Also, during the ICMC, counsel for Travelers indicated that it had a plan to depose certain individuals, including Lutz, to establish that there was no duty to defend/indemnify in this case. After further discussion regarding Lutz's inability to secure counsel, Lutz stated as follows:

THE DEFENDANT: Okay. I'm going to make it easy on everybody. I plead guilty or whatever because I don't know if I'm going to be able to find any attorney and/or hire an attorney to defend me against her claim. Can I do that?
THE COURT: You can do that. My only concern is since you don't have an attorney and if you change your mind in the future, then you would say that, gees, you didn't have a lawyer and didn't know what you were doing.
We need to be very careful in this regard. If that's what you want, then my suggestion is that you need file - - mail something to the Court here saying that you either agree to the relief requested in the complaint.
You have to do something in writing. The other option is for the attorney for the plaintiffs could send you a document and if you agreed to sign it, you would agree to the relief. That may be easier for you.
THE COURT: We'll see what their reaction is to this.
MS. GILLESPIE: Your Honor, our only concern is the logistics in going forward. We're happy to do that and file either the appropriate motion to get an order from you with respect to Travelers having any further duty to Mr. Lutz. Our concern is any order, resolution of this action may be able to be attacked by the underlying plaintiff in the event ...

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