United States District Court, W.D. Pennsylvania
JENNIFER FALO, JAMES E. KELLEY, JR. Administrator of the estate of PAUL LUTZ, Plaintiffs,
TRAVELERS PERSONAL INSURANCE COMPANY, Defendant.
MEMORANDUM OPINION ON SUMMARY JUDGMENT
J. Schwab United States District Judge
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.
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 Â¶ 7
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.
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).
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.
Background Facts/Procedural History
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.
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.
2007 State Court Negligence Action - Borza v. Lutz (case
number 7685 of 2007)
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.
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.
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.
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.
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.
2008 “First” Declaratory Judgment Action -
Travelers v. Lutz (08-cv-319)
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.
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.
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.
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
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 ...