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Pennsylvania Supreme Court Expands Coverage For Additional Insureds By Narrowing Longstanding Broad Application of the Employer’s Liability Exclusion

June 04, 2015
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In December 2007, an employee of a restaurant in Leola, Pennsylvania, suffered injuries when she fell on a set of stairs. She brought a negligence suit against the property owners, who were additional insureds under the restaurant’s policy. The owners, in turn, sought a defense and indemnification from the insurer, but the insurer disclaimed coverage under the policy’s employer liability exclusion. That exclusion precluded liability for injuries to “[a]n ‘employee’ of the insured arising out of and in the course of…[e]mployment by the insured[.]” The insurer contended that, because the plaintiff was an employee of the insured restaurant – the named insured under the policy – there was no coverage for claims by employees of any insureds under the policy.

This coverage position was squarely in accord with 48-year-old Pennsylvania Supreme Court precedent, Pennsylvania Manufacturers’ Association Insurance Co. v. Aetna Casualty & Surety Insurance Co., (PMA). The trial court, in accordance with PMA, granted summary judgment in favor of the insurer. The trial court correctly explained that under PMA, the term “the insured” encompassed the named insured, regardless of whether coverage was sought from a different insured and, thus, in this case, the exclusion prevented coverage from extending to plaintiff’s injuries.

On appeal, the appellate court reversed the decision, and the Supreme Court affirmed. Focusing on the scope of the policy’s employer’s liability exclusion, the Supreme Court found the exclusion to be ambiguous. The Court declined to extend PMA’s application of the term “the Insured” to an instance in which a commercial general liability policy variously makes use of the terms “the Insured” and “any Insured.” The Court found that where a policy makes varied use of the definite and indefinite articles – i.e., “the insured” versus “an or any insured” – it creates an ambiguity, such that “the insureds” may reasonably be taken as signifying the particular insured against whom a claim is asserted. The Court went on to find that this ambiguity is further evidenced by the “separation of insureds” provision in the policy.

It is unclear how many Pennsylvania cases this decision will impact. However, under policies written similarly to the one at issue in this case, it appears this decision will expand coverage beyond what was intended, and provides additional insureds more coverage than actually available to the named insured employer under this fact pattern.

Insurance Industry Client Spotlight
Stradley Ronon counsel Karl S. Myers successfully represented several health insurance plans seeking to protect their competitive information from public disclosure. On April 27, the Pennsylvania Office of Open Records agreed with the plans’ arguments that the details of their health and wellness incentives programs are exempt from disclosure under the state’s Right-to-Know Law. Under these programs, the health plans offer rewards when members make healthy lifestyle choices. The requester, a member of the news media, sought non-public and internal plan information about these programs with respect to individuals enrolled in the Pennsylvania HealthChoices program, which is administered by the Department of Human Services. The Office of Open Records ruled this information is exempt under the Law based on the plans’ arguments and evidence, which demonstrated that the details of the rewards programs are kept confidential and are a matter of competition between the plans. The requester did not appeal the Office of Open Records decision in the plans’ favor. As a result, the plans will be able to shield their consumer incentives and rewards information from public disclosure on an ongoing basis.

Attorneys At Work
Please join us in welcoming the newest member of our insurance practice group, associate Adam Petitt. Adam represents corporate and institutional clients in state and federal courts on a wide range of commercial litigation matters, including securities litigation, insurance coverage disputes, reinsurance and general contractual matters. Prior to joining Stradley Ronon, Adam worked for law firms in Philadelphia and New York City where he successfully defended insurance companies against lawsuits concerning millions of dollars in potential exposure.

Partner Steve Davis has been busy on the speaking circuit. He served as a panelist for “Market Conduct 360: A Practical Guide to Avoiding and Dealing with Market Conduct Examinations” during the Pennsylvania Association of Mutual Insurance Companies’ 2015 Market Regulation Seminar. The panel, which included regulatory experts, Deputy Insurance Commissioner Christopher Monahan, former Deputy General Counsel Terry Keating and Dennis Shoop of INS Regulatory Insurance Services, provided an overview of current market regulation trends, how to present data and how to address issues and coordinate with regulators during the exam. Steve also moderated the panel, “Health Care Reform - What You Need to Know Now” at the Society of Insurance Financial Management Quarterly Conference in New York City. He and co-panelists Alison Beam of Independence Blue Cross, Mark Lastner of Grant Thornton and Gregory Martino of Aetna discussed key issues affecting insurance organizations in the ever-changing arena. Finally, Steve participated in a live CLE hosted by the Pennsylvania Bar Institute, “Tips and Techniques for the Trial of a Bad Faith Claim: Strategies, Common Disputes, and Emerging Issues.” He presented “Motion Practice In Bad Faith Cases” and also participated in a panel discussion with other esteemed members of the insurance bar.

Partner Samuel Arena has also been busy speaking at several events. He served as co-presenter for the session “Complex Business Interruption Claim Disputes” at the American Bar Association, Section of Litigation, Insurance Coverage Litigation Committee’s CLE seminar in Tucson, Arizona. Sam spoke alongside forensic accountant Gregory Thaler of FTI Consulting. Associate Brandon Gamble assisted in the researching and writing of the presentation materials, which focused on recent court opinions regarding complex business interruption claims, including claims arising from Superstorm Sandy.

He also moderated “The Judicial Perspective on Non-standard Coverage Forms and Manuscript Policies” panel at the American Bar Association Fidelity and Surety Law Committee’s 2015 Meeting held in New York City. Panelists, Judge William G. Bassler and Magistrate Judge Joseph A. Dickson, discussed their approaches to the interpretation of manuscripted and non-standard policy language, as well as strategies for litigating cases involving policies containing such language.

Sam also co-presented with Robert Flowers of Travelers Bond & Financial Products at the American Bar Association Fidelity and Surety Law Committee’s Meeting in Philadelphia. Their presentation, “What Are The Limits of Liability,” addressed important issues related to the limits of liability of commercial crime insurance coverage. In addition, Sam served as co-chair for the Fidelity Law Association’s 20th Annual Meeting. He and program co-chair, Ronald G. Mund of Travelers, prepared and presided over the program which included presentations on a wide variety of topics of interest to the fidelity industry.

Sam and Nicole Stover also co-authored a chapter in “Commercial Crime Insurance Coverage,” published by the American Bar Association. The chapter, titled “Limit of Liability,” discusses applicable insurance policy provisions and significant case law critical to an assessment of liability exposure in the commercial crime context, particularly where the claimed loss involves multiple transactions, occurs over multiple years, or involves more than one employee.

Partner Jeffrey Grossman wrote a review of the book “Fracking Risks and Rewards” for the Spring 2015 issue of AIRROC Matters. The publication is available here.

Partner John J. Murphy was a panelist at the Burlington County, New Jersey, Bar Association’s “Legal Aftermath of Hurricane Sandy” CLE presentation. John and his co-panelists discussed pursuing natural disaster claims in state and federal court, difficulties in settling claims, deciding whether to present expert testimony and what happens after arbitration or mediation.

Partner Jeffrey McFadden co-authored “Indemnification and Insurance for Directors and Officers,” recently published by Bloomberg BNA as part of their Corporate Practice Portfolio Series. The Portfolio provides a detailed discussion of the law of indemnification and advancement for corporate directors and officers in judicial, administrative, and investigative settings, with particular focus on the general corporation law of Delaware, as well as a comprehensive review of D&O insurance policies and current legal issues related to such policies. The Portfolio also provides a number of practice pointers and tools for use by both the legal practitioner and other corporate governance professionals.

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