One year ago today, the Pennsylvania Supreme Court issued the first two of four important insurance-coverage law opinions that it would hand down in 2014 and 2015. Those four decisions – which address a number of topics including insurer bad faith, trigger of coverage, policy exclusions, and settlements and reservations of rights – significantly impacted the legal landscape in the commonwealth.
While much has already been written about the specific holding in each of those cases, policyholders can still learn more from each of the decisions. Now – 365 days later – is a good time to reflect on those lessons:
- Policyholders can counterbalance their insurers’ bad-faith unwillingness to approve a settlement by assigning their rights to recover statutory bad-faith damages to underlying claimants: In Allstate Property & Casualty Insurance Co. v. Wolfe, 105 A.3d 1181 (Pa. 2014), the court sustained a policyholder’s assignment of its right to recover against an insurer under Pennsylvania’s insurance bad-faith statute (42 Pa. Cons. Stat. Ann. § 8371) to an underlying tort claimant as part of a settlement. The insurer contended that such an assignment would violate public policy by allowing the transfer of what the insurer said was essentially a tort right, which would amount to champerty – something long prohibited in Pennsylvania. However, the court adopted an amicus position (advanced by Reed Smith) that as a matter of statutory interpretation, the legislature intended the right to statutory damages to be assignable. Assignability of these rights gives the policyholder leverage in encouraging its insurer to settle an underlying claim on reasonable terms (because of the insurer’s fear of facing that claimant in a bad-faith action), and also gives the policyholder a new item of value that it can use to fund a settlement with the claimant.
- The “multiple trigger” approach is alive and well in Pennsylvania: In Pennsylvania National Mutual Insurance Co. v. St. John, 106 A.3d 1 (Pa. 2014), the court considered application of the multiple trigger theory of coverage in the context of a property damage claim. The insurer argued that the multiple trigger applied solely to asbestos-related claims. Although the court ultimately declined to apply the multiple trigger in Penn National, it did so after analyzing those elements that the court considered critical to its application, and distinguishing the relevant facts before it from those presented in the decision through which the court originally adopted the multiple trigger. The court’s analysis demonstrated that (1) there is no absolute bar to application of the multiple trigger outside the context of asbestos-related claims; and (2) courts addressing this issue must examine the specific facts of the claim presented to determine if they are consistent with application of the multiple trigger. The need for such a fact-specific analysis will weigh against efforts by insurers to obtain summary dismissal of coverage claims seeking application of the multiple trigger.
- Policy language matters: In Mutual Benefit Insurance Co. v. Politsopoulos, 115 A.3d 844 (Pa. 2015), the court held that an “Employer’s Liability” exclusion precluded coverage only when an insured was sued by its own employee and not by an employee(s) of a co-insured. In reaching this conclusion, the court focused on the disparate usage of the definite article (“the” insured) and the indefinite article (“an” or “any” insured) in the policy at issue (a point highlighted in an amicus brief prepared by Reed Smith). The court’s focus on such subtle differences in language is a good reminder to policyholders of the importance of the specific wording used in their policies, and the need to understand the effects of specific policy language.
- The requirement to obtain carrier consent to settle is not absolute: In Babcock & Wilcox Co. v. American Nuclear Insurers, — A.3d —-, 2015 WL 4430352 (Pa. July 21, 2015), the court adopted a reasonable settlement rule in cases where an insurer is defending the case under a reservations of rights: If the policyholder presents a reasonable settlement demand within policy limits to its insurer and the insurer refuses to consent, the insurer has breached the policy, and the policyholder is free to settle the case and seek to recover the reasonable settlement amount from its insurer. As such, policyholders must seek their insurers’ consent to settle, but will not necessarily forfeit coverage by entering into a reasonable settlement over their insurers’ objections.
If you have any questions, or would like assistance applying these lessons to the specific facts of your situation, please contact the authors of this blog.