Opinion
No. 148 C.D. 2014
03-10-2015
Old Forge Borough v. Housing and Redevelopment Insurance Exchange and Excalibur Insurance Management Services, LLC, Appellants
BEFORE: HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE P. KEVIN BROBSON, Judge HONORABLE ANNE E. COVEY, Judge
OPINION NOT REPORTED
MEMORANDUM OPINION BY JUDGE COVEY
Housing and Redevelopment Insurance Exchange and Excalibur Insurance Management Services, LLC (collectively, Insurer) appeal from the Lackawanna County Common Pleas Court's (trial court) January 10, 2014 order directing Insurer to defend Old Forge Borough (Borough) against the negligence allegations claimed to have occurred in Federal Action No. 12-2236 (Federal Action), and denying Insurer's Counter-Motion for Judgment on the Pleadings. Insurer presents two issues for this Court's review: (1) whether the trial court erred by granting the Borough's Motion for Judgment on the Pleadings, and (2) whether the trial court erred by dismissing Insurer's affirmative defenses to the Borough's declaratory judgment action. After review, we affirm.
The Federal Action is a civil lawsuit filed in the United States District Court for the Middle District of Pennsylvania against the Borough and others by an unidentified minor.
Insurer issued the Borough a yearly commercial general liability policy (CGLP) from 2004 up to and including 2007. At all times relevant to this matter, the CGLP was in full force and effect, and the Borough was an insured under the policy. On or about November 9, 2012, Jane Doe instituted the Federal Action in the United States District Court for the Middle District of Pennsylvania by filing a complaint against the Borough for damages. The complaint alleges that between 2004 and 2007, Jane Doe was the victim of sexual assault due to various acts and/or omissions that the Borough and/or its employees allegedly caused or were therefor responsible. The Federal Action seeks recovery on the following causes of action: (1) violation of Jane Doe's substantive due process rights; (2) failure to promulgate policies; (3) failure to supervise; (4) failure to train; (5) violation of substantive due process — actions of person with final authority; (6) negligence; (7) negligence per se; (8) assault and battery; and (9) negligent infliction of emotional distress. See Reproduced Record (R.R.) at 78-140.
Jane Doe is an unidentified minor represented by Slocum & Lang, P.C.
Old Forge Police Department, Old Forge Fire Department, Lawrence A. Semenza, James Krenitzky and Walter Chiavacci are also named Defendants in the action.
Upon receipt of the Federal Action, the Borough notified Insurer of the litigation. By letter dated December 4, 2012, Insurer notified the Borough that it was denying coverage of the Federal Action. In response, the Borough filed a declaratory judgment action with the trial court seeking: (1) an order that Insurer has a duty to defend the Borough in the Federal Action, to bear all costs of such defense, and to reimburse the Borough for all of its costs and legal fees incurred in the Federal Action and in pursuing the instant declaratory judgment; (2) an order that Insurer shall be required to indemnify the Borough from and against any and all liability arising out of the Federal Action to the extent of the policy limits; and (3) any other relief the trial court deems appropriate.
On February 4, 2013, Insurer filed its Answer with New Matter to the Borough's Complaint. On March 6, 2013, the Borough responded to Insurer's New Matter. On September 25, 2013, the Borough filed a Motion for Judgment on the Pleadings. On October 15, 2013, Insurer filed a Counter-Motion for Judgment on the Pleadings. The parties filed their respective briefs. On January 9, 2014, the trial court heard oral argument. On January 10, 2014, the trial court issued its Opinion and Order in the Borough's favor. Insurer appealed to this Court.
The trial court limited its order to "obligat[ing]" Insurer to "defend the [Borough] against the allegations of negligence claimed to have occurred in [the Federal Action]." Trial Ct. Op. at 2.
"Our review of an order granting a motion for judgment on the pleadings is limited to determining whether the trial court committed an error of law or whether questions of material fact remain outstanding." Commonwealth v. Ortho-McNeil-Janssen Pharm., Inc., 52 A.3d 498, 505 (Pa. Cmwlth. 2012).
Insurer argues that the trial court erred by granting the Borough's Motion for Judgment on the Pleadings and denying Insurer's Counter-Motion for Judgment on the Pleadings. Specifically, Insurer contends that no genuine issue of fact exists as to whether there is insurance coverage under the CGLP for Jane Doe's losses and injuries as alleged in the Federal Action against the Borough. Thus, Insurer asserts that it owes the Borough no duty to defend against the Federal Action under the terms and provisions of Insurer's CGLP.
Initially, we note that
[w]hen ruling on a motion for judgment on the pleadings, we view all of the opposing party's allegations as true, and only those facts that the opposing party has specifically admitted are considered against the opposing party. We consider only the pleadings themselves and any documents properly attached to them. We grant judgment on the pleadings only when there is no genuine issue of fact and the moving party is entitled to judgment as a matter of law.Stilp v. Gen. Assembly, 929 A.2d 660, 661-62 n.3 (Pa. Cmwlth. 2007) (citations omitted), aff'd, 974 A.2d 491 (Pa. 2009). Further,
[i]n actions arising under an insurance policy, our courts have established a general rule that it is a necessary prerequisite for the insured to establish that his claim falls within the coverage provided by the insurance policy. However, when the insurer relies on a policy exclusion as the basis for its denial of coverage, the insurer has asserted an affirmative defense and bears the burden of proving the exclusion.Erie Ins. Grp. v. Catania, 95 A.3d 320, 322-23 (Pa. Super. 2014) (citation omitted; emphasis added).
Here, the coverage provisions provided in Section 1(a) of the CGLP state:
We will pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies. We will have the right and duty to defend the insured against any 'suit' seeking those damages. However, we will have no duty to defend the insured against any 'suit' seeking damages for 'bodily injury' or 'property damage' to which this insurance does not apply.R.R. at 20 (emphasis added). Section 1(b) of the CGLP provides:
This insurance applies to 'bodily injury' and 'property damage' only if:
(1) The 'bodily injury' or 'property damage' is caused by an 'occurrence' that takes place in the 'coverage territory';
(2) The 'bodily injury' or 'property damage' occurs during the policy period; and
(3) Prior to the policy period, no insured listed under Paragraph 1 of Section II — Who Is An Insured and no 'employee' authorized by you to give or receive notice of an 'Occurrence' or claim, knew that the 'bodily injury' or 'property damage' had occurred, in whole or in part. If such a listed insured or authorized 'employee' knew, prior to the policy period, that the 'bodily injury' or 'property damage' occurred, then any continuation, change or resumption of such 'bodily injury' or 'property damage'
during or after the policy period will be deemed to have been known prior to the policy period.R.R. at 20. Section 5 of the CGLP defines an "[o]ccurrence" as "[a]n accident, including continuous or repeated exposure to substantially the same general harmful conditions." R.R. at 33.
Insurer argues that because the Federal Action is predicated on acts of sexual assault, they were deliberate and intentional acts, not premised on negligence; therefore, a suit seeking damages against the Borough for bodily injury was not caused by an "occurrence," and falls outside the Borough's coverage. In retort, the Borough contends that the Federal Action alleges that the Borough failed to promulgate policies, failed to supervise and failed to train, all of which sound in negligence. "[T]o determine if there is coverage, we must look to the facts alleged in the underlying complaint, not the cause of action pled." QBE Ins. Corp. v. M & S Landis Corp., 915 A.2d 1222, 1225 (Pa. Super. 2007). Because the allegations against the Borough in the Federal Action sound in negligence, the damages sought against the Borough were caused by an "occurrence," and therefore, the lawsuit falls within the Borough's coverage. Consequently, Insurer has a duty to defend the Borough. Erie Ins. Grp.
The "occurrence" analysis is discussed more fully below. --------
The duty to defend remains with the insurer until it is clear that the claim has been narrowed to one beyond the terms of the policy. Furthermore[,] an insurer who disclaims its duty to defend based on a policy exclusion must bear the burden of proving the applicability of the exclusion.Unionamerica Ins. Co., Ltd. v. J.B. Johnson, 806 A.2d 431, 434 (Pa. Super. 2002) (citation omitted).
Insurer next contends that the Borough is excluded from coverage under Section 2(a) of the CGLP entitled "Expected Or Intended Injury" which provides that the insurance does not apply to "'[b]odily injury' or 'property damage' expected or intended from the standpoint of the insured." R.R. at 21 (emphasis added). Insurer further maintains that the inferred intent rule applies and cites Wiley v. State Farm Fire & Casualty Co., 995 F.2d 457 (3rd Cir. 1993) and Aetna Casualty & Surety Co. v. Roe, 650 A.2d 94 (Pa. Super. 1994), to support its position.
In Wiley, the United States Court of Appeals for the Third Circuit held:
We therefore predict that the Pennsylvania Supreme Court, if called upon to decide the issue, would adopt the inferred intent rule in liability insurance cases involving an insured adult's intentional sexual abuse of a child to raise a conclusive presumption of the insured's intent to harm the victim, regardless of the insured's assertion of a subjective lack of intent to harm.Id. at 464-65 (emphasis added). The "inferred intent rule" was subsequently adopted by the Pennsylvania Superior Court in Roe. In both cases, however, the insured were the actual perpetrators of the alleged sexual abuse. In Wiley, the defendant claimed he was incapable of forming an intent to harm; the defendants in Roe claimed they did not intend the harm alleged from their actions. The inferred intent rule was applied in both cases; defendants were conclusively presumed to have intended the alleged harm and the acts were excluded from insurance coverage. Here, Lawrence A. Semenza (Semenza), James Krenitsky (Krenitsky) and Walter Chiavacci (Chiavacci) are the alleged perpetrators of the sexual acts, not the Borough. As the Borough is not "an insured adult" alleged to have "intentional[ly] sexual[ly] abuse[d] a child," the inferred intent rule does not apply. Wiley; Roe. Therefore, we reject this argument.
Insurer also asserts that the Borough is excluded from coverage under the CGLP's intentional acts exclusion. Specifically, Insurer claims the factual allegations and harm alleged were caused directly or indirectly by intentional acts which were in violation of federal and state law.
The CGLP's "INTENTIONAL ACTS EXCLUSION" provides:
Notwithstanding any provision to the contrary within this policy or any endorsement thereto, it is agreed that this policy excludes coverage for any claim, cost or expense of whatsoever nature directly or indirectly caused by, resulting from, or in connection with any intentional act(s) or omission(s) that are:R.R. at 52. However, the allegations against the Borough in the Federal Action are all negligence-based claims, i.e., failure to promulgate policies, failure to supervise, and failure to train, as opposed to intentional acts or omissions. See R.R. at 102-107.
1) in violation of any federal, state or local law, statute, or code
2) or in violation of any parties constitutional rights
3) and committed by any person(s) or their agent(s) who would otherwise have benefit of the coverages provided in this policy.
In Donegal Mutual Insurance Co. v. Baumhammers, 938 A.2d 286 (Pa. 2007), our Supreme Court held: "It is upon [the] assertion of negligence that [the p]laintiffs seek recovery against [the insured]. Therefore, we are asked to determine whether the alleged negligence of [the insured] and the injuries resulting therefrom qualify as an 'accident' obligating [insurer] to defend [the insured]." Id. at 291. In Donegal, the insured were the parents of an individual who went on a killing spree and killed five people and injured a sixth individual. A third party filed a lawsuit against the parents, wherein, it was alleged that they were negligent in failing to remove weapons from the house and alerting authorities of their son's mental health condition. Insurer filed a motion for summary judgment declaring it had no duty to defend because the shootings were not accidental in nature, but were the result of intentional conduct which the policy did not cover. The Donegal Court ruled that "our case law requires [insurer] to defend [the insured] against [the p]laintiffs' claims of negligence even where that alleged negligence may have led to the intentional acts of a third party." Id. at 292 (emphasis added). The Supreme Court further opined:
To determine whether [insurer] has a duty to defend its insured in the actions brought by [the p]laintiffs[,] it is necessary for this Court to examine whether the injuries that are the impetus of the action were caused by an 'accident' so as to constitute an occurrence under the policy. . . . [W]e have established that the term 'accident' within insurance policies refers to an unexpected and undesirable event occurring unintentionally, and that the key term in the definition of the [sic] 'accident' is 'unexpected' which implies a degree of fortuity. An injury therefore is not 'accidental' if the injury was the natural and expected result of the insured's actions.Id. at 292 (citations omitted; emphasis added). The Court concluded:
[W]e are required to determine whether, from the perspective of the insured, the claims asserted by [the p]laintiffs present the degree of fortuity contemplated by the ordinary definition of 'accident.' We hold that they do. The extraordinary shooting spree embarked upon by [the insured's son] resulting in injuries to [the p]laintiffs cannot be said to be the natural and expected result of [the insured's] alleged acts of negligence. Rather, [the p]laintiffs' injuries were caused by an event so unexpected, undesigned and fortuitous as to qualify as accidental within the terms of the policy. Because the alleged negligence of [the insured] resulted in the tragic accidental injuries to the individual plaintiffs, [insurer] is therefore required to defend [the insured].Id. at 293 (emphasis added). Here, the sexual molestation of Jane Doe averred in the Federal Action "cannot be said to be the natural and expected result of [the Borough's] alleged acts of negligence." Id. Accordingly, the Borough is not excluded from coverage under the CGLP's intentional acts exclusion.
Insurer further maintains that the Borough is excluded from coverage under the CGLP's abuse or molestation exclusion. The CGLP's "ABUSE OR MOLESTATION EXCLUSION" states:
This insurance does not apply to 'bodily injury', 'property damage' or 'personal advertising injury' arising out of:
1. The actual or threatened abuse or molestation by anyone of any person while in the care, custody or control of any insured, or
2. The negligent:
R.R. at 53 (emphasis added). Insurer first contends that the factual allegations and harms alleged against the Borough are excluded because, "as set forth in the [Federal Action], . . . Jane Doe was in the care, custody or control of the [Borough] at all times that the alleged acts and harms are stated to have occurred." Insurer Br. at 23. However, Insurer does not cite to any particular paragraph in the Complaint where it is alleged that Jane Doe was in fact in the care, custody or control of the Borough, nor did a review of the underlying Complaint reveal the same. As an "insurer's obligation to defend is fixed solely by the allegations in the underlying complaint[,]" this argument cannot stand. Erie Ins. Exch. v. Muff, 851 A.2d 919, 926 (Pa. Super. 2004).a. Employment;
b. Investigation;
c. Supervision;
d. Reporting to the proper authorities, or failure to so report; or
e. Retention;
of a person for whom any insured is or ever was legally responsible and whose conduct would be excluded by Paragraph 1, above.
Insurer next asserts that the claims against the Borough are excluded under Section 2 of the CGLP's abuse or molestation exclusion. Count IV of the Complaint specifically alleges that the Borough failed to supervise Semenza and Krenitsky, and negligent supervision of "a person for whom any insured is or was legally responsible for" is specifically excluded. R.R. at 53. However, nowhere in the Complaint is it alleged that the Borough is or was legally responsible for Semenza and Krenitsky. Consequently, Insurer cannot meet its "burden of proving applicability of the exclusion." Unionamerica, 806 A.2d at 435.
With respect to Insurer's argument that the trial court erred in granting the Borough's Motion for Judgment on the Pleadings, Insurer finally asserts that it is contrary to public policy to afford liability coverage in connection with an insured's willful and injurious criminal acts. Insurer cites United Services Automobile Ass'n v. Elitzky, 517 A.2d 982 (Pa. Super. 1986), to support its position. The Elitzky Court held:
Even if coverage is not excluded by the terms of the policy it may be excluded as violative of the public policy of Pennsylvania. . . . [I]t is against the public policy of this state to provide insurance for certain intentional acts. This ruling is based on the common law adage that a person should not profit from his wrongful acts. . . . [I]ntent means that the actor desired to cause the consequences of his act or that he acted knowing that the consequences were substantially certain to result. . . . [I]ntent may also be transferred from the intended victim to another.Id. at 986. As discussed above, the Complaint does not contain allegations that the Borough acted intentionally. Clearly, the Borough did not "desire[] to cause the [harm]" to Jane Doe, nor did it "act knowing that the [harm was] substantially certain to result[.]" Id. Accordingly, the trial court did not err in granting the Borough's Motion for Judgment on the Pleadings as such ruling is not against public policy.
Insurer next argues that the trial court erred by dismissing Insurer's affirmative defenses to the Borough's declaratory judgment action. Specifically, Insurer contends that the trial court "granted [the Borough's] [m]otion under an Opinion and Order without any analysis of the underlying facts and applicable law therein. Said opinion merely provides that because negligen[t] acts and omissions were plead [sic] in the underlying [Federal Action], [Insurer] must defend [the Borough]." Insurer Br. at 24-25.
It is axiomatic that "[w]e may affirm a trial court's order based on a different rationale if the basis for our decision is clear on the record." Commonwealth v. Ortho-McNeil-Janssen Pharm., Inc., 52 A.3d 498, 512 n.10 (Pa. Cmwlth. 2012). Here, we affirm the trial court because there is no genuine issue of fact concerning whether Insurer is obligated to defend the Borough, and the Borough is entitled to judgment as a matter of law.
An insurer's duty to defend . . . is a distinct obligation, separate and apart from the insurer's duty to provide coverage. An insurer is obligated to defend its insured if the factual allegations of the complaint on its face encompass an injury that is actually or potentially within the scope of the policy. As long as the complaint 'might or might not' fall within the policy's coverage, the insurance company is obliged to defend. Accordingly, it is the potential, rather than the certainty, of a claim falling within the insurance policy that triggers the insurer's duty to defend.Am. & Foreign Ins. Co. v. Jerry's Sport Ctr., Inc., 2 A.3d 526, 540-41 (Pa. 2010) (emphasis added). Because the Complaint in the Federal Action "'might or might not' fall within the policy's coverage[,]" Insurer has a duty to defend the Borough. Id.
For all of the above reasons, the trial court's order is affirmed.
/s/_________
ANNE E. COVEY, Judge
ORDER
AND NOW, this 10th day of March, 2015, the Lackawanna County Common Pleas Court's January 10, 2014 order is affirmed.
/s/_________
ANNE E. COVEY, Judge