Lexington Insurance v. Charter Oak Fire Insurance
81 A.3d 903
Pa. Super. Ct.2013Background
- CMX maintained a Hartford general liability policy and a Lexington professional liability policy as the City’s site project insurer and indemnitor via CMX's contract.
- JPC-Jay Dee formed a joint venture and contracted with the City; JPC/CMX subcontract required $10 million primary, noncontributing coverage and CMX to be named as additional insured.
- JPC obtained coverage from Charter Oak (primary $1M) and North River ($20M umbrella); CMX was an additional insured under North River, with coverage limited by underlying contracts.
- In September 2007, Albert Childs was injured at the project; the Childs action named multiple defendants, including CMX; CMX faced expert claims of professional negligence but the underlying actions included general negligence as well.
- Dec. 3, 2009: Joint Tortfeasor Release settled with City, contractor, and subcontractors for $10 million; Charter Oak paid $1 million, North River paid $9 million; CMX separately settled for $2 million (Lexington paid).
- CMX tendered defense to North River; North River consistently declined to contribute, arguing no duty to defend under its policy; suit filed January 2010, Lexington substituted in April 2011.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| When does North River's duty to defend arise for CMX? | Lexington argues exhaustion of underlying/other insurance triggers North River's defense duty upon payment. | North River contends exhaustion and timing render no early defense duty before actual payments. | Exhaustion and payment trigger North River's defense duty; duty arose upon payment of underlying limits. |
| Does Hartford other-insurance affect North River's duty to defend? | Hartford is other insurance; its exhaustion should trigger North River's duty. | Hartford should not be treated as reducing North River's coverage; its exhaustion is irrelevant. | Hartford is excess to North River; exhaustion of North River occurred with Charter Oak payment, triggering defense duty. |
| Whether North River's professional services exclusion bars defense | The underlying complaint cannot be confined to professional services; duty to defend persists. | Professional services exclusion may negate defense if claims fall outside coverage. | Not determined at start; the complaint could be within coverage; defense obligation persists until scope is narrowed. |
| Is an insurer allowed to await actual payment to trigger defense, given potential settlement tactics? | Excess insurer should be able to defend upon exhaustion by payment. | Waiting to see settlements avoids premature defense obligations. | Excess insurer's duty to defend is triggered by actual payment of underlying limits. |
Key Cases Cited
- Zeig v. Mass. Bonding & Ins. Co., 23 F.2d 665 (2d Cir.1928) (exhaustion ambiguous; excess policy may cover the excess amount)
- Koppers Co., Inc. v. Aetna Cas. & Sur. Co., 98 F.3d 1440 (3d Cir.1996) (settlement with primary insurer effectively exhausts primary coverage)
- Ali v. Fed. Ins. Co., 719 F.3d 83 (2d Cir.2013) (excess insurers have interest in awaiting payment and avoiding premature defense)
- American & Foreign Ins. Co. v. Jerry’s Sport Ctr., Inc., 606 Pa.584 (Pa. 2010) (duty to defend is broader than indemnity; based on potential coverage from four-corner comparison)
- Cadwallader v. New Amsterdam Cas. Co., 396 Pa.582 (Pa. 1959) (duty to defend may persist until claims are confined; need mechanism to reexamine scope)
- Germantown Ins. Co. v. Martin, 407 Pa. Super. 326 (Pa. Super.2000) (court may reexamine scope of underlying claims to determine defense duty)
- Aetna Cas. & Sur. Co. v. Roe, 437 Pa. Super. 414 (Pa. Super.1994) (insured’s potential coverage governs defense duty subject to scope of policy)
- Stidham v. Millvale Sportsmen’s Club, 421 Pa. Super. 548 (Pa. Super.1992) (path to declaratory relief to reexamine underlying claims)
- Donegal Mut. Ins. Co. v. Long, 528 Pa. 295 (Pa. 1991) (timing of defense under exhaustion principles)
- Baumhammers, U.S., 938 A.2d 286 (Pa. 2007) (interpretation of insurance contracts; policy language controls)
- Genaeya Corp. v. Harco Nat. Ins. Co., 991 A.2d 342 (Pa. Super.2010) (insurer must be allowed to examine underlying claims to limit coverage)