647 F. App'x 112
3rd Cir.2016Background
- PNC settled two class actions (Trombley and MDL) over overdraft-fee practices, agreeing to pay $12M and $90M funds respectively to reimburse customers for overdraft fees; about $102M total.
- Settlement funds expressly provided that attorneys’ fees and costs awarded by the courts would be paid out of the settlement funds (common-fund doctrine); PNC had no separate contractual obligation to pay counsel’s fees.
- PNC sought coverage from its insurers (primary HCC and excess Axis) for the settlement payments under policies defining “Loss” as "Claims Expenses and Damages," and defining “Damages” to include settlements and attorneys’ fees, but excluding "fees, commissions or charges for Professional Services paid or payable to an Insured" (the Professional Services Charge Exception).
- Insurers denied coverage, arguing the settlements refunded overdraft fees (professional-service charges) and thus were excluded. PNC sued for declaratory relief; the district court held most of the settlement was excluded but allowed recovery for ~$30M awarded as attorneys’ fees and costs.
- On appeal, the Third Circuit reviewed whether the Professional Services Charge Exception applies to third-party claims and whether the attorneys’ fees paid from the common fund are recoverable by PNC.
Issues
| Issue | Plaintiff's Argument (PNC) | Defendant's Argument (Axis) | Held |
|---|---|---|---|
| Whether the Professional Services Charge Exception applies to third-party claims (settlement reimbursements) | Exception is ambiguous; should be read to apply only to first-party losses or require a final adjudication before refund exclusion applies | Exception applies to exclude Damages that are refunds of professional-service charges paid to the insured, including third-party settlements | Exception applies to third-party losses; the settlement refunds are excluded from coverage |
| Whether the Professional Services Charge Exception requires a “final adjudication” before it excludes coverage | The PPE’s final-adjudication language should carry over; absent final adjudication, coverage should apply | The Professional Services Charge Exception lacks a final-adjudication requirement and applies regardless | No final-adjudication requirement; exception applies without it |
| Whether the district court impermissibly rewrote the policy by treating settlements as refunds/reimbursements | Court grafted words like “refund” into the exception and misread “paid or payable to an Insured” | Court relied on settlement terms showing reimbursements to class members for fees originally paid to insured | Court did not rewrite the policy; description of settlements as refunds follows from settlement language and policy text |
| Whether attorneys’ fees and costs awarded from the settlement fund are "Damages" PNC can recover under the policy | Those awarded fees are covered as an award of attorneys’ fees within the Damages definition | Fees were paid from the common fund created to reimburse customers, not separately owed by PNC, so they are part of the excluded refund | Entire $102M, including the ~$30M paid to class counsel from the fund, is excluded because PNC had no separate legal obligation to pay counsel; fees came from refunded professional-service charges |
Key Cases Cited
- Allstate Prop. & Cas. Ins. Co. v. Squires, 667 F.3d 388 (3d Cir. 2012) (standard of review for Rule 12(c) and contract interpretation principles)
- Gardner v. State Farm Fire & Cas. Co., 544 F.3d 553 (3d Cir. 2008) (insurance coverage questions are judicial and ambiguous terms construed for insured)
- Donegal Mut. Ins. Co. v. Baumhammers, 938 A.2d 286 (Pa. 2007) (Pennsylvania law on courts resolving coverage disputes)
- Liberty Mut. Ins. Co. v. Sweeney, 689 F.3d 288 (3d Cir. 2012) (policy interpretation focuses on parties’ intent and plain language)
- Standard Venetian Blind Co. v. Am. Empire Ins. Co., 469 A.2d 563 (Pa. 1983) (clear policy language must be enforced as written)
- Madison Const. Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100 (Pa. 1999) (courts should not strain to find ambiguity)
- Nationwide Mut. Ins. Co. v. Cosenza, 258 F.3d 197 (3d Cir. 2001) (insurer bears burden to show exclusion applies; exclusions strictly construed)
- Brytus v. Spang & Co., 203 F.3d 238 (3d Cir. 2000) (common-fund doctrine: attorney’s fees borne by class from the fund)
- In re Cendant Corp. Sec. Litig., 404 F.3d 173 (3d Cir. 2005) (court’s fiduciary role in allocating common-fund awards)