Summary
finding that evaluation of the term "as soon as practicable" in a notice provision requires examination of when "the insured knew or should have known of the likelihood of a claim and the point at which the insured notified the insurer"
Summary of this case from Philadelphia Indemnity Insurance v. Federal Insurance Co.Opinion
CIVIL ACTION NO. 02-2594.
July 3, 2003.
MEMORANDUM ORDER
Plaintiff Women's Christian Alliance ("Plaintiff" or "WCA") initiated the instant action seeking coverage under a liability insurance policy provided by Defendant Executive Risk Indemnity, Inc. ("Defendant" or "Executive Risk") for litigation arising out of a claim of disability discrimination by one of WCA's former employees. Presently before the Court is Defendant's Motion for Summary Judgment ("Motion," Doc. No. 8). For the reasons that follow, the Motion will be granted, and judgment will be entered in favor of Defendant and against Plaintiff on all counts of Plaintiff's complaint.
I. FACTUAL BACKGROUND
Executive Risk issued to Plaintiff a Not for Profit Organization Directors, Officers and Trustees Liability Insurance Policy, Including Employment Practices Liability Coverage, Policy Number 8165-9520. The policy's term began on July 1, 2000 and expired on September 1, 2001. The following notice appears on the face of the policy:
NOTICE: THIS IS A CLAIMS MADE POLICY WHICH APPLIES ONLY TO "CLAIMS" FIRST MADE DURING THE "POLICY PERIOD," OR, IF PURCHASED, THE DISCOVERY PERIOD. THE COVERAGE AFFORDED UNDER THE POLICY DIFFERS IN SOME RESPECTS FROM THAT AFFORDED UNDER OTHER POLICIES. PLEASE READ THE ENTIRE POLICY CAREFULLY.
(Motion Ex. A) (emphasis in original). The policy defines "claim" as "written notice received by an Insured that any person or entity intends to hold any Insured responsible for a Wrongful Act. A Claim will be deemed to have been made when such written notice is first received by any Insured." (Motion, Ex. A at 2) (emphases in original). A "wrongful act" is defined as, inter alia:
[A]ny actual or alleged:
(1) wrongful termination of the employment of, or demotion of or failure or refusal to hire or promote, any person;
(2) discrimination or sexual harassment adversely affecting any employee of, or applicant for employment with, the Insured Entity; or
(3) retaliatory treatment against an employee of the Insured Entity on account of such employee's exercise or attempted exercise of his or her rights under law.
(Motion, Ex. A at 2, para (D), "Employment Practices Wrongful Act").
Section IV.G of the policy states, in pertinent part:
Section IV of the policy is entitled "Conditions."
(G) Notice; Timing and Interrelationship of Claims:
(1) As a condition precedent to any right to coverage in respect of any Claim, an Insured must give the Underwriter written notice of such Claim, with full details, as soon as practicable after it is first made. Such written notice is also a condition precedent to any right to coverage in respect of any Claim for a Wrongful Act of which notice was previously given under CONDITION (G)(2).
(2) If, during the Policy Period, an Insured first becomes aware of a Wrongful Act which may subsequently give rise to a Claim and, as soon as practicable thereafter but before the end of the Policy Period:
(a) gives the Underwriter written notice of such Wrongful Act, including a description of the Wrongful Act in question, the identities of the potential claimants, the consequences which have resulted or may result from such Wrongful Act and the circumstances by which the Insureds first became aware of such Wrongful Act, and
(b) requests coverage under this Policy for any subsequently resulting Claim for such Wrongful Act;
the Underwriter will treat any such subsequent Claim as if it had been first made during the Policy Year in which such notice was given.
* * *
(4) All Related Claims will be treated as a single Claim made when the earliest of such Related Claims was first made, or when the earliest of such Related Claims is treated as having been made under CONDITION (G)(2), whichever is earlier. Coverage therefor will apply in accordance with, and subject to, the terms, conditions and limitations, including the limit of liability, applicable to the Policy Year in which such Claim was first made or is treated as having been made.
(Ex. A at 9) (emphasis added).
WCA hired Karen Graves in August 1999. Graves has scleroderma, a physically debilitating skin condition that is immediately apparent to those who meet her. Marilyn Rivers, the executive director of WCA, met Graves when Graves interviewed for the position at WCA, and was immediately aware of her disability. Rivers was also personally aware of the existence of the Americans with Disabilities Act, 42 U.S.C. § 12101-12213 ("ADA"), and the fact that WCA had a lawyer on retainer to address issues such as compliance with the ADA.
On February 14, 2000, after a period of employment with WCA, Graves received notice from Dr. Benjamin Richardson that she was being terminated effective February 25, 2000. On February 22, 2000, Graves sent a memorandum to Rivers, Richardson, and the WCA Board of Directors challenging the reasons given for her termination. She concluded the memorandum with the question, "what is the real reason for my lay off?" (Motion Ex. C at 2) (emphasis in original). Rivers testified at her deposition that she received and read this memorandum in February 2000, and that she attempted to meet with Graves but ultimately was unsuccessful.
In early July 2000, Karen Graves filed a disability discrimination claim against WCA with the Pennsylvania Human Relations Commission ("PHRC"). WCA received notice of this claim when it received a Notice to Defend from the PHRC on or about August 31, 2000. (Rivers Dep. at 70-72). When Marilyn Rivers she saw the PHRC complaint, "[she] just automatically assumed [she] would be covered by insurance because [she] knew at this juncture [they] had insurance." (Rivers Dep. at 77). Rivers believes that she probably asked WCA's fiscal director to call the broker regarding coverage for the PHRC claim, but even if she did not give a specific directive, she would have expected them to take this action. Id. at 78-81. Eddie Glover, WCA's newly-appointed fiscal director at the time, was operating in a transitional period along with his predecessor. Glover believes that although he probably did not see the PHRC complaint until after Graves later filed her federal discrimination lawsuit, he understood the PHRC complaint to be a written notice that Karen Graves intended to hold WCA responsible for a wrongful act, and therefore a claim under the policy. (Glover Dep. at 55). Glover testified that had he known about the PHRC claim at the time of its arrival, "I would have talked to the [insurance] brokers immediately." (Glover Dep. at 55, 66).
There appears to be some confusion regarding whether Ms. Graves filed her discrimination claim on July 1 or July 6, 2000.
Instead of making sure that Executive Risk was notified of the claim, or contacting WCA's retained lawyer, Marilyn Rivers attempted to handle the matter on her own. On September 15, 2000, Rivers responded via a letter to the PHRC. (Rivers Dep. at 88-89). Rivers drafted the response on her own, and did not alert or consult any lawyer. She stated at deposition that because she faced other significant operational issues at the time she received the PHRC complaint, she drafted WCA's response to the PHRC complaint "off the top of [her] head." Id. At 89. She also created and sent to the PHRC a "Policy and Practice" statement which included specific statements regarding Karen Graves in addition to standard language from WCA's personnel policy. Id. At 90. In addition, on October 27, 2000, she sent a letter to the PHRC investigator in an effort to follow up on issues raised at a hearing she had attended. Id. at 95. Rivers participated in at least one PHRC proceeding.
The PHRC held a fact finding conference in September 2000, at which Karen Graves, her attorney, and Rivers were present. (Graves Dep. at 97-98). In July 2001, the PHRC issued a right to sue letter. Graves filed her federal lawsuit in this Court in October 2001, alleging disability discrimination under the ADA. On November 2, 2001, approximately sixteen months after Graves filed her claim with the PHRC, fourteen months after WCA received the Notice to Defend from the PHRC, and two months after the expiration of the insurance contract's policy period, WCA gave notice to Executive Risk regarding the claim. In a letter dated November 16, 2001, Executive Risk, through its claims manager Chubb Son, denied coverage. It affirmed this decision in a letter dated December 19, 2001.
Graves' federal disability discrimination case against WCA proceeded to jury trial. On November 22, 2002, the jury returned with a verdict in Graves' favor and awarded damages in the amount of $92,008.
II. NATURE AND STAGE OF PROCEEDINGS
WCA initiated this action by filing a complaint on April 30, 2002. The complaint seeks a declaration that Executive Risk is liable to Plaintiff for damages arising out of Karen Graves' district court action against WCA (Count I), damages for breach of contract (Count II), damages for bad faith pursuant to 42 Pa. Cons. Stat. § 8371 (Count III), and damages for violating Pennsylvania's Unfair Insurance Practices Act, codified at 40 Pa. Stat. §§ 1171.1-1171.15 (Count IV). After a period of discovery, Executive Risk filed the instant Motion, arguing that as a matter of Pennsylvania law WCA is not entitled to coverage on this claim, and that Executive Risk's denial of coverage was neither in bad faith nor in violation of Pennsylvania's Unfair Insurance Practices Act.
III. LEGAL STANDARD
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c)). The party moving for summary judgment bears the initial burden of demonstrating that there are no facts supporting the non-moving party's legal position. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-324 (1986). The burden then shifts to the nonmoving party who "must do more than simply show that there is some metaphysical doubt as to the material facts."Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). "The nonmoving party . . . cannot `rely merely upon bare assertions, conclusory allegations or suspicions to support its claim." Townes v. City of Philadelphia, No. Civ. A. 00-CV-138, 2001 WL 503400, *2 (E.D. Pa. May 11, 2001) (quoting Fireman's Ins. Co. v. DeFresne, 676 F.2d 965, 969 (3d Cir. 1982)). Rather, the party opposing summary judgment must go beyond the pleadings and present evidence admissible at trial through affidavits, depositions, or admissions on file to show that there is a genuine issue for trial. See Celotex, 477 U.S. at 324. "If the non-moving party's evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Kershaw v. Aspin, Civ. A. No. 94-216, 1994 WL 683384, at *1 (E.D. Pa. Dec. 5, 1994) (citations omitted). When deciding a motion for summary judgment, the court must construe the evidence and any reasonable inferences therefrom in the non-movant's favor. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). A genuine issue of material fact exists only when "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson, 477 U.S. at 248.
IV. DISCUSSION
A. Liability for Coverage in the Federal Court Action
Defendant argues that under Pennsylvania law and pursuant to the clear and unambiguous terms of the "claims-made" insurance contract in question, it is not liable to Plaintiff for coverage because WCA's notice to Defendant regarding the claim violated the "as soon as practicable" provision of the policy. Defendant also argues that under Pennsylvania law it is not required to show prejudice but that if a showing of prejudice were required, the record establishes that WCA's late notice prejudiced Executive Risk's ability to investigate, defend, or settle the federal suit. In response, Plaintiff contends that notice in this case was given to Defendant "as soon as practicable," and that, in any event, Defendant was not prejudiced under the circumstances. After a thorough review, we are satisfied that Plaintiff failed to comply with the clear terms of this claims-made liability insurance policy, and that Defendant is therefore not liable to Plaintiff as a matter of law for coverage on the claim of Karen Graves, regardless of whether it suffered prejudice due to the late notice.
"Interpretation of an insurance contract is a matter of law and is therefore generally performed by a court rather than by a jury." Wagner v. Erie Ins. Co., 801 A.2d 1226, 1231 (Pa.Super. 2002). Where the language of an insurance contract is clear and unambiguous, a court must give effect to that language. Id. (citations omitted). Where terms are not defined, "we must construe the words in accordance with their natural, plain, and ordinary meaning." Cordero v. Potomac Ins. Co. Of Illinois, 794 A.2d 897, 900 (Pa.Super. 2002). Moreover, "[W]e may inform our understanding of these terms by considering their dictionary definitions." Wagner, 801 A.2d at 1231 (citations omitted). If an insurance contract provision is ambiguous, however, the policy provision is to be construed in favor of the insured and against the insurer. Id.
As indicated above, the insurance policy in question here provides that notice of a claim must be given to Executive Risk "as soon as practicable." Such a provision is typical in liability insurance policies, and is "directed at ensuring promptness of notice, maximizing the insurer's opportunity to investigate, set reserves, and control or participate in negotiations with the third party asserting the claim against the insured." 13 Couch on Insurance § 186:13 (3d ed., updated July 2002). Evaluation of whether this notice requirement was met requires an examination of "the length of time between the point when the insured knew or should have known of the likelihood of a claim and the point at which the insured notified the insurer of those facts. . . ." Id. Under Pennsylvania law, notice provisions in insurance contracts which require that notice to insurers of coverage-triggering events be provided "as soon as practicable" are interpreted to mean that the insured must provide notice to the insurer "within a reasonable period of time given the facts and circumstances of each case." Brakeman v. Potomac Insurance Co., 371 A.2d 193, 195 (Pa. 1977). See also, e.g., Farmers Nat'l Bank of Ephrata v. Employers Liab. Assur. Corp., 199 A.2d 272, 274 ( Pa. 1964) (holding that under the circumstances, providing notice eight months after the occurrence of an accident was not within a reasonable period of time under an employer liability policy which required an insured to give notice "as soon as practicable").
In the instant case, WCA had notice regarding Ms. Graves' discrimination claim on approximately August 31, 2000, when it received the PHRC Notice to Defend. Marilyn Rivers, WCA's executive director was aware of and participated in the proceedings before the PHRC, even to the point of drafting WCA's position statements and providing them to the PHRC and attending at least one conference. Despite her awareness and participation in these proceedings, Rivers neither informed the WCA's retained lawyer nor contacted Executive Risk. Rivers herself testified that she would have expected her subordinates to notify the insurance broker regarding the PHRC complaint. In fact, WCA did not provide notice of this discrimination claim until November 2, 2001, fourteen months after WCA received the Notice to Defend, and two months after the policy period ended. Clearly, WCA's notice to Executive Risk was not reasonable or practicable.
Plaintiff contends that the language of the relevant portions of the insurance contract are ambiguous and therefore present a question of fact regarding whether notice to Executive Risk was timely. Specifically, WCA argues that the PHRC proceedings did not constitute a "claim" under the contract, and that, therefore, those proceedings did not trigger any notice requirement. We find this argument disingenuous at best. The policy defines a "claim" as "written notice received by an Insured that any person or entity intends to hold any Insured responsible for a Wrongful Act. A Claim will be deemed to have been made when such written notice is first received by any Insured." The policy defines a wrongful act as including an actual or alleged wrongful termination of, or discrimination against, any employee. We fail to see how this clear and unambiguous language would not encompass PHRC proceedings based on a complaint which consisted of allegations that are exactly the same as the allegations in the later federal court action. (Pl. Complaint ¶ 10). Moreover, WCA itself has characterized the initiation of PHRC proceedings as a claim under the terms of the policy, both throughout the complaint that it filed initiating the instant lawsuit and in its response to Defendant's Motion for Summary Judgment. (See, e.g., Pl. Complaint ¶¶ 11, 14, 15, 18, 21, 22, 25; Pl. Response to Motion for Summary Judgment, Br. at 2). Finally, we remind Plaintiff that two of its own witnesses, executive director Marilyn Rivers and fiscal director Eddie Glover, testified that they recognized the PHRC complaint to be a claim under the policy.
We also conclude that Executive Risk need not establish prejudice in order to avoid liability. The insurance policy at issue is, as is clear from the face of the policy and undisputed by Plaintiff, a "claims made" liability insurance policy. "In a claims made policy, coverage is effective if a negligent or omitted act is discovered and brought to the attention of the insurance company during the period of the policy, no matter when the act occurred." Lee R. Russ and Thomas F. Segalla, 1Couch on Insurance § 1:5 (3d ed., updated June 2003). An occurrence policy, on the other hand, covers all occurrences that take place during the policy period. 7 Couch on Insurance § 102:20. As a general rule, under Pennsylvania law, where an insured provides late notice under an occurrence policy, an insurance company is relieved of its obligations under the policy only if it can show actual prejudice. See, e.g. Trustees of University of Pennsylvania v. Lexington Ins. Co., 815 F.2d 890, 896, 897 (3d Cir. 1987) (citing Brakeman v. Potomac Insurance Co., 371 A.2d 193 (Pa. 1977), and extending theBrakeman "notice-prejudice" rule to late notice under occurrence policies between sophisticated parties). However, Courts have consistently declined to extend this so-called "notice-prejudice" rule to claims-made policies. See, e.g., Westport Ins. Corp. v. Mirsky, No. Civ. A. 00-4367, 2002 WL 31018554, at *11 ("Under Pennsylvania law, the `notice-prejudice' rule does not apply to `claims made' policies."); Pizzini v. American Int'l. Specialty Lines Ins. Co., 210 F. Supp.2d 658, 669-70 (E.D. Pa. 2002) ("[T]he weight of existing case law leads me to conclude, as have the courts in this circuit, that under Pennsylvania law the Brakeman `notice-prejudice' rule does not apply to `claims made policies'."); Borish v. Britamco Underwriters, Inc., 869 F. Supp. 316, 319 (E.D. Pa. 1994) (noting that courts within the Eastern District of Pennsylvania have adopted the rule that "an insurance company need not show prejudice when there has been a failure to comply with notice provisions in a claims-made policy"); Clemente v. The Home Ins. Co., 791 F. Supp. 118, 121-22 (E.D. Pa. 1992) (holding that an insurer was not liable to the insured for coverage due to late notice regardless of the question of prejudice, where the insurance policy at issue was a claims-made policy); Employers Reinsurance Corp. v. Sarris, 746 F. Supp. 560, 565 (E.D. Pa. 1990) (finding "that a claims-made policy is of such a different nature from an occurrence policy that the `notice-prejudice' rule of Brakeman should not apply"); City of Harrisburg v. International Surplus Lines Ins. Co., 596 F. Supp. 954, 962 (M.D. Pa. 1984), aff'd without opinion, 770 F.2d 1067 (3d Cir. 1985) (holding thatBrakeman notice-prejudice rule does not apply to claims-made policies).
As explained by the oft-quoted case of City of Harrisburg, the reluctance of courts to extend the notice-prejudice rule to claims-made policies is largely due to the fact that claims — made policies are reporting policies for which the parties have bargained:
If a court were to allow an extension of reporting time after the end of the policy period, such is tantamount to an extension of coverage to the insured gratis, something for which the insurer has not bargained. This extension of coverage, by the court . . . in effect rewrites the contract between the two parties.City of Harrisburg, 696 F. Supp. at 961 (quoting Gulf Ins. Co. v. Dolan, Fertig and Curtis, 433 So.2d 512, 515-16 (Fla. 1983)) (emphasis in original). In concluding that claims-made policies are not subject to the notice-prejudice rule under Pennsylvania law, the court emphasized the importance of "not merely relying upon the language of the policy itself, but . . .looking at the benefits sought by each party when they contract for a claims-made policy rather than an occurrence one." City of Harrisburg, 696 F. Supp. at 961 (emphasis added). In exchange for a limited notice period, the insured typically pays a lower premium and also receives the benefit of coverage for conduct that occurred prior to the policy term.Id. Based upon this well-settled law, we are compelled to conclude that Executive Risk need not show prejudice in this matter.
Finally, we observe that the clear and unambiguous language of this claims-made insurance contract states that if, during the policy period, an insured first becomes aware of a wrongful act which may subsequently give rise to a claim, it is required to give notice to Executive Risk "as soon as practicable thereafterbut before the end of the policy period" in order to ensure coverage for any future claims that may arise from the wrongful act after the period of coverage. (Policy § IV.G). This provision also bars coverage for the instant claim, since Plaintiff's failure to inform Executive Risk in any way regarding Karen Graves' discrimination claim until two months after the policy's expiration was under the circumstances presented here neither as soon as practicable nor before the end of the policy period.
B. Remaining Claims
Since Defendant has no obligation to provide insurance coverage for the federal lawsuit brought by Karen Graves against Women's Christian Alliance, we will grant summary judgment to Defendant on Plaintiff s remaining claims for breach of contract, bad faith, and violation of Pennsylvania's Unfair Insurance Practices Act. As we have noted, Defendant properly denied coverage and therefore Plaintiff cannot establish the necessary elements for any of these claims. See also, e.g., Morrison v. Mountain Laurel Assur. Co., 748 A.2d 689, 691 (Pa.Super. 2000) (noting where a plaintiff cannot demonstrate that denial of coverage was unreasonable, bad faith cannot be established).
V. CONCLUSION
For the foregoing reasons, Defendant's Motion for Summary Judgment is granted in its entirety.
An appropriate order follows.
ORDER
AND NOW, this 3rd day of July, 2003, upon consideration of Defendant, Executive Risk Indemnity Inc.'s, Motion for Summary Judgment (Doc. No. 8), and all papers filed in support thereof and in opposition thereto, it is hereby ORDERED that the Motion is GRANTED and judgment is entered in favor of Defendant and against Plaintiff.
IT IS SO ORDERED.