Insurance Coverage and Bad Faith

In Arrowood Indem. Co. v. Rosser Int’l, Inc., No. GD-10-018929 (Pa. C.P. Allegheny Dec. 30, 2014) (Wettick, J.), Judge R. Stanton Wettick, Jr. of the Court of Common Pleas of Allegheny County held, in a case of first impression in Pennsylvania, that an injured party may assert a counterclaim for declaratory judgment directly against the tortfeasor’s insurer while an underlying tort claim is pending where the injured party was already named as a defendant in a declaratory judgment action concerning coverage filed by the tortfeasor’s insurer.

This issue stems from lawsuits related to the construction of the Peterson Events Center at the University of Pittsburgh. The University of Pittsburgh (“University”) filed two lawsuits against, among others, Apostolou Associates, Inc. (“Apostolou”) and Rosser International, Inc. (“Rosser”) for alleged design and construction defects at the Peterson Events Center. In one of the lawsuits, a verdict was entered in the amount of $5,959,810 in favor of the University and against Apostolou and Rosser. The verdict was not reduced to judgment.

Arrowood Indemnity Company (“Arrowood”), which issued insurance policies to both Apostolou and Rosser, filed a declaratory judgment action against Apostolou, Rosser, the University and others, seeking a declaration of the amounts of both policies potentially available for payment of the $5,959,810 verdict and other claims. Specifically, in its Second Amended Complaint, Arrowood sought a declaration that the Rosser policy was subject to a per claim and aggregate limit of $3 million and that the Apostolou policy was subject to a per claim and aggregate limit of $2 million. The University, in turn, filed a Motion to File an Amended Answer, New Matter and Counterclaim to Arrowood’s Second Amended Complaint seeking to assert a counterclaim against Arrowood, Apostolou, Rosser (and an Apostolou/Rosser Joint Venture). In its proposed counterclaim, the University sought (1) a declaration as to the coverage available under the two policies described in Arrowood’s Second Amended Complaint that differed from the declaration sought by Arrowood, and (2) a declaration as to coverage for the verdict and other claims under four additional policies issued by Arrowood to Rosser and Apostolou that the University alleged provided coverage for the verdict and claims.

In considering the University’s Motion, the court framed the following issue: “whether, while an underlying tort claim is pending, the injured party (plaintiff in the underlying action) may seek declaratory relief as to coverage in the underlying action in response to an action for declaratory relief as to coverage filed by the tortfeasor’s insurer.” The court noted that no reported Pennsylvania appellate court cases had addressed the issue.

Judge Wettick reviewed and discussed several cases from other jurisdictions which held a plaintiff in the pending underlying case may seek declaratory relief as to coverage in response to a claim for declaratory relief brought by the insurance carrier who named the plaintiff in the underlying case as a defendant in the claim for declaratory relief. Judge Wettick also cited the Pennsylvania Supreme Court in Allstate Ins. Co. v. Stinger, 163 A.2d 74 (Pa. 1960) for the general proposition that injured parties may intervene in a declaratory judgment action filed by an insurer because “the rights of the plaintiffs in the underlying proceedings are affected by the policy; thus, ‘they are interested persons, and … they are therefore entitled to have their rights declared.'”

Finding those cases persuasive, Judge Wettick held as follows: “The foundation for the insurance company’s request for a decision as to coverage is its interest in knowing where it stands as to coverage at this time. Thus, the insurance company cannot simultaneously ask the court (1) to decide whether it has a duty to defend and to indemnify so there will be finality as to coverage ahead of resolution of the underlying action, and (2) to rule that in declaratory judgment proceedings a court may decide only the declaratory judgment claims raised by the insurance company. This means, in this litigation, that the University may raise claims for declaratory relief as to the two policies set forth in Arrowood’s pleadings and as to the four additional Arrowood policies set forth in the University’s counterclaim. Otherwise, the insurance company will not know where it stands ahead of the resolution of the underlying action.” Accordingly, the court permitted the University to file its proposed counterclaim.