HomeMy WebLinkAbout2004-6162 Civil
SOUTHCENTRALEMPLOYMENT
CORPORATION
Plaintiff,
IN THE COURT OF COMMON PLEAS
OF CUMBERLAND COUNTY,
PENNSYLVANIA
v.
BIRMINGHAM FIRE INSURANCE
COMPANY OF PENNSYLVANIA
Defendant
CIVIL ACTION-LAW
NO. 2004-6162 CIVIL TERM
IN RE: DEFENDANT'S MOTION FOR JUDGMENT ON THE PLEADINGS
BEFORE HESS and OLER, JJ.
ORDER OF COURT
AND NOW, this 3rd day of February, 2006, upon consideration of Defendant's
motion for judgment on the pleadings, and for the reasons stated in the accompanying
opinion, the motion is granted and it is declared as follows:
1. The insurance policy at issue in this case excludes
coverage of Plaintiff s return-of- funds loss; and
2. The said policy also does not obligate Defendant to provide
or contribute to a defense of Plaintiff with respect to the
claim against Plaintiff for the said return funds.
BY THE COURT,
1. Wesley Oler, Jr., 1.
Brian C. Caffrey, Esq.
Saidis, Shuff, Flower & Lindsay
26 W. High Street
Carlisle, P A 17013
Attorney for Plaintiff
Lawrence 1. Bistany, Esq.
David E. Edwards, Esq.
Celestine Montague, Esq.
White and Williams, LLP
1800 One Liberty Place
1650 Market Street
Philadelphia, P A 19103
Attorneys for Defendant
2
SOUTHCENTRALEMPLOYMENT
CORPORATION
Plaintiff,
IN THE COURT OF COMMON PLEAS
OF CUMBERLAND COUNTY,
PENNSYLVANIA
v.
BIRMINGHAM FIRE INSURANCE
COMPANY OF PENNSYLVANIA
Defendant
CIVIL ACTION-LAW
NO. 2004-6162 CIVIL TERM
IN RE: DEFENDANT'S MOTION FOR JUDGMENT ON THE PLEADINGS
BEFORE HESS and OLER, JJ.
OPINION and ORDER OF COURT
OLER, 1., February 3, 2006.
In this insurance case, Plaintiff allegedly incurred a loss under an insurance policy
issued by Defendant. Plaintiff filed a claim with Defendant for the recovery of
approximately $597,273.00, which Plaintiff owed to a state agency as a result of
Plaintiff s inability to account for the use of the funds in an audit. Defendant denied
Plaintiff s insurance claim, as a result of which the present action for a declaratory
judgment was commenced. With the filing of the Complaint, 1 Answer and New Matter,2
and Reply to New Matter,3 the pleadings are closed and Defendant has moved for
judgment on the pleadings.4
F or the reasons stated herein, Defendant's motion for judgment on the pleadings
will be granted.
1 Complaint, ~ 5, filed December 8, 2004 (hereinafter "Complaint").
2 Birmingham Fire Insurance Company of Pennsylvania's Answer and New Matter to Complaint, filed
March 7, 2005 (hereinafter "Answer").
3 Reply to New Matter, filed March 28,2005.
4 Motion of Defendant Birmingham Fire Insurance Company of Pennsylvania for Judgment on the
Pleadings Pursuant to Pa. R. Civ. P. 1034, filed September 7,2005 (hereinafter "Motion").
STATEMENT OF FACTS
For purposes of Defendant's motion, the facts may be summarized as follows:
Plaintiff is Southcentral Employment Corporation, a non-profit employment services
corporation which expends "funds made available to it by the United States Department
of Labor, acting through the Commonwealth of Pennsylvania Department of Labor and
Industry. ,,5 Defendant is Birmingham Fire Insurance Company of Pennsylvania, with
which Plaintiff had a Not-for-Profit Protector Policy.6
On April 29, 2003, the Pennsylvania Department of Labor & Industry, Bureau of
Workforce Investment (hereinafter the "Department of Labor") issued a final
determination from 1997, 1998, 1999, and 2000 audits of Plaintiff. 7 The determination
identified and disapproved of several expenditures made by Plaintiff during the course of
its contracts with the Department of Labor in connection with "excess revenue drawn
down on various unidentifiable contracts, uncategorized expenses and unsupported debits
and credits and accruals and payables, inability to account for classroom training funds,
and inability to justify cost allocation basis adjustlnent.,,8 The Department of Labor
determined that Plaintiff was "required to pay. . . $597,273.00 from non-Federal funds"
to the Department. 9
On March 12, 2004, Plaintiff provided Defendant with written notice of the final
determination and claimed that such determination was covered under the "wrongful
acts" portion of the policy.lO Defendant denied coverage of Plaintiff s claim.11 In
5 Complaint, ~ 5.
6 Complaint, ~ 6, Exhibit A; Answer ~ 6.
7 Complaint, ~~ 10-12.
8 Complaint, ~ 13.
9 Complaint, ~~ 10-13.
10 Complaint, ~ 14; Answer ~ 14.
2
response, Plaintiff has filed the instant declaratory judgment action seeking a
determination that Defendant is obligated to indemnify Plaintiff in the amount
$597,273.00, and to provide a legal defense for Plaintiffs opposition to and appeal from
the charges assessed by the Department of Labor. 12
According to the terms of the policy Defendant is required to:
pay on behalf of the Organization Loss arising from a Claim
first made against the Organization during the Policy Period
or the Discovery Period (if applicable) and reported to the
insurer pursuant to the terms of this policy for any actual or
alleged Wrongful Act of the Organization. 13
The policy defines a "Wrongful Act" by an organization as:
any breach of duty, neglect, error, misstatement, misleading
statement, omission or act by or on behalf of the
Organization. . . . "Wrongful Act" shall specifically include:
(a) Employment Practice Claims; (b) Non-Employment
Discrimination; (c) violation of the Sherman Antitrust Act or
similar federal, state or local statutes or rules. . . .14
The policy defines "Loss" as:
Damages, (including back pay and front pay), judgments,
settlements, pre- and post-judgment interest, the multiple or
liquidated damages awards under the Age Discrimination in
Employment Act and the Equal Pay Act and Defense Costs;
however, Loss shall not include: (1) any amount for which the
Insureds are not financially liable or which are without legal
recourse to the Insureds; . . . (4) matters which may be
deemed uninsurable under the law pursuant to which this
policy shall be construed. IS
11 Complaint, ~ 15; Answer ~ 15.
12 Complaint, ~ 16.
13 Policy ~ 1, Coverage C.
14 Policy ~2, ~ (u)(2)-(4).
15 Policy ~2, ~ (k).
3
According to Endorsement 11 of the Policy, regarding "Governmental Funding
Defense Cost Coverage:"
In consideration of the premium charged, it is understood and
agreed that the Loss shall not include the return funds which
were received by the Organization or any other entity from
any federal, state, or local governmental agency; provided,
however, that with regard to Claims arising out of the return,
or request to return, such funds, subject to a retention amount
of $1,000,000, this policy shall pay Defense Costs up to
$1,000,000 on a 50% coinsurance basis with 50% of such
Defense Costs to be borne by the Insured and to remain
uninsured; and the remaining 50% of such Defense Costs to
be covered by the Insurer subject to all other terms,
conditions and exclusions of the policy.16
Following the filing of an answer with new matter, to which Plaintiff replied,
Defendant moved for judgment on the pleadings.17 In the motion, Defendant asserts that
even if Plaintiff s activities constitute "wrongful acts" under the policy they are still not
considered a "loss" according to Endorsement 11 of the policy. IS Finally, under
Endorsement 11, Defendant asserts that any obligation on its part to pay defense costs is
limited to cases involving return funds in excess of $1,000,000.19
DISCUSSION
Pennsylvania Rule of Civil Procedure 1034(a) provides that, "after the relevant
pleadings are closed, but within such time as not to umeasonably delay the trial, any
party may move for judgment on the pleadings." According to Cumberland County
Local Rule 1034(a), "Motions for judgment on the pleadings shall be filed with the
Cumberland County Prothonotary's Office and disposed of in the same manner as
preliminary objections in accordance with Rule 1028(c)."
16 Policy, Endorsement 11.
17 Motion of Defendant Birmingham Fire Insurance Company of Pennsylvania for Judgment on the
Pleadings Pursuant to Pa. R Civ. P. 1034, filed September 7,2005 (hereinafter "Motion").
18 Motion, ~ 15.
19 Motion, ~ 16-17.
4
When ruling on a motion for judgment on the pleadings, the court
must view all of the opposing party's allegations as true, and
only those facts that the opposing party has specifically
admitted may be considered against the opposing party. We
may consider only the pleadings themselves and any
documents properly attached thereto. We may grant a motion
for judgment of the pleadings only when there is no genuine
issue of fact and the moving party is entitled to judgment as a
matter of law.
Parish v. Horn, 768 A.2d 1214, 1215 n.l (Pa. Commw. 2001), aff'd, 569 Pa. 45, 800
A.2d 294 (2002) (citations omitted).
The question presented by a defendant's demurrer, or motion for judgment on the
pleadings, is whether the law states with certainty that no recovery is possible based on
the facts by which Plaintiff is bound. Werner v. Plater-Zyberk, 2002 P A Super. 42 ,-r7,
799 A.2d 776, 783 (2002) (citation omitted). All material facts set forth in the complaint,
as well as all reasonable inferences therefrom, are deemed true for purposes of review.
Id
To prevail based on an exclusionary insurance provision, such as the "return
funds" exclusion at issue herein, the insurer must prove that the language is clear and
unambiguous; otherwise, the provision will be construed in favor of the insured. Fayette
Co. Housing Authority v. Housing and Redevelopment Ins. Exchange., 2001 PA Super 83
,-r7, 771 A.2d 11, 13 (2001). Contractual terms are considered ambiguous if they are
"subject to more than one reasonable interpretation when applied to a given set of facts.
However, in interpreting the terms of the contract, [the court] will not distort or strain the
meaning of the language in order to find an ambiguity." I d. at ,-r8 (citing Madison
Construction Co. v. Harleysville Mutual Ins. Co., 557 Pa. 595, 605, 735 A.2d 100, 106
(1999)). Finally, words not defined in the policy are to be "read in their natural,
plain, and ordinary sense, and [the court] may consider their
dictionary definition in determining our understanding of these terms."
Id. at ,-r9.
5
The insurance policy in dispute excludes from the definition of "loss" the "return
funds which were received by the Organization or any entity from any federal, state, or
local government agency." Therefore, the issue for resolution in the present context is
whether the $597,293.00 that Plaintiff owes the Department of Labor constitutes "return
funds" excluded from coverage under the policy.
Although the phrase "return funds" is not defined in the policy, it appears clear
from the context of Endorsement 11 that "return funds" means funds to be returned to
government agencies. Plaintiff contends that this provision refers to funds that
constituted "return funds" when they were received by the organization; however, such a
reading of Endorsement 11 is inconsistent with the context of the policy and with the
natural meaning of the word return. In the present case, the Department of Labor
requested Plaintiff to return funds previously distributed to Plaintiff and such return of
funds is not covered by the insurance policy.
Furthermore, with respect to Defendant's obligation to pay defense costs, the
language of Endorsement 11 clearly provides that such an obligation arises only when the
funds to be returned exceed $1,000,000. In the present case, Plaintiff has alleged only
$597,273.00 in funds to be returned to the Department of Labor.
Therefore, the following order will be entered:
ORDER OF COURT
AND NOW, this 3rd day of February, 2006, upon consideration of Defendant's
motion for judgment on the pleadings, and for the reasons stated in the accompanying
opinion, the motion is granted and it is declared as follows:
1. The insurance policy at issue in this case excludes
coverage of Plaintiff s return-of- funds loss; and
2. The said policy also does not obligate Defendant to provide
or contribute to a defense of Plaintiff with respect to the
claim against Plaintiff for the said return funds.
6
BY THE COURT,
s/ 1. Wesley Oler, Jr.
1. Wesley Oler, Jr., 1.
Brian C. Caffrey, Esq.
Saidis, Shuff, Flower & Lindsay
26 W. High Street
Carlisle, P A 17013
Attorney for Plaintiff
Lawrence 1. Bistany, Esq.
David E. Edwards, Esq.
Celestine Montague, Esq.
White and Williams, LLP
1800 One Liberty Place
1650 Market Street
Philadelphia, P A 19103
Attorneys for Defendant
7