FEBRUARY 2013 BAD FAITH CASES: COURT AFFIRMS GRANT OF SUMMARY JUDGMENT TO UMBRELLA INSURER BECAUSE UNDERLYING POLICY WAS NOT EXHAUSTED AND PROFESSIONAL SERVICES EXCLUSION JUSTIFIED DENIAL (Philadelphia Commerce Court)
In Lexington Ins. Co. v. Charter Oak Fire Ins. Co., the court issues an opinion explaining its prior grant of summary judgment to an umbrella insurer, ruling that the carrier’s duty to defend and indemnify were not triggered because underlying policies were not exhausted and the policy excluded coverage over injuries arising from professional services. (See also this blog).
The suit arose from a contract between the Philadelphia Water Department (PWD) and the insured, which was providing engineering services for a construction project. The contract contained an indemnification provision that required the insured to defend and indemnify PWD against all liabilities. The insured purchased a general liability policy and a professional service liability policy through the plaintiff-carrier in this case. The general liability policy excluded coverage for injuries arising out the insured’s professional services.
The defendant-carrier in this action insured a joint venture that was later formed to complete PWD’s engineering project. That policy excluded coverage for bodily injury arising out of professional engineering services. The joint venture’s subcontractors also obtained a policy that was to be primary over the aforementioned policy purchased by the joint venture.
The joint venture also purchased an umbrella policy that excluded coverage for damage arising from its professional services. After the claimant in the underlying personal injury action was fatally injured in an area where one of the subcontractors was working, his estate filed suit. The subcontractors and PWD were defended and indemnified by the defendant-carrier in this action. This underlying tort action eventually settled. The plaintiff-carrier filed suit, alleging that the defendant-carrier was obligated to provide coverage, but the court granted summary judgment in the defendant-carrier’s favor.
On appeal, the engineers that entered into the main contract with PWD and later formed the joint venture, sought coverage from the plaintiff-carrier in this action.
The court granted summary judgment in the defendant-carrier’s favor because, as an umbrella insurer, its duty to defend and indemnify had not been triggered by the exhaustion of underlying insurance.
The court recommended affirmation of summary judgment in favor of the defendant-carrier. As it did in its opinion granting the defendant-carrier’s motion, the court reasoned that, under the contract, all “underlying” and “other” insurance must be exhausted before triggering umbrella coverage.
Moreover, the defendant-carrier did not act in bad faith because the applicable policy excluded injuries arising from professional services.
As such, the denial of coverage was justified and the grant of summary judgment was deemed proper on appeal.