Westminster Am. Ins. Co. v. Sec. Nat'l Ins. Co.

555 F.Supp.3d 75

WESTMINSTER AMERICAN INSURANCE COMPANY and Argenis Reyes and Rosalba Munoz, h/w, as assignees of 4207 Chester Ave., LLC and Waldy Reyes

v.SECURITY NATIONAL INSURANCE COMPANY

CIVIL ACTION NO. 20-2195

United States District Court, E.D. Pennsylvania.

Filed August 16, 2021

Debra T. Varner, Varner & Van Volkenburg PLLC, Clarksburg, WV, Robert J. Mongeluzzi, Marni Berger, Larry Bendesky, Saltz, Mongeluzzi, Barrett & Bendesky, P.C., Adam J. Pantano, United States Attorney's Office for the ED of PA, Philadelphia, PA, for Westminster American Insurance Company, Waldy Reyes, Argenis Reyes, Rosalba Munoz.

James W. Scott, Jr., Louis A. Bove, Marc J. Syken, Bodell Bove LLC, Philadelphia, PA, for Security National Insurance Company.

MEMORANDUM

Padova, District Judge

Plaintiffs commenced this insurance coverage litigation against Defendant Security National Insurance Company ("SNIC"), after Plaintiff Argenis Reyes ("Argenis") was injured in a construction accident and SNIC refused to defend or indemnify parties that Argenis alleged were responsible for his injuries. Plaintiffs have asserted claims for declaratory judgment, breach of contract, statutory bad faith, and breach of the implied duty of good faith and fair dealing. Presently before the Court is SNIC's Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), in which SNIC argues that it has no coverage obligations for Argenis's claims under the insurance policy at issue. We held argument on SNIC's Motion on August 4, 2021. For the reasons that follow, we now grant SNIC's Motion to Dismiss, concluding, inter alia, that SNIC had no duty to defend or indemnify in light of the policy's employer's liability exclusion.

I. BACKGROUND

A. The Underlying Incident

This case arises from a tragic accident in which Plaintiff Argenis and another individual, Waldy Reyes ("Waldy"),¹ were seriously injured while performing building maintenance work at 4207 Chester Avenue in Philadelphia, on June 25, 2019. (See Sec. Am. Compl. ("Compl.") ¶¶ 18, 21-22.) Argenis and Waldy were standing on a third-floor fire escape balcony, discarding construction debris, when the balcony collapsed. (Id. ¶¶ 18, 20.) Waldy fell one story onto a second-floor landing, suffering two fractured ribs.² (Id. ¶ 21.) Argenis "fell multiple stories to the ground and suffered significant injuries, including ... permanent paralysis." (Id. ¶ 22.)

4207 Chester Ave., LLC ("Chester Ave.") is the owner of the property at 4207 Chester Avenue. (Id. ¶ 23.) Chester Ave. had hired Altman Management Company, Inc. ("Altman") to maintain and manage the property. (Id. ¶ 19.) Altman had, in turn, enlisted AM Marlin Construction, LLC ("AM Marlin") to repair a leak in the building's ceiling. (Id. ¶ 11; Mediation Statement, Compl. Ex. B, at 2-3 of 5.) Argenis was employed by Altman, and Waldy was employed by AM Marlin. (Compl. ¶ 19.) Both Argenis and Waldy "were working in their capacity as employees of AM Marlin and[ ] Altman" when the balcony collapsed. (Id. ) Following the accident, Argenis asserted that Chester Ave., AM Marlin, and Waldy were responsible both for his bodily injuries and for loss of consortium damages sustained by his wife, Rosalba Munoz ("Munoz"). (Id. ¶ 23.)

AM Marlin was the named insured under a commercial general liability policy issued by SNIC (the "Policy"). (Id. ¶ 26; Policy, Compl. Ex. F, at 4 of 67.) As AM Marlin's employee, Waldy was covered under the Policy "for acts within the scope of [his] employment [by AM Marlin] or while performing duties related to the conduct of [AM Marlin's] business." (Compl. ¶ 34.) In addition, the Policy listed both Chester Ave. and Altman as additional insureds under the Policy's "Blanket Additional Insureds-Owners, Lessees or Contractors Endorsement" Schedule, "but only to the extent that [Chester Ave. or Altman was] held liable for [AM Marlin's] acts or omissions arising out of your ongoing operations performed for [AM Marlin]." (Compl. ¶ 27 and Ex. G at 2 of 3.)

Chester Ave. was also the named insured under a commercial general liability policy issued by Plaintiff Westminster American Insurance Company ("Westminster"), which, according to the Complaint, provided for insurance that was excess to that provided in AM Marlin's Policy with SNIC for claims arising from Argenis's injuries. (Compl. ¶¶ 7, 38, 41 and Ex. I.)

B. SNIC's Coverage Position

Westminster tendered Chester Ave.’s defense and indemnity with respect to Argenis's and Munoz's claims to SNIC on December 26, 2019, asserting that Chester Ave. was an additional insured under the Policy's Blanket Additional Insureds-Owners, Lessees or Contractors Endorsement, which, according to Westminster, provided coverage to Chester Ave. for "liability arising out of [ ] AM Marlin's work at [Chester Ave.’s] Property." (Id. ¶¶ 40-41 and Ex. J.) SNIC responded that it would investigate the claims, and shortly thereafter, on January 15, 2020, it informed Westminster that it " ‘ha[d] identified coverage issues.’ " (Id. ¶ 44 (alteration in original) (quoting Compl. Ex. M).) By April 3, 2020, when SNIC had still not informed Westminster or Chester Ave. of its precise coverage position, Westminster sent a letter requesting a formal response to its tender, stating that SNIC was "impeding [Argenis's and Munoz's] ability to settle [their] claims against Chester Ave." (Id. ¶¶ 46, 47 and Ex. O.) The letter included Argenis and Munoz's demand package, along with an expert report regarding the "nature of th[e] claims and the extent of the alleged damages." (Id. ¶ 48 and Ex. O.)

In response, SNIC reiterated that it " ‘ha[d] identified coverage issues which may preclude coverage for the claim under the [Policy].’ " (Id. ¶ 49 (first alteration in original) (quoting Compl. Ex. P).) On May 6, 2020, SNIC formally denied coverage to Chester Ave., stating that Chester Ave.’s "coverage [under the Policy was] limited to the extent Chester Ave. is held liable for AM Marlin's acts and/or omissions arising out of AM Marlin's ongoing operations performed for Chester Ave" (id. ¶ 50 and Ex. Q), and taking the position that this coverage was not triggered because "AM Marlin did not perform any work for Chester Ave. on the Property's fire escape balcony that collapsed." (Id. ¶ 54.)

Two days after SNIC's formal denial, on May 8, 2020, Westminster's counsel asked SNIC to reconsider its coverage position and invited SNIC to attend a pre-suit mediation on May 13, 2020. (Id. ¶ 59 and Ex. S.) However, SNIC declined Westminster's invitation. (Id. ¶ 59 and Ex. T.) After learning that SNIC would not attend, Argenis and Munoz's counsel "demand[ed] the full limits of AM Marlin's Policy ($1 million dollars)" the day before the mediation. (Id. ¶ 60.) SNIC denied the demand on May 13, 2020, explaining that "AM Marlin ‘did not provide any service or work related to the exterior balcony which failed and caused your client's injuries,’ does not own, supervise, maintain or manage the premises,’ ‘owed no duty to your clients ... and breached no duty resulting in’ Argenis's and Munoz's injuries." (Id. ¶¶ 60, 61) (quoting Compl. Ex. U.) At the May 13, 2020 mediation, which SNIC did not attend, Argenis and Munoz settled and released their claims against Chester Ave. and Waldy, and obtained from Chester Ave. and Waldy an assignment of their rights to assert claims against SNIC for failing to provide coverage to Chester Ave. and failing to defend and indemnify Waldy. (Id. ¶ 25.) Specifically, the parties agreed to resolve the claims as follows:

a. Argenis and Munoz released their claims against Chester Ave. in exchange for $30 million dollars, partial satisfaction of which was accepted through receipt of $5.4 million dollars payable under Chester Ave.’s primary ($1 million-dollar limit) and excess ($5 million-dollar limit) insurance policies with Westminster;

b. In order to achieve full satisfaction of the settlement, Chester Ave. also agreed to assign its rights to Argenis and Munoz to assert any claims it may have against [SNIC] for failing to provide coverage to Chester Ave. as an additional insured;

c. Argenis and Munoz released their claims against Waldy in exchange [for] $5 million dollars, to be satisfied by Waldy through an assignment of Waldy's rights to assert claims against [SNIC] for failing to defend and indemnify Waldy as an employee of [SNIC's] named insured, AM Marlin; and

d. Waldy released his claims against Chester Ave. and Altman in exchange for a confidential figure which the parties agreed was a fair and reasonable valuation of his claims.

(Id.; see also Compl. Exs. D & E.) After the mediation, Waldy's counsel contacted SNIC "requesting [that SNIC] acknowledge its coverage obligation to Waldy and resolve the potential claims against him by Argenis and Munoz." (Id. ¶ 62 and Ex. V.)

The next day, on May 21, 2020, SNIC's coverage counsel sent a letter to Westminster's counsel and stated for the first time that coverage was foreclosed by the Policy's Employer's Liability Exclusion (the "ELE"). (Id. ¶¶ 65, 69 and Ex. W.) Specifically in this regard, SNIC asserted that the ELE excluded coverage for bodily injury to an employee of "any insured" and that the ELE therefore precluded coverage for Argenis's bodily injuries because he was an employee of Altman, which was an additional insured under the SNIC policy. (Id. ¶ 69 and Ex. W.)

Following SNIC's continued refusal to acknowledge coverage under the Policy, Plaintiff Westminster, along with Plaintiffs Argenis and Munoz, as assignees of Chester Ave. and Waldy, filed the instant action against SNIC, asserting eight claims for relief. Count I seeks a declaratory judgment that SNIC is required to defend and indemnify Chester Ave. and reimburse Westminster for the costs of Chester Ave.’s defense. Count II seeks a declaratory judgment that SNIC is required to pay its policy limit and indemnify Chester Ave. for the $24.6 million-dollar settlement with Argenis and Munoz and the $1 million-dollar limit on AM...