'Four corners' rule & determining an insurer's duty to defend
Pennsylvania courts ruled that insurers might need to reconsider whether there is a duty to defend additional insureds in certain suits.
For many years, Pennsylvania has been known as a strict “four corners” rule jurisdiction when it comes to determining an insurer’s duty to defend. Under that rule, an insurer must compare the allegations in the underlying complaint with the language in the insurance policy without considering any extrinsic evidence to determine if it has a duty to defend. However, courts in Pennsylvania have held that insurers may need to take a deeper look when determining whether they have a duty to defend an additional insured in a lawsuit brought by an employee of the named insured.
A typical additional insured endorsement requires that a person or entity be treated as an additional insured where required by contract, but only with respect to liability for “bodily injury” caused, in whole or in part, by the named insured’s acts or omissions, or the acts or omissions of those acting on the named insured’s behalf.
Normally, that requires a straightforward reading of the allegations in the complaint to determine whether a duty to defend exists. Pennsylvania courts, however, have realized that an underlying plaintiff will not likely assert direct allegations against her employer due to the employer’s protections under the Workers’ Compensation Act, though the acts or omissions of the employer may still be implicated. Accordingly, these courts have stated that insurers are not permitted to make their coverage decision while burying their heads in the sand. That is, where an underlying plaintiff is an employee of the named insured, an insurer must read the underlying complaint broadly, keeping in mind that there will be no direct allegations of negligence against the named insured employer. If the allegations possibly, although not directly, implicate the employer/named insured’s conduct, the insurer may have a duty to defend.
The leading case on this subject matter is Ramara, Inc. v. Westfield Ins. Co. In that matter, the Third Circuit stated that in determining if the allegations asserted by an employee of the named insured potentially trigger a duty to defend an additional insured, an insurer must factor in the Workers’ Compensation Act by recognizing that the underlying plaintiff will not make direct allegations against her employer.
With that in mind, the Third Circuit stated that Pennsylvania’s “four corners” rule “does not permit an insurer to make its coverage decision with blinders on, disclaiming any knowledge of coverage-triggering facts. Quite the opposite, knowledge that an injured employee has a claim under the Workers’ Compensation Act must be factored into a determination of whether his allegations in an underlying tort complaint potentially trigger an obligation on an insurer to provide coverage for a defendant in the underlying case. The court emphasized that insurers, however, do not have to investigate or find facts or information beyond those set forth in the complaint in order to find a basis for triggering coverage.
The Third Circuit ruled that Ramara (the owner of the property that was potentially entitled to additional insured coverage) was only required to show that the underlying complaint included allegations to support a conclusion that the underlying plaintiff’s employer (the named insured), who was not directly named or discussed, was potentially negligent. The court found that allegations that the owner was negligent in failing to hire competent subcontractors and coordinate with the subcontractors, which would include the unnamed employer, necessarily implied that the employer could have caused the injury. Therefore, the complaint included factual allegations that potentially would support a conclusion that the underlying plaintiff’s (an employee of the named insured) injuries were “caused in whole or in part” by the employer’s (the named insured’s) acts or omissions.
Other state decisions
Thus, because the contract between the named insured and Ramara required the named insured to provide additional insured coverage to Ramara, pursuant to the additional insured endorsement at issue, the insurer for the employer of the underlying plaintiff had a duty to defend Ramara as an additional insured.
Other Pennsylvania opinions have reached similar results, finding that indirect allegations could be interpreted to mean that the underlying plaintiff’s injuries were potentially caused by the acts or omissions of the plaintiff’s unnamed employer, requiring its insurer to provide a named party with a defense as an additional insured.
A more recent decision from the Eastern District further affirms this line of thinking, with the trial court holding that an employer’s insurer had a duty to defend a general contractor as an additional insured. In Liberty Mut. Fire Ins. Co. v. Harleysville Worcester Ins. Co., the underlying plaintiff, an employee of a subcontractor, sued the general contractor. The complaint, which did not name his employer (the subcontractor) due to its worker’s compensation immunity, alleged that the general contractor failed to require the subcontractors to protect against the risk of injuries, failed to supervise the project, and failed to properly supervise its employees and that the defendants themselves or through their employees, servants, and agents had actual notice of the dangerous and unsafe condition on the premises in sufficient time to correct the danger.
The district court, citing Ramara, found that the underlying complaint sufficiently alleged that the general contractor/potential additional insured “acted through its ‘agents, servants and employees,’ which could include its subcontractors, such as” the named insured. As in Ramara, the allegations of failure to monitor the subcontractors was a cause of the plaintiff’s injuries and, as such, the subcontractor’s insurer had a duty to defend the general contractor as an additional insured.
The lesson from these opinions is that when a party seeks additional insured coverage pursuant to an agreement with an insurer’s insured (an unnamed employer), the insurer must consider the allegations of the underlying complaint filed by its named insured’s employee broadly, recognizing that a plaintiffs’ attorney drafted the complaint taking the Workers’ Compensation Act into consideration (i.e., would blame entities other than his employer who is protected by the Act). This, of course, requires a very careful analysis of the allegations in the underlying complaint when determining if an insurer has a duty to defend the party seeking additional insured coverage.
Greg Delfiner, an attorney in Stewart Smith’s Pennsylvania office, focuses his practice on complex litigation, primarily in the area of insurance coverage and liability defense matters. He can be reached at gdelfiner@stewartsmithlaw.com.
Opinions expressed here are the author’s own.
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