Primary Insurer May Have Direct Duty to Notify the Excess Insurer

In United States Fire Ins. Co. v. American National Fire Ins. Co., February Term, 2000, No. 3926 (Phila. CCP April 6, 2001), the insured, I.A. Construction Company began operating as a subcontractor for James J. Anderson Construction Company sometime before 1995. I.A. was responsible for providing insurance and defending Anderson for any claims for work I.A. Construction conducted. I.A. obtained primary coverage from Liberty Mutual Fire Insurance Company with a limit of $2,000,000 per occurrence. I.A. also purchased an excess policy with American National Fire Insurance Company with a limit of $20,000,000 per occurrence. Under the American policy, I.A. was obligated to notify the excess insurer when a claim was likely to involve the American policy.

On June 6, 1995, I.A. employed Keith Voiro who was injured on the job at the Anderson Construction site. In November 1998, the case settled for $4,800,000 with Anderson’s share of the settlement accounting for $4,000,000.

Liberty paid $2,000,000 and American refused to contribute to the settlement, asserting it had not been notified of the lawsuit nor permitted to participate in the defense of the case. American argued that Liberty knew that the settlement amount could exceed the $2,000,000 policy on March 6, 1998 but did not notify American until September 4, 1998.

Anderson’s primary and excess insurers paid the remaining $2,000,000 of the settlement. United States Fire Insurance Company subsequently filed suit against American to recover the monies it contributed to the settlement. American filed a joinder complaint, joining Liberty Mutual. After filing its answer, Liberty Mutual filed a motion for summary judgment stating that it had no duty to advise American of the Voiro action.

Judge Sheppard, of the Philadelphia Court of Common Pleas, denied Liberty Mutual’s motion for summary judgment. This ruling is significant because it is the first time that a Pennsylvania Court has ruled that a primary insurer may have a direct duty to notify an excess insurer when the excess insurer’s policy may be implicated. In the past, Pennsylvania Courts had treated the excess insurer as the insured’s subrogee and allowed the excess insurer to pursue its claim under the doctrine of equitable subrogation. Judge Sheppard, in denying Liberty’s motion for summary judgment, justified his decision to deny Liberty Mutual’s motion for summary judgment and allow more discovery on the issues of material fact stating, “among the primary insurer, the excess insurer and the insured, only the primary carrier has both the information concerning the claim and the expertise necessary to evaluate that information and to determine if the policy is likely to be implicated.”

United States Fire Ins. Co. v. American National Fire Ins. Co.,
February Term, 2000, No. 3926 (Phila. CCP April 6, 2001)