Reversing the trial court’s order granting summary judgment in favor of the insurer in a declaratory judgment action brought by the insured, the Superior Court in Lanigan v. T.H.E. Insurance Company, No. 646 WDA 2013, (Pa. Super. March 14, 2014) held that the insurer breached its duty to defend the insured in a claim arising from an accident during a race.
On March 31, 2007, in a dramatic and fatal twist of events, Lanigan was racing at the Mercer Raceway Park in Mercer, Pennsylvania when his throttle stuck and he lost control of his car while turning. Crashing into the catch-fence near the pit, his car struck Steven Guthrie, Jr. and Samuel Ketcham, who were standing behind the fence. Mr. Guthrie died as a result of the injuries incurred, and Mr. Ketcham was seriously injured.
Lanigan sued T.H.E. Insurance for a declaratory judgment and bad faith after being denied a defense in the lawsuit brought by the victims in December 2009, and upon receiving a written explanation of the reasons five months later in May 2010, which stated that, “Bodily injury… to any participant against another participant while practicing for or participating in a racing program, which is sponsored by the Insured” was not covered under the insurance policy. (Emphasis added). Both sides moved for summary judgment. The trial court granted summary judgment in favor of the insurer based on its finding that the victims were “participants.” The trial court based its finding on the evidence discovered during the discovery process.
In reversing the trial court’s order granting summary judgment in favor of the insurer, the Superior Court first differentiated between the duty to defend from the duty to indemnify. The court said, “an insurer’s duty to defend is broader than the duty to indemnify.” Quoting from the Pennsylvania Supreme Court’s earlier decision, the court said “the duty to defend is not limited to meritorious actions; it even extends to actions that are groundless, false, or fraudulent as long as there exists the possibility that the allegations implicate coverage.”
In making a determination whether there is a duty to defend, “a court must compare the four corners of the insurance contract to the four corners of the complaint” and nothing more. According to the court, this is where the trial erred: the trial court considered facts obtained during discovery in finding that the victims were “participants.” The court said, the question the trial court should have addressed was “whether, examining only the underlying complaints and the insurance policy, the claims of negligence against Mr. Lanigan were potentially covered under the policy, giving rise to a duty to defend.” (Emphasis added). In answering this question, the trial court “was limited to the four corners of the complaints and the insurance contract.”
The court then remanded the case for entry of summary judgment in favor of Lanigan on the duty to defend issue and for further proceeding on Lanigan’s bad faith claim.
This case is significant for one main reason: that the insurer’s duty to defend is triggered based on the allegations set forth in the complaint (even in those actions that are groundless, false, or fraudulent) as long as there exists the possibility that the allegations implicate coverage.
In the world where many insurance companies are too quick to deny claims, this case serves as a reminder that they should think again before making their quick (and sometimes, unreasonable) decisions.