Pennsylvania Supreme Court Notes Limited Reach of Multiple Trigger Rule in Insolvency Case

by Cozen O'Connor
Contact

On July 21, 2014, the Pennsylvania Supreme Court held, as a matter of first impression, that the Continuance of Coverage Provision of the Pennsylvania insurance insolvency statute, 40 P.S. § 221.21, precludes coverage for all “risks in effect” under an insurance policy, even when the policy was cancelled prior to liquidation.

In the underlying litigation, Warrantech Consumer Products Services, Inc., a company that marketed and administered extended warranties and service contracts for various products, sought coverage under two insurance policies issued by Reliance Insurance Company in 1999 and 2000. According to the court’s opinion, Warrantech had purchased insurance from Reliance to provide indemnification for all future liabilities arising under certain contracts Warrantech issued during the applicable policy periods.

“Risks in Effect” under § 221.21

In 2001, the Commonwealth Court placed Reliance in liquidation. Reliance thereafter stopped reimbursing Warrantech for claims insured under its policies as of November 2, 2001, the court’s designated statutory cancellation of coverage date. In the ensuing liquidation proceedings, Warrantech submitted proofs of claim seeking reimbursement for covered claims. The liquidator assigned a zero value to each of Warrantech’s proof of claims. In relevant part, the liquidator referred to § 221.21 to support its ruling that the claims had no value because they pertained to losses that occurred after the statutory cancellation of coverage date. Section 221.21 states, in part: “[a]ll insurance in effect at the time of issuance [of] an order of liquidation shall continue in force only with respect to the risks in effect, at that time (i) for a period of thirty days from the date of entry of the liquidation order …”

Warrantech filed an exception to the referee’s report and assigned a value to its claims in the amount of $11,900,499. The Commonwealth Court overruled Warrantech’s exception.

On appeal, Warrantech challenged the lower court’s interpretation of § 221.21 and argued that the statute did not relieve Reliance of its indemnification obligations. Specifically, Warrantech argued that the relevant policies were not “insurance in effect” at the time of the liquidation proceedings.

The court rejected Warrantech’s interpretation of the statute and affirmed the lower court’s ruling. Applying principles of statutory interpretation, the court reasoned:

Warrantech’s argument that Section 221.21 only applied to insurance policies with active policy periods based on the phrase “[a]ll insurance in effect” is incongruous with the overriding purpose of Sections 221.20(d) and 221.21, which is to provide a limited exception for insureds facing the otherwise harsh finality of standard liquidation proceedings … the better interpretation is to read the phrase as a reference to the same policyholders identified in Section 221.20(d) who face the unforeseen termination of their insurance coverage on account of their insurer’s liquidation.

Court Declines to Apply Multiple Trigger Outside Toxic Tort Realm

Warrantech further argued that even if § 221.21 applied, coverage was triggered when Warrantech issued the service contracts to consumers during the applicable policy periods, before liquidation. As support for its position, Warrantech noted that, in the asbestos context, Pennsylvania courts recognize a “multiple trigger” theory of liability that requires an insurer to respond to a loss if it is on the risk for exposure and manifestation of injury. In response, the insurance commissioner, acting as statutory liquidator of Reliance, argued that pursuant to § 221.21, the “risks in effect” were properly cancelled at the time the insurer entered liquidation. The insurance commissioner challenged Warrantech’s position on trigger of coverage and asserted that the insurer’s obligations are triggered when Warrantech pays for a product breakdown under one of its service contracts, and not when the contracts themselves are issued.

The court rejected Warrantech’s interpretation of the statute and affirmed the lower court’s ruling. The court held that the proper trigger of coverage is when a claim is made for product breakdown, as opposed to when the service contracts are issued, because Warrantech does not become “legally obligated to pay” any amount until a consumer seeks to recover for a product breakdown.

Notably, the court found that Warrantech provided no compelling reason to extend the “multiple trigger” theory beyond the toxic tort context, reasoning “[t]he insurance policies at issue merely involve claims arising from product breakdowns occurring under standard service contracts, which is entirely distinguishable from the unusual and prolonged etiology of asbestos-related diseases or similar toxic tort scenarios.”

The Significance of the Court’s Ruling

The court’s ruling is significant for two reasons. First, the court’s broad construction of § 221.21 confirms that this statute applies even to a policy that was cancelled prior to liquidation. Second, although the trigger of coverage analysis was not central to its analysis, this decision marks the first time that the Pennsylvania Supreme Court has commented on the scope of the multiple trigger theory and recognized that its application has been limited to the toxic tort context.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Cozen O'Connor | Attorney Advertising

Written by:

Cozen O'Connor
Contact
more
less

Cozen O'Connor on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.