Court Finds That Insurer’s Duty to Defend is Not Cut Off by Judicial Admission by Insured

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An insured’s admission in an answer to a declaratory judgment complaint dispositive of coverage was not considered by the Middle District of Pennsylvania. Instead, the court looked only to the allegations in the underlying complaint and held that an insurer had a duty to defend its insured.

The insured was sued in an underlying bodily injury lawsuit arising from a motor vehicle accident. In the complaint against the insured, the underlying plaintiff alleged that the vehicle driven by the insured’s employee was an auto covered under the insurer’s policy. The insurer then filed a declaratory judgment action in the United States District Court for the Middle District of Pennsylvania, seeking a ruling it owed no coverage to the insured for the underlying action because the vehicle operated by its employee was not, in fact, a covered auto.[1]

In its answer to the insurer’s declaratory judgment complaint, the insured admitted that its employee was not driving a vehicle covered by the insurer’s policy and also admitted that the allegation by the underlying plaintiff in the underlying complaint that the vehicle was a covered auto was false. Relying on the insured’s admissions, the insurer filed a motion for judgment on the pleadings, which was denied, and then filed a motion for reconsideration.

The reconsideration motion was also denied, since the district court reiterated that under long-standing Pennsylvania law, an insurer’s duty to defend is based solely on the factual allegations in the underlying complaint compared to the scope of coverage of the insurance policy. In recounting the basis of this rule, the district court explained that since an insured cannot use extrinsic evidence to trigger the insurer’s duty to defend, an insurer also cannot use such evidence to extinguish its defense obligation.

Generally, Pennsylvania courts have found that if an underlying complaint triggers a duty to defend, the duty continues until it is clear that the plaintiff in an underlying action cannot recover under the terms of the policy.[2] (Noting “If the complaint filed against the insured avers facts which would support a recovery that is covered by the policy, it is the duty of the insurer to defend until such time as the claim is confined to a recovery that the policy does not cover.”) Thus, the district court case poses the question of what evidence is required to clearly establish that there can be no recovery under the policy, and thus, the duty to defend.

[1] MMG Insurance Co. v. Guiro, Inc. and Leonardo D. Lopez, docket number 1:19-cv-0075-JEJ.

[2] Am. & Foreign Ins. Co. v. Jerry’s Sport Ctr., Inc., 2 A.3d 526, 541 (Pa. 2010); see also, Erie Ins. Exch. v. Transamerica Ins. Co., 533 A.2d 1363, 1368 (Pa. 1987)