The 7-2 decision overturns a trial court's finding that a four-year statute of limitations barred Selective Way Insurance Co. from proceeding with a declaratory judgment action it launched in 2012 aimed at avoiding coverage for a 2007 negligence suit filed the operator of a Ramada Inn in Westmoreland County after a 17-year-old hotel worker was killed in a car accident after drinking on the job.
While the trial court found that the statute of limitations on Selective’s declaratory judgment action began to run when the underlying complaint was filed, a nine-judge Superior Court panel ruled Tuesday that the clock actually began ticking when the insurer first realized it might have grounds for avoiding coverage.
“The statute of limitations for the filing of a declaratory judgment action brought by an insurance company regarding its duty to defend and indemnify begins to run when a cause of action for a declaratory judgment arises,” the court ruled in an opinion penned by Judge Christine L. Donohue. “This requires a determination by the trial court of when the insurance company had a sufficient factual basis to support its contentions.”
The negligence suit against hotel operator Hospitality Group Services Inc. stemmed from a February 2006 car crash that killed 17-year-old employee Sean Nemcheck. According the opinion, the suit claimed that Nemcheck had been negligently allowed to consume alcohol during a 16-hour shift in the hotel’s kitchen and banquet facility.
While Selective was made aware of the suit at the time it was filed in August 2007, the Superior Court’s opinion said that the insurer referred the matter to its coverage counsel for a definitive determination about whether it had a duty to defend or indemnify the hotel under its policies.
Selective went on to claim that the incident fell outside the scope of the coverage it provided to Hospitality Group Services in a trio of policies it sold to the hotel operator.
According to court records, that determination came following the deposition of one of Nemcheck’s co-workers who said that the deceased boy had obtained alcohol from the hotel while unsupervised and without the operator’s knowledge or permission.
According to the opinion, a settlement was reached between the insurer and the worker’s family in the underlying suit as the en banc panel prepared to hear oral arguments in the declaratory judgment appeal.
The court, however, said that a separate bad faith claim Hospitality Group Services had launched against Selective over the coverage dispute required that it nonetheless issue a ruling in the coverage row.
“Absent our review of this issue, the trial court’s finding that Selective filed its complaint in the declaratory judgment action out of time would be binding ... in the Hospitality Group action and could provide a basis of liability for bad faith as Selective would be precluded from relitigating this question,” the majority’s opinion said.
In a dissent, Judge Kate Ford Elliott said that the standard outlined by the majority was too lenient because Selective had ample notice prior to its filing of the declaratory judgment action that there could be grounds for a coverage dispute.
“A simple comparison of the factual allegations in the Nemcheck complaint with the terms of the policy should have enabled Selective to timely file a declaratory judgment action,” she said. “Despite knowing all the salient facts upon which it relies in its declaratory judgment action, Selective waited until the eve of trial to seek a judicial determination of noncoverage.”
Judge Sallie Updyke Mundy said in a separate dissent that she believed the issue should have been declared moot as a result of the settlement that Selective struck in the underlying case.
Attorneys for the defendants did not immediately return message seeking comment.
Selective is represented by Jeffrey H. Quinn and Melissa B. Catello of Dickie McCamey & Chilcote PC.
The defendants are represented by Christopher Hildebrandt and Todd Berkey of Edgar Snyder & Associates LLC and Ronald Bergman.
The case is Selective Way Insurance Co. v. Hospitality Group Services Inc. et al., case number 1430 WDA 2013, in the Superior Court of the State of Pennsylvania.