May 21, 2008

Insurer's Duty To Defend Under
Donegal V. Baumhammers

Decided by the Pennsylvania Supreme Court on December 27, 2007, Donegal v. Baumhammers, et al, 893 A.2d, 797 (Pa. Super. 2006) is a very important ruling for two critical reasons.

First, the Supreme Court’s ruling deals with the insurance carrier’s duty to defend insureds, under a homeowner’s policy, against personal injury claims brought against the insureds’ son, who, on April 28, 2000, went on a shooting spree, resulting in his killing five people, wounding another, and also setting fire to the first victim’s home.

Subsequent to the shooting spree, the son, Richard Baumhammers, was convicted of five counts of first degree murder, for the five dead victims, as well as convictions for aggravated assault and attempted homicide on the sole surviving victim.

Ruling that the insurance carrier was required to defend the insureds under their homeowner’s policy, the Supreme Court was also asked to rule on whether the son’s deranged shooting spree was a single occurrence, or was six separate incidents, one for each of the individual shootings.

The Supreme Court found that the carrier would have to defend the shooter’s parents, but that the shooting spree was a single “occurrence.”

In what can only be considered a “split decision,” with the insurance carrier initially seeking declaratory judgment before the trial court, the Supreme Court found that the carrier would have to defend the shooter’s parents, but that the shooting spree, at least in the context of the parents’ alleged negligence, was a single “occurrence,” as that term was defined under the homeowner’s policy, presumably limiting the options of all litigants involved in the dispute, with the effective compression of available coverage, post-ruling.

The parents were sued by the estates of the five deceased, and by the surviving victim.

In Donegal, Donegal insured Andrejs and Inese Baumhammers, the parents of Richard Baumhammers, under a homeowner’s insurance policy. The parent Baumhammers were sued by the estates of the five deceased victims, and by the surviving, but seriously-wounded, victim. All of the personal injury lawsuits were consolidated under one docket in the Allegheny Court of Common Pleas.

Each separate personal injury claim alleged that the parent Baumhammers had failed to secure adequate mental health treatment for their son, had failed to prevent their son from having a handgun, and had failed to notify authorities that their son had a handgun.

The homeowner’s policy provided for coverage for claims brought against an insured for damages resulting from bodily injury that were caused by an “occurrence.” The policy described the coverage limits for bodily injury as follows:

Limit of Liability. Our Total Liability … for all damages resulting from any one “occurrence” will not be more than the limit of liability … as shown in the Declarations. This limit is the same regardless of the number of “insureds,” claims made or persons injured. All “bodily injury” and “property damage” resulting from any one accident or from continuous or repeated exposure to substantially the same general harmful conditions shall be considered to be the result of one “occurrence.”

The policy did require the insurance carrier to “provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent.”

The policy defined an “occurrence” as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period … bodily injury or property damage.” The homeowner’s policy did not contain any definition of the term “accident.” The policy did require the insurance carrier to “provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent.”

In response to the personal injury, wrongful death, and survival actions filed by the respective Plaintiffs, Donegal filed a Declaratory Judgment Complaint, requesting that the trial court determine that Donegal did not owe the insureds a duty to either defend or indemnify them, against the tort claims being asserted against both the parents and their son. In seeking Declaratory Judgment, Donegal also asked the trial court to determine whether the son’s shooting spree constituted either a single or multiple occurrences.

At the trial court level, all parties filed cross-motions for summary judgment. In disposing of the Summary Judgment Motions, the trial court granted summary judgment in favor of Donegal against the homeowner’s son, finding no duty to either defend or indemnify the shooter’s son against the various tort claims, with the trial court denying, however, Donegal’s Motion for Summary Judgment, seeking the same ruling in terms of its contractual obligations to the parents.

A single “occurrence” would trigger policy limits of $300,000, with six individual “occurrences” triggering exposure for policy limits of $1,800,000.

As to the parents, the trial court ruled that Donegal was not only required to defend and indemnify the parents, against the various tort claims that were raised for their son’s shooting spree, but that the son’s shooting spree constituted six individual “occurrences;” a single “occurrence” would trigger policy limits of $300,000, with six individual “occurrences” triggering exposure for policy limits of $1,800,000.

The trial court’s disposition of summary judgment was appealed by Donegal to the Pennsylvania Superior Court, with the Superior Court affirming the trial court’s ruling, both as to Donegal’s duty to defend the parents, and also in terms of the son’s shooting spree being six separate occurrences, for purposes of determining coverage and policy limits.

Citing to its own legal precedent in Gene’s Restaurant v. Nationwide Insurance Co. 548 A.2^nd 246 (Pa. 1988), the Supreme Court, in a majority opinion authored by Justice Baldwin, noted:

“An insurer’s duty to defend an action against the insured is measured, in the first instance, by the allegations in the plaintiff’s pleadings … In determining the duty to defend, the complaint claiming damages must be compared to the policy and a determination made as to whether, if the allegations are sustained, the insurer would be required to pay resulting judgment … The language of the policy and the allegations of the complaint must be construed together to determine the insurers’ obligation.”

To determine the carrier’s obligation to defend, and potentially indemnify the policyholder, requires a review of the factual allegations contained in the damages-seeking Complaints. In Donegal, the Plaintiffs had alleged that the homeowner parents had been negligent in permitting their trigger-happy son to have a gun, were negligent for failing to take the gun away from the son, and were negligent for having to notify law enforcement authorities about their son having a gun.

The critical question before the Supreme Court in Donegal, was whether the alleged negligence of the parents, in the context of the subsequent injuries and deaths, qualified as an “accident,” thereby obligating the carrier to defend the parents.

Donegal argued that the son’s actions could not qualify as having been “accidental,” for purposes of triggering coverage.

Seeking a declaration that the son’s conduct was not only intentional, but criminal, and, therefore, uninsurable, Donegal argued that the son’s actions could not qualify as having been “accidental” for purposes of triggering coverage. In this vein, Donegal argued that the son’s criminal conviction effectively resulted in a legal adjudication that the son’s conduct was not “accidental,” as the criminal acts and convictions required intentional actions.

However, the Supreme Court ruled that injuries resulting from the intentional action of one party do not absolve an insurance carrier from the duty to defend an insured being sued on grounds that their negligence, albeit unintentional, enabled the intentional acts of the third party.

Instead, the Supreme Court held that where the alleged negligence of the homeowners could have led, by either action or inaction, to the intentional acts committed by their son, that the son’s actions were so “unexpected” as to have been “fortuitous,” a necessary predicate for a determination that the homeowner’s “negligence” resulted in an “accident.”

The policy itself did not provide a definition of “accident,” with the Supreme Court having previously decided, in other cases, that “accident has been defined in the context of insurance contracts as an event or happening without human agency or, if happening through such agency, an event which, under circumstances, is unusual and not expected by the person to whom it happens.”

It was necessary for the Supreme Court to determine whether the son’s shooting spree could be proven to have been an unexpected result of negligence.

In analyzing the degree of fortuity associated with the homeowners’ alleged negligence, it was necessary for the Supreme Court to determine, from the perspective of the insureds, whether their son’s shooting spree could be proven to have been an unexpected result of the homeowner’s alleged negligence, thereby triggering Donegal’s duty to defend the insureds against the unexpected, undesigned, and fortuitous injuries that followed.

Holding that the claims asserted by the Plaintiff presented “the degree of fortuity contemplated by the ordinary definition of accident,” the Court ruled that the “extraordinary shooting spree embarked upon by Baumhammers, resulting in fatal and personal injuries to the Plaintiffs, cannot be said to be the natural and expected result of parents’ alleged acts of negligence. Rather, Plaintiffs’ injuries were caused by an event so unexpected, undesigned and fortuitous as to qualify as accidental within the terms of the policy.”

With Donegal being required to defend the homeowners, the Court next addressed the coverage limits-defining issue of whether there was one or multiple occurrences, effectively deciding whether the policy limits were $300,000 or $1,800,000.

The Supreme Court analyzed the two prevailing approaches: "cause" and "event."

Correctly deciding that the shooting spree, with six separate shootings, constituted a single “occurrence,” the Supreme Court analyzed the two prevailing approaches for determining the number of occurrences, for purposes of liability.

The two prevailing approaches include a “cause” approach, and an “effects” approach. The majority view is considered to be the “cause” approach.

Courts relying upon a “cause” methodology typically consider whether there is a single cause or multiple causes, effectively looking at the “event” as encompassing both action and result, from a start to finish perspective; conversely, Courts relying on an “effects” approach typically begin with a reverse methodology, analyzing the event from its effects, back to its cause.

With the Pennsylvania Supreme Court never having previously addressed that issue, the Court held that the proper approach for Pennsylvania Courts to utilize was the “cause” approach. This methodology had been utilized by the Pennsylvania Superior Court in D’Auria v. Zurich Ins. Co., 507 A.2d 857 (Pa. Super. 1986), in which the Pennsylvania Superior Court had adopted the reasoning of the Federal Third Circuit Court in Appalachian Ins. Co. v Liberty Mutual Co., 676 F. 2d 56 (3d. Cir., 1982), adopting the cause of loss test to determine the number of occurrences that had “occurred.”

Although the Superior Court had indicated in its opinion that it had relied on the “cause” approach in determining that there had been six “occurrences,” thereby implicating the maximum potential insurance policy limits, the Supreme Court overturned and reversed the Superior Court on the “occurrence” issue, finding that any reviewing Court, whether trial or appellate, had to begin its analysis, as to singular or multiple occurrences, with an approach focused on the acts, action, or inaction of the insureds, giving rise to their alleged liability.

Further finding that the contractual obligation of the carrier to the policyholder was dependent upon the policyholder’s actions, the Donegal Court held that “since the policy was intended to insure the parents for their liabilities, the occurrence should be an event over which the parents had some control.”

Within the conceptual limitations of that focus, the “occurrence” became the parents’ alleged negligence in their failing to take the gun away from their son and/or to alert law enforcement of their son’s possession of a handgun.

In so ruling, the Court ordered Donegal to provide the homeowners with a defense against the allegations of the homeowners’ negligence, with the homeowners’ negligence factually limiting the coverage to one “occurrence” with a single policy limit of $300,000.

Coverage was significantly limited by the determination that there was only one occurrence.

Although Donegal was required to defend the homeowners, the coverage in question was significantly limited by the Supreme Court’s determination that there was only one occurrence, being the insureds’ negligence in failing to act to prevent the harm ultimately inflicted on the multiple plaintiffs by their son in the course of his unexpected shooting spree.

Dissenting opinions were issued by Justices Cappy and Baer, with the justices dissenting on grounds that the claims being made constituted multiple “occurrences” with the consequent increase in coverage limits. The dissenting justices would have focused on the actions of the son, during his shooting spree, and not on the actions or inaction of the homeowner parents.

Practical Implications

The Donegal opinion is a highly fact-sensitive ruling that has, at its heart, two primary questions, one being the carrier’s duty to defend the insureds, and the second being whether more than one occurrence was involved in an incident ultimately resulting in the shooting deaths of five individuals, with a sixth individual sustaining serious injuries.

The Donegal opinion is, by any measure, a compromise determination on coverage, with the Court making no findings in terms of the homeowners’ alleged negligence, other than that the allegations of negligence necessitated a determination of the homeowners’ right to be defended by Donegal under the insurance policy, as well as in terms of the potential limits of coverage available, in the event that the insureds’ negligence was proven before a fact finder.

Although Donegal is a “split” decision, it is nevertheless one that insulated the carrier from $1,500,000.00 in potential exposure, in the event that the Court had found six occurrences, instead of one occurrence. By this measuring rod, it must be considered to be a more favorable than not ruling, notwithstanding the Court ordering Donegal to defend the homeowners against claims of their negligence, for failing to prevent their deranged son from intentionally committing homicide and attempted homicide.

A copy of the Supreme Court’s opinion is incorporated as an attachment.

Questions concerning this Decision, or its impact, should be directed to our casualty litigation attorneys.

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