Star Insurance Company v. Treible's Wrecker Service, Inc. et al
MEMORANDUM and OPINION - Accordingly, the entry of ajudgment of default against TWS and Treible does not necessitate the entry of default judgment, and as aconsequence, summary judgment, against Keil. An appropriate Order will follow.Signed by Honorable Robert D. Mariani on 6/22/12. (jfg)
THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
STAR INSURANCE COMPANY
SERVICE, INC., et al.
This matter arises upon the Complaint of Plaintiff Star Insurance Company ("Plaintiff')
against Defendants Treible's Wrecker Service, Inc. ("TWS"), Wayne Treible, Sr. ("Treible"),
and Eric Keil (UKeil")(together, "Defendants"), seeking rescission of an insurance policy
issued to TWS and Treible. It is alleged that TWS and Treible negligently inspected an
automobile that was later involved in an accident in which Kimberly Biggs-Keil ("Biggs-Keil")
was killed. Keil, as the administrator of the Biggs-Keil estate, filed suit against the other
driver, Fatmir Mece, in the Court of Common Pleas of Luzerne County ("Underlying Action").
The Underlying Action also named TWS and Treible as defendants, and alleged that their
inadequate inspection of a vehicle involved in the wreck caused Biggs-Kell's death.
Plaintiff filed the present action to rescind any insurance coverage it provided to
TWS and Treible, as Plaintiff alleges that they provided false information in their insurance
application when they indicated that they only provided towing services, and that their shop
did not fix or inspect automobiles. TWS and Treible were timely served, but did not respond
to the Complaint. Keil filed a timely answer (Doc. 5). On March 22, 2012, the Court entered
default as to both TWS and Treible (Doc. 15). Neither party responded, and Plaintiff filed a
Motion for Default Judgment as to TWS and Treible on April 23, 2012 (Doc. 18). On April
24,2012, Plaintiff and Keil participated in acase management conference, in which the
Court instructed the parties to file briefs addressing the impact a default judgment would
have on Keil's standing in the case. Plaintiff and Keil timely filed their briefs, and both sides
indicated that a default judgment entered against TWS and Treible would not require Keil to
be dismissed from the case and would not affect his standing as a defendant in this matter.
The Court agrees.
Two cases from the Third Circuit are particularly instructive: Federal Kemper Ins. Co.
v. Rauscher, 807 F.2d 345 (3d Cir. 1987), and American Automobile Ins. Co. v. Murray, 658
F.3d 311 (3d Cir. 2011).
In Rauscher, supra, Federal Kemper Insurance Company (UKemper") brought a
declaratory judgment action against both its insured, Richard H. Rauscher ("Rauscher"),
and the injured parties, the Griffiths ("Griffiths"). Rauscher and the Griffiths suffered severe
injuries in an automobile owned by the Rauscher's girlfriend's mother, and the Griffiths filed
suit against him as the driver. Kemper claimed that the accident and the vehicle involved
were not covered by the terms of the policy it issued to Rauscher, and sought a declaration
of its rights in federal court. A default judgment was issued against Rauscher as the
insured. The district court then granted Kemper's motion for summary judgment, and held
tllat the Griffiths' rights were derivative of Raucher's rights and that the Griffiths lacked
standing to remain as parties after default judgment was entered against the Raucher. The
Third Circuit reversed and held that the district court's ruling that "when a default judgment
was rendered against Rauscher, judgment had to be entered against the Griffiths as well"
was incorrect. See Rauscher, 807 F.2d at 349. The Third Circuit noted that Kemper
brought a motion for default judgment against Rauscher alone, and not the Griffiths, and
that the district court sua sponte entered judgment against all of the defendants on the basis
that "the rights of the Griffiths were completely dependent upon, and derivative of, any rights
Rauscher had." See id. At base, the Third Circuit noted, the district court incorrectly held
that the injured parties lacked standing to continue as parties in the suit. See id. at 350.
The Third Circuit further held that the question of standing turned on the existence of
a case or controversy between the parties. See id. The Court found:
For if there is a distinct "case or controversy" in the contest between the
Griffiths and the insurance company, then as pleaded by Kemper in its
complaint, the Griffiths are necessary parties. They may therefore assert that
the policy covered Rauscher and, if necessary, may act to reform the policy to
reflect such coverage.
Id. at 351. The Court further found:
We must determine whether the rights of an injured party within the
procedural context of a declaratory judgment action are truly derivative of the
rights of the co-defendant insured. If the rights of the injured party, in this
case the Griffiths, are derivative, and not independent, then a default
judgment against the insured must lead to a judgment against the injured
party. The federal court would no longer have proper jurisdiction over the
case, because in the absence of the insured, in this case Rauscher, there
would be no real dispute between Kemper, the insurance company, and the
Griffiths, the injured parties.
Id. at 351.
On the other hand, if there existed a "case or controversy" between the
insurance company and the injured party then the default judgment against
the insured would not oust the court of jurisdiction over the matter; the case
would be justiciable even in the absence of the insured.
Id. Furthermore, cases brought under the Declaratory Judgment Act, 28 U.S.C. § 2201 are
subject to this rule. See id. at 352.
In corning to its decision to reverse in Rauscher, the court examined the Seventh
Circuit's decision in Hawkeye-Security Ins. Co. v. Schulte, 302 F.2d 174 (7th Cir. 1962), in
which the court found that it would be "anomalous to hold that while an actual controversy
existed between an insurance company and an injured party, an injured party could be
denied the right to actually participate in the controversy." See id. at 352-53 (citing Schulte,
302 F.2d at 177). The Schulte court found that "[a]ppellee [insurance company] voluntarily
brought the appellant [injured party] into this litigation as a party defendant," and that as a
consequence of this decision, and as a proper party to the action, the injured party "should
be heard to assert any proper defense raised by his answer to the complaint." Id. at 353
(quoting Schulte, 302 F.2d at 177). The Third Circuit also cited Standard Accident Ins. Co.
v. Meadows, 125 F.2d 422 (5th Cir. 1942), in which the Fifth Circuit held that it constitutes
plain error for a court to dismiss injured claimants from an action in which the insurance
company seeks a declaratory judgment on the propriety of coverage. See id. at 424.
In the matter sub judice, there is a real and particularized dispute between Plaintiff
and Keil because even in the absence of TWS and Treible, Keil remains a specifically
named defendant and has a direct interest in the outcome of the declaratory judgment.
Simply put, a vindication of the interests of the remaining parties in the present declaratory
judgment suit will determine whether Keil is likely to receive any compensation in the
Underlying Action. In addition, it is well established within the Third Circuit that an injured
party is a "necessary and proper" party to a proceeding in which an insurance company
seeks a declaration of non-liability. See United States Fidelity and Guaranty Co. v. Ditoro,
206 F. Supp. 528, 532-33 (M.D. Pa. 1962)(citing Maryland Casualty Co. v. Consumers
Finance Serv., 101 F.2d 514 (3d Cir. 1938)(pre-Rule 19)); see also Brotherhood Mut. Ins.
Co. v. Salem Baptist Church of Jenkinstown, No. 10-7072,2012 WL 1526851, at *4 (E.D.
Pa. Apr. 30, 2012)(quoting Murray, 658 F.3d at 317-18)("injured third party in an insurance
coverage dispute suffers 'a concrete and particularized invasion of a legally protected
interest that is actual or imminent, not conjectural or hypothetical'''); Nat. Specialty Ins. Co.
v. Papa, No. 11-2798,2012 WL 868944, at *5 n. 2 (D.N.J. Mar. 14, 2012)(acknowledging
Third Circuit's holding in Rauscher, supra, that "plaintiffs in an underlying tort action were
indispensable parties to a separate action concerning insurance coverage for a defendant in
the underlying action and an insurer").
It is important to note that the Rauscher court, in dicta, noted that their decision was
aided, but not dependent upon, the fact that the Pennsylvania No-Fault Law permitted the
injured party to file a direct action against the insurance company to recover damages. See
Rauscher, 807 F.2d at 354. No such statute exists in the present matter; nevertheless, as
the court noted in Rauscher, "[i]n terms of fairness, the injured party should be able to
present its case upon the ultimate issues, even if the insured does not choose to
participate." Id. at 355. "This equitable consideration is especially persuasive in view of the
fact that the insurance company in this case initiated the action and brought [the injured
parties] into federal court." Id. This squares directly with the facts presented in the present
dispute, where Plaintiff specifically chose to name Keil as a defendant.
Similarly, in Murray, 658 F.3d 311, the Third Circuit addressed the propriety of
dismissing an injured party from an action in which the insurance company sought a
declaration as to its responsibilities under a professional liability policy. The facts underlying
that matter are pivotal: a nineteen-year-old female passenger, Jessica Easter ("Jessica"),
was killed in an automobile accident after the nineteen-year-old driver of her car, Stephen
Meloni (UMeloni"), illegally consumed alcohol and crashed. The alcohol was illegally
purchased by a friend of the driver, Gary Grato ("Grato"), and given to Meloni for
consumption. Jessica's estate ("Estatell ) filed suit against the Meloni, in addition to the
liquor store, Ennie, Inc. ("Ennie"), who sold the alcohol to Grato. Ennie filed a claim with its
insurance carrier, who disclaimed coverage on the basis that there was a liquor liability
exclusion in the policy it issued. Ennie then filed a lawsuit against its insurance agent,
Tyrone Murray (UMurrayll), who brokered the policy and claimed that Murray negligently
failed to include a liquor liability provision in the policy. Murrray subsequently filed aclaim
with his professional liability carrier, American Automobile Insurance Company ("MIC").
MIC then filed a suit seeking a declaratory judgment that Murray's alleged wrongful act
occurred outside the time period covered by the policy. Summary judgment was granted in
favor of MIC. Ennie and the Estate both appealed, and the Third Circuit raised the issue of
standing sua sponte.
The court distinguished the facts in Murray from those in Rauscher, and held that
Ennie had standing to appeal, but that the Estate did not because its interests were too far
removed from the declaratory judgment action. "Like the passengers in Rauscher, Ennie is
the directly injured party and its interests in the lawsuit are, therefore, independent of the
insured." Murray, 658 F.3d at 319. The court held that Ennie "has a particularized interest
in the lawsuit because a determination of Murray's coverage would dictate its ability to
receive the full benefit of the Ennie lawsuit." Id. The court further held that "[t]he holding in
Rauscher, however, does not extend to [the Estate], as [it] is an injured party twiceremoved." Id. "Unlike Ennie, the [Estate's] interests in this lawsuit are purely derivative of
the injured third party's interests." Id. "Essentially, the only interest [the Estate] has in the
lawsuit is the potential pecuniary gain that will flow to [it] through Ennie, since [it] has failed
to make any claims directly against the insured." Id.
In the present matter, the administrator of Biggs-Keil's estate directly lodged an
action for damages against TWS and Treible. Plaintiff then named Keil, as administrator of
the estate, as a direct defendant in the declaratory judgment action on the issue of
insurance coverage. The facts presented here are most analogous to those in Rauscher,
and are distinct in key respects from those described in Murray, most notably with regard to
the degree of the relationship between the injured and the insurance company. Keil is not
an injured party twice-removed. Moreover, "in many of the liability insurance cases, the
most real dispute is between the injured third party and the insurance company, not
between the injured and oftentimes irnpecunious insured." Rauscher, 807 F.2d at 354
(quoting 6A James Wm. Moore et aI., Moore's Federal Practice1[ 57.19). Such is the case
at bar. It would be inequitable, in defiance of common sense, and incorrect as a matter of
law, to hold that Keil does not have a direct stake in the declaratory judgment action.
Accordingly, the entry of ajudgment of default against TWS and Treible does not
necessitate the entry of default judgment, and as a consequence, summary judgment,
against Keil. An appropriate Order will follow.
DATE: June 21, 2012
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