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VALIDITY OF NON-ASSIGNMENT CLAUSES IN PENNSYLVANIA
Nixon T. Kannah, Esquire and Jeffrey C. Sotland, Esquire
Sixty years after National Memorial Service v. Metropolitan Life Insurance Co., was decided, the issue of the validity of non-assignment clauses in insurance policies was once again before the Pennsylvania Supreme Court. On August 23, 2006, the Pennsylvania Supreme Court held that "an assignee has standing to sue an insurer where the insured assigned its interest in an insurance policy without the prior consent of the insurer, contrary to the requirement in the policy." In the case of Egger v. Gulf Insurance, Charles Egger was using a high pressured water jet to clean sulfur dioxide residue from the roof of a PECO property. The water jet lost pressure and came to rest near the back of Egger's knee. When the water pressure suddenly returned, the water pierced Egger's leg and severed several arteries.
Foulke Associates, Inc., was responsible for providing security at the PECO property. Following his accident Egger placed an emergency call to Foulke personnel. A representative from Foulke showed up 20 minutes later without rescue or first aid equipment and also failed to administer first aid to Egger, who later bled to death. Egger's wife, Patricia Egger, filed suit against PECO, Foulke and National Liquid Blasting, Inc., the manufacturer of the water jet. PECO and National Liquid settled with Mrs. Egger, but the case against Foulke proceeded to trial. Foulke maintained a primary general liability insurance policy with a limit of $1 million with Security Insurance Company of Harford. In addition, Foulke also maintained an excess insurance policy with a limit of $10 million with Gulf Insurance Company. The excess policy with Gulf was to provide coverage for "occurrences" during the policy period that exceeded the $1 million limit of Foulke's primary policy.
On the day before jury selection Foulke offered the full limit of its primary policy to settle the matter. The Plaintiff rejected the offer and demanded $1,600,000.00. The jury was selected and the case proceeded to trial. After both parties presented their case the matter was submitted to the jury. While the jury was deliberating Gulf denied Foulke excess coverage. Foulke then entered into a settlement agreement with Plaintiff, wherein, in exchange for $850,000.00 under Foulke's primary policy and the assignment of Foulke's rights under the policy with Gulf, Plaintiff agreed not to enforce any judgment in excess of $1 million against Foulke. The day after the settlement, the jury reached a Plaintiff verdict in the amount of $3,500,000.00.
In accordance with the settlement agreement, Mrs. Egger filed suit against Gulf for breach of contract and bad faith in denying Foulke coverage. Gulf filed a Motion for Summary Judgment advancing two arguments: 1) that the assignment of Foulke's excess insurance policy rights to Egger was invalid because the policy required advance written notice; 2) that the assignment was invalid because it took place prior to the loss. In support of its notice requirement argument, Gulf relied on two Superior Court decisions, High-Tech-Enters, Inc. v. Gen. Accident Ins. Co and Fran & John's Doylestown Auto Ctr. v. Allstate Ins. Co. In those cases the Superior Court held that the plain language of the policy controlled the validity of the assignments. Thus, since the policies in Fran and High-Tech Enters, expressly and unambiguously, prohibited assignment without prior consent, the assignments in those cases were invalid.
In Egger, the Pennsylvania Supreme Court overruled Fran and High Tech and held that those cases ignored the Commonwealth Supreme Court's decision in National Memorial Service v Met Life Insurance Company, a 1946 decision. In National Memorial Service the Pennsylvania Supreme Court held that post-loss assignments made without the consent of the insurer are valid and are enforceable despite the existence of non-assignment clause in the insurance contract. Thus, the issue is whether the assignment is made "pre-loss" or "post-loss".
After the Court rejected Gulf's plain language argument, Gulf then argued that the assignment was made "pre-loss". Gulf argued that it did not become legally obligated under the terms of the excess policy until the jury rendered its verdict. As a result, since the assignment was made a day prior to the verdict, the assignment should be considered as a "pre-loss" assignment, that required written consent from Gulf. The Court held that this argument was without merit and was an attempt by Gulf to "circumvent the principle" set forth in National Memorial Service. Gulf's obligation to provide excess coverage vested at the occurrence of the event-Egger's injuries- and not at the time the verdict was rendered.
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