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Insurer Must Defend in Funeral Home Body-Parts Suit, Judge Rules
The Legal Intelligencer
September 28, 2009
A body-parts-for-cash scandal that sent three Philadelphia funeral directors to prison last year has sparked a wave of litigation in the state and federal courts, and a recent decision on insurance coverage promises to keep the cases alive.
In a major setback for the insurer, U.S. District Judge Michael M. Baylson refused to declare that allowing insurance coverage for the participants in the scheme would violate public policy.
Baylson also rejected the argument that guilty pleas by the participants had conclusively proven that all of the conduct was intentional and therefore could not be treated as negligent conduct that triggers insurance coverage.
Instead, Baylson found that his task was to carefully parse each of the lawsuits to determine whether they contained any negligence-based claims that would trigger coverage under the funeral home's policies.
"Contrary to Nationwide's repeated assertions that only intentional acts are alleged, the underlying plaintiffs have sufficiently alleged acts of negligence in the underlying complaints," Baylson wrote in his 58-page opinion in Nationwide Mutual Insurance Co. v. Garzone .
In their guilty pleas, brothers Louis and Gerald Garzone, who ran a funeral home and crematorium, and their employee, James A. McCafferty Jr., confessed that they sold corpses to a company that trafficked stolen body parts. Philadelphia Common Pleas Judge Glenn B. Bronson sentenced each of the Garzones to eight to 20 years in prison and imposed a sentence of three-and-a-half to 10 years on McCafferty.
The alleged mastermind of the scheme, Michael Mastromarino, confessed that his company, New Jersey-based Biomedical Tissue Services, took bodies from funeral homes in New York, New Jersey and Pennsylvania. Among the corpses plundered was that of veteran BBC broadcaster and "Masterpiece Theatre" host Alistair Cooke. Mastromarino is serving a sentence of 18 to 54 years.
Prosecutors in Philadelphia said the Garzones were responsible for at least 244 corpses being carved up without families' permission and without medical tests. Skin, bones, tendons and other parts -- some of them diseased -- were then sold around the country for dental implants, knee and hip replacements and other procedures, prosecutors said.
In the wake of the scandal, dozens of lawsuits were filed by the families of those whose bodies were used for parts as well as by the recipients of the illegally marketed body parts. Many of the former cases ended up on the docket of Philadelphia Common Pleas Judge Allan Tereshko, while most of the latter cases were consolidated in a multi-district case in U.S. District Court in New Jersey.
But the litigation over insurance coverage was all before Baylson.
Nationwide's lawyer, William T. Salzer of Swartz Campbell, urged Baylson to declare that Nationwide had no duty to defend in any of the suits.
"The legitimate purpose of the insurance policy is to provide liability protection for careless conduct, not to subsidize a criminal conspiracy of this horrific nature and magnitude," Salzer wrote.
"Given the profit motivations which spurred their activity, Pennsylvania's legislative policy barring trafficking in corpses or the sale of body parts and tissue would be undermined should the Garzones and James McCafferty be insulated from personal responsibility by the availability of insurance coverage," Salzer argued.
The Garzones and McCafferty failed to respond to Nationwide's motions, but lawyers representing some of the plaintiffs who are suing them urged Baylson to keep the coverage in place.
Attorneys Peter Hoffman of Eckert Seamans Cherin & Mellott and Lawrence R. Cohan of Anapol Schwartz Weiss Cohan Feldman & Smalley argued that the lawsuits included legitimate claims of negligence.
Baylson agreed, finding that Nationwide "effectively seeks to set aside these allegations of negligence in the underlying complaints because either the allegations of intentional conduct are more prevalent, or because the ... defendants have pled guilty in the criminal proceedings."
The first argument failed, Baylson said, because "such a principle would limit an insurer's obligation to defend insureds where the underlying complaints alternatively plead both intentional and negligent conduct."
In such cases, Baylson said, "insurers could effectively disclaim their duty to defend by arguing that the allegations of intentional conduct are more prevalent in the underlying complaint."
Baylson said Nationwide "has not offered any caselaw that establishes such a principle, which would permit insurance companies to avoid their contractual duty."
Salzer argued that negligence claims have been set aside by courts in similar cases through the use of the "gist of the action" doctrine.
Baylson disagreed, saying: "The cases cited, however, do not dismiss the negligence allegations due to the intentional conduct allegations being more prevalent, as Nationwide essentially suggests here. Instead, the courts held that the gist of the action doctrine is meant to preclude plaintiffs from re-casting ordinary breach of contract claims into tort claims."
As for the guilty pleas, Baylson found that the Pennsylvania courts have rejected the argument that allegations of negligence must be set aside after criminal convictions.
