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A federal judge in Pennsylvania has set aside a default judgment against an insurer in a coverage dispute arising out of an explosion at a Hatboro, Pa., apartment complex three years ago. Eastern District Judge John R. Padova said the Boston-based insurer, OneBeacon Insurance Co., had shown it could mount a meritorious defense against the claim for $10 million in umbrella and general liability coverage brought by the apartment complex and its property management company. Therefore, the default order entered because OneBeacon had failed to respond to the complaint on time could be vacated, Padova said. Six people were killed in 2001 when the floodwaters of Tropical Storm Alison dislodged a clothes dryer from a gas line at Village Green Apartments, causing an explosion and fire. In Scully Co. v. OneBeacon Insurance Co., the apartment complex and its property managers asked the court to declare that OneBeacon owed them coverage for claims arising out of the explosion. The accident had prompted the filing of at least three suits in state court in Philadelphia naming the apartment complex and its property managers, the Scully Co., as defendants, according to the opinion. Scully and Village Green demanded that OneBeacon defend and indemnify it in those state court actions, saying they were covered as “additional insureds” under a $9 million umbrella policy and $1 million comprehensive general liability policy purchased by the company that owned and operated the complex’s washing machines and clothes dryers. That company, Coin Automated Laundry Equipment Inc., had a contract with the property managers to maintain coin-operated washers and dryers in the apartment complex as long as the laundry service named Scully as an additional insured on its liability insurance, according to the opinion. OneBeacon denied the coverage, saying that the accident was not caused by the laundry service’s operations or equipment, according to the opinion. The apartment complex and the property managers filed the declaratory action on the coverage issue and sought damages against OneBeacon for breach of contract and bad faith. But the insurance company did not respond to their complaint on time, according to the opinion. OneBeacon later told the court that it didn’t respond on time to the complaint because of an “organizational mishap” that was due, in part, to the way in which the plaintiffs had incorrectly filed the complaint. The plaintiffs contended the insurer was intentionally trying to delay their coverage further, according to the opinion. When there was no response from the insurer, the court clerk entered the default on the docket in January. OneBeacon moved to set aside the entry of default, and, on Wednesday, Padova granted the motion. “The court finds that the defenses asserted by OneBeacon, that Scully is not an additional insured under the OneBeacon insurance policies, and that plaintiffs’ claims are barred by the other insurance provisions of the OneBeacon insurance policies, are meritorious defenses which, if proven, would allow OneBeacon to prevail in this action,” Padova wrote. OneBeacon had argued that it only had to grant Scully “additional insured” status where there was liability arising out of the ongoing operations the laundry service had provided for the property managers. Because the clothes dryer was not operating at the time of the explosion and there were no laundry service employees on the site at the time, the laundry service is not liable, according to the opinion. The plaintiffs had argued that they would be prejudiced if the judge opened the default judgment because the delay in resolving the lawsuit in their favor could mean the limits of liability of OneBeacon’s polices could be exhausted before the company was forced to defend and indemnify the plaintiffs, according to the opinion. Padova rejected this argument. He also concluded that OneBeacon’s failure to respond to the complaint on time didn’t constitute “flagrant bad faith” or “callous disregard of the rules,” and so its behavior was not culpable. Therefore, OneBeacon met the factors the federal court was required to consider before vacating and opening the default entered in the case — a meritorious defense, prejudice and culpable conduct. The plaintiffs were represented by Allison L. Corboy of Loch & Corboy in Jenkintown, Pa. OneBeacon was represented by Richard L. McMonigle and Steven J. Schildt of Post & Schell.

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