Debt collection
Debt collection (John Disney/Daily Report)

The Pennsylvania Superior Court has ruled that the estate of James E. Beasley Sr. is not entitled to a reimbursement of $75,000 that Beasley and three former Beasley Firm lawyers had paid to settle a legal malpractice case.

In an unreported opinion in Pennsylvania Property and Casualty Insurance Guaranty Association v. National Union Fire Insurance, a three-judge panel unanimously ruled that the estate’s claim for the $75,000, which represented the difference between the $25,000 deductible it paid to one insurer that eventually became insolvent and the $100,000 deductible it paid to another solvent insurer, did not constitute a “‘covered claim’” under the Pennsylvania Property and Casualty Insurance Guaranty Association Act.

President Judge John T. Bender said the Pennsylvania Property and Casualty Insurance Guaranty Association was created by the legislature to pay claims in situations where an insurer becomes insolvent and therefore was not obligated to reimburse the attorneys for a deductible they paid to a solvent insurer.

“Appellants’ effort to recover a portion of the deductible paid to a solvent insurance company is unlike the situation where no recovery is possible due to an insurance company’s insolvency,” Bender said. “Our review of the act and the relevant case law reveals no obligation on the guaranty association to put appellants ‘in the same position [they] would have been in had the insurance company remained solvent.’”

Bender was joined by Judge Anne E. Lazarus and Senior Judge James J. Fitzgerald III.

In PPCIGA, Bender said, Beasley and former Beasley Firm attorneys William C. Hewson, William D. Hobson and Thomas A. Sprague, who were not involved in the appeal, were sued for legal malpractice in 1992.

At the time, according to Bender, all four attorneys were insured by a professional liability policy issued by National Union Fire Insurance Co. of Pittsburgh, while Hewson was also covered by the tail coverage option of a Home Insurance Co. professional liability policy.

NUF accepted the defense of Beasley, Hobson and Sprague, but denied coverage to Hewson because he was covered by the Home tail policy, Bender said.

In 2003, however, Home was declared insolvent and the defense of Hewson was tendered to PPCIGA, which in turn tendered the defense to NUF after determining that Hewson was still entitled to coverage under the NUF policy and that Home’s insolvency did not require PPCIGA to provide Hewson with a defense, according to Bender.

In 2004, NUF refused to provide a defense to Hewson, finding that he was not covered under its policy, and, in 2007, PPCIGA filed a declaratory judgment action to determine whether it had a duty to defend and indemnify Hewson, Bender said.

In 2010, NUF paid an undisclosed amount to settle the suit on behalf of all four attorneys. In 2012, NUF and PPCIGA settled their dispute over which insurer was obligated to indemnify the four attorneys and NUF was dismissed from the case by stipulation, according to Bender.

The attorneys then filed a counterclaim against PPCIGA seeking reimbursement of the $75,000, but Bucks County Court of Common Pleas Judge Robert J. Mellon found that PPCIGA had no obligation to reimburse them because the settlement payment NUF made did not exhaust the NUF policy, Bender said.

Bender said the act also prohibits claimants from making duplicative recoveries from the PPCIGA for claims that were paid by a solvent insurer.

On appeal, the Beasley estate argued that because the attorneys paid a higher deductible under the NUF policy than they would have paid under the Home policy, its demand for reimbursement of the difference between the two deductibles was not duplicative, according to Bender.

The estate further argued that its demand for reimbursement of the deductible payment was not duplicative because it constituted a separate claim from the one NUF paid—one that could not have been covered by insurance, Bender said.

But Bender said the only insurance claim was the one NUF paid and, therefore, PPCIGA had no obligation to reimburse the estate.

“Because that claim has been paid and because it is the only insurance claim at issue, no unpaid claim remains,” Bender said. “In the absence of an unpaid claim, there is no ‘covered claim.’”

The estate also argued that because it cannot recover any more money from NUF, the policy is exhausted and PPCIGA is required to provide coverage, according to Bender.

But Bender said the estate’s interpretation of the term “‘exhausted’” was “in conflict with the statute itself, which defines ‘exhaust’ as the obtaining of the maximum limit under the policy.”

“The trial court found that the policy limit was not reached,” Bender said. “Resultantly, the policy was not exhausted.”

Counsel for the estate, Maxwell S. Kennerly of the Beasley Firm in Philadelphia, said he and his client “fought this case largely on the principle of it, given the way PPCIGA has been handling claimants of all sorts.”

Counsel for the PPCIGA, Melissa E. Lang of Harvey Pennington Ltd. in Philadelphia, could not be reached.

Zack Needles can be contacted at 215-557-2493 or Follow him on Twitter @ZNeedlesTLI.

(Copies of the 10-page opinion in Pennsylvania Property and Casualty Insurance Guaranty Association v. National Union Fire Insurance, PICS No. 14-0055, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.)