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Defense vs. Indemnity: The Four Corners Rule (PA)

September 20, 2019

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<p style="text-align: justify;">On August 9, 2019, a panel of the U.S. Court of Appeals for the Third Circuit rejected an aluminum parts manufacture's argument that courts should look at the facts pleaded in a complaint when considering whether carriers should indemnify them. Product manufacturers looking to recover insurance coverage for disputes stemming from allegedly defective product must base their claims solely on the plain language of the policies, and underlying product liability complaint, and may not look to outside facts.</p>
<p style="text-align: justify;"><a href="">Judge Porter stated</a> that courts should follow the "four-corners" rule consistently applied by Pennsylvania state courts, which holds that when a carrier is sued, its duty to defend is triggered by the factual allegations made in the underlying complaint. A duty to indemnify, however, is not necessarily limited to the factual allegations of the underlying complaint. Rather, there must be a determination that the insurer's policy actually covers a claimed incident.   The strict applicability of the four corners rules here hampers product manufacturers that are seeking to recover insurance coverage for disputes stemming from allegedly defective products since they can only base their claims on the plain language of the policies and the underlying products liability complaint.  Thus, the duty to defend remains broader than the duty to indemnify.  From a practical standpoint, if a carrier plans to defend  a lawsuit, but maintain that it has no duty to indemnify its insured, a declaratory judgment action should be filed sooner than later.   Otherwise, that coverage defense is unpersuasive.</p>
<p style="text-align: justify;">Thanks to James Papadakis for his contribution to this post.  Please email <a href="">Brian Gibbons</a> with any questions.</p>


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