Wade Clark Mulcahy LLP

<p style="text-align: justify;">On October 7, 2021, the Pennsylvania Superior Court permitted insurers to intervene in cases brought against insureds arising out of alleged sex trafficking operations. <a href="https://www.wcmlaw.com/wp-content/uploads/2021/10/A.H..pdf"><em>A.H.</em> </a><em>v. Roosevelt Inn, LLC</em>, et al, 1797 EDA 2020 (Pa. Super. Ct. Oct. 7, 2021). The plaintiff, an alleged victim of human trafficking, sued numerous defendants asserting that she was “exploited by traffickers of commercial sex acts and those who financially benefits from her exploitation.” The defendants allegedly knew of the sex trafficking at their premises and failed to prevent the activity or otherwise notify authorities of same opting instead to profit from the activity. The Complaint stated multiple claims for negligence, some arising out of the Pennsylvania sex trafficking statute, negligent infliction of emotional distress, negligent hiring, training, and/or supervision, as well as punitive damages. The insurers of some defendants filed petitions to intervene in the underlying suit solely requesting to submit a specific jury interrogatory and verdict slip to ensure that het basis of the jury’s finding is clear so the carriers could make coverage determinations. More specifically, the insurers sought instructions to determine whether any punitive damages award was based on direct or vicarious liability and whether the jury found that a given defendant violated the Pennsylvania trafficking statute. The trial court denied the petition.</p>
<p style="text-align: justify;">The insurers appealed, raising four issues for review. First, whether the court has jurisdiction to hear the interlocutory appeal. Second, whether the trial court abused its discretion by misapplying prior precedent regarding the right to intervene for purposes of securing a record that will identify whether any verdict is based on a claim for which indemnification may be barred by public policy. Third, whether the trial court abused its discretion by denying the petition on the grounds that the insurer’s interests are adequately addressed by counsel retained to represent the insured. Four, whether the trial court abused its discretion by denying the petition without a hearing.</p>
<p style="text-align: justify;">The Superior Court agreed with the insurers as to the first issue, finding that the denial was a collateral order separate from the main cause of actions because the right involved is too important to be denied. In evaluating the factors, the Court considered the following dispositive facts: (1) the right to intervene could not be resolved without addressing the addressing the merits of the underlying action; (2) resolution of the underlying action will not resolve the indemnification questions for the insurers; and (3) the insurers would be denied the ability to submit jury interrogatories or a special verdict form at the close of trial absent intervention.</p>
<p style="text-align: justify;">The Court considered the remaining questions together. In Pennsylvania, intervention is governed by two procedural rules: (1) Rule 2327 which governs who may intervene; and (2) Rule 2329 which provides the method for intervention. Rule 22329 expressly contemplates a hearing. The Rule states: “[u]pon the filing of the petition and after a hearing, of which due notice shall be given to all parties.” The trial court here failed to hold a hearing.</p>
<p style="text-align: justify;">The Superior Court concluded that the trial court “manifestly abused its discretion” in denying the petition. In holding that an insurer has a right to interevent to propose a special verdict form and jury interrogatories to assist in coverage determinations regarding indemnification, the Court relied on a case from earlier this year, <em>Bogdan v. AM Legion Post 153 Home Ass’n,</em> 2021 PA. Super. 127 (Pa. Super. Ct. June 23, 2021). In <em>Bogdan</em>, the court permitted a liquor liability insurer to intervene for the purpose of issuing special interrogatories to the jury’s verdict which would assist the insurer in subsequent coverage determinations. The trial court’s reliance on the fact that the insured’s counsel could address coverage issues was misplaced. The Superior Court agreed with the insurers that defendant counsel is “not expected to address any insurance coverage issues.” In so holding, the Superior Court noted the obvious potential for conflicts arising out of situations in which defense counsel is retained to represented the interests of individual defendants while simultaneously representing the interests of insurers who could have a duty to indemnify the defendants. The trial court’s order was reversed and the case remanded.</p>
Thanks to Jennifer Seme for her contribution to this post. Please contact <a href="mailto:Jseme@wcmlaw.com">Jennifer</a> with any questions.