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Pennsylvania Superior Court Addresses Condition Precedent For An Insurer’s Duty To Indemnify (PA)

August 8, 2019

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<p style="text-align: justify;">In<em> <a href="https://www.wcmlaw.com/wp-content/uploads/2019/08/Nationwide-v.-Arnold.pdf">Nationwide v. Arnold</a></em>, the Pennsylvania Superior Court recently addressed a policy’s business pursuits exclusion, as well as the conditions under which an insurer may be required to indemnify its insured.</p>
<p style="text-align: justify;">By way of background, Nationwide insured August Arnold under a personal umbrella policy.  Nationwide commenced a declaratory judgment action seeking a determination that it was not obligated to defend and indemnify Arnold in a lawsuit filed by CMC against, among others, Arnold.  CMC commenced its action against Arnold following the unsuccessful prosecution of a qui tam action (i.e., a whistleblower action brought under the False Claims Act) brought on behalf of the United States by Arnold against, <em>inter alia</em>, CMC.</p>
<p style="text-align: justify;">Nationwide argued that its policy’s business pursuits exclusion barred coverage to Arnold for the CMC lawsuit.  The trial court ultimately concluded that Nationwide had a duty to defend <em>and</em> indemnify Arnold, as the business pursuits exclusion was not applicable.</p>
<p style="text-align: justify;">Nationwide appealed.  On appeal, the Superior Court first affirmed that the business pursuits exclusion would not act as a bar to coverage.  In reaching this determination, the court reasoned that an activity would fall under a business pursuits exclusion if it had “1) continuity, and 2) a profit motive”.  Further, a profit motive may be shown “by such activity as a means of livelihood, a means of earning a living, procuring subsistence or profit, commercial transactions or engagements”.  Looking to the instant facts, the Superior Court concluded all of the conduct for which CMC complained were actions taken by Arnold outside of his job and, therefore Nationwide’s business pursuits exclusion would not bar coverage on this basis.  However, the Superior Court concluded that the trial court erred in ordering that Nationwide had a duty to indemnify Arnold.  The Superior Court concluded that Nationwide could only be required to indemnify Arnold once it was determined that Arnold had been found liable for a covered claim.  Thus, as this condition had not been met, Nationwide could not yet be required to indemnify Arnold.</p>
<p style="text-align: justify;">Accordingly, this case offers clarification on a policy’s business pursuits exclusion, as well as reconfirms that there cannot be a finding regarding an insurer’s duty to indemnify, until there has been a determination that the insured is liable for a covered claim.</p>
<p style="text-align: justify;">Please email <a href="mailto:chayes@wcmlaw.com">Colleen E. Hayes</a> with any questions.</p>

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