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Third Circuit Adds Depth to "Four Corners" Rule

March 21, 2016

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The Third Circuit recently held that an additional insured is entitled to defense and indemnification under a named insured’s policy even where the named insured is not a defendant in a lawsuit, thus there are no allegations of negligence against the named insured. This case provides a notable caveat to Pennsylvania’s strict “four corners” interpretation of complaints.
In <em><a href="http://www2.ca3.uscourts.gov/opinarch/151003p.pdf">Ramara Inc v. Westfield Insurance Co., et al</a>.</em>., Ramara, a property owner, sought coverage from Westfield, the insurer of a sub-contractor, Sentry Builders Corp., for a personal injury action commenced by a Sentry employee. The Westfield policy provided coverage for additional insureds for claims caused “in whole or in part” by the negligence of Sentry. Although Ramara was named as an additional insured in the Westfield policy, coverage was denied because Sentry was not named or alleged to have committed any negligent acts in the lawsuit.
Under Pennsylvania’s strict “four corners” rule, courts determining whether there is coverage restrict review to the allegations in the complaint. Pennsylvania, like many other states, prohibits employees from suing their employers when the employee qualifies for compensation under the state’s Workers Compensation Act.
The Third Circuit recognized that Sentry was not named in the underlying personal injury action because of Pennsylvania’s Workers Compensation Act, and also reasoned that the allegations in the complaint established that Sentry was a proximate cause of Axe’s injuries. Among other claims, the Third Circuit noted that Ramara’s alleged liability turned on the acts of its employees or agents, which necessarily included Sentry.
In its holding, the Third Circuit avoided an inequitable result of an overly literal approach to the “four corners” rule. Even though Sentry did not appear on the surface of the complaint as a result of state pleading requirements, the court recognized its underlying relation to the claim. To the extent that there was any doubt that the “four corners” rule created a loophole through which subcontractors’ insurers could escape a duty to defend or indemnify in cases of employee injuries, the Third Circuit has gone a long way to eliminating it.
Thanks to Christopher Soverow for his contribution to this post.
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