Nationwide Mutual Insurance v. Arnold, A. ( 2019 )

J-A12013-19
2019 PA Super 213NATIONWIDE MUTUAL INSURANCE IN THE SUPERIOR COURT
COMPANY, OF
PENNSYLVANIA
Appellee
v.
AUGUST W. ARNOLD, JON PUSHINSKY,
ESQUIRE, AND CONSTRUCTION
METHODS AND COORDINATION, INC.
D/B/A CMC ENGINEERING, INC.,
Appellees No. 1207 WDA 2018
Appeal from the Order Entered August 6, 2018
In the Court of Common Pleas of Allegheny County
Civil Division at No(s): GD-17-2937
NATIONWIDE MUTUAL INSURANCE IN THE SUPERIOR COURT
COMPANY, OF
PENNSYLVANIA
Appellant
v.
AUGUST W. ARNOLD, JON PUSHINSKY,
ESQUIRE, AND CONSTRUCTION
METHODS AND COORDINATION, INC.
D/B/A CMC ENGINEERING, INC.,
Appellants No. 1208 WDA 2018
Appeal from the Order Entered October 11, 2018
In the Court of Common Pleas of Allegheny County
Civil Division at No(s): GD-17-2937
BEFORE: BENDER, P.J.E., DUBOW, J., and FORD ELLIOTT, P.J.E.
OPINION BY BENDER, P.J.E.: FILED JULY 11, 2019
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Appellant, Nationwide Mutual Insurance Company (“Nationwide”),
appeals from the trial court’s orders denying its motion for summary judgment
in this declaratory judgment action. After careful review, we affirm in part
and reverse in part the October 11, 2018 order underlying the appeal at docket
number 1208 WDA 2018, and quash the appeal at docket number 1207 WDA
2018.
The trial court summarized the underlying facts of this case as follows:
Nationwide insured [Appellee, August W. Arnold,] under its
Personal Umbrella Policy No. 54 73 PU 434125 [(hereinafter
“Umbrella Policy”),] with an effective date of May 11, 2009.
Nationwide seeks a determination of its[] obligation to
defend/indemnify Arnold in a separate lawsuit brought by CMC
Engineering, Inc. (hereinafter “CMC”) against Arnold, docketed at
CMC Engineering[,] Inc. v. … Arnold and Jon Pushinsky,
Esquire, at GD-17-002106 (hereinafter “CMC Action” … )[.]
The CMC Action [arose] following the unsuccessful prosecution of
a [q]ui [t]am [a]ction on behalf of the United States by Arnold
against CMC and others.[1] Arnold acted as the [relator] for the
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1Arnold brought the qui tam action pursuant to the False Claims Act (“FCA”),
31 U.S.C. § 3729 et seq. By way of background, the United States Supreme
Court recently explained:
[The FCA] imposes civil liability on “any person” who “knowingly
presents, or causes to be presented, a false or fraudulent claim
for payment or approval” to the Government or to certain third
parties acting on the Government’s behalf. 31 U.S.C. §§ 3729(a),
(b)(2). Section 3730 authorizes two types of actions: First, the
Attorney General, who “diligently shall investigate a violation
under section 3729,” may bring a civil action against the alleged
false claimant. § 3730(a). Second, a private person, known as a
relator, may bring a qui tam civil action “for the person and for
the United States Government” against the alleged false claimant,
“in the name of the Government.” § 3730(b).
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[q]ui [t]am [a]ction that concerned the use of federal highway
funds passing through PennDOT, Arnold’s employer, to companies
such as CMC.[2] In the CMC [A]ction, CMC filed suit against Arnold
and … [Jon] Pushinsky, Esquire…[,] for violation of the Dragonetti
Act,[3] Abuse of Process, and Intentional Interference of
Contractual Relations. [] Pushinsky represented Arnold in the
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If a relator initiates the action, he must deliver a copy of the
complaint and supporting evidence to the Government, which
then has 60 days to intervene in the action. §§ 3730(b)(2), (4).
During this time, the complaint remains sealed. § 3730(b)(2). If
the Government intervenes, it assumes primary responsibility for
prosecuting the action, though the relator may continue to
participate. § 3730(c). Otherwise, the relator has the right to
pursue the action. §§ 3730(b)(4), (c)(3). Even if it does not
intervene, the Government is entitled to be served with all
pleadings upon request and may intervene at any time with good
cause. § 3730(c)(3). The relator receives a share of any proceeds
from the action—generally 15 to 25 percent if the Government
intervenes, and 25 to 30 percent if it does not—plus attorney’s
fees and costs.
Cochise Consultancy, Inc. v. United States ex rel. Hunt, 139 S.Ct. 1507,
1510 (2019).
2 According to CMC, “[d]uring the times relevant to the [q]ui [t]am [a]ction,
CMC held contracts with [PennDOT] to provide certain services which included
inspection services with regard to highway construction projects.” See CMC’s
Complaint at ¶ 13 (attached as Exhibit B to Nationwide’s Complaint, 6/8/16).
In its complaint, CMC alleged that “[t]he contracts which [it] held with
[PennDOT] included contracts under which … CMC provided services to
[PennDOT] on highway construction projects funded, in whole or in part, by
the Federal Highway Administration.” Id. at ¶ 14.
3 “[A]llegations of malicious prosecution invoke Pennsylvania’s statutory law
in the form of the wrongful use of civil proceedings statute or ‘Dragonetti Act.’
This Court has described wrongful use of civil proceedings as a tort arising
when a person institutes civil proceedings with a malicious motive and lacking
probable cause.” See Freundlich & Littman, LLC v. Feierstein, 157 A.3d
526, 532 (Pa. Super. 2017) (citations, brackets, and some quotation marks
omitted).
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[q]ui [t]am action against CMC … in the United States District
Court for the Western District of Pennsylvania.
Nationwide is now defending Arnold in the CMC Action subject to
a Reservation of Rights letter. It seeks relief from its[] obligation
to defend and indemnify Arnold in that CMC Action pursuant to
the “business pursuits” exclusion contained in the policy issued to
Arnold.
Pa.R.A.P. 1925(a) Opinion (“Rule 1925(a) Op.”), 12/12/2018, at 1-2.
To obtain such relief, Nationwide filed a declaratory judgment complaint
on June 8, 2016, seeking a declaration that it has no duty to defend and/or
indemnify Arnold in the CMC Action. Subsequently, on July 14, 2017,
Nationwide filed a motion for summary judgment, asserting that the ‘business
pursuits’ exclusion in Arnold’s Umbrella Policy excludes coverage for the
lawsuit brought against Arnold by CMC. Arnold and Pushinsky each filed
responses, in which they both requested that Nationwide’s motion be denied.
On July 23, 2018, the trial court entered a confusing, contradictory
order, in which it granted Nationwide’s motion for summary judgment but
declared that Nationwide has a duty to defend and/or indemnify Arnold based
on the Umbrella Policy.4 In other words, despite stating that it granted
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4 Specifically, the order stated the following, in pertinent part:
[U]pon consideration of the motion of [Nationwide] for summary
judgement [sic] and the responses of the parties thereto, having
found that there remain no genuine issues of material fact with
respect to the coverage of … Nationwide’s Umbrella Policy issued
to … Arnold, it is hereby ORDERED that [Nationwide’s] motion is
GRANTED.
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Nationwide’s motion, it actually denied Nationwide the relief it requested. In
an accompanying memorandum, the trial court explained that the ‘business
pursuits’ exclusion did not apply and, as a result, Nationwide continued to
have a duty to defend Arnold in the CMC Action. See Trial Court Memorandum
(“TCM”), 7/23/2018, at 8. Further, it stated that, because Nationwide has a
duty to defend, Nationwide also has a duty to indemnify. Id. Thereafter, on
August 6, 2018, for reasons that are unclear to us, the trial court entered an
order identical to its July 23, 2018 order. See Trial Court Order, 8/6/2018.
On August 17, 2018, Nationwide filed separate, timely notices of appeal
from both of these orders.5 The trial court directed Nationwide to file a concise
statement of errors complained of on appeal pursuant to Pa.R.A.P. 1925(b)
on October 2, 2018. On October 11, 2018, apparently realizing the
contradiction in its earlier orders disposing of Nationwide’s motion for
summary judgment, the trial court entered an amended order. Therein, the
trial court stated that it was amending and correcting its July 23, 2018 order
to reflect that Nationwide’s summary judgment motion was denied, but
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This court finds that Nationwide … has a duty to defend and/or
indemnify … Arnold based on … Nationwide’s Umbrella Policy … for
the claims made in the underlying [CMC Action].
Trial Court Order, 7/23/2018.
5 On September 20, 2018, this Court consolidated these appeals sua sponte.
However, because the August 6, 2018 order is duplicative of the July 23, 2018
order, we quash the appeal taken from the August 6, 2018 order and docketed
at 1207 WDA 2018.
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reiterating its determination that Nationwide has a duty to defend and/or
indemnify Arnold in the CMC Action under the Umbrella Policy. See Trial Court
Amended Order, 10/11/2018.6 On October 19, 2018, Nationwide filed its Rule
1925(b) statement. The trial court then issued its Rule 1925(a) opinion.
Presently, Nationwide raises three issues for our review:
1. Did the trial court err[] by failing to grant [Nationwide’s] motion
for summary judgment and by failing to enter an order declaring
that Nationwide had no duty to further defend and/or indemnify
[Arnold] pursuant to [the Umbrella Policy]?
2. Did the trial court err by incorrectly applying the two-prong
standard for application of the ‘business pursuits’ exclusion as
enunciated in White v. Keystone [Ins. Co., 775 A.2d 812 (Pa.
Super. 2001),] by examining those prongs as to … Arnold’s status
as a [q]ui [t]am litigant, rather than analyzing the prongs of the
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6 We note that “a court has inherent power to amend its records, to correct
mistakes of the clerk or other officer of the court, inadvertencies of counsel,
or supply defects or omissions in the record at any time.” Mfrs. and Traders
Trust Co. v. Greenville Gastroenterology, SC, 108 A.3d 913, 921 (Pa.
Super. 2015) (internal quotation marks and citations omitted). “[A] major
substantive change, such as the total withdrawal of an order relative to a
motion of record[,] does not constitute a corrective order within the inherent
powers of the trial court or the court’s statutory authority. Absent a specific
rule or statute, the only exception is to correct obvious technical mistakes
(e.g., wrong dates) but no substantive changes can be made.” Id. (internal
quotations marks and citations omitted). Here, the trial court’s stating that it
granted Nationwide’s summary judgment motion was an obvious error where
it explicitly provided in the same order that Nationwide has a duty to defend
and/or indemnify Arnold. Further, the trial court’s amended order did not
change the substance of its ruling, i.e., that Nationwide has a duty to defend
and/or indemnify Arnold in the CMC Action. Thus, we conclude that the trial
court had the power to make this correction. Accordingly, given the unique
circumstances of this particular case and in the interest of judicial economy
and a clear record, we will consider the appeal docketed at 1208 WDA 2018
to be from the corrected October 11, 2018 order. See Pa.R.A.P. 105(a)
(“These rules shall be liberally construed to secure the just, speedy and
inexpensive determination of every matter to which they are applicable.”).
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test [as] to … Arnold’s employment at PennDOT, a defined
‘business’ pursuant to the terms of the Nationwide policy?
3. Did the trial court err by ordering that [Nationwide] had the
duty to indemnify [Arnold] in the underlying lawsuit when ordering
indemnification is legally premature?
Nationwide’s Brief at 7-8 (unnecessary capitalization omitted).
At the outset — given that Nationwide appeals from an order denying
its motion for summary judgment and appears to be interlocutory — we
address, briefly, the basis for our jurisdiction. See Good v. Frankie &
Eddie’s Hanover Inn, LLP, 171 A.3d 792, 794 n.1 (Pa. Super. 2017) (“[A]n
order denying summary judgment is ordinarily a non-appealable interlocutory
order.”) (citation omitted). Our Supreme Court has explained:
Generally speaking, appellate courts have jurisdiction to entertain
appeals from final orders entered at the trial court level.
Ordinarily, a final order disposes of all claims and of all parties.
Pa.R.A.P. 341(b)(1). However, Pa.R.A.P. 311(a)(8) states that an
“appeal may be taken as of right and without reference to
Pa.R.A.P. 341(c)[7] from ... [a]n order that is made final or
appealable by statute or general rule, even though the order does
not dispose of all claims and of all parties.” Importantly, Section
7532 of the [Declaratory Judgment Act] provides that courts of
record have the power to declare the rights, status, and other
legal relations and that “such declarations shall have the force and
effect of a final judgment or decree.” 42 Pa.C.S. § 7532.
Pa. Manufacturers’ Assoc. Ins. Co. v. Johnson Matthey, Inc., 188 A.3d
396, 399 (Pa. 2018) (some internal citations omitted). Within the context of
declaratory judgment actions, the Court has “provided a rather
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7 See Pa.R.A.P. 341(c) (providing that a trial court “may enter a final order as
to one or more but fewer than all of the claims and parties only upon an
express determination that an immediate appeal would facilitate resolution of
the entire case,” and that “[s]uch an order becomes appealable when
entered”).
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straightforward two-part test for appellate courts to apply when considering
whether an order declaring the rights of parties is final and appealable: (1)
what is the effect of the lower court’s decision on the scope of the litigation;
and (2) what practical effect does the court’s decision have on the ultimate
outcome of the case.” Id. (citation omitted). That is to say, “[i]f the order in
question merely narrows the scope of the litigation and does not resolve the
entirety of the parties’ eligibility for declaratory relief, then the order is
interlocutory and not immediately appealable.” Id. at 400 (citation omitted).
Here, Nationwide appealed from an order denying, in effect, its claim for
declaratory relief. The trial court’s order resolves the entirety of the parties’
eligibility for declaratory relief, as the trial court determined therein that
Nationwide has a duty to defend and/or indemnify Arnold in the CMC Action.
Thus, the order is appealable at this time. We therefore proceed to the merits.
Before examining Nationwide’s issues, we acknowledge our standard of
review for an order disposing of a motion for summary judgment:
Our scope of review … is plenary. [W]e apply the same standard
as the trial court, reviewing all the evidence of record to determine
whether there exists a genuine issue of material fact. We view
the record in the light most favorable to the non-moving party,
and all doubts as to the existence of a genuine issue of material
fact must be resolved against the moving party. Only where there
is no genuine issue as to any material fact and it is clear that the
moving party is entitled to a judgment as a matter of law will
summary judgment be entered.
Motions for summary judgment necessarily and directly implicate
the plaintiff’s proof of the elements of [its] cause of action.
Summary judgment is proper “if, after the completion of discovery
relevant to the motion, including the production of expert reports,
an adverse party who will bear the burden of proof at trial has
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failed to produce evidence of facts essential to the cause of action
or defense which in a jury trial would require the issues to be
submitted to a jury.” Pa.R.C.P. 1035.2. Thus, a record that
supports summary judgment will either (1) show the material
facts are undisputed or (2) contain insufficient evidence of facts
to make out a prima facie cause of action or defense and,
therefore, there is no issue to be submitted to the jury. Upon
appellate review, we are not bound by the trial court’s conclusions
of law, but may reach our own conclusions. The appellate [c]ourt
may disturb the trial court’s order only upon an error of law or an
abuse of discretion.
Nat’l Cas. Co. v. Kinney, 90 A.3d 747, 752-53 (Pa. Super. 2014) (some
internal citations, quotation marks, and original brackets omitted).
We address Nationwide’s first and second issues together. Nationwide
argues that the trial court erred in failing to find that the ‘business pursuits’
exclusion in the Umbrella Policy applied to preclude coverage for Arnold with
respect to the CMC Action. It advances that “this [e]xclusion is triggered
because the litigation and [Arnold’s] status as [a] [r]elator ‘arises out of’ his
employment with PennDOT, which was his business pursuit.” Nationwide’s
Brief at 48-49. As a result, Nationwide says the trial court should have granted
summary judgment in its favor.
This Court has previously stated that “the interpretation of an insurance
policy is a matter of law properly resolved in a declaratory judgment action.”
Erie Ins. Exchange v. Muff, 851 A.2d 919, 925 (Pa. Super. 2004). Further,
[a]n insurer’s duty to defend is a distinct obligation, different from
and broader than its duty to indemnify. An insured has purchased
not only the insurer’s duty to indemnify successful claims which
fall within the policy’s coverage, but also protection against those
groundless, false, or fraudulent claims regardless of the insurer’s
ultimate liability to pay. Not all claims asserted against an
insured, however, activate the insurer’s duty to defend.
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The insurer’s obligation to defend is fixed solely by the allegations
in the underlying complaint. It is not the actual details of the
injury, but the nature of the claim which determines whether the
insurer is required to defend. The duty to defend is limited to only
those claims covered by the policy. The insurer is obligated to
defend if the factual allegations of the complaint on its face
comprehend an injury which is actually or potentially within the
scope of the policy.
Thus, the insurer owes a duty to defend if the complaint
against the insured alleges facts which would bring the claim
within the policy’s coverage if they were true. It does not
matter if in reality the facts are completely groundless,
false, or fraudulent. It is the face of the complaint and not
the truth of the facts alleged therein which determines
whether there is a duty to defend.
Id. at 925-26 (emphasis and citations omitted). We also observe:
An insurer who refuses to defend its insured from the outset does
so at its peril, because the duty to defend remains with the insurer
until it is clear the claim has been narrowed to one beyond the
terms of the policy. An insurer who disclaims its duty to defend
based on a policy exclusion bears the burden of proving the
applicability of the exclusion.
Id. at 926 (citations omitted).
Because Nationwide’s duty to defend is dependent on the allegations set
forth in the underlying complaint, we look to the averments made by CMC in
the CMC Action. In its complaint, CMC asserted that Arnold and Pushinsky
made allegations against CMC in the qui tam action that were false, and that
Arnold and Pushinsky either: (a) knew that these allegations were false, (b)
did not conduct a proper investigation that would allow them to determine
whether the allegations were true before they made them, or (c) possessed
information which was sufficient to allow them to know that such allegations
were not true and were not supported. See CMC’s Complaint at ¶ 18.
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According to CMC, Arnold claimed in the qui tam action that, inter alia, CMC
overcharged PennDOT “for services performed by individuals, on behalf of and
for [CMC], who did not possess the necessary credentials or certificates for
the rates of pay charged by [CMC].” Id. at ¶ 19(d). CMC claimed that Arnold
and Pushinsky “made their assertions of overbilling by CMC based upon …
Arnold’s personal interpretation of contract requirements[,]” but stated that
“Arnold’s position with [PennDOT] did not involve [his] making the
interpretation of the requirements that applied to the positions or billing
classifications or billing rates for which CMC had submitted [certain
individuals] to [PennDOT] for approval.” Id. at ¶¶ 25, 27. Moreover, CMC
said that the PennDOT officials who were actually responsible for these tasks
had given CMC approval. Id. at ¶¶ 31-32. CMC advanced that Arnold filed
and pursued the qui tam action based on a “personal desire” to prove “he was
the only person who had made a proper interpretation of the contract
requirements and to prove that [PennDOT] officials … were incorrect” in their
interpretation, as well as “to secure personal financial gain by receiving a
share o[f] any payment CMC might have been forced to pay to end its
involvement in the [q]ui [t]am [a]ction….” Id. at ¶¶ 75, 76. Despite their
assertions, CMC alleged that Arnold and Pushinsky “lacked information that
CMC made any claim for payment that was false or fraudulent both at the time
[they] made their filings in the [q]ui [t]am [a]ction and when they continued
to pursue the [q]ui [t]am [a]ction against CMC for 11 years.” Id. at ¶ 40.
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With those allegations in mind, we now examine Arnold’s Umbrella
Policy. The Umbrella Policy contains the following ‘business pursuits’
exclusion:
Exclusions
Excess liability and additional coverages do not apply to:
***
5. An occurrence arising out of the business pursuits or
business property of an insured. To the extent a listed
underlying policy provides coverage, this policy will apply as
excess insurance….
See Nationwide’s Motion for Summary Judgment, 7/14/2017, at “Exhibit 1A”
(the Umbrella Policy) (emphasis in original). In addition, the Umbrella Policy
provides the following definitions:
Definitions
5. Occurrence(s) means an accident including continuous or
repeated exposure to the same general conditions. It must result
in bodily injury, property damage, or personal injury caused
by an insured. The occurrence resulting in bodily injury or
property damage must be during the policy period. The
occurrence resulting in the personal injury must be due to an
offense committed during the policy period.
***
8. Personal injury means:
a) false arrest, false imprisonment, wrongful conviction,
wrongful entry;
b) wrongful detention or malicious prosecution;
c) libel, slander, defamation of character, or invasion of
rights of privacy.
9. Business means a trade, profession, occupation, or
employment including self-employment, performed on a full-time,
part-time, or temporary basis.
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Id. (emphasis in original).
Relying on federal case law from the U.S. Court of Appeals for the Third
Circuit as well as the U.S. District Courts of Pennsylvania, this Court has
articulated that “activity encompassed within a ‘business pursuits’ exclusion
in an insurance policy requires two elements: 1) continuity, and 2) a profit
motive.” White, 775 A.2d at 814 (citations omitted). We have discerned that
“[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.” Id. at 815 (citation and quotation marks
omitted). Additionally, continuity has been described by the Third Circuit as
“customary engagement in the activity.” Sun Alliance Ins. Co. v. Soto, 836
F.2d 834, 836 (3d Cir. 1988).
To illustrate, in White, this Court considered whether a ‘business
pursuits’ exclusion applied to preclude coverage for an insured that loaned his
handgun to employees of a bar he planned to purchase and, prior to the
completion of the sale, an employee mishandled the gun and fatally shot a
woman. White, 775 A.2d at 812-13. The insured had loaned the handgun
to the employees “[f]or the protection of the bar’s assets and the safety of its
employees….” Id. at 813. The administratrix of the woman’s estate instituted
a declaratory judgment action against the insured’s insurance company to
determine if the company was responsible for coverage under the insured’s
homeowner’s policy, which contained a ‘business pursuits’ exclusion. See id.
at 812-13. The insurance company argued that the insured’s effort to
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purchase the bar was a business activity, and that he had a profit motive in
giving his handgun to the employees. See id. at 814, 815. On appeal, this
Court concluded that the policy’s ‘business pursuits’ exclusion did not apply,
opining that the “the action of [the insured] in giving a handgun to the
employees of the bar, and the subsequent action of [an employee] in
mishandling the gun, was not incident to a business pursuit.” Id. at 815. We
noted that the sale of the bar to the insured was not yet complete, and that
the insured did not have a profit motive at the time of the shooting because
he “was not engaged in the operation of the business and, thus, he did not
secure any profit or earnings by protecting the assets or employees of the
bar.” Id.In contrast, in Old Guard Ins. Co. v. Sherman, 866 A.2d 412 (Pa.
Super. 2004), we determined that a ‘business pursuits’ exclusion applied to
preclude coverage for insureds that had a wrongful death and survival action
filed against them after a teenaged worker died on their farm when a tractor
he was operating slid into a manure pit. Id. at 413-14. The insureds had
sold the farm shortly before the accident but they had remained partners in
the farm’s business even after the sale. Id. at 414. We observed:
The conditions giving rise to the tragic death of [the teenaged
worker] occurred during the period [that the] insureds [allegedly]
designed, built, and maintained the manure pit; purchased the
tractor; allowed the concrete ramp leading to the pit to become
worn and slippery; failed to replace the worn tires on the tractor;
and allowed unsupervised minors to operate the tractor in and
around the unprotected pit, which was designed to hold
approximately three months of manure for 250 cows, and which
measured 100 feet long by 30 feet wide by 12 feet deep. All of
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the misfeasances and nonfeasances … allege[d] clearly have as
their base the business of farming, not the ownership of a home.
… The insureds purchased a policy with a business exclusion; the
trial court properly found the exclusion precluded coverage for
personal liability arising out of a business. We find no error.
Id. at 419-20.
Similarly, in Soto, the Third Circuit discerned that a ‘business pursuits’
exclusion precluded coverage for the owner of commercial properties who was
sued by his tenants after the properties caught on fire due to purportedly
negligent construction and maintenance. Soto, 836 F.2d at 834-35.8 The
Third Circuit determined that both prongs of the ‘business pursuits’ exclusion
had been met as the owner had operated the commercial properties since
their construction 20 years earlier, and received a salary and dividends from
that venture. Id. at 836. The Court also noted that “the allegations of the
complaint charge [the owner] with specific actions arising from his business
pursuits and indeed [he] testified in his deposition that he maintained the
buildings in that he hired people to do the maintenance and directed their
work.” Id.Finally, both Nationwide and Arnold cite to the non-binding case of
Aetna Cas. and Sur. Co. v. Ericksen, 903. F.Supp. 836 (M.D. Pa. 1995). In
Ericksen, an insurance company filed a declaratory judgment action seeking
a ruling that it was not liable to defend and indemnify its insured — a professor
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8 The White court referenced Soto in its decision. White, 775 A.2d at 814.
However, we acknowledge that “[f]ederal district and appeals court decisions
are not binding precedent on this Court. We may follow their reasoning where
it is persuasive.” Reeser v. NGK North American, Inc., 14 A.3d 896, 899
n.3 (Pa. Super. 2011) (citation omitted).
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at a university — after her colleague brought a libel action against her based
on (1) a sexual harassment complaint she had made to her employer about
the colleague, and (2) a discussion she had with a newspaper regarding the
sexual harassment complaint she made. See id. at 837-39. The insurance
company claimed that the ‘business pursuits’ exclusion in the insured’s policy
precluded coverage. The court recognized that the insured’s “activities as a
professor were a business pursuit[,]” and ascertained that the pertinent
question is “whether the statements made by [the insured] which caused the
alleged injury ‘arose out of’ that employment.” Id. at 839. In answering this
question, the court determined that “that an insurer is not liable to defend and
indemnify an action wherein an injury is alleged in a complaint (1) to have
been caused by the insured while the insured was engaged in his or her
business, as that word is defined in the policy, and (2) to have a causal
connection to the business of the insured.” Id. at 840.9 The court then found
that the complaint the insured made to her employer, which instituted
confidential proceedings against the colleague in accordance with the
university’s sexual harassment policy and procedure, was made “in the course
of [the insured’s] employment, and any injuries resulting therefrom ‘arose out
of’ her employment.” Id.
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9 Neither party in Ericksen had cited a case “which purports to define ‘arising
out of’ for purposes of a business pursuits exclusion in a homeowner’s
insurance policy.” Ericksen, 903 F.Supp. at 839. Given this lack of authority,
the court opined that “the most analogous law appears to be that of workers’
compensation, which provides for the compensation of employees for injuries
‘arising out of and in the course of employment.’” Id. (citation omitted).
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However, the Ericksen court reached a different result with respect to
the insured’s statements to the newspaper about her complaint. It concluded
that the ‘business pursuits’ exclusion did not apply to those statements
because the insured “is nowhere said to have public relations responsibilities
for the [u]niversity, save recruitment of potential students to the department.
Nor did the publication of the allegedly libelous statement arise in the context
of a class taught by [the insured].” Id. at 841. The court acknowledged that
the insurance company pointed to “factors such as the interview taking place
in [the insured’s] office at the [u]niversity, and the fact that the subject matter
of the interview involved what may have occurred at the [u]niversity[,]” but
nonetheless concluded that “there is no causal connection between the
performance of [the insured’s] professional duties and the alleged injury
suffered by [the colleague].” Id. As a result, the court declared that the
insurance company had a duty to defend the insured. Id.
In the case sub judice, the trial court conveyed in its Rule 1925(a)
opinion that the ‘business pursuits’ exclusion of Arnold’s Umbrella Policy did
not apply to preclude coverage. In reaching this conclusion, it considered
whether Arnold’s litigation of the qui tam action was a business pursuit under
the two-prong ‘business pursuits’ exclusion test. It reasoned:
To satisfy the first prong, continuity, Arnold must have had
consistent engagement in the activity at issue. Here, the activity
complained of is the initiation of the [q]ui [t]am lawsuit, not his
employment at PennDOT. There is nothing in the record to
support that Arnold was a consistent [relator] in [q]ui [t]am
actions. There is no evidence in the record to show that Arnold
was continuously engaged in activity as a litigant. There is also
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no evidence to show that Arnold was continuous[ly] looking for
evidence to force CMC into litigation. Lastly, [n]either Arnold nor
… Pushinsky are continuously engaged in litigation against CMC or
in [q]ui [t]am actions. The facts do not support the continuity
element of the two-pronged test. Without the continuity element,
the facts do not satisfy the test for [the] business pursuit[s]
exclusion.
The second prong is profit motive. To have a profit motive, Arnold
must have engaged in an activity as “a means of livelihood, a
means of earning a living, procuring subsistence or profit,
commercial transactions, or engagements.” The … Umbrella
Policy describes “business” as[] “trade profession, occupation, or
employment including self-employment, performed on a full-time,
part-time or temporary basis.” Neither the underlying CMC
complaint nor the [q]ui [t]am action “arose out” of Arnold’s
employment with PennDOT. Arnold’s employment with PennDOT
is a “means of livelihood” or “earning a living.” Here, serving as
a relator in the [q]ui [t]am action is neither Arnold’s means of
livelihood nor the way he earns a living. Arnold fails to meet the
“profit motive” prong of the test.
Rule 1925(a) Op. at 6-7 (internal citations omitted).10
Nationwide argues that the trial court incorrectly applied the two-prong
‘business pursuits’ exclusion test to Arnold’s status as a litigant in the qui tam
action. See Nationwide’s Brief at 46. Nationwide contends that the litigation
activity “only has to arise from the business pursuit, not actually be a business
pursuit.” Id. at 48. It states that “[t]he [q]ui [t]am action is not [Arnold’s]
____________________________________________
10 We recognize that this analysis directly contradicts the reasoning provided
by the trial court in its earlier July 23, 2018 memorandum. There, the trial
court found that the qui tam action did arise out of Arnold’s employment with
PennDOT and determined that the profit motive prong of the ‘business
pursuits’ exclusion test was satisfied. TCM at 5, 6. Problematically, the trial
court did not explain why its analysis changed between this memorandum and
its subsequent Rule 1925(a) opinion. In any event, though, the trial court
concluded in its July 23, 2018 memorandum that the ‘business pursuits’
exclusion did not apply to preclude coverage for Arnold, as the continuity
prong was nevertheless not met by Nationwide. Id. at 7.
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‘business pursuit[,’] but rather it is an activity undertaken which arose out of
the course of [Arnold’s] employment with PennDOT.” Id. at 47 (emphasis in
original). To support that the qui tam litigation arose from Arnold’s
employment with PennDOT, Nationwide points to case law where courts —
including the Supreme Court of Pennsylvania — have said that the language
“‘arising out of’ in an insurance provision means causally connected with, not
proximately caused by[,]” and that “‘but for’ causation satisfies the ‘arising
out of’ language in an insurance policy.” Id. at 56 (citing Allstate Prop. and
Cas. Ins. Co. v. Squires, 667 F.3d 388, 391-92 (3d Cir. 2012) (quoting Mfrs.
Cas. Ins. Co. v. Goodville Mut. Cas. Co., 170 A.2d 571, 573 (Pa. 1961)).
According to Nationwide, “Arnold used his access through his employment to
gather the evidence of alleged fraud involving federally funded projects
implemented through PennDOT, and used that information he accumulated
over time as the support for his [c]omplaint against CMC serving as the
[r]elator in the [q]ui [t]am [a]ction.” Id. at 48. It asserts that “‘but for’
[Arnold’s] occupation and employment at PennDOT, he would not have had
access to the necessary information contained within PennDOT’s private
business records, [and] would not have had the opportunity to pursue a [q]ui
[t]am [c]omplaint and report the allegedly unsupported allegations of fraud
against … CMC.” Id. at 59-60. Thus, Nationwide advances that the ‘business
pursuits’ exclusion of the Umbrella Policy “is triggered because the litigation
and [Arnold’s] status as [a] [r]elator ‘arises out of’ his employment with
PennDOT, which was his business pursuit.” Id. at 48-49.
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In response, Arnold admits that his “employment with PennDOT is
clearly [his] ‘business pursuit’ under the [Umbrella] [P]olicy[.]” Arnold’s Brief
at 26.11 However, he points out that he “is not being sued for something that
he did pursuant to his employment at PennDOT. He is not being sued because
he engineered a defective bridge at work, or because he complained about
CMC to his employers.” Id. According to Arnold, “what happened was that
[he] acted outside of his employment, he complained about CMC’s billing …
by filing and litigating the [q]ui [t]am [a]ction, neither of which were part of
his employment responsibilities at PennDOT.” Id. at 25 (internal quotation
marks omitted). Further, to counter Nationwide’s ‘but for’ argument, Arnold
maintains that “[e]very incidental factor that arguably contributes to an
accident is not a ‘but for’ cause in the legal sense.” Id. at 22 (citing Squires,
667 F.3d at 394). He claims that his “employment with PennDOT was
incidental to the alleged injury caused by [his] filing and litigating of the [q]ui
[t]am [a]ction against CMC. The alleged injury to CMC was caused by an
external instrumentality, i.e.[,] the [q]ui [t]am [a]ction, that was totally
____________________________________________
11 While Arnold concedes outright that his employment at PennDOT is his
business pursuit under the Umbrella Policy, Pushinsky does not make a similar
admission in his brief. Nevertheless, Pushinsky still pushes back against
Nationwide’s ‘arising out of’ theory, contending that, “[b]ased on [Arnold’s]
exercise of his rights as a citizen (not as a businessman, not for his trade, not
for his profession), … Arnold is potentially exposed to liability under [the]
Dragonetti [Act and for] abuse of process and tortious interference. This
potential liability does not ‘arise from’ a business pursuit.” Pushinsky’s Brief
at 21; see also id. at 14 (“In filing a lawsuit on behalf of the United States,
… Arnold was not engaged in a trade, profession, occupation or employment.
… CMC does not seek to impose liability on … Arnold arising from his
employment at PennDOT.”).
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separate from Arnold’s employment with PennDOT.” Id. at 23. Consequently,
he asserts that the ‘business pursuits’ exclusion does not apply.
We agree with Nationwide and Arnold that the trial court incorrectly used
the two-prong ‘business pursuits’ exclusion test to consider whether the qui
tam action was itself a business pursuit. Instead, the trial court should have
employed the two-prong test to determine whether the litigation of the
purportedly baseless qui tam action (the occurrence resulting in personal
injury to CMC) arose out of a business pursuit (Arnold’s employment at
PennDOT). See Nationwide’s Motion for Summary Judgment, 7/14/2017, at
“Exhibit 1A” (the Umbrella Policy) (excluding coverage for “[a]n occurrence
arising out of the business pursuits … of an insured…”) (emphasis in
original). It is clear that Arnold’s employment at PennDOT constitutes a
business pursuit, as it is an activity done with the requisite continuity and
profit motive. See White, supra. Therefore, the issue boils down to whether
Arnold’s tenacious litigation of an allegedly unsupported qui tam action arose
from his job at PennDOT.
At the outset, we acknowledge that this is a close question, and reiterate
that Nationwide carries the burden of proving the applicability of the ‘business
pursuits’ exclusion. See Muff, 851 A.2d at 926 (“An insurer who disclaims its
duty to defend based on a policy exclusion bears the burden of proving the
applicability of the exclusion.”) (citation omitted). We also note that we do
not have extensive case law from the courts of this Commonwealth to guide
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us in our decision-making.12 Notwithstanding, based on the cases we have
discussed applying the ‘business pursuits’ exclusion supra, it stands out to us
that CMC’s complaint does not contest specific actions taken by Arnold while
he was engaged in his work at PennDOT and, in fact, makes explicit that
Arnold’s position there had nothing to do with interpreting contracts or billing.
Unlike the insureds in Sherman, Soto, and Ericksen, CMC is not seeking to
impose liability on Arnold for something he did at, or in the context of, his
employment. See Sherman, supra (applying a ‘business pursuits’ exclusion
where the conditions on the farm, which had been operated as a business by
the insureds, contributed to the death of the worker); Soto, 836 F.2d at 836(“[T]he allegations of the complaint here charge [the insured] with specific
actions arising from his business pursuits and indeed [the insured] testified in
his deposition that he maintained the buildings in that he hired people to do
the maintenance and directed their work.”); Ericksen, 903 F.Supp. at 840
(reasoning that the ‘business pursuits’ exclusion applied to alleged injuries
stemming from the insured’s first complaint to her employer concerning her
colleague as she included it in a memorandum that “was submitted in order
to begin proceedings against [the colleague] consistent with the [u]niversity’s
sexual harassment policy and procedure”).
____________________________________________
12 Indeed, the White court began its analysis by recognizing “the relatively
limited case law addressing the business pursuits exception in Pennsylvania.”
White, 775 A.2d at 814. Since White, there appears to be few cases from
Pennsylvania state courts applying the exclusion.
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Instead, in the case at bar, all of the conduct CMC complains of were
actions taken by Arnold outside of his job. Analogous to the insured’s sharing
allegedly libelous statements with a newspaper in Ericksen, Arnold made the
purportedly false statements regarding CMC in court documents and without
PennDOT’s support. According to CMC, Arnold pursued the qui tam action
because he personally disagreed with how PennDOT officials interpreted the
contracts and wanted to benefit himself financially. In its complaint, CMC
emphasized that Arnold’s position at PennDOT did not involve him interpreting
contract requirements or approving billing classifications and rates, and it
stressed that he had no authority or responsibility for doing those things.
Nevertheless, CMC said Arnold made assertions against CMC regarding
overbilling based on his personal interpretation of contract requirements.
Further, he purportedly initiated and continued the litigation for 11 years even
though he lacked information that CMC made any claim for payment that was
false or fraudulent. Thus, at its core, CMC’s complaint challenges Arnold’s
personal conduct, not the performance of his professional duties or actions he
took at work. Cf. Sherman, 866 A.2d at 420 (“All of the misfeasances and
nonfeasances … allege[d] clearly have as their base the business of farming,
not the ownership of a home.”).
While Nationwide argues that Arnold would not have had access to the
information contained within PennDOT’s ‘private business records’ but for his
employment there, see Nationwide’s Brief at 59-60, CMC’s complaint does not
specifically allege where Arnold obtained the information he relied upon, nor
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does it state that such information was private and only accessible to
PennDOT’s employees. At any rate, though, the crux of CMC’s lawsuit is that
Arnold had no information or proof that CMC made inaccurate factual
representations to PennDOT about its inspectors’ credentials and qualifications
but pursued the qui tam action anyway. Furthermore, that the subject matter
of Arnold’s complaint concerned matters taking place at PennDOT does not
establish a causal connection between how Arnold performed his professional
duties and CMC’s grievances. Accord Ericksen, 903 F.Supp. at 841
(rejecting the argument that the insured’s interview with the newspaper arose
out of her profession because its subject matter involved what may have
occurred at the university, and determining that “there is no causal connection
between the performance of [the insured’s] professional duties and the alleged
injury suffered by [her colleague]”).
Based on the foregoing, we conclude that Arnold’s litigation of the
supposedly baseless qui tam action against CMC did not arise out of his
business pursuits. Again, Nationwide had the burden of proof and failed to
demonstrate that the ‘business pursuits’ exclusion applied here. At bottom,
CMC’s allegations challenge Arnold’s personal conduct, not actions he took or
events that transpired in the context of his employment. We decline to
construe the ‘business pursuits’ exclusion so broadly that coverage is
precluded for allegations with any nexus whatsoever to an insured’s work.
Accordingly, we determine that the ‘business pursuits’ exclusion does not
apply, and Nationwide has a duty to defend Arnold in the CMC Action.
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In Nationwide’s third issue, it argues that “[t]he trial court’s order that
[Nationwide] indemnify [Arnold] should be overruled because the court
abused its discretion and committed [an] error of law in ordering
indemnification prematurely[.]” Nationwide’s Brief at 65 (unnecessary
emphasis and capitalization omitted). Specifically, it says that the trial court’s
order sets forth that “[Nationwide] has a duty to ‘defend and/or indemnify’
[Arnold] based on the [Umbrella Policy].” Id. However, Nationwide contends
that “[t]he duty to indemnify … is not triggered until a determination of liability
is made. The duty to defend carries with it a conditional obligation to
indemnify in the event the insured is held liable for a claim covered by the
policy.” Id. at 66 (emphasis in original; citations omitted). Consequently,
Nationwide maintains that “a [c]ourt cannot order an insurance carrier to
indemnify its insured until the insured has been held liable for the claim.” Id.
Thus, Nationwide insists that, “while the [t]rial [c]ourt can order no duty to
indemnify if the court determines that there was no duty to defend, … it is
premature for the court to conclude that [a] duty to indemnify exists prior to
[CMC’s] obtaining a judgment … against [Arnold] in the [CMC Action].” Id. at
67 (emphasis in original).
It appears to us that the trial court and Pushinsky do not disagree with
Nationwide.13 Here, as Nationwide contends, the trial court stated in its order
that Nationwide “has a duty to defend and/or indemnify … Arnold … for the
____________________________________________
13 Arnold does not address this issue in his brief.
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claims made in the underlying [CMC Action].” See Trial Court Amended Order,
10/11/2018. However, in its Rule 1925(a) opinion, the trial court elaborated:
Pennsylvania has held that the language of the underlying
complaint, here the CMC complaint, triggers the duty to
indemnify. Kvaerner Metals Div. … v. Commercial Union Ins.
Co., 908 A.2d 888, 896 ([Pa.] 2006). Nationwide will have a duty
to indemnify “only where the insured is held liable for a claim
actually covered by the policy.” Gen. Acc. Ins. Co. of Am. v.
Allen, 692 A.2d 1089, 1095 ([Pa.] 1997). The duty to defend
also carries with it a conditional obligation to indemnify in the
event that the insured is held liable for a claim covered by the
policy. Id. In this case, if the underlying CMC complaint triggers
a duty to defend, then it also triggers a duty to indemnify.
Kvaerner Metals Div., 908 A.2d at 900. Here, there is a duty to
defend as the business pursuit[s] exclusion does not apply.
Likewise, there is also a duty to indemnify if the insured is found
to be liable for a covered claim. Id. As Nationwide has a duty to
defend Arnold in the underlying CMC [A]ction, likewise,
Nationwide has a duty to indemnify.
Rule 1925(a) Op. at 7-8. In accordance, Pushinsky maintains that “the lower
court did not commit error in deciding [that] ‘there is also a duty to indemnify
if the insured is found to be liable for a covered claim.’” Pushinsky’s Brief at
24 (citation omitted). Thus, it seems like the trial court and the parties all
agree that Nationwide has a duty to indemnify if Arnold is found to be liable
for a covered claim.
Although the trial court acknowledged in its Rule 1925(a) opinion that
“there is … a duty to indemnify if the insured is found to be liable for a covered
claim[,]” see Rule 1925(a) Op. at 8, we agree with Nationwide that its order
does not clearly reflect that condition and appears to convey that Nationwide
has an absolute duty to indemnify Arnold. Therefore, we reverse that aspect
of the trial court’s order to the extent it imposes an absolute duty on
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Nationwide to indemnify Arnold, and we clarify that Nationwide has a duty to
indemnify only if Arnold is found to be liable for a covered claim under the
Umbrella Policy.
Order entered on October 11, 2018 affirmed in part and reversed in
part. Appeal docketed at 1207 WDA 2018 quashed. Jurisdiction relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 7/11/2019
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