Insurer Required to Defend Until “Satisfaction” of Covered Verdict

Applying Pennsylvania law, the United States District Court for the Western District of Pennsylvania has held that an insurer wrongfully withdrew its defense after paying a covered verdict because the duty to defend extended until the court deemed the verdict to be “satisfied.”  Highland Park Care Ctr., LLC v. Campmed Cas. & Indem. Co., 2020 WL 2571900 (W.D. Pa. May 21, 2020).  The court also concluded that the policy’s standard-interest clause required the insurer to pay all post-judgment interest on the covered verdict.

The insured is a Pennsylvania-based healthcare provider.  In 2005, the provider was sued in a personal injury action that sought compensatory and punitive damages.  The provider’s liability insurer agreed to defend the suit, but disclaimed coverage for any punitive damages.  In 2007, a jury rendered a verdict of $200,000 in compensatory damages, which was reduced to a judgment that included an award for interest and costs.  After an appeal, the case returned to the trial court in 2015.  At that point, the insurer paid the verdict amount – plus post-judgement interest that had accrued – to a state-court account to “stop the clock” on its post-judgment interest liability.  The plaintiff, however, never collected the money or asked the clerk to mark the money judgment as “satisfied.”

In 2018, after another appeal, the case was set to proceed to trial solely on the issue of punitive damages.  The insurer withdrew its defense, claiming that it owed no defense because only non-covered punitive damages remained at issue.  The case settled two years later, and the clerk disbursed the funds for the earlier judgment and marked the judgment satisfied.

In the ensuing coverage action, the parties disputed (i) whether the insurer’s duty to defend terminated before satisfaction of the covered judgement, and (ii) whether the insurer had an obligation to indemnify its insured for all post-judgment interest that accrued after its payment to the court in 2015.

Under the policy, the insurer had a duty to defend a suit seeking covered damages.  When the insurer withdrew its defense in 2018, the court explained, there was still a pending suit alleging covered damages.  The court determined that just because the compensatory damages were reduced to a judgment by verdict did not mean that those damages were excised from the proceeding.  Rather, the court concluded that “[u]ntil those damages were finally resolved through satisfaction, covered damages were being alleged in the suit,” and the insurer therefore had a duty to defend until the court marked the judgment satisfied in 2020.

The court also held that the policy’s standard-interest clause required the insurer to pay all post-judgment interest.  Although the insurer argued that the standard-interest clause included an “escape hatch” that cut off interest from accruing as soon as it paid the judgment to the court, the court concluded that the escape clause only applied if the insurer deposited its full policy limit, which did not happen in this case.