INSURANCE COVERAGE

Pennsylvania, Not California, Law Applies in Insurance Coverage Case in Which Policy Was Created in Pennsylvania but the Underlying Tort Occurred in California

In Photomedex, Inc. v. St. Paul Fire & Marine Ins. Co., slip copy, 2008 WL 324025 (E.D. Pa. February 6, 2008), the District Court was presented with a dispute regarding insurance coverage for the defense and indemnification of a malicious prosecution action in California. The primary issue before the Court was whether Pennsylvania or California law applied when the policy was created in Pennsylvania but the action requiring indemnification originated in California.

St. Paul argued that California law applied to the instant insurance policy, barring indemnification of the settlement of that case and limiting the attorney fee rates it is required to pay in defense notwithstanding any contrary language in the policy. PhotoMedex countered that Pennsylvania law applied requiring the court to enforce the contract as written.

Pennsylvania's choice of law rules governed the question of which state's substantive law the court will apply in this diversity action. The Pennsylvania Supreme Court has adopted a “flexible rule” for choice of law questions, “which permits analysis of the policies and interests underlying the particular issue before the court.” This approach “gives to the place having the most interest in the problem paramount control over the legal issues arising out of a particular factual context and thereby allows the forum to apply the policy of the jurisdiction most intimately concerned with the outcome of the particular litigation.”

The Court first considered whether an actual conflict existed between the substantive laws of the involved states. There were two sets of law with potential conflicts: indemnification of malicious prosecution and applicable coverage rates for attorneys fees. The Court held there was a “true conflict” between the laws of Pennsylvania and California with respect to both issues. As such, the Court was required to examine the governmental interest involved to determine whether the application of either state’s law will impair the interest of the other states interest.

Because "the policy was negotiated, written, produced, delivered and signed in Pennsylvania," the Court held that Pennsylvania had stronger qualitative contacts with the issue of policy interpretation and stronger governmental interests in applying its substantive law to that interpretation. California’s only contacts were related to the underlying tort. Therefore, the Court granted plaintiff’s motion for summary judgment on the issue of controlling law, holding that Pennsylvania law applies.

EMPLOYMENT LITIGATION

Attorney Fees Incurred During Administrative Proceedings Preceding Filing Of ERISA Action Cannot Be Recovered As Part Of Prevailing Plaintiff's Attorney Fee Award

In Hahnemann Univ. Hosp. v. Allshore Inc., --- F.3d ---, 2008 WL 222519 (3d Cir. Jan. 29, 2008), the Third Court of Appeals held, as a matter of first impression, that attorney fees incurred during administrative proceedings preceding filing of ERISA action cannot be recovered as part of prevailing plaintiff's attorney fee award.

The case arises out of the medical treatment of a patient at Hahnemann in March 1999. The patient was covered under the Allshore Plan, a health benefit plan administered by Allshore, Inc., and regulated by the Employee Retirement Income Security Act (“ERISA”). In April 1999, Hahnemann submitted a medical bill to the Allshore Plan for approximately $250,000 for the costs incurred with treating the patient at Hahnemann. Hahnemann submitted its bill rather than the patient because the patient assigned her claims for benefits under the Allshore Plan to Hahnemann. Hahnemann received only a portion of its claim because it was determined that a discount applied through a preferred provider organization. It was later determined that the discount was erroneously applied. After months passed without receiving the balance owed, Hahnemann filed its complaint to recover benefits owed pursuant to 29 U.S.C. § 1132(a)(1)(B) of ERISA.

The Court ultimately granted Hahnemann’s motion for summary judgment and awarded Hahnemann $136,182.50 in attorney's fees as well as Court costs in the amount of $4,017.26 and $3,372.72 in travel and expense costs. Defendant filed a motion to alter or amend the judgment, which was denied. Subsequently, Defendants filed an appeal. In its appeal, Defendants made several arguments objecting to the District Court's award of attorney fees and costs.

One question presented in the appeal, which was one of first impression in the Third Circuit, was whether ERISA's attorney's fee provision limits a District Court to award only those fees incurred in formal judicial actions, or whether it also covers the fees incurred during the pre-litigation administrative process. ERISA's attorney's fee provision states that, “[i]n any action under this subchapter (other than an action described in paragraph (2)) by a participant, beneficiary, or fiduciary, the court in its discretion may allow a reasonable attorney's fee and costs of action to either party.” 29 U.S.C. § 1132(g)(1). Five Circuit Courts have considered this question, and all five have concluded that ERISA does not allow for the recovery of attorney's fees incurred during pre-litigation administrative proceedings. The Third Circuit joined its sister circuits, and concluded that the fees incurred during administrative proceedings prior to filing suit are unavailable under 29 U.S.C. § 1132(g)(1).

In reaching this conclusion, the Court had to determine whether Congress intended the term “action” in 29 U.S.C. § 1132(g)(1) to include administrative review proceedings related to the judicial action. The Court provided:

While the Supreme Court has not reached the issue of whether the ERISA attorney's fee statutory provision allows for the award of fees incurred during pre-litigation administrative proceedings, its decisions interpreting other fee statutes support our holding today. For example, the Supreme Court has construed the phrase “action or proceeding” under Title VII to provide for fee awards for administrative proceedings which are not court actions. See N.Y. Gaslight Club, Inc. v. Carey, 447 U.S. 54, 61, 100 S.Ct. 2024, 64 L.Ed.2d 723 (1980); see also, Peterson, 282 F.3d at 121 (comparing the statutory language of Title VII as interpreted by the Supreme Court in N.Y. Gaslight Club, and noting that the ERISA attorney's fee statutory provision does not contain the word “or proceedings”); Cann, 989 F.2d 313 (same). As noted by the Supreme Court, “Congress” use of the broadly inclusive disjunctive phrase “action or proceeding' indicates an intent to subject the losing party to an award of attorney's fees and costs that includes expenses incurred for administrative proceedings.” N.Y. Gaslight Club, 447 U.S. at 61, 100 S.Ct. 2024.Unlike Title VII, “the text of ERISA contains no similar reference to ‘proceedings,’ providing strong evidence that Congress did not intend ERISA to have as broad a reach as Title VII.” Peterson, 282 F.3d at 121.

As such, the Court held that awarding a prevailing party attorney's fees for pre-litigation administrative proceedings under ERISA is inappropriate.