Insured Must Fulfill Policy Conditions
Barry Zalma
Jan 23, 2024
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Post 4718
Pharmacia Corporation appealed the District Court’s order granting summary judgment declaring that one of its excess insurers, Twin City Fire Insurance Company, did not owe a duty to pay Pharmacia’s settlement and defense costs from a shareholder class action.
In Pharmacia Corporation n/k/a Pfizer, Inc. v. Arch Specialty Insurance Company; Twin City Fire Insurance Company; Liberty Mutual Insurance Company, No. 22-2586, United States Court of Appeals, Third Circuit (January 19, 2024) the conditions were applied.
FACTS
Pharmacia, a pharmaceutical drug manufacturer, purchased a $200 million directors and officers insurance tower from thirteen companies through an insurance broker. The first layer of the tower consisted of a $25 million primary policy issued by National Union Fire Insurance Company of Pittsburgh, Pa (the “Primary Policy”). The next twelve policies provided excess insurance totaling $175 million. Twin City sold Pharmacia the eighth-layer excess policy (the “Policy”), which provided $10 million in coverage and specified that “liability for any loss shall attach to [Twin City] only after the Primary and Underlying Excess Insurers shall have [(1)] duly admitted liability and [(2)] . . . paid the full amount of their respective liability.”
Pharmacia shareholders sued seeking class action qualification against the company, alleging that it artificially inflated its stock by misrepresenting the results of a clinical drug study. After ten years of litigation, the case settled, and Pharmacia incurred approximately $207 million in defense and indemnity costs. Pharmacia then provided Twin City proof that the excess carriers ahead of it in the insurance tower paid their policy limits and asked Twin City to provide coverage. Twin City declined.
Pharmacia sued Twin City. The District Court granted Twin City’s motion for summary judgment and dismissed the case with prejudice. The Court found that: (1) the plain language of the Policy required the other excess insurers to admit liability as a condition precedent for coverage to attach; (2) six of them had disclaimed liability, and (3) as a result, a condition for coverage was not satisfied. Pharmacia appealed.
POLICY INTERPRETATION
The Third Circuit concluded that no conflict exists here. Specifically, courts:
1 Give effect to the intent of the parties as expressed in the clear language of the contract, and the plain language of the contract is the cornerstone of the interpretive inquiry.
2 May not make a different or better contract than the parties themselves saw fit to enter into.
3 Courts should refrain from rewriting the agreement to accomplish their notions of abstract justice or moral obligation.
4 May avoid a literal construction of the words of a contract only if that interpretation defies all bounds of common sense.
ANALYSIS
When the intent of the parties is plain and the language is clear and unambiguous, a court must enforce the agreement as written, unless doing so would lead to an absurd result.
Applying these principles, the Policy unambiguously imposed two distinct conditions precedent for coverage to attach. Specifically, Pharmacia must show both that the insurers ahead of Twin City in the tower have:
1 duly admitted liability and
2 paid the full amount of their respective liability.
Pharmacia failed to show that both conditions to trigger Twin City’s coverage were met since six insurers refused to admit liability.
Regardless of whether the other insurers in the tower paid their policy limits, the record does not demonstrate that all of those insurers admitted liability and the court is not required to accept the error of the six insurers refusing to admit liability who still paid. Because Pharmacia failed to establish at least one condition precedent, the District Court correctly declined to declare that Twin City owes Pharmacia coverage. The trial court was affirmed.
ZALMA OPINION
Conditions precedent in an insurance policy must be met or the insurer has no obligation to provide defense or indemnity under the policy. Twin City established that six insurers in Pharmacia’s tower below Twin City did not admit liability and that, therefore, it failed to prove compliance with the condition precedent. Pharmacia luckily received contributions from insurers accepting coverage and insurers who did not but decided not to litigate. After reading this case, if the six had the same condition, they have explanations to make to their shareholders.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Chutzpah: After Criminal Prosecution Defendant Sues USA
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Dr. Segun Patrick Adeoye, a medical doctor, filed a lawsuit against the United States of America, seeking damages for alleged violations during his criminal prosecution. He was acquitted by a jury but claims to have suffered significant harm, including financial losses, damage to his professional reputation, and personal distress.
In Dr. Segun Patrick Adeoye v. The United States Of America, Civil Action No. 4:25-cv-83, United States District Court, E.D. Texas, Sherman Division (July 23, 2025) the USDC dismissed Adeoye’s suit.
FACTUAL BACKGROUND
Dr. Adeoye was indicted on charges of conspiracy to commit wire fraud and money laundering. The indictment alleged that he and his co-conspirators obtained at least seventeen million dollars through various fraudulent schemes. Despite being acquitted, Dr. Adeoye claims that his ...
Payment of Appraisal Award Defeats Claim of Bad Faith
Post 5163
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Hurricane Damage to Dwelling Established by Appraisal Award
In Homeowners Of America Insurance Company v. Emilio Menchaca, No. 01-23-00633-CV, Court of Appeals of Texas, First District (July 31, 2025) after a hurricane Homeowners of America Insurance Company (“HAIC”) estimated that the cost of covered repair to Menchaca’s house was $3,688.54, which was less than his deductible, and therefore no payment would be made.
FACTS
After Menchaca retained counsel HAIC advised that, under the terms of the policy, Menchaca was required to first invoke the appraisal process prior to filing suit, and that HAIC reserved the right to request that Menchaca and any adjuster hired on his behalf submit to an Examination Under Oath (“EUO”).
On August 23, 2018, Menchaca’s counsel ...
Payment of Appraisal Award Defeats Claim of Bad Faith
Post 5163
Read the full article at https://lnkd.in/dNpKKcYx, see the full video at https://lnkd.in/dNgwRP8q and at https://lnkd.in/dA9dvd-D, and at https://zalma.com/blog plus more than 5150 posts.
Hurricane Damage to Dwelling Established by Appraisal Award
In Homeowners Of America Insurance Company v. Emilio Menchaca, No. 01-23-00633-CV, Court of Appeals of Texas, First District (July 31, 2025) after a hurricane Homeowners of America Insurance Company (“HAIC”) estimated that the cost of covered repair to Menchaca’s house was $3,688.54, which was less than his deductible, and therefore no payment would be made.
FACTS
After Menchaca retained counsel HAIC advised that, under the terms of the policy, Menchaca was required to first invoke the appraisal process prior to filing suit, and that HAIC reserved the right to request that Menchaca and any adjuster hired on his behalf submit to an Examination Under Oath (“EUO”).
On August 23, 2018, Menchaca’s counsel ...
Rulings on Motions Reduced the Issues to be Presented at Trial
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CASE OVERVIEW
In Richard Bernier v. State Farm Mutual Automobile Insurance Company, No. 4:24-cv-00002-GMS, USDC, D. Alaska (May 28, 2025) Richard Bernier made claim under the underinsured motorist (UIM) coverage provided in his State Farm policy, was not satisfied with State Farm's offer and sued. Both parties tried to win by filing motions for summary judgment.
FACTS
Bernier was involved in an auto accident on November 18, 2020, and sought the maximum available UIM coverage under his policy, which was $50,000. State Farm initially offered him $31,342.36, which did not include prejudgment interest or attorney fees.
Prior to trial Bernier had three remaining claims against State Farm:
1. negligent and reckless claims handling;
2. violation of covenant of good faith and fair dealing; and
3. award of punitive damages.
Both Bernier and State Farm dispositive motions before ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
