HARRISBURG – The state Superior Court of Pennsylvania has vacated a Philadelphia County order allowing the denial of insurance coverage for punitive damages awarded in a wrongful death lawsuit, according to an opinion entered on Nov. 30.

According to the opinion, ACE Property and Casualty Insurance Co. insured Bensalem Racing Association Inc. and Keystone Turf Club Inc. (collectively, Parx) under an umbrella liability policy and provided Parx’s counsel in a lawsuit filed against it by the widow of a jockey who died while working at Parx’s racetrack, known in the opinion as the Calderon action.

“The action included a negligence claim against Parx based on theories of direct liability and vicarious liability, and sought punitive damages,” the Superior Court ruling said.

Although, according to the opinion, Parx’s liability insurance policy did not specifically exclude coverage of punitive damages, ACE only agreed to pay compensatory and delay damages awarded by a jury to the jockey’s widow. 

ACE refused to pay the punitive damages, which were awarded in the amount of $5 million and later reduced to $2.65 million in a settlement between Parx and the widow.

PARX subsequently sued ACE for breach of contract and bad faith. However, the common pleas court ruled in the insurer’s favor in a Jan. 23, summary judgment. 

The appeals court said the lower court found that “as a matter of public policy, ACE is not responsible for indemnifying Parx for its payment of the punitive damages award.”

However, since it was ACE’s responsibility to prove that the policy explicitly excludes coverage for punitive damages, the Superior Court said its opinion that “ACE had to prove that the Calderon jury awarded punitive damages based solely on Parx’s direct liability.”

As a result, the Superior Court said the lower court was wrong to assign the burden of proof to Parx “that the punitive award was based solely on vicarious liability.”

“We conclude that ACE cannot sustain its burden of proving the Calderon jury awarded punitive damages solely on the basis of direct liability,” the Superior Court opinion said. “Accordingly, summary judgment must be entered in favor of Parx on Parx’s breach of contract claim.”

The matter was remanded to allow the lower court to enter a summary judgment in Parx’s favor and for further proceedings on its bad faith claim.

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