9/27/2007
Pennsylvania Federal Court Dismisses A Direct Action Against Insurer

In 2000 a warehouse in Philadelphia suffered an ammonia leak of 10,000 pounds of liquid ammonia, causing damage to the warehouse and ruining food worth millions of dollars.  A state court action was filed against the manufacturers and the designer of the air conditioning systems that leaked.  RD&S, the designer of the air conditioning system was insured by Cincinnati Insurance.  RD&S settled the state court action and left a reserve of $200,000 for indemnification of the manufacturer defendants.  The state court jury found the manufacturer defendants to be 75% at fault.  Subsequently, the manufacturer defendants settled the matter with the plaintiffs for $6,280,000.  Following the jury verdict and settlement by the manufacturing defendants, the court granted judgment for indemnity to the manufacturing defendants of $6,280,000 for their settlement and $1,354,102.06 in attorneys fees and litigation expenses against RD&S.

The manufacturing defendants filed a declaratory judgment action in state court, which was eventually removed to Federal Court.  The manufacturing defendants alleged that Cincinnati Insurance's creation of the $200,000 reserve fund for RD&S’s indemnity was insufficient and was made in bad faith.  On September 5, 2007, the District Court for the Eastern District of Pennsylvania found that the manufacturers could not maintain a direct action against Cincinnati Insurance because they were not additional insureds under the RD&S policy and had not been assigned the right to pursue a bad faith claim against Cincinnati Insurance by RD&S.

The full text of the Court’s opinion is attached below.