A legal battle between a Roman Catholic diocese in Western Pennsylvania and a third-party administrator headquartered outside of Chicago is entering its fifth year.
The argument has ground on to the point that Itasca, Ill.-based Gallagher Bassett Services Inc., a division of Arthur J. Gallagher & Co., is seeking a hearing before a nine-member panel of the Pennsylvania Superior Court, a fairly rare event known in legal circles as a hearing en banc.
The extended snarling stems from structural problems at the Queen of Angels School, a kindergarten through eighth grade school built in 1961 by the Roman Catholic Diocese of Greensburg in Westmoreland County, about 20 miles east of Pittsburgh.
The school was built on top of pyrite, a substance that can expand to 30 times its volume when exposed to heat and moisture. And so, over time, the walls and the floors of the school have bucked to the degree that in 1999 the school was determined to be unsafe and was demolished.
Under its contract with the diocese, Gallagher Bassett was to have provided inspection services at the school, in addition to serving as the adjuster for any claims.
The diocese alleges the company did neither effectively and thus exposed it to the loss.
According to court documents, the diocese's insurance coverage was structured so that it retained a self-insured layer of $25,000.
Above that was a layer up to $500,000 underwritten by the Diamond State Insurance Co. Above that was a traunch with a ceiling of $10 million.
The underwriters in that layer were Travelers Indemnity, with a 40 percent cut, and Zurich Insurance Co., the Hartford Fire Insurance Co. and the St. Paul Surplus Lines Insurance Co., each with a 20 percent piece.
But once the diocese filed its claim for the Queen of Angels School, that coverage tower began to crumble in a hurry.
Although the diocese maintains that it was Gallagher Basset's role to manage the claim, the insurance companies (with the exception of St. Paul, which settled for $75,000, its share of the excess lines) took over the case and denied payment. On the eve of the trial that would argue the issue, the other insurers settled with the diocese to the tune of about $2 million.
In an unfortunate wrinkle, Gallagher Bassett was left as the sole defendant in what became a breach of contract case and ended up losing at trial, with a jury awarding the diocese an additional $4.5 million.
That amount has since been molded to about $2.9 million. Gallagher Bassett, through its attorneys--Pittsburgh-based Pietragallo, Bosick & Gordon LLP--has argued that the jury that awarded the diocese the $4.5 million should have been notified that the diocese had already received a $2 million settlement.
"During the course of the trial, however, the diocese kept hiding the ball from Gallagher Bassett by refusing to produce the releases, claiming that the language had not been finalized," pleaded the Illinois company's lawyers.
The diocese's attorneys, with the Philadelphia office of Anderson Kill & Olick PC, are arguing that Gallagher Bassett has already appealed the case several times and been shot down. Enough already.
"The diocese isn't exactly loaded with money here, and we're not cheap," said one of the attorneys, John Ellison, in a recent chat with Risk & Insurance®.
February 14, 2008
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