Stutman Law Curbs Attempts to Expand Made Whole Doctrine in Pennsylvania

Stutman Law was successful in curbing an attempt to expand the made whole doctrine in Pennsylvania in a case that dates back to 2001. The recently decided case of  Prof’l. Flooring Co. v. Bushar Corp., 2016 WL 7105899, 2016 Pa. Super. 274, Dec. 6, 2016 relates to a catastrophic fire that destroyed the Continental Business Center in Bridgeport, Pennsylvania and ruined or damaged seventy businesses.  In the wake of the fire, a class action lawsuit along with numerous subrogation claims were filed against various defendants for causing and/or contributing to the spread of the fire.  In 2008, after nearly seven years of litigation at both the trial and appellate levels, a class action settlement was consummated. Then, after Stutman Law petitioned the trial court to allow subrogated insurers to be paid from the settlement, a $32 million settlement fund was established to pay damages incurred by all injured parties, including subrogated insurers.

After the 2008 settlement, all subrogated insurers, except one, successfully submitted claims and were paid proceeds from the $32 million dollar settlement fund. The only claim that was not paid involved a $32,500 subrogation claim submitted by Brethren Mutual Insurance Company (“Brethren”), which was challenged by its insured, Rose Line, Inc. (“Rose Line”). Specifically, Rose Line argued that it had not been made whole by the class action settlement and was therefore entitled to receive the settlement proceeds that had been allocated to pay Brethren’s subrogation claim.

In response to the objections by Rose Line, Stutman Law successfully petitioned the trial court to enter an order directing the class action claims administrator to pay Brethren its share of the class action settlement proceeds. Thereafter, Rose Line appealed the trial court’s order to the Pennsylvania Superior Court. At the appellate level, Rose Line argued that Brethren could not exercise any subrogation rights until Rose Line had been “made whole,” i.e., paid 100% of its damages, including reimbursement for attorney’s fees, from the class action settlement.

On behalf of Brethren, Stutman Law attorney Daniel Hogan argued that, under Pennsylvania law, when an insured voluntarily participates in a settlement, class action or otherwise, the insured waives its right to a judicial determination of its losses, and conclusively establishes the settlement amount as full compensation for its damages. Hence, when Rose Line settled its claims as part of the class action settlement, it established, as a matter of law, that the settlement amount was full and complete compensation for its damages. Further, Stutman Law argued that attorney’s fees and litigation costs were not factors to be considered in the context of the made whole doctrine.

On December 6, 2016, over fifteen years after the fire, the Pennsylvania Superior Court, in a twenty seven page opinion, affirmed the decision of the trial court and ruled that Brethren Mutual was entitled to be paid settlement proceeds from the class action. Consistent with the arguments of Stutman Law, the Court reasoned that: a) Rose Line, by choosing to accept the class action settlement, had been made whole as a matter of law; and b) it would be inequitable to require Brethren to pay its insured’s litigation costs and attorney’s fees. Even though Brethren’s damages were only $32,500, Stutman Law attorney Dan Hogan saw this matter through for over a decade in order to protect the rights of all insurers in the state seeking to recover by way of subrogation.

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