By Asher Hawkins
A trial judge in Scranton has ruled in favor of the Housing and Redevelopment Insurance Exchange in a bad faith action brought by the Housing Authority of Chester County, which in the late 1990s was hit with at least two federal lawsuits stemming from allegations of racial politics in the organization's employment decisions.
Under Lackawanna County Common Pleas Judge Carmen D. Minora's decision in Housing and Redevelopment Insurance Exchange v. Housing Authority of Chester County, the insurer will have to pay the Housing Authority of Chester County (HACC) just more than $25,000 - the amount the Housing and Redevelopment Insurance Exchange (HARIE) had initially offered to contribute to HACC's efforts to settle the underlying litigations.
But Minora, who had presided over a four-day bench trial in the matter last year, decided last month that HACC alone is responsible for the vast majority of the roughly $300,000 it cost to settle those underlying actions.
Minora also dismissed HACC's bad faith claim against HARIE.
"Bad faith occurs when there has been a breach of a known duty by an insurer," Minora wrote. "In [this] case, we have determined that HARIE assumed the initial defense of claims that it arguably did not have to assume. There is no allegation of poor, cursory, incomplete or inept investigation."
HACC was represented in the matter by attorneys from Hoyle Fickler Herschel & Mathes in Philadelphia. A call to the firm seeking comment on the case was not immediately returned.
Counsel for HARIE, Dion Rassias of The Beasley Firm in Philadelphia, said the case was tried in Lackawanna County because that is where the insurer is based.
"This board really came apart at the seams," Rassias said of HACC's governing body.
According to court papers in the case, the underlying federal actions targeting HACC's employment policies were both filed in U.S. District Court for the Eastern District of Pennsylvania in 1997.
One of the actions was filed by Clara Shinpaugh and Shirley Barnes, two fired Caucasian employees of the housing authority who claimed that they had been treated differently than a "similarly situated" African-American co-worker.
The second 1997 lawsuit against HACC was filed by John Fitzgerald, a white veteran who had applied for the position of HACC's executive director but lost out to Troy Chapman, a black man whom Fitzgerald alleged had been less qualified than he.
According to Minora's opinion, HACC was one of 87 housing authorities insured by HARIE, a nonprofit company.
HACC's policy with the insurance exchange included an exclusion provision for losses stemming from racial, sexual or age-based discrimination on the part of the insured.
HACC would later suggest in court papers that their employment decisions with respect to Shinpaugh, Barnes and Fitzgerald had been based on personal qualifications.
The authority further argued that HARIE, in retaining lawyers from Post & Schell to represent HACC in those cases, effectively acknowledged that none of the underlying incidents triggered the insurance policy's discrimination exclusion provision.
HARIE claimed in court papers that as the underlying federal litigations progressed, it became apparent that the housing authority's decisions with respect to Shinpaugh, Barnes and Fitzgerald had been racially motivated.
By June 1999, HARIE had informed HACC that it was denying its claim for coverage in the two federal cases.
"While some at HACC may have wanted to do the right thing," Minora wrote after analyzing Fitzgerald's underlying claims, "there were clearly others who opted for high-risk decision-making hoping that their disregard for the safe course would be cushioned by a HARIE-insured soft landing."
Minora went on to conclude that HARIE's defense of HACC and investigation of the underlying incidents had been "professionally conducted."
"Only when discovery had convinced HARIE of the inappropriateness of their involvement did they deny coverage," he wrote.
But Minora did suggest that the dispute between insurer and insured could have been avoided by more tightly worded policy language.
(Copies of the 33-page opinion in Housing and Redevelopment Insurance Exchange v. Housing Authority of Chester County, PICS No. 07-1044, are available from The Legal Intelligencer. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information. Some cases are not available until 1 p.m.)
