ParfumGigi@aol.com

22 février, 2008 13:59

Gina Passarella

The Legal Intelligencer

02-22-2008

A federal judge in Philadelphia has ruled that Pennsylvania, not California, law applies to an insurance coverage case in which the policy was created in Pennsylvania but the action requiring indemnification originated in California.

U.S. District Court Judge William H. Yohn Jr.'s ruling in PhotoMedex Inc. v. St. Paul Fire & Marine Ins. Co. is a win for PhotoMedex and its outside counsel, Morgan Lewis & Bockius.

Yohn said insurer St. Paul had to indemnify PhotoMedex in a malicious prosecution claim against the company, and it has to pay reasonable attorney fees to the Morgan Lewis partners from Los Angeles who worked on the settlement negotiations in the underlying case.

While St. Paul paid $1.05 million of a $1.2 million settlement PhotoMedex entered into with RA Medical Systems to end the malicious prosecution suit, it reserved its rights under California law to recover that money because the state's law does not compel indemnification for malicious prosecution claims, according to the 47-page opinion.

The law firm Jenkens & Gilchrist, a co-defendant in the malicious prosecution action, paid $150,000 of the settlement, Yohn said in a footnote to the opinion.

St. Paul also argued that it only had to reimburse PhotoMedex up to St. Paul's standard rate for legal work of $175 per hour for counsel and $100 for paralegals. Morgan Lewis Los Angeles partner David L. Schrader billed at an hourly rate of $685 and associate Christina Sein billed at $360 an hour, according to the opinion. The firm was seeking a total of $914,467 in fees.

California law limits attorney fees to what the insurer would spend in its normal course of business and Pennsylvania law provides for "reasonable attorney fees," Yohn said.

Yohn granted PhotoMedex's motion for summary judgment in part, ruling that the attorney fees are not automatically subject to the rates proffered by St. Paul. He said, however, that a hearing must be held to determine the exact amount owed.

In its counterclaims, St. Paul is seeking reimbursement of $800,000 of the $1.05 million it paid toward the settlement. It had agreed to pay $250,000 even under California law, according to the opinion.

Because California and Pennsylvania state laws differ, Yohn said he had to examine the governmental policies underlying each law. He found there was a "true conflict" between the states' laws under the 3rd U.S. Circuit Court of Appeals' 2007 opinion in Hammersmith v. TIG Ins. Co., and had to then apply a choice of law analysis. He looked at which state had "'the greater interest in the application of its law,'" according to the opinion.

He concluded that Pennsylvania has the strongest governmental interest in its laws being applied and said Pennsylvania law favors the contacts related to the insurance contract, not the underlying tort. He said the contacts clearly favor Pennsylvania law because "the policy was negotiated, written, produced, delivered and signed in Pennsylvania." PhotoMedex is based in Montgomeryville, Pa., Yohn said.

He said California's interest in preventing the indemnification of a willful act is more closely related to regulating malicious prosecution than interpreting the insurance contract. Similarly, its interest in limiting defense fees is related to preventing conflicts between counsel for the insured and insurer, Yohn said.

"Pennsylvania's interest is in enforcing a policy executed under its laws as written according to its plain meaning," he said.

Morgan Lewis partner Richard F. McMenamin, of the firm's Philadelphia office, represented PhotoMedex in its suit against St. Paul. He said Yohn's ruling is a thorough analysis of recent Pennsylvania choice of law decisions involving insurance policies.

He said it continues a clear trend out of the 3rd Circuit and Pennsylvania state courts that the law most connected to the insurance policy, not the underlying tort, is to be applied. McMenamin said there are no Pennsylvania Supreme Court opinions on this issue to date.

The opinion is also significant, McMenamin said, because it makes clear that Pennsylvania public policy does not bar insurance companies from defending malicious prosecution claims.

Eric A. Fitzgerald of Marshall Dennehey Warner Coleman & Goggin represented St. Paul in the dispute with PhotoMedex. He was not immediately available for comment by the time of publication.