IN THE UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF PENNSYLVANIA 

 : 

LEE ARTERS t/a GREENDALE BUILDERS : CIVIL ACTION - LAW 

 : 

 : 

 Plaintiff, : 

 : 

 v. : 

: No. 02-CV-4388 

ZURICH AMERICAN INSURANCE CO. t/a, : 

ZURICH NORTH AMERICA as successor in : 

Interest to ASSURANCE CO. OF AMERICA, et al. : JURY OF TWELVE (12) 

 : DEMANDED 

 : 

 Defendants. : 

___________________________________________ : 

PLAINTIFF’S MEMORANDUM SUR MOTION FOR PARTIAL

SUMMARY JUDGMENT

I. THE STANDARD

 In Green Machine Corp. v. Zurich American Insurance Company, 313 F.3d A37 (See A3 

2002) the court cited with approval Bibrosch v. Transamerican Insurance Company, 603 A.2d 

1050 as follows: 

“The duty to defend is different from and greater than the duty to 

indemnify. If the factual allegations of the complaint against the insured state a 

claim which would potentially fall within the coverage of the policy, then the 

insurer has the duty to defend. See D’Auria v. Zurich Ins. Co., 352 Pa.Super. 231, 

507 A.2d 857, 859 (1986) citing, inter alia, Pacific Indem. Co. v. Linn, 590 

F.Supp. 643 (E.D.Pa. 1984), aff'd, 766 F.2d 754 (3d Cir. 1985)). As the Supreme 

Court has stated, "[i]t is not the actual details of the injury, but the nature of the 

claim which determines whether the insurer is required to defend." Springfield 

Twp. v. Indemnity Ins. Co. of North America, 361 Pa. 461, 464, 64 A.2d 761 

(1949). In making this determination, the factual allegations of the complaint are 

taken to be true and the complaint is to be liberally construed with all doubts as to 

whether the claims may fall within the coverage of the policy to be resolved in 

favor of the insured. Cadwallader v. New Amsterdam Casualty Co., 396 Pa. 582, 

152 A.2d 484 (1959). Thus, we must look to two sources to decide whether a duty 

to defend exists. We must interpret the insurance policy to determine the scope of 

coverage. Then, we must analyze the complaint filed against the insured to *510

determine whether the claims asserted potentially falls within that coverage. Id; 

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see also Seaboard Industries, Inc. v. Monaco, 258 Pa.Super. 170, 392 A.2d 738 

(1978).” 

In Matrix Health Management, Inc. v. Western World Insurance Company, Inc., 1994 

WL 378 986 (3rd Circuit Pa. 1994) that court similarly cited Bibrosch with approval and 

summarized Pennsylvania Law of follows: 

“It is well established under Pennsylvania law that an insurer must defend 

the third party action if the allegations of the complaint “state on their face a 

claim against the insured to which the policy potentially applies.” C.H. Heist 

Caribe Corp. v. American Home Assur. Co., 640 F. 2d 479, 483 (3d Cir.1981). 

[FN2] The factual allegations in the complaint in the underlying action control 

whether an insurer has a duty to defend. Pacific Indem. Co. v. Linn, 766 F.2d 754, 

760 (3d Cir.1985); C.H. Heist, 640 F.2d at 483. If a complaint states allegations 

that potentially fall within the coverage provided, the insurer is obligated to 

defend its insured until it can confine the possibility of recovery to claims outside 

of the coverage of the policy. Pacific Indem. Co. v. Linn, 766 F.2d at 760. 

Moreover if some of the allegations in the complaint fall within the terms of

coverage and some do not, the insurer must defend the entire claim. Id.” 

II. ARGUMENT

It is clear beyond peradventure that in order to disclaim on this policy, the insurer had to 

insert into the Gorman Complaint, allegations which the Gorman Complaint itself did not have, 

i.e. that Mr. Gorman was an employee of Greendale. The Gorman Complaint identified Mr. 

Gorman’s status vis-à-vis Greendale in no conclusory terms, alleging only in various paragraphs 

that Plaintiff “performed” certain manual labor for Greendale; that Greendale had “obtained” the 

services of the Plaintiff; and words of similar import. See Paragraph 28 of Plaintiff’s Motion 

herein describing the specifics of each paragraph of the Gorman Complaint. 

Paragraph 24 alleges only the “hiring” of Mr. Gorman but does not further allege that the 

hiring was as an employee or as an independent contractor. 

As the insurer clearly established from its statement taken from Mr. Arters (Exhibit “E” 

herein), Mr. Arters specifically denied that Mr. Gorman was hired as an employee. On the 

contrary, Mr. Gorman presented to Mr. Arters a business card identifying himself as “Gorman 

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General Contract, Inc.” Mr. Gorman received no benefits, set his own hours, supplied his own 

hand tools and was not subject to Mr. Arters’ supervision. 

The insurer took no statement from Mr. Gorman, and therefore had only its own insured’s 

word to take. Initially the insurer concluded “there are no coverage issues at this time” (see 

ACOA158 attached hereto as Exhibit “F”). It then began to look around for an excuse to 

disclaim. Its document ACOA159 concludes that “if it is found that the insured owed Claimant 

workers’ compensation benefits, we may be able to assert workers’ compensation sole remedy as 

a defense (Exhibit “F” herein). Similarly, in Defendant’s Document ACOA162 it recited that if 

they could prove that defense, they “could be in a disclaimer situation and before we go forward, 

the ROR (Reservation of Rights) should be first.” 

Thereafter, Defendants thought better of disclaiming outright and at document 

ACOA167, thought better of issuing the disclaimer without some investigation, and thought they 

had better get a statement from the insured regarding the “control he has over the subject”. (See 

Document ACOA167). 

After having received that statement (Document ACOA172), in addition to Mr. Arters 

telling them that Mr. Gorman was an independent contractor, the insurer noted to itself that 

Gorman presented a business card “Gorman General Contracting” to Mr. Arters. In this 

Document, (ACOA172) the insurer concludes “there was no formal written contract and 

therefore we are unable to argue statutory employer so it then had to make up a different 

argument to disclaim on this case. That argument appeared in Document ACOA173: “I believe 

there is an argument to make that the insured had control over the work which the Claimant did 

and therefore he ‘would be considered’ an employee.” Having ignored the contents of the 

Gorman Complaint, and having decided to discredit the statement given by their own insured, 

they then went ahead and manufactured the argument in which to disclaim and then sent it to 

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their lawyers for their imprimatur. See Document ACOA173: “I am forwarding the statement to 

HO Legal to obtain their opinion regarding whether to disclaim or handle under ROR. I believe 

we have enough to disclaim.” Subsequently at Document ACOA177 it is noted that permission 

was received from HO to disclaim on the basis that the Plaintiff “would have been considered an 

employee of the insured.” 

It is not noted who “would have” made this factual determination. It certainly was not 

listed in the Gorman Complaint, and it was certainly not among the things which their own 

insured told them. In order for the Defendant to come to the conclusion to disclaim, they had to 

ignore the facts in front of them (the Gorman Complaint and Mr. Arters' statement) and 

manufacture a different excuse. This conjecture had not a single fact to support it. 

In the case of Stewart v. Uryc, 352 A2 465 (Pa. Super. 1975) a minor plaintiff who 

slipped under his “employers” vehicle was permitted to sue defendant in tort because the facts 

demonstrated no employer/employee status. 

Defendant there withheld no taxes; carried no W/C insurance; minor set his own hours; 

minor was free to do no work. 

In holding that there was no employer/employee relationship, the court noted that in order 

for such a relationship to exist, it must compare favorably with the principles of master/servant, 

that there must be a contract of employment, and such a contract must include the assent of both 

parties. 

Clearly at the time the insurer denied coverage in this case, it did not and could not have 

had sufficient factual info to justify that conclusion. On the contrary, the info they had 

compelled the conclusion at the very least that coverage applied. 

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However, after Mr. Gorman’s deposition, parts of which are quoted below, there can be 

no reasonable conclusion except that there cannot be a master/servant (and hence 

employer/employee) relationship. 

Mr. Gorman testified in his deposition that there was no formal system of keeping hours, 

that he kept his own hours, that he would work after school functions and sometimes on 

Saturdays and Sundays. Mr. Arters would only show him what to do; he would never show him

“how” to do it. Mr. Gorman decided what tools he would use and how the end result would be 

reached. He said that he always did things “my way” to get things done, but for aesthetic end 

result, things were done Mr. Arters’ way. He testified that he was paid in cash or by check, that 

he got no benefits and that Mr. Arters would inspect his work only after the job was finished. 

In addition, Mr. Gorman testified that he worked for others during the year 1999 in 

addition to Greendale. He used his own tools 60% of the time and Greendale’s power tools 

about 40% of the time. Greendale requested Mr. Gorman to recommend other workers, but 

specifically not to be affiliated with Mr. Gorman. At the time when the insurer disclaimed, they 

had not had the benefit of Mr. Gorman’s testimony, but even assuming that they had, it is clear 

that neither Greendale nor Mr. Arters exercised the degree of control over Mr. Gorman so as to 

constitute a principal agent, master/servant or employer-employee relationship. Mr. Gorman 

came and went as he pleased, no taxes were taken from his pay, he maintained the autonomy to 

decide how the particular end result would be achieved, keeping in mind when the end result was 

achieved, it should end up, for aesthetic purposes, to comply with Mr. Arters/Greendale’s 

wishes. 

It is clear from reviewing the insurer’s documents that initially there was no problem with 

the coverage issue; that they tried but failed to claim that Mr. Arters was a statutory employer, 

(indeed saying they could not assert that defense). They then opted to conclude that someone in 

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the future would find that Plaintiff “would have been considered an employee of the insured.” 

Interestingly, this defense was created only after Plaintiff’s counsel made a demand of Eight 

Hundred and Fifty Thousand Dollars ($850,000). Clearly the insurer did not want to defend or 

indemnify this claim, and rather than take the Gorman Complaint at face value, and consider its 

insured’s own statement, decided to completely disregard them for its own benefit and began a 

desperate attempt to look for another avenue to avoid its obligations. 

 Clearly, the contents of the Gorman Complaint coupled with the information which the 

insurer had from Mr. Arters, at the very least would compel one to conclude that the claim 

potentially fell within the coverage area. To undertake the course of action it did was in breach 

of the insuring agreement, not made in good faith and was undertaken to protect its own interest 

rather than that of its insured. 

 Consequently, the Plaintiff respectfully requests this court to grant its Petition for Partial 

Summary Judgment and to compel the insurer to enter its defense. 

 Respectfully Submitted: 

 VAUGHAN, DUFFY & CONNORS, LLP 

 By: 

 Francis X. Nolan, Esquire, I.D. No. 09237 

 Attorney for Plaintiff 

 102 Pickering Way, Suite 400 

 Exton, PA 19341 

 (610) 524-2100 

Date: September 9, 2003

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