J. A27010/14 & J. A27011/14

2015 PA Super 78

ERIE INSURANCE EXCHANGE :

:

IN THE SUPERIOR COURT OF

PENNSYLVANIA

v. :

:

MICHAELA LOBENTHAL, 

DEVIN JOHN MILLER, KORY L. BOYD 

AND MARK D. BOYD, INDIVIDUALLY 

AND AS PARENT AND NATURAL 

GUARDIAN OF KORY L. BOYD

:

:

:

:

:

:

APPEAL OF: KORY L. BOYD AND 

MARK D. BOYD

:

: No. 1971 WDA 2013

:

 Appellant :

Appeal from the Order Entered November 20, 2013,

in the Court of Common Pleas of Erie County

Civil Division at No. 13247-12

ERIE INSURANCE EXCHANGE :

:

IN THE SUPERIOR COURT OF

PENNSYLVANIA

v. :

:

MICHAELA LOBENTHAL, 

DEVIN JOHN MILLER, KORY L. BOYD, 

AND MARK D. BOYD, INDIVIDUALLY 

AND AS PARENT AND NATURAL 

GUARDIAN OF KORY L. BOYD

:

:

:

:

:

:

APPEAL OF: MICHAELA LOBENTHAL, : No. 2031 WDA 2013

:

 Appellant :

Appeal from the Order Entered November 20, 2013,

in the Court of Common Pleas of Erie County

Civil Division at No. 13247-2012

BEFORE: FORD ELLIOTT, P.J.E., SHOGAN AND MUSMANNO, JJ.
J. A27010/14 & J. A27011/14

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OPINION BY FORD ELLIOTT, P.J.E.: FILED APRIL 15, 2015

Michaela Lobenthal, Kory L. Boyd, and Mark D. Boyd appeal from the 

order of November 20, 2013, granting summary judgment for Erie Insurance 

Exchange (“Erie”), plaintiff in this declaratory judgment action, and ruling 

that Erie has no duty to defend or indemnify Michaela Lobenthal with respect 

to any of the claims brought by the Boyds in the underlying lawsuit. After 

careful review, we reverse.1

The trial court has set forth the history of this case as follows:

Boyd Defendants filed the underlying tort 

claim[Footnote 1] against Defendants 

Lobenthal[Footnote 2] and [Devin] Miller[Footnote 3]

pursuant to injuries sustained by Defendant [Kory L.] 

Boyd in a motor vehicle accident. The facts 

surrounding the accident are not in dispute. 

Defendant Boyd suffered injuries as the result of a 

car accident on September 26, 2010, while a 

passenger in a car driven by Defendant Miller.

[Footnote 1] The claims by Boyd 

Defendants against Defendants 

Lobenthal and Miller were consolidated at 

docket 11321-2011.

[Footnote 2] Defendant Lobenthal’s 

parents were dismissed from the 

underlying tort case. Praecipe for 

Voluntary Discontinuance, June 2, 

2011 at 11353-2011.

 

1 Michaela Lobenthal and the Boyds filed separate appeals; however, as they 

involve the same issues, we have consolidated them sua sponte.
J. A27010/14 & J. A27011/14

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[Footnote 3] Default judgment was 

entered against Defendant Miller on 

March 22, 2013, at this docket.

Counts Two and Three of the underlying 

Complaint allege Defendant Lobenthal engaged in 

“negligent, careless, reckless, outrageous, willful and 

wanton conduct” and “concerted tortuous [sic] 

conduct” in that she permitted the “possession and 

consumption” of controlled substances by Defendant 

Miller[Footnote 4] at a property owned by Defendant 

Lobenthal’s parents which was covered by Plaintiff’s 

insurance policy.

[Footnote 4] Count One of the Complaint 

set forth a negligence claim against 

Defendant Miller.

On October 28, 2011, the Court overruled 

Defendant Lobenthal’s Preliminary Objections finding 

that as Defendant Lobenthal was not liable to 

Defendant Boyd for the injuries resulting from 

Defendant Miller’s alcohol consumption, her “liability 

in Counts II and III turns solely on whether she 

furnished controlled substances to Miller.” Order, 

J. Connelly, Oct. 28, 2011 (emphasis in original). 

On September 26, 2012, Plaintiff filed its Action for 

Declaratory Judgment and the instant Motion for 

Summary Judgment on July 22, 2013. On 

August 14, 2013, Boyd Defendants filed their Motion 

[Footnote 5] for Summary Judgment.

[Footnote 5] On August 15, 2013, 

Defendant Lobenthal filed her Response 

and Brief in Opposition to Plaintiff’s 

Motion for Summary Judgment 

incorporating in full Boyd Defendants’ 

responses.

Opinion and Order, 11/20/13 at 1-2 (additional citations to the pleadings 

omitted).

Appellants have raised the following issues for this court’s review:
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A. Whether Erie, after tendering a defense of 

Michaela Lobenthal under the insurance policy, 

ever reserved its right to deny a defense and 

indemnification to her when its reservation of 

rights letters were expressly limited to claims 

against Adam and Jacqueline Lobenthal?

B. Whether Erie satisfied its obligation to provide 

timely notice to Michaela Lobenthal (an adult) 

when it addressed both reservations of rights 

letters to her parents, Adam and Jacqueline 

Lobenthal, sent it [sic] to the home, and sent a 

copy to Lobenthal’s insurance defense counsel?

C. Whether Erie satisfied its obligation to provide 

timely notice to Michaela Lobenthal when it 

knew from the “four corners” of the Complaint 

that it may apply the “controlled substances” 

exclusion, but did not provide her with notice 

to that effect until after insurance defense 

counsel had gotten the covered claims 

(providing alcohol) dismissed by filing 

Preliminary Objections[?]

D. Whether Erie played “fast and loose” by 

withholding its reservation of rights under the 

“controlled substances” exclusion until it had 

first obtained an Order dismissing all claims 

that fell within the coverage of the policy 

resulting in prejudice to Michaela Lobenthal[?]

E. Whether Lobenthal and Boyd established a 

sufficient basis for a grant of summary 

judgment against Erie[?]

Boyds’ brief at 5-6.

Initially, we note:

Our scope of review of a trial court’s 

order disposing of a motion for summary 

judgment is plenary. Accordingly, we 

must consider the order in the context of 

the entire record. Our standard of 
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review is the same as that of the trial 

court; thus, we determine whether the 

record documents a question of material 

fact concerning an element of the claim 

or defense at issue. If no such question 

appears, the court must then determine 

whether the moving party is entitled to 

judgment on the basis of substantive 

law. Conversely, if a question of 

material fact is apparent, the court must 

defer the question for consideration of a 

jury and deny the motion for summary 

judgment. We will reverse the resulting 

order only where it is established that 

the court committed an error of law or 

clearly abused its discretion.

Grimminger v. Maitra, 887 A.2d 276, 279 

(Pa.Super.2005) (quotation omitted). “[Moreover,] 

we will view the record in the light most favorable to 

the non-moving party, and all doubts as to the 

existence of a genuine issue of material fact must be 

resolved against the moving party.” Evans v. 

Sodexho, 946 A.2d 733, 739 (Pa.Super.2008) 

(quotation omitted).

American Nat. Property and Cas. Companies v. Hearn, 93 A.3d 880, 

883 (Pa.Super. 2014), quoting Ford Motor Co. v. Buseman, 954 A.2d 580, 

582-583 (Pa.Super. 2008), appeal denied, 970 A.2d 431 (Pa. 2009).

“The proper construction of a policy of insurance is 

resolved as a matter of law in a declaratory 

judgment action.” Alexander v. CNA Insurance 

Co., 441 Pa.Super. 507, 657 A.2d 1282, 1284 

(1995), appeal denied, 543 Pa. 689, 670 A.2d 139 

(1995) (citation omitted). “The Declaratory 

Judgments Act may be invoked to interpret the

obligations of the parties under an insurance 

contract, including the question of whether an 

insurer has a duty to defend and/or a duty to 

indemnify a party making a claim under the policy.” 

General Accident Ins. Co. of America v. Allen, 
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547 Pa. 693, 706, 692 A.2d 1089, 1095 (1997) 

(citations omitted). Both the duty to defend and the 

duty to indemnify may be resolved in a declaratory 

judgment action. Id. at 707, 692 A.2d at 1096, 

citing Harleysville Mutual Ins. Co. v. Madison, 

415 Pa.Super. 361, 609 A.2d 564 (1992) (insurer 

can seek determination of obligations to insured 

before conclusion of underlying action) (additional 

citations omitted).

It is well established that an insurer’s 

duties under an insurance policy are 

triggered by the language of the 

complaint against the insured. In 

determining whether an insurer’s duties 

are triggered, the factual allegations in 

the underlying complaint are taken as 

true and liberally construed in favor of 

the insured.

Indalex Inc. v. National Union Fire Ins. Co. of

Pittsburgh, 83 A.3d 418, 421 (Pa.Super.2013) 

(citation and quotation marks omitted).

The obligation of an insurer to defend an 

action against the insured is fixed solely 

by the allegations in the underlying 

complaint. As long as a complaint 

alleges an injury which may be within the 

scope of the policy, the insurer must 

defend its insured until the claim is 

confined to a recovery the policy does 

not cover.

Erie Ins. Exchange v. Fidler, 808 A.2d 587, 590 

(Pa.Super.2002) (citations omitted).

Id. at 883-884.

“[W]e focus primarily on the duty to defend because 

it is broader than the duty to indemnify. If an 

insurer does not have a duty to defend, it does not 

have a duty to indemnify. However, both duties flow 
J. A27010/14 & J. A27011/14

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from a determination that the complaint triggers 

coverage.”

Id. at 884, quoting Indalex, supra (citations and quotation marks 

omitted).

Pennsylvania counterbalances the insurer’s broad 

obligation to defend even claims as to which 

coverage may not apply by providing the insurer the 

option of defending subject to a reservation of its 

right later or simultaneously to contest coverage:

Where the insurer assumes the duty to 

defend, the insurer can simultaneously 

challenge whether the claim is covered 

under the insurance policy, even if the 

underlying case settles. An insurer’s 

defense of the insured, therefore, does 

not waive the insurer’s claims that a 

policy exclusion applies. It is common 

practice for insureds and insurance 

companies to file declaratory judgment 

actions when there is a dispute regarding 

whether the insurer has a duty to defend 

and/or indemnify . . . .

Babcock & Wilcox Co. v. American Nuclear Insurers, 76 A.3d 1, 12 

(Pa.Super. 2013), appeal granted in part, 84 A.3d 699 (Pa. 2014), 

quoting Step Plan Servs., Inc., v. Koresko, 12 A.3d 401, 419 (Pa.Super. 

2010) (internal quotation marks and citations omitted).

It is generally recognized that

(a) liability insurer will not be estopped to set up the 

defense that the insured’s loss was not covered by 

the insurance policy, notwithstanding the insurer’s 

participation in the defense of an action against the 

insured, if the insurer gives timely notice to the 

insured that it has not waived the benefit of its 

defense under the policy. However, a reservation of 
J. A27010/14 & J. A27011/14

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rights in this respect, to be effective, must be 

communicated to the insured. It must fairly inform 

the insured of the insurer’s position and must be 

timely, although delay in giving notice will be 

excused where it is traceable to the insurer’s lack of 

actual or constructive knowledge of the available 

defense.

Brugnoli v. United Nat. Ins. Co., 426 A.2d 164, 167 (Pa.Super. 1981), 

quoting 14 G. Couch, Cyclopedia of Insurance Law s 51:83 (2d ed. 1965) 

(footnotes omitted).

In the instant case, Erie sent two reservation of rights letters, one on 

April 28, 2011, prior to the underlying complaint being filed, and another on 

February 7, 2012. Both letters were addressed only to the named insureds, 

Michaela’s parents, Adam and Jacqueline Lobenthal; neither letter mentioned 

the defendant in the underlying tort action, Michaela Lobenthal, who had 

attained majority status as of November 20, 2010. These letters reserved 

Erie’s right to disclaim coverage and liability for any judgment “that may be 

rendered against yourself,” i.e., against Adam and Jacqueline Lobenthal. 

Furthermore, only the second reservation of rights letter, sent approximately 

three and one-half months after the preliminary objections were decided, 

referenced the controlled substances exclusion in the policy.

While not binding on this court, we find the case of Luther v. Fuller, 

30 Pa.D.&C.2d 725 (Cambria Co. 1963), to be instructive. In that case, the 

defendant was a minor son of the named insured. The defendant was 

involved in an accident while driving an automobile covered by the policy. 
J. A27010/14 & J. A27011/14

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Five days before trial, the insurer notified the named insured that although it 

intended to defend the action, it reserved the right to disclaim liability. Id.

at 727. No notice of reservation or disclaimer was sent to the defendant. 

Id. The trial court held that the insurer was estopped to deny liability where 

it failed to notify the defendant of a reservation of its right to disclaim. The 

insurer notified only one of the named insureds, who was not the defendant 

in the action, of its right to disclaim liability.

Although research fails to disclose any Pennsylvania 

cases on point, we are of the opinion the garnishee, 

in possession of all the facts eight months before 

trial, had a duty to advise the defendant of its 

nonwaiver, or at least proceed by way of declaratory 

judgment to determine whether or not it was liable. 

Defendant claimed to be a “person insured” under 

the policy by virtue of his status as a member of the 

household of the named insureds. If, in fact, the 

garnishee had a defense to liability, notice should 

have been given to him and not the named insureds 

who could suffer no loss if the defense were 

successful.

Id. at 738.

Similarly, here, Erie sent reservation of rights letters to the named 

insureds, Adam and Jacqueline Lobenthal, but not to Michaela Lobenthal, 

who was an additional insured as a member of her parents’ household. On 

June 2, 2011, the action was voluntarily discontinued as against Adam and 

Jacqueline Lobenthal. The only remaining defendants were 

Michaela Lobenthal and Miller, yet Erie failed to copy Michaela Lobenthal on 

the February 7, 2012 reservation of rights letter. We also note that unlike 
J. A27010/14 & J. A27011/14

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the defendant in Luther, Michaela Lobenthal was an adult and was clearly 

entitled to notice.

Erie argues that notice was sent to Michaela’s attorney, which can 

fairly be imputed to Michaela. In addition, Erie contends that as a resident 

of her parents’ household, it is unlikely Michaela was not made aware of the 

reservation of rights letters. Erie also states that, in any event, Michaela 

had actual notice of Erie’s position when it filed the instant declaratory 

judgment action.

In Knox-Tenn Rental Co. v. Home Ins. Co., 2 F.3d 678 (6th Cir. 

1993), Home Insurance Company (“Home”) issued a professional liability 

policy to Robert Lowe’s (“Lowe”) employer, Jenkins Insurance, Inc. 

(“Jenkins”). The policy contained an exclusion for criminal or fraudulent 

acts. Id. at 680. The underlying suit brought by Knox-Tenn Rental Co. 

(“KTR”) alleged a fraudulent scheme whereby the defendants conspired to 

overcharge KTR for its insurance premiums and return the overcharges in 

cash to KTR’s vice-president and general manager. Id. Lowe was treasurer 

of Jenkins and was insured under a clause in the policy providing coverage 

for directors and officers.

Home furnished a defense and provided counsel. Id. In addition, 

Home sent Jenkins a reservation of rights letter reserving all rights and 

defenses. Id. Home sent a copy of this letter to counsel but did not send a 

copy to Lowe or advise him that coverage might not be available under the 
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policy. Id. After judgment was entered, Home informed Lowe that it would 

not pay the judgment, citing the policy’s fraud exclusion. Id. KTR and Lowe 

brought a declaratory judgment action claiming that Home was estopped 

from denying coverage because it failed to reserve its rights as to Lowe. Id.

at 680-681.

The Sixth Circuit Court of Appeals agreed, finding that notice of 

reservation of rights to Jenkins and insurance defense counsel did not 

constitute notice to Lowe. The court refused to impute the notice received 

by Jenkins to Lowe merely because he was employed by the company. Id.

at 682. Moreover, the court in Knox-Tenn stated that even if the notice 

provided to Jenkins could somehow be attributed to Lowe, the reservation of 

rights letter only gave notice with respect to Home’s defense of Jenkins and 

made no reference to Lowe. Id. at 683. The letter was addressed to 

Jenkins and did not reserve Home’s rights with respect to its defense of 

Lowe:

[E]ven if Lowe read the letter or its contents 

somehow came to his attention through co-workers, 

he reasonably could have concluded that Home’s 

reservation of rights applied to the company and not 

to him in light of the fact that the letter was 

addressed only to Jenkins Insurance, although he 

and several others had been named as individual 

defendants in the same suit.

Id. at 684.

Similarly, here, Erie’s reservation of rights letter was addressed solely 

to the named insureds, Adam and Jacqueline Lobenthal, not to Michaela. 
J. A27010/14 & J. A27011/14

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The letter made no mention of Michaela. As in Knox-Tenn, we will not 

impute notice to Michaela based on the fact the letter was sent to counsel 

where the letter was addressed to her parents and made no reference 

whatsoever to Michaela. By the same token, we refuse to attribute notice to 

Michaela based on the fact that she was living with her parents at the time. 

Michaela was an adult at the time the lawsuit was filed, and there is no 

evidence that she actually read the letter. Michaela was the defendant in 

the underlying tort action, and the letter should have been addressed in her 

name. 

We also agree with appellants that Erie’s February 7, 2012 reservation 

of rights letter was untimely. The underlying complaint, filed June 27, 2011,

alleged that Michaela permitted and encouraged the use of controlled 

substances at the party, including marijuana and Xanax, and supplied Miller 

with controlled substances. Erie was on notice when the complaint was filed 

that these allegations fell under the controlled substances policy exclusion; 

yet, Erie waited until February 2012 to send a reservation of rights letter.

When an insurance company or its representative is 

notified of loss occurring under an indemnity policy, 

it becomes its duty immediately to investigate all the 

facts in connection with the supposed loss as well as 

any possible defense on the policy. It cannot play 

fast and loose, taking a chance in the hope of 

winning, and, if the results are adverse, take 

advantage of a defect in the policy. The insured 

loses substantial rights when he surrenders, as he 

must, to the insurance carrier the conduct of the 

case.
J. A27010/14 & J. A27011/14

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Malley v. American Indemnity Corp., 146 A. 571, 573 (Pa. 1929). 

Cf. Brugnoli, 426 A.2d at 168 (insurer’s letter sent within one week of 

receiving the complaint was timely).

Here, Erie waited to send its reservation of rights letter until over 

three months had passed from disposition of its preliminary objections and 

the only remaining claim related to Michaela’s alleged furnishing of 

controlled substances, which was clearly excluded from coverage. Once the 

allegations regarding furnishing of alcohol to Miller were dismissed, Erie no 

longer had any duty to defend/indemnify Michaela. Had Michaela been 

informed of Erie’s intention to deny coverage when the suit was filed, she 

could have engaged separate counsel and managed her own defense. Erie 

contends that Michaela cannot demonstrate how she was prejudiced, where 

the case was not yet listed for trial and Erie defended her zealously. 

However, where an insurer fails to clearly communicate a reservation of 

rights to an insured, prejudice may be fairly presumed:

In this vein, the Missouri Court of Appeals has 

observed:

The insurance company, if it were 

reserving a right to deny coverage under 

its policy, would be more or less zealous 

in its defense of the claim depending 

upon its evaluation of its exposure under 

its policy. Nothing chills one’s zeal for a 

defense so much as the belief that, even 

if he loses, it will cost him nothing. . . . 

There would in many instances be a 

conflict of interest on the insurance 

company’s part . . . with the insurance 
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company being as much interested in 

establishing facts which would result in 

non-coverage as in establishing facts 

showing the insured’s non-liability.

Babcock & Wilcox, 76 A.3d at 13, quoting Mid-Century Ins. Co. v. 

McKelvey, 666 S.W.2d 457, 459 (Mo.Ct.App. 1984).

As astutely observed in Knox-Tenn, supra, “Analyzing how a case 

might have gone differently for an insured if he had been aware of a 

reservation of rights is an inherently speculative undertaking.” Knox-Tenn, 

2 F.3d at 685 (footnote omitted). At a minimum, Michaela could have 

declined Erie’s offer to defend and retained her own lawyer. Id.; Brugnoli, 

426 A.2d at 168 n.6 (“consent of the insured is necessary if the insurer is to 

retain control of defense of the action and at the same time reserve the right 

to disclaim liability under the policy”), quoting 14 G.Couch, Cycopedia of 

Insurance Law § 51:84 (2nd ed. 1965); Babcock & Wilcox, supra (an 

insured has the option to decline a defense tendered subject to a reservation 

of rights and furnish its own defense, either pro se or through independent 

counsel retained at the insured’s expense).

For these reasons, we determine that Michaela, as the defendant, was 

entitled to notice of Erie’s reservation of its right to disclaim liability. Notice 

to Michaela’s parents, the named insureds, and to insurance defense counsel 

provided by Erie, was ineffective as to Michaela. In addition, Erie’s 

reservation of rights letter, sent approximately seven months after the 

complaint was filed, was untimely.
J. A27010/14 & J. A27011/14

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Order reversed. Remanded with instructions to enter judgment for 

Michaela Lobenthal. Jurisdiction relinquished.

Judgment Entered.

Joseph D. Seletyn, Esq.

Prothonotary

Date: 4/15/2015