Opinion ID: 3009691
Heading Depth: 1
Heading Rank: 5

Heading: apportionment of defense and indemnity costs

Text: Because two policies were triggered by the pre-1962 welding rod claims, allocation of the defense and indemnity costs had to be determined. The district court relied on the decision of the Philadelphia Court of Common Pleas in J.H. France Refractories Co.v. Allstate Ins. Co., No. 3933 (Phila. Ct. C.P. Apr. 18, 1986) (France I)4 for its determination. It stated that France I constitute[d] the best statement of Pennsylvania law concerning the designation of a triggered policy for coverage in a particular underlying action . . . . Air Prods., 707 F. Supp. at 769. The district court adopted the chronological and seriatim method of allocation discussed in France I. Under this method, the first policy triggered must defend and indemnify the insured until the policy limit is reached. The next-in-time policy is then obligated, and so forth until the policies are exhausted or until the insured is fully reimbursed. The Supreme Court of Pennsylvania overruled the chronological and seriatim method of allocation in its decision in J.H. France Refractories Co. v. Allstate Ins. Co. (France III), 626 A.2d 502 (Pa. 1993), rev'g 578 A.2d 468 (Pa. Super. 1990) (France II). Under France III, as the allocation applies 4 Vacated on jurisdictional grounds, 539 A.2d 1345 (Pa. Super. 1988), rev'd, 555 A.2d 797 (Pa. 1989), on remand, 578 A.2d 468 (Pa. Super. 1990) (France II), aff'd in part, rev'd in part, 626 A.2d 502 (Pa. 1993) (France III). 11 to the duty to indemnify, if more than one policy is triggered, the insured should be free to select the policy or policies under which it is to be indemnified. Id. at 508. When the policy limits of the chosen policy are exhausted, then the insured is entitled to choose again from the triggered policies and continue to do so until fully indemnified for the claims. In regard to the allocation of the liability associated with the duty to defend, the Supreme Court held that the insurers have the right to select which of the insurers will undertake a defense. If the insurers cannot decide, then the insured may designate which insurer it wishes to have defend the claims. Id. at 510. Hartford and Aetna argue that this case should be remanded to the district court for reconsideration in light of the intervening Pennsylvania Supreme Court decision in France III. We agree that a federal court exercising diversity jurisdiction is bound to follow the law as decided by the highest court of the state even if it has changed during the pendency of the federal action. Vandenbark v. Owens-Illinois Glass Co., 311 U.S. 538, 543 (1941). The district court's order allocating costs relied on a statement of Pennsylvania law that has since been overruled by an intervening decision of the Supreme Court of Pennsylvania. The pertinent provisions of the district court's order will be vacated and the case remanded so that the district court can reconsider its order in light of France III.