J-A23042-17


NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37

 BENSALEM RACING ASSOCIATION,           :   IN THE SUPERIOR COURT OF
 INC. AND KEYSTONE TURF CLUB,           :        PENNSYLVANIA
 INC.,                                  :
                                        :
                   Appellants           :
                                        :
                                        :
              v.                        :
                                        :   No. 530 EDA 2017
                                        :
 ACE PROPERTY AND CASUALTY              :
 INSURANCE COMPANY                      :

              Appeal from the Order Entered January 24, 2017
    In the Court of Common Pleas of Philadelphia County Civil Division at
                   No(s): February Term, 2016 No. 04858


BEFORE: PANELLA, J., DUBOW, J., and RANSOM, J.

MEMORANDUM BY DUBOW, J.:                       FILED NOVEMBER 30, 2017

      Appellants, Bensalem Racing Association, Inc. and Keystone Turf Club,

Inc. (collectively, “Parx”), appeal from the January 24, 2017 Order entered in

the Philadelphia County Court of Common Pleas granting summary judgment

in favor of Appellee, ACE Property and Casualty Insurance Company (“ACE”),

as to Parx’s Breach of Contract claim, and dismissing Parx’s Bad Faith claim.

After careful review, we vacate and remand with instructions.

               The Underlying Action (“Calderon Action”)

      In 2012, the widow of a jockey who sustained fatal injuries while

working at Parx Racetrack filed a Wrongful Death and Survival Action against
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Parx (the “Calderon Action”)1 The action included a negligence claim against

Parx based on theories of direct liability and vicarious liability, and sought

punitive damages.2 The plaintiff did not name any Parx employees individually

as defendants in that action.

       ACE insured Parx under an April 12, 2010 commercial umbrella liability

policy with a limit of $25,000,000.00 for each occurrence and in the

aggregate.      The policy did not contain a written exclusion for punitive

damages.

       ACE provided counsel to represent Parx.       At trial, on April 2, 2014,

counsel for the parties informed the court that they agreed that a finding

against Parx on the verdict sheet is a finding as to all defendants in that action

and that the “actions and conduct or failures to act on behalf of any of the

defendants’ agents or employees is attributed to” Parx (the “Stipulation”).

Calderon N.T., 4/2/14, at 4.



____________________________________________


1See Calderon v. Bensalem Racing Association, Inc., et al., Case No.
120502939, Philadelphia County Court of Common Pleas.

2 See, e.g., Calderon Second Amended Complaint, 3/14/14, at ¶¶ 7, 10, 13,
16, 19, 24, 34, 36 (“All defendants herein are vicariously liable to plaintiff
for injuries sustained as a result of the negligence of persons or entities whose
conduct was under their control or right to control and which conduct directly
and proximately caused plaintiff’s injuries.”) (emphasis added), and 83. See
also Trial Ct. Op., 3/27/17, at 7 (noting, “in the underlying case[,] vicarious
liability was not the sole negligence theory against Parx.”) (emphasis added).




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        At trial, the plaintiff presented evidence that Parx was both directly

liable as owner of the property and vicariously liable for the acts or omissions

of its employees, and the trial court instructed the jury accordingly.3

        On April 9, 2014, the jury returned a verdict in favor of the plaintiff,

awarding her compensatory damages and $5,000,000.00 in punitive

damages.4 Parx filed Post-Trial Motions, which the trial court denied. Parx

then filed an appeal to this Court.

        While the appeal was pending, Parx entered into a settlement

agreement with the Calderon plaintiff. Parx agreed to pay the compensatory

and delay damages award immediately, and the parties agreed to reduce the

punitive damages award to $2,647,490.00. ACE, on behalf of Parx, paid the

compensatory and delay damages portion of the settlement.

        ACE, however, declined to pay the plaintiff for the punitive damages

award, so Parx paid the punitive damages award directly to the plaintiff.

                                     The Instant Action

        On March 3, 2016, Parx filed the instant action against ACE asserting

Breach of Contract and Bad Faith for failing to indemnify ACE for the punitive




____________________________________________


3See Calderon Jury Instructions, N.T., 4/8/14 P.M. Session, at 20-21, 24-
25, 45

4   Compensatory and delay damages totaled $7,764,429.00.



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damages component of the settlement it had paid directly to the Calderon

plaintiff.

        On April 22, 2016, ACE filed an Answer and New Matter to the

Complaint.5 On June 3, 2016, Parx filed a Motion for Summary Judgment. On

July 28, 2016, ACE filed a Response and Cross-Motion for Summary

Judgment.6

        On January 23, 2017, the trial court granted ACE’s Motion for Summary

Judgment.      The trial court, relying on this Court’s holding in Esmond v.

Liscio, 224 A.2d 793 (Pa. Super. 1966), concluded that, as a matter of public

policy, ACE is not responsible for indemnifying PARX for its payment of the

punitive damages award. Parx timely appealed.7

        Parx raises the following three issues for review:

        1. Did the Court of Common Pleas err by placing the burden on
           Parx Racing—the insured—to establish that the punitive
           damages award in the underlying action was based solely on
           vicarious liability and disregarding this Court’s holding in
           Butterfield[ v. Giuntoli, 670 A.2d 646 (Pa. Super. 1995)]
           that an insurer seeking to preclude coverage for punitive
           damages based on public policy grounds has “the burden to


____________________________________________


5 ACE also filed a Motion to Stay and Sever the Bad Faith Claim, which Parx
did not oppose. The trial court granted the Motion on July 18, 2016.

6 On October 12, 2016, ACE filed an additional Motion for Summary Judgment
reiterating the grounds for relief set forth in its earlier Cross-Motion for
Summary Judgment. Because the issues raised in this Motion were identical
to those raised in ACE’s Cross-Motion, the trial court entered one Order which
disposed of both Motions for Summary Judgment.

7   The trial court did not order Parx to file a Pa.R.A.P. 1925(b) Statement.

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         show that the jury assessed the punitive damages solely on the
         basis of direct liability[?]”

      2. Did the Court of Common Pleas err when it improperly weighed
         the evidence in the underlying wrongful death action and
         interjected its own judgment as to why the jury in that action
         awarded punitive damages when the jury’s actual basis for
         awarding punitive damages is impossible to know and, based
         on the evidence presented, the closing arguments, and jury
         instructions in the underlying action, the punitive damages
         award could have been based on vicarious liability[?]

      3. Can [ACE] meet its burden to prove the punitive damages
         award as excluded from coverage and meet its burden to show
         that the jury in the underlying action assessed punitive
         damages based solely on direct liability given that [ACE] failed
         to follow the instruction in Butterfield and submit specific
         interrogatories to the Calderon jury in the underlying action?

Parx’s Brief at 5-6.

      Our standard of review on an appeal from the grant of a motion for

summary judgment is well settled. “A reviewing court may disturb the order

of the trial court only where it is established that the court committed an error

of law or abused its discretion.”   Krauss v. Trane U.S. Inc., 104 A.3d 556,

562-63 (Pa. Super. 2014) (citations omitted). “As with all questions of law,

our review is plenary.” Id. at 563.

      We 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. Only
      where there is no genuine issue as to any material fact and it is
      clear that the moving party is entitled to a judgment as a matter
      of law will summary judgment be entered.

      Motions for summary judgment necessarily and directly implicate
      the plaintiff’s proof of the elements of [its] cause of action.
      Summary judgment is proper if, after the completion of discovery
      relevant to the motion, including the production of expert reports,
      an adverse party who will bear the burden of proof at trial has

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      failed to produce evidence of facts essential to the cause of action
      or defense which in a jury trial would require the issues to be
      submitted to a jury. Thus, a record that supports summary
      judgment will either (1) show the material facts are undisputed or
      (2) contain insufficient evidence of facts to make out a prima facie
      cause of action or defense and, therefore, there is no issue to be
      submitted to the jury.

H & R Block Tax Servs., Inc. v. Zarilla, 69 A.3d 246, 248 (Pa. Super. 2013)

(citations omitted).

      Juries award punitive damages to punish a tortfeasor’s outrageous

conduct and to deter future outrageous conduct. Butterfield, 670 A.2d at

654. Consequently, it is well-settled in Pennsylvania that a claim for punitive

damages against a tortfeasor who is directly liable for outrageous and

wanton misconduct is excluded from insurance coverage as a matter of law.

See, e.g., Esmond, 224 A.2d at 799 (“[P]ublic policy does not permit a

tortfeasor . . . to shift the burden of punitive damages to his insurer.”).

      However, it is not against public policy to allow “one who is only

vicariously liable for punitive damages to shift the burden of satisfying the

judgment to his insurer.”       Id. at 800 (emphasis added).          See also

Butterfield, 670 A.2d at 655.

      Pennsylvania public policy, therefore, distinguishes between outrageous

acts committed by corporate management directly and those committed by a

corporate agent or employee and for which the corporate entity is vicariously

liable. Butterfield, 670 A.2d at 655.

      In Esmond, this Court considered whether an automobile insurance

company was responsible for the punitive damages portion of an award to an

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injured pedestrian.     In that case, the owner of the insured vehicle gave

permission to a family friend to operate the vehicle.      While operating the

vehicle, the friend struck and injured the pedestrian. Immediately following

the accident, the owner’s son, who was a passenger in the vehicle,

intentionally opened his car door into the pedestrian, causing him further

injury. This Court concluded that because the vehicle operator had permission

to operate the vehicle, his insurance company was liable for the compensatory

damages owed to an injured pedestrian. However, the insurer was not liable

for the punitive damages awarded because they arose from an intentional

assault by the owner’s son on the pedestrian. Esmond, 224 A.2d at 799.

      Almost thirty years later, in Butterfield, this Court again took up the

issue of the insurability of punitive damages, but in the context of corporate

vicarious liability.   In Butterfield, this Court considered whether punitive

damages based on a theory of vicarious liability in a medical malpractice action

are insurable as a matter of law. The Butterfield Court held that, in order to

establish a coverage obligation, first “the insured must show that the policy

covers its claim[.]” Butterfield, 670 A.2d 651. Then, “the burden shifts to

the insurer to establish an exclusion[]” on the basis of public policy. Id. at

651-52. Thus, the Butterfield Court clarified: where the insured can show

that its policy covers the claim, the insurer then bears the burden of

establishing that the jury awarded punitive damages solely on the basis of

direct liability. Id. at 651-52, 657. If the insurer is unable to prove the basis

for the jury’s imposition of punitive damages, whether it be the insured’s direct

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or vicarious liability, or both, the insurer cannot sustain its burden as a matter

of law. Butterfield, 670 A.2d at 657.

       Parx avers that the trial court erred in ignoring the precedent set in

Butterfield, and in instead relying on Esmond and requiring Parx to carry

the burden of proof. Parx’s Brief at 37-38.

       Parx further argues that the trial court erred when it “guess[ed] at the

basis for the jury’s award of punitive damages.” Id. at 38. Parx asserts that

the evidence—including the language in the Calderon Complaint, the

Stipulation between the parties, the court’s instructions to the jury, the

evidence at trial, and counsel’s closing arguments in the Calderon trial—

indicated that the jury could have based its punitive damages award on Parx’s

vicarious liability.8 Id. at 38-44. Parx notes that, rather than consider all of


____________________________________________


8 Parx also directs this Court’s attention to discussions that occurred regarding
jury instructions between the court and counsel in the Calderon trial outside
the presence of the jury. Parx’s Brief at 39. When discussing the points for
charging the jury, the court noted the parties’ stipulation, explaining that it
thought that “we kind of agreed at the beginning we are not going to divide
things up into corporate responsibility . . . as opposed to actual negligence of
one of the servants of the corporation. I thought we were basically going to
say that when we are talking about liability on behalf of Parx, it’s for any one
of its officers and employees.” Calderon N.T., 4/7/14 P.M. Session, at 68-
69. Additionally, counsel for the Calderon plaintiff argued that the court
should instruct the jury on punitive damages for the acts of Parx employees
because “everything they were doing was in their capacity as an employee of
Parx and in furtherance of their scope of employment for Parx.” Calderon
N.T., 4/8/14, at 14-15. The court responded to this argument by indicating,
“[t]hat’s going to be clear. That will be clear.” Id. at 15. Although, these
statements are not evidence of the basis for the jury’s punitive damages
award, they demonstrate that the issue of vicarious liability had been
discussed and formed a portion of the jury instructions.

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the trial testimony and the entire Calderon record, the trial court confined its

analysis to the Calderon court’s post-verdict Opinion denying Parx’s Post-

Trial Motion on the issue of punitive damages. Id. at 46-47.

       Last, Parx argues that, had the trial court applied Butterfield, the

evidence would have demonstrated that Appellee was incapable as a matter

of law of proving that the punitive damages award had been based solely on

direct liability. Parx notes, inter alia, that the Calderon jury did not answer

specific interrogatories or otherwise indicate the basis for its award. Id. at

44-46.

       In the instant case, we must first determine which party had the burden

of proving the basis for the jury’s award of punitive damages. The parties

agree that Parx’s policy does not exclude coverage for punitive damages. As

articulated in Butterfield, the burden then shifted to ACE to prove as a matter

of law that public policy bars coverage for the punitive damages. In order to

meet this burden, ACE had to prove that the Calderon jury awarded punitive

damages based solely on Parx’s direct liability. Thus, the trial court erred as

a matter of law when it placed upon Parx the burden of proving “that the

punitive award was based solely on vicarious liability as required by Esmond

and its progeny.” Trial Ct. Op. at 5 (emphasis in original).9

       Having determined that ACE had the burden to establish that the jury’s

punitive damages award was based solely on Parx’s direct liability, we now
____________________________________________


9We, thus, disagree with the trial court that Parx’s reliance on the precedent
established in Butterfield is “misplaced.” Trial Ct. Op. at 7.

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consider whether Appellee met this burden as a matter of law. We again turn

to Butterfield for guidance.

      In considering whether the insurer in Butterfield had met its burden of

proving that the basis of the jury’s award was the insured’s direct liability, the

Butterfield Court first noted that the jury had not been given specific

interrogatories. Id. at 655-57.      The Court next reviewed the trial court’s

instructions to the jury, and determined that the trial court had instructed the

jury on principles of both vicarious and direct negligence.         Id. at 657.

Observing that there was a distinct absence of specific evidence that, as a

matter of law, the jury’s verdict was based solely on the insured’s direct

liability, the Butterfield Court concluded that the insurer had failed to meet

its burden of proving that the punitive damages were excluded from coverage.

Id.   Thus, we reversed the trial court’s determination that the insurance

company was not required to insure the punitive damages award.

      As in Butterfield, the Calderon jury did not answer specific

interrogatories which would have supported the trial court’s determination

here that the punitive damages were attributable only to Parx’s direct liability.

ACE, in fact, presented no evidence to support such a conclusion, and as

discussed below, the nature of the underlying action and the trial court’s

instruction to the jury demonstrate that the trial court erred as a matter of

law in finding that the plaintiff’s punitive damages award was based solely on

Parx’s direct negligence.




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      Moreover, the trial court expressly found that the plaintiff in Calderon

sought recovery based on Parx’s direct and vicarious liability. See Trial Ct.

Op. at 7 (noting that “vicarious liability was not the sole theory of negligence

against Parx”) (emphasis added). The evidence in the record amply supports

this conclusion. See Calderon Second Amended Complaint, 3/14/14, at ¶ 36

(emphasis added), Calderon Stipulation, N.T., 4/2/14, at 4, Calderon Jury

Instructions, N.T., 4/8/14 P.M. Session, at 20-21, 24-25, 45

      Given that the trial court instructed the jury on vicarious liability

concepts, and in light of (1) the nature of the Calderon plaintiff’s cause of

action against Parx; (2) the stipulation of the parties in the Calderon Action

agreeing that Parx assumed liability for the actions or failures to act of its

employees or agents; and (3) the absence of specific interrogatories, we

conclude that ACE failed to meet its burden to demonstrate that the Calderon

jury based its punitive damages award solely on Parx’s direct negligence. We,

thus, conclude the trial court erred as a matter of law in granting summary

judgment in favor of ACE.

      Moreover, based on the foregoing and our review of the record, we

conclude that ACE cannot sustain its burden of proving the Calderon jury

awarded punitive damages solely on the basis of direct liability. Accordingly,

summary judgment must be entered in favor of Parx on Parx’s Breach of

Contract claim.




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      Order vacated. Case remanded for entry of judgment in favor of Parx

on Parx’s Breach of Contract claim and for reinstatement of, and further

proceedings on, Parx’s Bad Faith claim. Jurisdiction relinquished.

Judgment Entered.




Joseph D. Seletyn, Esq.
Prothonotary



Date: 11/30/2017




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