Kenneth Portner of Weber Gallagher Simpson Stapleton Fires & Newby.

Declaratory judgment actions are commonly employed by parties to insurance policies to resolve coverage issues. Because insurance coverage declaratory judgment disputes often involve multiple issues involving the separate but related duties to defend and indemnify questions often arise as to the appealability of trial court orders. The Supreme Court's recent decision in Pennsylvania Manufacturers' Association Insurance v. Johnson Matthey, 188 A.3d 396 (Pa. 2018) has helped to clarify the applicable rules.

Pennsylvania appellate courts generally adhere to the “final order” rule. Under this rule, only final orders are subject to appeal as of right, 42 Pa.C.S. Section 742. A final order is one that “disposes of all claims and all parties.” This rule applies the courts' longstanding policy against piecemeal litigation.

An exception to the final order rule exists when a statute or general rule provides that an order is final, even though the order does not dispose of all claims or all parties. The Pennsylvania Declaratory Judgment Act, 42 Pa.C.S. Sections 7531 et. seq. (the act) states that declarations entered under the act “shall have the force and effect of a final judgment or decree.” For many years, the Supreme Court interpreted Section 7532 of the act to be a statutory exception to the normal rule that an order is final, and thus appealable, only where the order ends the litigation as to all claims and all parties, see Nationwide Mutual Insurance v. Wickett, 763 A.2d 813 (Pa. 2000). More recent Supreme Court decisions, including Johnson Matthey, decided in August 2018, demonstrate that the Supreme Court has moved away from its decision in Wickett.

In Wickett, plaintiffs filed a declaratory judgment action against multiple defendants seeking a declaration that the Workers' Compensation Act did not prohibit them from recovering underinsurance (UIM) benefits under an auto policy issued to their employer for injuries sustained in a work-related auto accident. The employer's insurance company and other defendants filed preliminary objections contending that the exclusivity provisions of the Workers' Compensation Act in effect at the time precluded recovery of UIM benefits for work injuries. The trial court sustained the preliminary objections and dismissed the case as to the insurer.

In analyzing whether the order sustaining these preliminary objections constituted a final, appealable order, the Supreme Court opined that, because a demurrer is essentially an allegation that a pleading is legally insufficient, the trial court's order constituted a declaration that the plaintiffs had no legal basis to recover UIM benefits under the employer's policy. Accordingly, the court concluded that, under the plain language of 42 Pa.C.S. Section 7532, the trial court's orders were final and appealable.

The Supreme Court revisited the issue in Pennsylvania Bankers Association v. Pennsylvania Department of Banking, 948 A.2d 790 (Pa. 2008). In Pennsylvania Bankers the plaintiff filed a declaratory judgment action seeking a declaration that a particular provision of a Pennsylvania statute was unconstitutional. Defendants filed preliminary objections, and the court entered an order sustaining certain of the objections but overruling others. The plaintiff appealed, relying on Wickett's holding that an order declaring the parties' rights is a final order. The Supreme Court quashed the appeal. The court stated that the order was not appealable because while it disposed of certain of the plaintiff's claims, it had no practical effect upon the ultimate decision in the case because the plaintiff could still obtain the full relief it sought based upon the claims that had not been dismissed.

Three years later, in United States Organizations for Bankruptcy Alternatives v. Department of Banking, 26 A.3d 474, 475 (Pa. 2011) (USOBA) the Supreme Court faced a similar issue. The plaintiff sought a declaration that multiple provisions of a Pennsylvania statute were unconstitutional. The plaintiff sought summary adjudication. The trial court entered an order finding certain of the statute's provisions void but rejecting summary relief as to the others. The defendant appealed, and the Supreme Court quashed. Because the order appealed from had not decided the constitutionality of all of the statutory provisions challenged, the dispute had not been resolved. Instead, only the issues had been narrowed.

The Supreme Court addressed the issue most recently in Pennsylvania Manufacturers' Association Insurance v. Johnson Matthey, 188 A.3d 396 (Pa. 2018). In Johnson Matthey the insurer brought a declaratory judgment action requesting that the court declare that the insurer had no duty to defend or indemnify in connection with a lawsuit brought against the insured seeking the cost of remediation of environmental damage caused at the insured's manufacturing site. The insured filed a counterclaim seeking a declaration that the insurer had a duty to pay all defense and indemnity costs related to the site. The insurer moved for summary judgment which was denied and appealed from that order. While acknowledging Wickett, the Supreme Court noted that its more recent decisions addressing the appealability of an order declaring the rights of parties suggest that an order that only partially declares the rights of the parties is not appealable, notwithstanding Section 7532 of the Declaratory Judgment Act.

The court wrote that in United States Organizations for Bankruptcy Alternatives v. Department of Banking, 26 A.3d 474, 475 (Pa. 2011) it had set forth “a rather straightforward two-part test” for appellate courts to apply when considering whether an order declaring the rights of parties is final and appealable: what is the effect of the lower court's decision on the scope of the litigation; and what practical effect does the court's decision have on the ultimate outcome of the case. Applying that test to the case before it, the court in Johnson Matthey concluded the order was not appealable. While it effectively denied the insurer's claim for declaratory relief, it did not completely resolve the issues. It merely narrowed the dispute. Thus, the court held that consistent with Pennsylvania Bankers and USOBA; the order was not appealable. Finally, the court observed that the outcome comported with the court's long-standing and well-founded policy against piecemeal litigation.

Finally, it should be noted that the Supreme Court's decisions interpreting the Declaratory Judgment Act's interaction with now rescinded Rule of Appellate Procedure 341(b)(2) (which specified that orders made final by statute were appealable) and current Rule of Appellate Procedure 311(a)(8) only spell out the earliest order from which an appeal will lie. As noted in the comments to Pa. R.A.P. 311, the effect of the rescission of Pa.R.A.P. 311(b)(2) was to eliminate waiver for failure to take an immediate appeal from such an order. A party aggrieved by an interlocutory order granting or denying a declaratory judgment, where the order satisfies the criteria for ''finality'' under Pennsylvania Bankers Association, may elect to proceed under Pa.R.A.P. 311(a)(8) or wait until the end of the case and proceed under subparagraph (b)(1) of Pa.R.A.P. 311 which provides that an order is final when it disposes of all claims against all parties.

Kenneth Portner, a partner at Weber Gallagher Simpson Stapleton Fires & Newby based in the firm's Philadelphia office, advises, counsels and represents insureds and insurance companies. He represents employers regarding construction defect and property damage matters. He also represents lenders/creditors in collection, workout and bankruptcy matters as well. Portner regularly appears in state and federal courts in New Jersey, New York and Pennsylvania. Contact him at [email protected]