APPEAL FROM THE DISTRICT COURT OF THE VIRGIN ISLANDS DIVISION OF ST. CROIX (D.C. Civ. No. 79-151)
Before Seitz, Chief Judge, and Gibbons and Rosenn, Circuit Judges.
American Home Assurance Company (American) appeals from an order of the district court granting summary judgment for C. H. Heist Caribe Corporation (Heist).*fn1
In November 1976, a Heist employee named Russell Crookham was injured while cleaning a chemical storage tank at Hess Oil Virgin Islands Corporation (Hess Oil). Crookham brought a personal injury action against Hess Oil, alleging that he suffered serious physical and mental injuries because he was exposed to highly toxic lead substances during the cleaning process. Hess Oil then filed a third-party complaint against Heist, contending that Heist was liable, under an October 7, 1976 indemnity agreement, for any injuries incurred by Heist employees while working at Hess Oil.
Heist notified American, its insurer, of the third-party action and requested that American defend the action and provide liability coverage. American refused to defend or provide coverage on two grounds: (1) Heist did not report the October 7 indemnity agreement to American as required by the contractual liability provisions of the insurance policy, and (2) paragraph (m) of the policy excluded from coverage injuries resulting from the nonaccidental discharge of toxic substances.
As a result of American's refusal to defend or provide coverage, Heist brought this declaratory judgment action against American for a determination of its rights under the policy. After discovery, Heist and American filed cross motions for summary judgment. The district court granted Heist's motion, which sought a declaration that the third-party action was "within the coverage" of Heist's insurance policy with American. The court held that the reporting provisions of the policy should be construed in favor of the insured because they are ambiguous. The court also found that paragraph (m) was inapplicable because it only excluded coverage for nonaccidental environmental pollution.
American argues that the reporting provisions of the policy are not ambiguous, and that they require Heist to notify American of all indemnity agreements within ninety days of entering into those agreements. Because Heist did not notify American of the October 7 indemnity agreement, American contends that it is not obligated to defend the third-party action or to provide liability coverage. American also maintains that the district court erred in granting summary judgment for Heist because unresolved issues of material fact remain as to the parties' intent in including the reporting requirement in the policy. Finally, American argues that paragraph (m) of the policy excludes from coverage the injuries sustained by Crookham, and that the district court's interpretation of paragraph (m) led it to decide incorrectly that American must not only defend the third-party action but also indemnify Heist against any judgment in that proceeding.
In resolving these issues, this court is guided by the general principles of insurance law. See Buntin v. Continental Insurance Co., 583 F.2d 1201, 1204 n.3 (3d Cir. 1978); V.I. Code Ann. tit. 1, § 4 (1967). An insurance policy must be read as a whole and construed according to the plain meaning of its terms. If those terms are reasonably susceptible of more than one interpretation, they are regarded as ambiguous. See, e. g., Buntin, 583 F.2d at 1207; C. Raymond Davis & Sons, Inc. v. Liberty Mutual Insurance Co., 467 F. Supp. 17, 20 (E.D.Pa.1979). All ambiguities must be resolved against the insurer and in favor of coverage. See, e. g., Buntin, 583 F.2d at 1207; Transport Indemnity Co. v. Home Indemnity Co., 535 F.2d 232, 235-36 (3d Cir. 1976). It is settled, however, that an insurer's obligation to defend an action against the insured is not necessarily coextensive with its obligation to indemnify the insured. See, e. g., Moffat v. Metropolitan Casualty Insurance Co., 238 F. Supp. 165, 173 (M.D.Pa.1964); Missionaries of the Company of Mary, Inc. v. Aetna Casualty & Surety Co., 155 Conn. 104, 230 A.2d 21, 24 (1967). Different elements of proof are required to establish a breach of each obligation.
A. The Reporting Requirement
The printed provisions of Heist's insurance policy with American provide that American "will pay on behalf of the insured, all sums which the insured, by reason of contractual liability assumed by him under a contract designated in the schedule for this insurance, shall become legally obligated to pay as damages ...