the insured. Actual indemnification depends upon the existence or nonexistence of facts not yet established." Id. at 483. Therefore, the court held the obligation of Pacific, Aetna, JUA and Nationwide to indemnify Dr. Linn, Dr. Moses and Linn Associates could not yet be determined. In the view of the court, there was no actual controversy under the Declaratory Judgment Act because the question of indemnification as to the policies in suit was not ripe for decision. But this holding was clearly without prejudice to later determination of the right of indemnification upon final disposition of the underlying claims, whether by settlement or judgment. Cf., Sandoz, Inc. v. Employer's Liability Assurance Corp., 554 F. Supp. 257 (D.N.J. 1983) (plaintiff, having incurred costs in settlement in underlying cases, presented issue as to indemnification sufficiently concrete, immediate and adverse to defendant insurance companies to constitute a justiciable controversy on partial summary judgment; factual disputes as to date of onset and manifestation of injuries precluded allocation of liability among the defendants prior to trial).
Aetna and Pacific moved for reimbursement but Nationwide moved for amendment of the judgment or in the alternative for new trial. Then Nationwide withdrew its motion and appealed the judgment, as did Aetna and Pacific.
On February 22, 1983, the Court of Appeals dismissed the interlocutory appeals for lack of jurisdiction without prejudice to certification by the district court under Fed.R.Civ.P. 54(b); Aetna and Nationwide moved for certification to the appellate court. But while the interlocutory appeals were pending, all the underlying cases except for Harmon had been terminated. All underlying actions except for Harmon2 having been determined, the indemnification issues had become ripe for decision by this court. Therefore, by Memorandum and Order dated November 9, 1983, this court denied the motions for certification of appeal as not in the interest of sound judicial administration. But the motions for reimbursement were denied until presented in a manner enabling resolution consistent with the court's determination of the legal issues.
The court held argument on all remaining issues, particularly with regard to certain recent cases decided by the Third Circuit subsequent to the court's Opinion filed December 1, 1982.
I. DUTY TO DEFEND
The court determined the various obligations to defend Dr. Linn against the underlying complaints by Memorandum and Order of July 24, 1981 and an Opinion filed December 1, 1982, incorporated by reference herein. Since then, two cases, Selected Risks, supra, and Standard Venetian Blind Co. v. American Empire Insurance Co., 503 Pa. 300, 469 A.2d 563 (Pa. 1983), have limited the insurer's obligation to explicitly inform a prospective insured of policy exclusions. In Hionis v. Northern Mutual Insurance Co., 230 Pa. Super 511, 327 A.2d 363 (1974), the Pennsylvania Superior Court had held that "where a policy is written in unambiguous terms, the burden of establishing the applicability of the exclusion or limitation involves proof that the insured was aware of the exclusion or limitation and that the effect thereof was explained to him." 230 Pa. Super at 517, 327 A.2d at 365. The Third Circuit subsequently held in Selected Risks that Hionis protected only reasonable expectations, so that an exclusion, even if not explained to the insured, is effective against the insured's unreasonable expectations. But Standard Venetian Blind, a later decision of the Pennsylvania Supreme Court, rejected Hionis entirely so long as the exclusion clause is clear, unambiguous, and prominently displayed, whether or not the insured had reasonable expectations of coverage; to the extent that Selected Risks is inconsistent, it is Standard Venetian Blind that now provides the basis for decision:
Hionis, which would permit an insured to avoid the application of a clear and unambiguous limitation clause in an insurance contract, is not to be followed. . . . We hold only that where, as here, the policy limitation relied upon by the insurer to deny coverage is clearly worded and conspicuously displayed, the insured may not avoid the consequences of that limitation by proof that he failed to read the limitation or that he did not understand it.
469 A.2d at 567 (emphasis added). However, neither Selected Risks nor Standard Venetian Blind alters the court's prior rulings as to duty to defend.
The relevant exclusion in the JUA professional liability policy states that the policy does not cover liability arising out of "ownership, operation or supervision by the Insured . . . of . . . any business enterprise." The court has previously decided that the meaning of "business enterprise," not defined in the policy, and the intent of the parties as to the scope of the exclusion were unclear and were therefore strictly construed against the insurer. (Memorandum and Order of July 24, 1981 at 28). The insured physician could have reasonably expected that a professional liability policy would provide coverage for lawsuits alleging medical malpractice or professional negligence even though they arise from the publication and sale of a book. Because the exclusion is not clear and unambiguous, this court's decision does not deviate from the plain language of the insurance contract in disregard of Standard Venetian Blind.
Aetna's commercial insurance policy contains a "products hazard" exclusion which denies coverage for "bodily injury . . . arising out of the named insured's products."
The "named insured's product" is defined as "goods or products manufactured, sold, handled or distributed by the named insured, . . . including any container thereof." The court has held this exclusion ineffective because the insured was unaware of it, and even if he "had . . . read the 140-page Aetna commercial package policy and been made aware of the products hazard exclusion clause prior to writing the book, [he] would not have understood that manufacture or distribution of a product referred to writing a book. . . . The ordinary person does not consider that an author 'manufacturers' book in writing it." (Opinion filed December 1, 1982 at 7, 14).
Standard Venetian Blind does not change the inapplicability of this exclusion. While Aetna may in fact have intended the clause to exclude the instant occurrences from coverage, that intent is certainly not clearly worded nor prominently displayed in the 140-page policy. The clause is ambiguous; it cannot be ascertained from its undefined terms whether or not writing a book is manufacturing a product within the meaning of the exclusion. Even if Dr. Linn were fully aware of the products hazards exclusion, he would not necessarily have understood that manufacture or distribution of a product referred to and included writing a book. Neither would most people. It is not unreasonable to expect that a commercial insurance policy will cover liability incurred by writing a book.
Finally, Nationwide's "personal negligence" policy excludes liability arising from "any errors or omissions in the rendering of a professional service, . . . [and] activities in connection with a business solely owned by an Insured or owned by a partnership of which an Insured is a partner." The court previously held that even if these exclusionary clauses were not rendered inapplicable by Hionis, they did not exclude coverage for the bookreader claims. (See, Opinion filed December 1, 1982 at 16-17). The former exclusion applied only to professional acts; Nationwide was not required to defend Dr. Linn against complaints alleging negligent professional rather than personal acts. The latter exclusion applied only to "activities in connection with a business solely owned by an Insured or owned by a partnership of which the Insured is a partner," and not to income-producing endeavors which are not part of a business operating with assets of the insured. Because Hionis had no material effect on Nationwide's exclusions, its subsequent limitation is not relevant to the applicability of its exclusions.
The only other exclusion the applicability of which might be affected by the Standard Venetian Blind and Selected Risks cases is the "business or business products" exclusion in Interstate's professional and personal liability excess policy. But it is now clear that the excess coverage of the Interstate policy will not be called upon by any of the bookreader cases with the possible (although highly unlikely) exception of Harmon. The exclusion would affect Interstate's obligation to indemnify and not its obligation to defend; the court has not yet determined whether the exclusion precludes coverage although Hionis would have made the clause inapplicable. There is no need to determine now whether Standard Venetian Blind or Selected Risks have affected the applicability of the Interstate exclusion. Should the Interstate policy in fact be implicated by Harmon, the court will then deal with the exclusionary clause.
II. DUTY TO INDEMNIFY
The underlying bookreader claims, excepting Harmon, have all now been terminated by settlement or final judgment in favor of Dr. Linn. The obligation to indemnify in each case (except Harmon) is now ripe for decision.
Unlike the duty to defend, the duty to indemnify "cannot be determined merely on the basis of whether the factual allegations of [the underlying] complaint potentially state a claim against the insured." Heist, supra at 483. Rather, there must be a determination that the insurer's policy actually covers the claimed incident.
Here, the various insurers were obligated to defend Dr. Linn because the underlying complaints stated causes of action on which there was potential liability. The court deferred deciding which insurers were obligated to indemnify Dr. Linn until the final disposition of each underlying case presented a factual basis for determining which insurers had indemnity obligations. However, because those cases implicating the duty to indemnify were terminated by settlement rather than final judgment,
it is now impossible to determine on what theories of liability, if any, the underlying plaintiffs would have prevailed. There are no factual findings to consider in determining which insurers are obligated to indemnify Dr. Linn. As a result, the duty to indemnify must follow the duty to defend.
Where a complaint alleges facts supporting more than one theory of recovery from an insured, including a claim potentially covered by the insured's policy, "it [is] the duty of the [insurer] to undertake the defence, until it [can] confine the claim to a recovery that the policy [does] not cover." Lee v. Aetna Casualty & Surety Co., 178 F.2d 750, 753 (2d Cir. 1949). See also, Pittsburgh Plate Glass Co. v. Fidelity and Casualty Co. of N.Y., 281 F.2d 538 (3d Cir. 1960) (insurer obligated to defend must do so until claim is narrowed to one outside policy coverage); Cadwallader v. New Amsterdam Casualty Co., 396 Pa. 582, 152 A.2d 484 (1959) (same). Thus, the duty to defend in effect carries with it the conditional obligation to indemnify until such time as it becomes clear that there can be no recovery within the insuring clause. See, Cadwallader, supra. Since all the relevant underlying cases (except Harmon) have been settled and there are no factual findings establishing those claims, if any, on which the bookreader plaintiffs would have prevailed, the insurers cannot confine potential claims to those clearly outside the scope of coverage.
Those insurers found obligated to defend Dr. Linn are therefore also responsible for any payments made in settling the bookreader cases. See, Ripepi v. American Insurance Companies, 349 F.2d 300 (3d Cir. 1969); Cadwallader, supra.8
Accordingly, the following carriers are initially obligated to indemnify the insured up to the amounts of their respective policy limits:
James: Pacific, JUA, Aetna
Smith: Pacific, JUA, Aetna, Nationwide
Lehman: Aetna, Nationwide
Silberlicht: Aetna, Nationwide
Bass: Pacific, JUA, Aetna
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