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IMPERIAL CAS. & INDEM. CO. v. HIGH CONCRETE STRUCT

January 14, 1988

Imperial Casualty & Indemnity Company, Plaintiff,
v.
High Concrete Structures, Inc., and United States Fidelity & Guaranty Company, Defendants, and High Steel Structures, Inc., d/b/a High Steel Service Center, Inc., Intervenor



The opinion of the court was delivered by: HUYETT

 Huyett, J.

 In this action, two insurance companies seek declaratory judgment regarding their obligation to defend a state court action instituted by Keystone Stamping, Inc. ("Keystone") against High Steel Service Center, Inc. ("High Steel"). There being no material facts in dispute, summary judgment is appropriate.

 BACKGROUND

 The relevant facts, which are not in dispute, may be summarized as follows. Plaintiff Imperial Casualty & Indemnity Company ("Imperial") issued policy No. AE30287 to High Concrete Structures, Inc. The Imperial policy provides professional liability coverage. There is no dispute that this policy was in effect at the time of the events underlying the Keystone suit.

 Defendant United States Fidelity & Guaranty Company ("USF&G") issued policy No. MP036926054 to High Industries, Inc., et al. The USF&G policy is a comprehensive general liability policy. There is no dispute that this policy was in effect at the time of the events underlying the Keystone suit.

 Sometime after February, 1984, High Steel Structures, Inc., doing business under the registered fictitious name of High Steel Service Center, Inc., began to supply Keystone with hot rolled carbon steel. High Steel purchased large rolls of steel from Republic Steel Company. *fn1" High Steel then slit the rolls into widths of approximately three to four inches. No other change was made to the steel by High Steel before it was shipped to Keystone. Keystone then stamped its product (washers) out of these rolls. *fn2" No other change was made to the steel by Keystone, which then shipped its product to Nice Bearing Products Division, SKF Industries, Inc. ("Nice"). Nice was to process the washers through a heat treatment, and expected to sell the processed washers to Chrysler Corporation for use in automobiles. However, the treatment process brought to the surface defects, inclusions, burrs, pitmarks and laminations which made the steel unacceptable for its intended use. Keystone brought a state court action asserting claims for breach of contract and breach of warranty. Keystone seeks damages for lost sales as a result of decreased production and cancelled orders, additional overtime costs, additional freight charges, and injury to reputation.

 At all times relevant to this action, High Steel did not employ any metallurgical engineers or have any "in-house" metallurgical engineering capability. At the request of High Steel, Thomas C. Dudas, a metallurgical engineer employed by Republic Steel, had visited Keystone's plant, evaluated their needs and made recommendations to High Steel concerning the specifications of the steel to be provided to Keystone. High Steel relied on those recommendations, and on later recommendations by Dudas, in selecting the steel to be supplied to Keystone.

 Before addressing the specific contentions of the parties, it is helpful to review the settled principles of insurance law which govern this action. As succinctly stated by the Third Circuit:

 
Under Pennsylvania law, an insurance company is obligated to defend an insured whenever the complaint filed by the injured party may potentially come within the policy's coverage. The obligation to defend is determined solely by the allegations of the complaint in the action. The duty to defend remains with the insurer until the insurer can confine the claim to a recovery that is not within the scope of the policy.
 
In construing an insurance policy, if the words of the policy are clear and unambiguous, the court must give the words their plain and ordinary meaning. When a term in the policy is ambiguous, however, and the intention of the parties cannot be discerned from the face of the policy, the court, in its attempts to arrive at a reasonable construction of the policy that is in accord with the parties' apparent intention, may look to extrinsic evidence of the purpose of the insurance, its subject matter, the situation of the parties, and the circumstances surrounding the making of the contract. Where ambiguous, insurance contracts are to be construed strictly against the insurer. Hence, any ambiguities are to be resolved in favor of the insured. The language of a policy may not be tortured, however, to create ambiguities where none exist. Exclusions from coverage contained in an insurance policy will be effective against an insured if they are clearly worded and conspicuously displayed, irrespective of whether the insured read the limitations or understood their import.

 Pacific Indem. Co. v. Linn, 766 F.2d 754, 760-61 (3d Cir. 1985) (citations omitted).

 IMPERIAL POLICY

 1. High Steel Service Center, Inc. as a Named Insured.

 Imperial argues, first, that it has no obligation to defend the state court action because High Steel Service Center, Inc. is not a named insured under its policy.

 The policy lists 11 named insureds, including 3 corporate entities and 8 individuals. One of the named insureds is High Steel Structures, Inc. High Steel Service Center, Inc. is a fictitious name under which High Steel Structures, Inc. is registered to do business.

 The definition of "named insured" contained in the policy neither specifically includes nor excludes fictitious names. The Exclusion of Related Company Claims Endorsement specifically excludes from coverage "expenses arising out of claims. . . by a business enterprise . . . that . . . is wholly or partly owned, operated or managed by the insured." However, the exclusion makes no specific reference to the situation in which the insured chooses to conduct part of its business under a fictitious name.

 The Pennsylvania Fictitious Names Act, 54 Pa. C.S.A. § 301, et seq., defines a fictitious name as "any assumed or fictitious name . . . other than the proper name of the entity using such name." 54 Pa. C.S.A. § 302 (Purdon's Supp. 1987). In addition to the mandatory registration provisions, any entity may voluntarily register a fictitious name "for the purpose of establishing a public record of their relationship to any business or other activity carried on under or through such fictitious name." 54 Pa. C.S.A. § 303(a). No entity which has failed to comply with the registration requirements of the statute may maintain an action in the courts of the Commonwealth until it has a) complied with the requirements of the statute, and b) paid a civil penalty of $ 500. 54 Pa. C.S.A. § 331. However, registration of the fictitious name "imparts no legal right to the registering entity other than that the conducting of business by it under a fictitious name shall not result in the penalties provided by section 331." 54 Pa. C.S.A. § ...


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