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April 29, 1988

St. Paul Fire and Marine Insurance Company
Insurance Placement Facility of Pennsylvania, et al.

The opinion of the court was delivered by: GREEN


 Plaintiff St. Paul Fire and Marine Insurance Company ("St. Paul") commenced the above captioned declaratory judgment action in order to determine the respective share of liability between it and Insurance Placement Facility of Pennsylvania ("the Fair Plan") with respect to fire damage caused to property insured under policies issued by both companies. Besides the Fair Plan, the buyers and sellers of the insured property are named as defendants. Counterclaims and cross claims have been filed by various parties. The matter has been submitted to the court for nonjury determination based upon stipulated record facts.

 The facts of this lawsuit as stipulated by the parties are as follows: In October, 1986, Jack and Vilma Collins together with George and Vera Falus (collectively "the buyers") entered into an agreement with Peter N. Harrison, Administrator of the Estate of Anthony A. Fanelli, and Harry Waldron, Executor of the Estate of Frederick W. Waldron (collectively "the sellers") to purchase commercial property ("the property") located in Pennsylvania. At the time of the agreement's execution, the buyers were tenants of the sellers. Defendant Vera Falus owned and operated a retail food business on the site of the property and Jack and Vilma Collins maintained a jewelry shop. About November 5, 1986, the sellers obtained $ 210,000 worth of fire insurance coverage from the Fair Plan. About December 23, 1986, the buyers obtained $ 250,000 worth of all risk business owners' insurance from St. Paul. On or about December 26, 1986, the property was damaged by fire. As a consequence of the fire, the closing of the purchase contract was postponed until May 21, 1987 at which time the buyers took title to the property and the sellers assigned to buyers their right to insurance proceeds from the Fair Plan. The property was neither repaired nor replaced and the buyers were forced to discontinue their businesses on the property.

 Fair Plan in turn argues that since the buyers are entitled to only one recovery, that payment of the loss must be prorated between St. Paul and the Fair Plan as mandated by statute. Furthermore, the Fair Plan contends that the St. Paul policy specifically provides for insurance coverage on an actual cash value basis.

 The buyers assert three points in their briefs. First, they argue that the interest of the buyer and the seller are legally distinct and separately insurable, and hence the "other insurance" clauses in both insurers' policies do not apply. Second, they maintain that any ambiguity in the policy of either insurer must be construed in the insureds' favor. Finally, the buyers contend that they are entitled to replacement cost.

 Sitting in diversity, this court must apply the substantive law of the forum state Pennsylvania, Erie Railroad v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938); Wilson v. Asten-Hill Manufacturing Co., 791 F.2d 30, 32 (3d Cir. 1986).

 Pertinent to the court's disposition of the dispute among the parties is the presence of an apportionment clause in each policy of insurance. The Fair Plan policy contains an apportionment provision which provides for pro rata contribution in the event of double coverage, while the St. Paul policy contains the following "Other Property Insurance" clause:

Other Property Insurance
Other insurance may be available to cover a loss. If so, we'll pay the amount of loss that's left after the other insurance has been used up, less the deductible. But we won't pay more than the limit of coverage that applies.

 (Stipulation of Facts, p. 5).

 In order for either apportionment clause to be operative, "other insurance" must exist. This occurs only where there are two or more policies covering the same interest, the same subject matter, and the same risk. Blue Anchor Overall Co. v. Pennsylvania Lumbermens Mutual Insurance Co., 385 Pa. 394, 398, 123 A.2d 413, 415 (1956). In the present case, the policies in question both cover the same property and the risk of fire loss. The key issue is whether the policies cover the same interest. Other insurance clauses have no application where the policies cover distinct insurable interests in the property.

 In Pennsylvania, the risk of loss to real property caused by fire or other peril is on the buyer, unless shifted by the parties in their agreement. Nonetheless, both the buyer and the seller may take out insurance policies to cover a loss which occurs prior to the conveyance of the property. The seller may cover his or her legal interest in the title, which is held as security for the payment of the unpaid purchase money, and the buyer may cover his or her ...

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