USF&G, National Union, and Cigna all provided Korman with comprehensive general liability insurance. Cigna covered Korman under eight consecutive year-long policies beginning March 1, 1970 and ending March 1, 1978. National Union covered Korman from May 1, 1978 to June 1, 1978. USF&G covered Korman under a policy originally issued on June 1, 1978, which was renewed several times through June 1, 1986.
At the outset, this court's subject matter jurisdiction over this action must be addressed. In its amended complaint, USF&G asserts that this court has diversity jurisdiction pursuant to 28 U.S.C. § 1332 in that the amount in controversy exceeds ten thousand dollars and that there is complete diversity. As USF&G aligned the parties, there is complete diversity. Plaintiff USF&G is incorporated in Maryland with its principal place of business in Maryland. Defendant National Union is incorporated in Pennsylvania with its principal place of business in Pennsylvania. Defendant Cigna is incorporated in Connecticut with its principal place of business in Pennsylvania. Defendant Korman is incorporated in Pennsylvania with its principal place of business in Pennsylvania. The named individual defendants
are all citizens of Pennsylvania except one who is a citizen of Georgia.
Korman contends, however, that Cigna and National Union should be realigned as plaintiffs, which would destroy complete diversity. Although it may destroy complete diversity, realignment is proper when there is no actual, substantial controversy between parties on one side of the dispute and their opponents. American Motorists Insurance Co. v. Trane Co., 657 F.2d 146, 149 (7th Cir. 1981) (citing Indianapolis v. Chase National Bank, 314 U.S. 63, 69, 86 L. Ed. 47, 62 S. Ct. 15 (1941)).
In this case, realignment is not necessary because there is an actual, substantial controversy between plaintiff USF&G and defendants Cigna and National Union. To be sure, on this motion, the insurers all make similar arguments concerning the absence of any coverage and share an interest in a finding that none of the insurers owe coverage. However, assuming a finding that at least one insurer owes coverage, the insurers' interests collide on the issue of which and how many insurers owe coverage. Since the insurers all provided coverage during different time periods, one divisive and major issue, already raised by the insurers, concerns when any possible coverage was triggered.
Trane, although not factually identical to this case, supports the proposition that insurers in the respective situations of USF&G, National Union, and Cigna are in substantial conflict. In Trane, the first-level excess insurer, American Motorists, brought suit seeking a declaration of the rights and liabilities of the four insurers. American Motorists named the insured and the other three insurers, Employers (primary carrier), St. Paul (second-level excess insurer), and American Home (third-level excess insurer), as defendants. Upon American Home's motion, the district court realigned Employers as a plaintiff, thereby destroying diversity jurisdiction. The district court noted that American Motorists was arguing that the underlying complaint did not allege an "occurrence" under either its policy or Employers' and that, therefore, neither insurer owed coverage. From this, the district court concluded that the insurers' "attitudes [were] insufficiently in conflict." Trane, 657 F.2d at 150 (quoting the district court's opinion).
The Seventh Circuit Court of Appeals reversed, concluding that there was a substantial conflict between Employers and American Motorists. The Seventh Circuit reasoned that "because Employers is the underlying insurer, American Motorists would benefit from a holding that Employers had a duty to defend [the insured]. Conversely, if Employers were found not to be liable, American Motorists would then have the burden of proving that it had no duty to defend [the insured]." Id.
Having determined that this court has subject matter jurisdiction over this action, I must now decide whether the insurers have a duty to defend Korman. The insurers must defend Korman if the claims set forth in the Smalls complaints potentially come within the policies' coverage. Pacific Indemnity Co. v. Linn, 766 F.2d 754, 760 (3d Cir. 1985); see also American Contract Bridge League v. Nationwide Mutual Fire Insurance Co., 752 F.2d 71, 75 (3d Cir. 1985). The insurers' policies cover
damages because of
A. bodily injury or