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BRITAMCO UNDERWRITERS, INC. v. C.J.H.

March 4, 1994

BRITAMCO UNDERWRITERS, INC.
v.
C.J.H., INC., d/b/a WHEATSHEAF INN and JOHN OWENS and LEONARD OWENS



The opinion of the court was delivered by: BY THE COURT; J. CURTIS JOYNER

 JOYNER, J.

 This declaratory judgment action has been brought before the Court by motion of the Plaintiff, Britamco Underwriters, Inc. for judgment on the pleadings. After carefully reviewing the parties' pleadings and the insurance policy at issue in this case, this Court is of the opinion that the Plaintiff's motion must be granted.

 I. HISTORY OF THE CASE

 This case has its origins in an incident which occurred on November 27, 1990 at the defendant, C.J.H. Inc.'s tavern (the Wheatsheaf Inn), in Morrisville, Bucks County, Pennsylvania. On that date, the defendants John and Leonard Owens were patrons and business invitees at the Wheatsheaf Inn when they were purportedly twice violently and viciously assaulted by two other visibly intoxicated and dangerous patrons. Leonard and John Owens allegedly sustained severe personal injuries as the result of these assaults for which they brought suit against C.J.H., Inc., d/b/a the Wheatsheaf Inn on August 25, 1992 in the Court of Common Pleas of Bucks County, Pennsylvania. According to the complaint filed in that case, the defendant, C.J.H., Inc. was negligent in that its agents, servants, workmen and employees served and continued to serve liquor and alcoholic beverages to the individuals who ultimately assaulted the Messrs. Owens and in that those agents, servants, workmen and employees failed and refused to call the police despite the Owens' repeated requests that they do so.

 At the time of this incident, C.J.H., Inc. was insured by plaintiff Britamco Underwriters through the Illinois Insurance Exchange under both a multi-peril policy bearing #DOL 02020 50070 and a separate liquor liability policy bearing #DOL 02124 89498. The multi-peril policy included two conspicuously worded endorsements which excluded coverage for actions to recover damages for assault and battery and for bodily injuries and/or property damage arising out of the insured's sales or service of alcoholic beverages. It is on the basis of these exclusions that Britamco commenced the instant action *fn1" to obtain a declaration from the court that no coverage exists and it has no duty to defend or indemnify C.J.H., Inc. under the multi-peril policy for the incident complained of in the Owens' Bucks County suit. The pleadings having been closed on or about December 30, 1993, plaintiff moved for judgment on the pleadings on January 3, 1994.

 II. DISCUSSION

 A. Applicable Standards to Motions for Judgments on the Pleadings under Fed.R.Civ.P. 12(c).

 Fed.R.Civ.P. 12(c) outlines the general principles underlying judgment on the pleadings motions. Specifically, that rule states:

 
"After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings. If, on a motion for judgment on the pleadings, matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided for in Rule 56 and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56."

 It is well settled that in evaluating a Rule 12(c) motion, the court must view the pleadings in the light most favorable to, and draw all inferences in favor of, the non-moving party and thereby grant the motion only if it is beyond doubt that the non-movant can plead and prove no facts that would support his claim for relief. U.S. v. Wood, 925 F.2d 1580, 1581 (7th Cir. 1991); Madonna v. U.S., 878 F.2d 62, 65 (2nd Cir. 1989). For these reasons, it has been said that Rule 12(c) motions have utility only when all of the material allegations of fact are admitted in the pleadings and only questions of law remain. 5A Wright and Miller, Federal Practice and Procedure: Civil 2d § 1367, 510 (1990). Moreover, since the district court may not look beyond the pleadings and all uncontested allegations to which the parties had an opportunity to respond are taken as true, it has been said that motions for judgment on the pleadings are judged on the basis of the same standards as are applicable to Rule 12(b)(6) motions to dismiss. Institute for Scientific Information, Inc. v. Gordon & Breach, Science Publishers, Inc., 931 F.2d 1002, 1005 (3rd Cir. 1991) cert. denied, U.S. , 112 S. Ct. 302, 116 L. Ed. 2d 245 (1991); U.S. v. Wood, supra ; Revis v. Slocomb Industries, Inc., 765 F. Supp. 1212, 1213 (D.Del. 1991); Paist v. Town & Country Corp., 744 F. Supp. 179, 181 (N.D.Ill. 1990).

 B. Propriety of Entering Judgment on the Pleadings in Favor of the Plaintiff Insurer in this Case

 In initiating this lawsuit, Britamco has invoked both this Court's diversity jurisdiction and the provisions of 28 U.S.C. § 2201 which provides:

 
"In a case of actual controversy within its jurisdiction, except with respect to Federal taxes other than actions brought under section 7428 of the Internal Revenue Code of 1954 or a proceeding under section 505 or 1146 of title 11, any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such."

 The Declaratory Judgment Act is procedural in nature and thus federal law determines whether or not a district court may properly enter a declaratory judgment in a given case. Nationwide Mutual Insurance Co. v. Welker, 792 F. Supp. 433, 439 (D.Md. 1992). A federal court sitting in diversity, however, must apply the substantive law of the state in which the cause of action arose. Erie R.R. v. Tompkins, 304 U.S. 64, 78, 58 S. Ct. 817, 822, 82 L. Ed. 1188 (1938); Griggs v. Bic Corp., 981 F.2d 1429, 1431 (3rd Cir. 1992).

 Accordingly, while federal law will be applied and will control whether or not the court can render a declaratory judg-ment, state law is to be applied to the underlying substantive issues. See : State Farm Mutual Auto Insurance Co. v. Conway, 779 F. Supp. 963 (S.D.Ind. 1991); Louisiana Nevada Transit Co. v. Marathon Oil Co., 770 F. Supp. 325 (W.D.La. 1991). Under the Declaratory Judgment Act, then, declaratory relief is appropriate where there is a substantial controversy of sufficient immediacy and reality between parties having adverse legal interests. Id., at 328 citing Maryland Casualty Company v. Pacific Coal & Oil Company, 312 U.S. 270, 273, 61 S. Ct. 510, 512, 85 L. Ed. 826 (1941).

 Declaratory judgment actions have often been used in Pennsylvania to resolve issues of an insurance company's duty to defend and indemnify. Harleysville Mutual Insurance Co. v. Madison, 415 Pa. Super. 361, 609 A.2d 564, 566 (1992). Under Pennsylvania law, an insurer's duty to defend an action is measured, in the first instance, by the allegations in the pleading. Gene's Restaurant, Inc. v. Nationwide Insurance Co., 519 Pa. 306, 548 A.2d 246 (1988). The task of interpreting a contract of insurance is generally performed by a court rather than by a jury, which must read the insurance policy as a whole and construe it according to the plain meaning of its terms. Safeguard Scientifics, Inc. v. Liberty Mutual Insurance Co., 766 F. Supp. 324, 328 (E.D.Pa. 1991), modified in part on other grounds, 961 F.2d 209 (3rd Cir. 1992); Bateman v. Motorists Mutual Insurance Co., 527 Pa. 241, 590 A.2d 281, 283 (1991); Standard Venetian Blind Co. v. American Empire Insurance Co., 503 Pa. 300, 469 A.2d 563, 566 (1983). Where an ambiguity is found in a provision of an insurance policy, the provision should be construed against the insurer as the drafter of the instrument. K & Lee Corp. v. Scottsdale Insurance Co., 769 F. Supp. 870, 873 (E.D.Pa. 1991). Where, however, the language of a contract of insurance is clear and unambiguous, a court is required to give effect to that language. Stump v. State Farm Mutual Automobile Insurance Co., 387 Pa. Super. 310, 564 A.2d 194, 196 (1989). A provision of an insurance policy is ambiguous if reasonably intelligent people on considering it in the context of the entire policy would honestly differ as to its meaning. K & Lee Corp. v. Scottsdale Insurance, supra, at 873; Terra Nova Insurance Co. v. North Carolina Ted, Inc., 715 F. Supp. 688, 691 (E.D. Pa. 1989), both citing Northbrook Insurance Co. v. Kuljian Corp., 690 F.2d 368, 372 (3rd Cir. 1982).

 A distinction exists between an insurer's duty to defend and its duty to indemnify. Under Pennsylvania law, an insurer is obligated to defend an insured whenever the complaint filed by the injured party may potentially come within the policy's coverage and the duty to defend remains with the insurer until the insurer can confine the claim to recovery that is not within the scope of coverage. Pacific Indemnity Co. v. Linn, 766 F.2d 754, 760 (3rd Cir. 1985); Britamco Underwriters, Inc. v. Stine, 1992 WL 195378 (E.D.Pa. 1992); United Services Automobile Association v. Elitzky, 358 Pa. Super. 362, 517 A.2d 982, 985 (1986), alloc. denied, 515 Pa. 600, 528 A.2d 957 (1987).

 In determining whether there exists a duty to defend in a given case, the complaint claiming damages must be compared to the policy and a determination made as to whether, if the allegations are sustained, the insurer would be required to pay a resulting judgment. Gene's Restaurant v. Nationwide, supra, 548 A.2d at 246-247 quoting 7C J. Appelman, Insurance Law and Practice, § 4683, at 42, 50 (1979). See Also : St. Paul Surplus Lines Insurance Co. v. 1401 Dixon's, Inc., 582 F. Supp. 865, 867 (E.D.Pa. 1984). Moreover, if coverage depends upon the existence of facts yet to be determined, the insurer is obliged to provide a defense until such time as those facts are determined, and the claim is narrowed to one patently outside the scope of coverage. Likewise, if some of the allegations in the complaint fall within the terms of coverage and others do not, the insurer is obliged to defend the entire action against the insured. Safeguard Scientifics, Inc. v. Liberty Mutual Insurance Co., supra, 766 F. Supp. at 329 citing, inter alia, C. Raymond Davis & Sons, Inc. v. Liberty Mutual Insurance Co., 467 F. Supp. 17, 19 (E.D.Pa. 1979).

 Finally, when an insurer seeks to deny coverage based upon an exclusion in the policy, it is the insurer's burden to demonstrate that the exclusion applies. Hence, an insurer who refuses to defend a claim potentially within the scope of the policy does so at its own peril. Bracciale v. Nationwide Mutual Fire Insurance Company, 1993 U.S. Dist. LEXIS 11606, 1993 WL 323594 (E.D.Pa. 1993) citing Ripepi v. American Insurance Cos., 349 F.2d 300, 303 (3rd Cir. ...


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