(E.D. Pa. 1979). In addition, an "insurer is obliged to defend the entire claim if some of the allegations in the complaint fall within the terms of coverage and others do not." Id.
In determining the extent to which an insurer owes its insured an obligation to defend the law of Pennsylvania is based on two principles. First, the law looks to the four corners of the complaint to define the claim. United Servs. Auto. Ass'n v. Elitzky, 358 Pa. Super. 362, 368, 517 A.2d 982, 985 (1986). Second, the issuer of a liability insurance policy has a duty to defend its insured "when the allegations in the complaint against it could potentially fall within the coverage of the policy." Air Products and Chemicals, Inc. v. Hartford Accident and Indemnity Co., 25 F.3d 177 (3d Cir. 1994) (citing Gedeon v. State Farm Mut. Auto. Ins. Co., 410 Pa. 55, 188 A.2d 320 (Pa. 1963)) (emphasis original). My reconciliation of these two notions is that the claim entitles the insured to a defense if it could reasonably be amended to state a claim under the policy. Safeguard Scientifics, Inc. v. Liberty Mut. Ins. Co., 766 F. Supp. 324 (E.D. Pa. 1991), aff'd in part without op., 961 F.2d 209 (3d Cir. 1992) (table).
In Pennsylvania cases dealing with policy exclusions, courts have consistently denied coverage where the allegations of the underlying complaints clearly fall within policy exclusions. See Gene's Restaurant, Inc. v. Nationwide Ins. Co., 519 Pa. 306, 548 A.2d 246 (1988), where the court found no duty to defend assault and battery claims when the policy excluded intentional torts, and Germantown Ins. Co. v. Martin, 407 Pa. Super. 326, 595 A.2d 1172 (Pa. Super. 1991), alloc. denied, 612 A.2d 985 (Pa. 1992), where the court found no duty to defend when the allegations in the complaint of intentional gunshots clearly fell within the policy's exclusion of "expected or intended" damage.
In these instances, the claims could not be reasonably amended to come within the coverage of the policy. See Wilson v. Maryland Cas. Co., 377 Pa. 588, 594, 105 A.2d 304, 307 (1954). On the other hand, Pennsylvania courts have consistently held that tort actions which are viable whether the alleged wrongdoing is found to be intentional or negligent trigger the duty to defend under insurance policies that exclude coverage for injuries "expected or intended" by the insured. Safeguard, 766 F. Supp. at 329-333 (Slander claim viable as intentional, reckless or negligent defamation, therefore, policy exclusion for knowingly making false statement did not relieve insurer of duty to defend); Gene's Restaurant, 519 Pa. at 309 n.1, 548 A.2d at 247 n.1 (citing Elitzky, 358 Pa. Super. 362, 517 A.2d 982).
The theory articulated in the state court Complaint is that Emerald and its officers breached their fiduciary duties by misappropriating settlement funds. So long as they breached such duties, whether they acted negligently, intentional or both negligently and intentionally in misappropriating settlement funds is immaterial to the relief sought in the Complaint. Thus, the allegations in the Complaint neither establish coverage nor expressly rule it out, and, consequently, Britamco has duty to defend. Air Products, at pp. 4-7. In addition, the fact that the Amended Complaint articulates a claim for negligence and in no way contradicts the Complaint supports the position that the allegations in the Complaint potentially fall within the coverage of the policy. Id.3
Further, inherent in Britamco's argument that the Complaint did not specifically state a claim for negligence and, therefore, the duty to defend is not triggered, is the position that the allegations in a complaint against an insured are determinative of that insured's substantive right to a defense from its insurer. To make pleadings determinative and ignore whether a claim potentially may become one which is within the scope of the policy, would be to turn the issue of coverage over to the vagaries of an opponent's pleadings. See Cadwallader 396 Pa. at 589, 152 A.2d at 488. The overstatement of a claim or the hyperbole of the pleader should not control whether an insured is entitled to a defense. Safeguard, 766 F. Supp. at 330. "This is particularly so because the drafter of the pleading may be unaware of the true underlying facts or the nuances that may affect the defendant's coverage and it might not be in the insured's (or the insurers) interest to reveal them." Fitzpatrick v. American Honda Motor Co., 78 N.Y.2d 61, 66, 571 N.Y.S.2d 672, 674, 575 N.E.2d 90, 92 (1991).
Britamco's alternative argument that the court should examine the summary judgment record and determine whether there is an issue of fact as to whether any of the alleged misappropriation of funds was unintentional is foreclosed by the Third Circuit's recent Air Products decision. In Air Products, the court held that, in a duty to defend action, evidence may be introduced to determine if an exception to an exclusion applies (to show coverage), but evidence may not be introduced to determine that an exclusion applies (to show no coverage). Compare Northern Ins. Co. v. Aardvark Assocs., 942 F.2d 189 (3d Cir. 1991) (insured has burden to prove the allegations fell within the "sudden and accidental" exception to a pollution exclusion) with Air Products, at p. 6 ("when allegations may or may not fall within the exclusion (and therefore the coverage), the insurer is required to defend" citing Safeguard, 766 F. Supp. 324). The section of the Policy that excludes liability for intentional misappropriation is titled an "Exclusion". Pl.Mot.Summ.J. Ex A, P D. Therefore, the court should constrain its examination to the Complaint, which clearly triggers a duty to defend.
In addition, assuming arguendo that this is one of the rare occasions where evidence is admissible to establish coverage, T.A. Title has come forth with affidavits and other materials that establish a genuine issue of fact as to whether at least some portion of the alleged misappropriation was negligent rather than intentional. See Def.Mot.Summ.J., Ex. B. Further, the deposition testimony of Irene Wolfgang, upon which Britamco relies, does not foreclose a finding that the misappropriation of funds was, at least in part, the result of negligence rather than intentional wrongdoing. Irene Wolfgang testified that some of the escrow shortages experienced by Emerald were the result of bad checks received from third parties and her subsequent mismanagement of those situations. Pl.Mot.Summ.J., Ex. G, pp. 17-18. When questioned about the claim of negligence in the Amended Complaint, Irene Wolfgang testified:
I had a question all along what the term negligence really means, but what I would say is that everything done at Emerald Abstract was my decision as far as moving funds, et cetera. I was fully aware of what I did. Was it a hundred percent of the time? I can't answer that because I am sure that there were times that I was negligent . . . .
Id., p. 27. Later in her deposition she repeated this answer in substance when questioned about the possibility of mistakes or carelessness leading to settlement shortages. Id. p. 46. There exists an issue of material fact as to whether the misappropriation of funds was, at least in part, the result of negligence.
Britamco's position that the viable claims in the underlying state court action fall completely within the Policy exclusion for an inability to pay or collect money is without merit. The Policy clearly covers liability for professional negligence. Pl.Mot.Summ.J. Ex A, P A. The exclusion must be read narrowly. Employees Reinsurance Corp, 764 F. Supp. 562, 563. The fact that acts of professional negligence by an insured result in that insured's inability to pay obligations does trigger the inability to pay exclusion of the Policy. The liability in such situations arises from negligence, not an inability to pay money, and is therefore covered under the Policy.
What fraction, if any, of the insureds' liability in the underlying state action stems from negligence cannot be determined on the present record. It follows then, that the extent of Britamco's obligation to indemnify Emerald, if any such obligation exits, cannot be determined on the present record. The court will place this matter in civil suspense pending the outcome of the underlying state court action.
BY THE COURT:
MARVIN KATZ, J.