August 2, 1994.
Pending before the Court are the cross motions of the parties for summary judgment. The facts are not in dispute. The parties agree the complaint sets forth all relevant information necessary to resolve the dispute, and there are no genuine issues of fact. There being no disputed facts, this case is ready for a decision based on the sole legal question presented: Does an insurance policy's coverage for claims of "malicious prosecution" include claims under Pennsylvania's Dragonetti Act, 42 Pa.C.S.A. Section 8351 for Wrongful Use of Civil Proceedings?
For the reasons infra, the Court holds that malicious prosecution does include claims under Section 8351 for purposes of the insurance coverage because this statutory provision has replaced the common law cause of action for malicious prosecution. Moreover, any ambiguity in the policy language as to the scope of the coverage should be construed against the insurance company which drafted the policy.
Northwestern National Casualty Company ("Northwestern"), a Wisconsin corporation, issued an insurance policy to Century III Chevrolet, Francis Auffenberg, Sr., Francis Auffenberg, Jr., and John Auffenberg (collectively, "the insureds"). The policy was valid from July 8, 1991 through July 8, 1992, and provides, among other things, that Northwestern has a duty to defend and/or indemnify the insureds against a claim for "malicious prosecution."
On October 30, 1991, Gerald N. Spear, Dorothy Spear, Shirley Spear, Shelley Spear Jones, the Estate of Gerald L. Spear, and Donald Spear (collectively, "the Spears"), brought suit in Allegheny County Court of Common Pleas against the insureds, specifically pursuant to 42 Pa.C.S.A. Section 8351, Wrongful Use of Civil Proceedings. Northwestern retained counsel and tendered a defense on behalf of the insureds pursuant to a reservation of rights under the terms and conditions of the insurance policy. Northwestern brought this action, addressed to this Court's diversity jurisdiction, seeking an order declaring that Northwestern does not have a duty to defend and/or indemnify the insureds against the Spears' lawsuit.
CHOICE OF LAW
In diversity cases, the District Court is bound to follow the substantive law of the state in which the Court sits. Erie R.R. v. Tompkins 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938); Melville v. Am. Home Assurance Co., 584 F.2d 1306, 1308 (3d Cir. 1978). The policy was issued in Pennsylvania, Century III conducted business here, and the Auffenbergs did business here. No other state has any contact with the events giving rise to this action. The parties agree that Pennsylvania law applies. Therefore the Court will apply Pennsylvania law.
Northwestern asserts that the common law cause of action for "malicious prosecution" is distinct from and exclusive of the cause of action for "Wrongful Use of Civil Proceedings" under Section 8351 because the elements of the two causes of action are different and because courts have treated the two as distinct causes of action. The insureds assert that "malicious prosecution" can only refer to the statutory cause of action because the Dragonetti Act, 42 Pa.C.S.A. Section 8351, replaced the common law "malicious prosecution" cause of action with the statutory cause of action for "Wrongful Use of Civil Proceedings," and because recent cases have freely interchanged the two terms. The insureds further assert that, in Pennsylvania, any ambiguity in an insurance policy must be interpreted against the insurance company which drafted the policy.
I. Wrongful Use of Civil Proceedings
The Dragonetti Act provides, in relevant part: