The opinion of the court was delivered by: WEINER
In this action we are called upon to interpret an insurance policy that purports to grant coverage for "discrimination which is not deemed unlawful". Plaintiff Glen Lincoln, Inc., trading as Sheraton Great Valley Hotel (Sheraton) brought this declaratory judgment suit against Zurich Insurance Company seeking indemnity and defense costs from an underlying discrimination lawsuit, pursuant to a Zurich Comprehensive General Liability Policy. Presently before the court are the parties' cross motions for summary judgment. As we find that the ordinary meaning of the language used in the policy endorsement applies to the loss, and the construction of the exclusion urged by Zurich would render coverage under the endorsement a nullity, we will grant Sheraton's motion and deny Zurich's.
The facts undergirding the cross motions are not in dispute. At all time material hereto, there existed in full force and effect a Comprehensive General Liability policy issued by Zurich to Sheraton, which contained a manuscript endorsement providing:
It is hereby understood and agreed that the definition of a personal injury is amended to include discrimination which is not deemed unlawful under state or federal law which is committed by or at the direction of the named insured or any additional named insured.
During the policy period, an employee of Sheraton filed a complaint with the Pennsylvania Human Relations Commission, as well as a complaint in this court, alleging he was terminated from employment because he was HIV positive. While Zurich has paid the cost of defense in the district court action, it has refused to pay the cost of defense in the PHRC proceeding, as well as indemnify Sheraton for the amount paid to the former employee to settle the district court action.
The settlement agreement provided for payment to the former employee of $ 155,000. It specifically provided that
The Agreement shall in no way be construed as an admission by The Defendant Parties . . . that they acted wrongfully with respect to Plaintiff or that Plaintiff has any claim against the Defendant Parties and additional Releasees. The Defendant Parties and additional Releasees specifically disclaim any liability to or wrongful conduct against Plaintiff.
Thus, there has never been an admission of wrongful conduct on the part of Sheraton.
Zurich argues it has no duty to indemnify Sheraton, insisting that the manuscript endorsement, when properly construed, was only intended to provide coverage for the cost of defense of discrimination suits, but not indemnity if the discrimination is deemed illegal. It avers this type of coverage is consistent with Pennsylvania law that an insurer's duty to defend and duty to indemnify are not the same, see e.g. Harford Mutual Insurance Company v. Moorhead, 396 Pa. Super. 234, 578 A.2d 492 (Pa.Super. 1990).
While Zurich is correct that the scope of the two duties is not identical, the conclusion it reaches suffers two defects. First, its factual premise that there was an admission of unlawful discrimination is wrong - there was no deeming or admitting of unlawfulness by Sheraton when it settled the underlying discrimination claim. Second, its legal premise assumes that the policy language at issue may be properly construed to provide only for a defense. We do not believe that it may. Applying the well settled rules of policy construction, we have serious conceptual difficulties with the assertion that a broad endorsement of coverage may be given a construction whereby indemnity is always an impossibility.
The reasonable expectations of the insured are the focal point in reading the contract language. Collister v. Nationwide Life Insurance Company, 479 Pa. 579, 388 A.2d 1346, 1353 (Pa. 1978). Where the language of the contract is clear and unambiguous, a court is required to give effect to that language. Standard Venetian Blind v. American Empire Insurance Company, 503 Pa. 300, 469 A.2d 563, 566 (Pa. 1983). The language should be given its ordinary meaning, unless it is clear that some other meaning was intended by the parties. Winters v. Erie Insurance Group, 367 Pa. Super. 253, 532 A.2d 885 (Pa. 1987). The rule of construction in favor of the insured is most stridently applied when considering the meaning of exclusions. Pacific Indemnity Company v. Linn, 766 F.2d 754 (3d Cir. 1985); Sears, Roebuck and Company v. Reliance Insurance Company, 654 F.2d 494, 499 (7th Cir. 1981).
The situation faced by the court in Sears is highly instructive. Sears sought indemnity for underlying suits which alleged that fabric used in girls slacks was defective. The manufacturer of the fabric had a comprehensive liability policy that provided coverage to Sears. However, it contained an exclusion for bodily injury arising out of "products which after distribution . . . have been labeled or relabeled or used as . . . a part or ingredient of any other thing". The insurer argued that the exclusion should be read to exclude coverage of injuries regardless of whether there was any connection between the injury and the relabeling. Sears had bought the fabric to manufacture clothing sold under its store label.
The court determined that