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SPHERE DRAKE v. 101 VARIETY
January 29, 1999
SPHERE DRAKE, P.L.C., PLAINTIFF,
101 VARIETY, INC., ET AL., DEFENDANTS.
The opinion of the court was delivered by: Eduardo C. Robreno, District Judge.
Plaintiff, Sphere Drake, P.L.C. ("Drake"), filed the instant
declaratory judgment action against defendants 101 Variety, Inc.,
Papa Doc's Lounge, Inc. t/a Papa Doc's Lounge, and Randolf
Hopson, individually and t/a Papa Doc's Lounge (collectively the
"Named Insureds"). Plaintiff also named as defendants 52-Rose,
Inc. t/a Stu's Bar & Lounge, Carol Hawkins, individually and t/a
Stu's Bar & Lounge (collectively the "Stu's defendants"), the
City of Philadelphia, Lonnie Hamilton ("Hamilton"), individually
and as a police officer for the Philadelphia Police Department,
Benjamin Frazier ("Frazier"), individually and as a police
officer for the Philadelphia Police Department, and Shirley Clark
("Clark"), in her own right and as Administratrix of the estate
of Douglas McCuff ("McCuff"), deceased. Plaintiff seeks
declaratory relief regarding its duty to defend and indemnify the
Named Insureds in a state court lawsuit filed by Clark and
McCuff.*fn1 The Court notes that because the Named Insureds
subsequently assigned all of their rights, claims, and causes of
action, including the right to defend declaratory judgment
actions, to Clark and the estate of McCuff, for the purposes of
this action, Clark and McCuff stand in the shoes of the Named
Insureds. Therefore, for ease of reference, Clark and McCuff, as
assignees of the Named Insureds, hereinafter are collectively
referred to as the "Insureds" or "defendants."
Before the Court is defendants' motion to dismiss plaintiff's
declaratory judgment complaint pursuant to Fed.R.Civ.P. 12(b)(6),
or, in the alternative, motion for summary judgment pursuant to
Fed.R.Civ.P. 56(c). In response, plaintiff has filed a
cross-motion for judgment on the pleadings pursuant to Fed.
R.Civ.P. 12(c). For the reasons stated below, the Court will
grant defendants' motion for summary judgment,*fn2 and will deny
plaintiff's cross-motion for judgment on the pleadings.
On March 14, 1994, Shirley Clark and Douglas McCuff filed a
civil action in the Philadelphia Court of Common Pleas against
the Named Insureds, the Stu's defendants, the City of
Philadelphia, Hamilton, individually and as a police officer for
the Philadelphia Police Department, and Frazier, individually and
as a police officer for the Philadelphia Police Department. Clark
and McCuff sought compensation for the March 20, 1992 shooting
that occurred in Papa Doc's Lounge and resulted in physical
injury to both Clark and McCuff.
In the underlying state court complaint, Clark and McCuff
alleged that on the night of March 20, 1992, Hamilton, an
off-duty police officer, drank to the point of visible
intoxication at Stu's Bar & Lounge ("Stu's").
Hamilton allegedly left Stu's and arrived at Papa Doc's Lounge
("Papa Doc's"), where employees continued to serve alcoholic
beverages to an already intoxicated Hamilton. Thereafter, Clark
and McCuff arrived at Papa Doc's and sat at the rear of the
lounge. While inside Papa Doc's, Hamilton got into a physical
altercation with another patron, and during such altercation,
Hamilton discharged his firearm, shooting the other patron. Clark
and McCuff, along with Papa Doc's employees and other patrons,
ran into the kitchen and attempted to exit through a rear door,
but were unsuccessful because the door was locked with a padlock.
In the meantime, a call was made to the police, and Frazier was
among the officers who responded. Frazier entered Papa Doc's and
fired five (5) shots, two (2) of which struck Hamilton, and the
remaining three (3) bullets flew toward the rear of the lounge.
Simultaneously, Clark and McCuff, thinking the situation was
under control, exited the kitchen and were returning to the bar
when one of the stray bullets shot by Frazier hit McCuff in the
abdomen, exited his body, and then hit Clark in the stomach. As a
result of the shooting, Clark was hospitalized for eight (8)
days, and McCuff for six (6) days.
Based on the above allegations, Clark and McCuff brought an
action in the state court asserting: (1) federal civil rights
claim against Hamilton, Frazier, and the City of Philadelphia;
(2) assault and battery against Hamilton and Frazier; (3)
infliction of emotional distress against the Stu's defendants,
the Named Insureds, Hamilton, and Frazier; (4) negligence, gross
negligence, and negligence per se against the Stu's defendants
and the Named Insureds; (5) premises liability against the Named
Insureds; and (6) punitive damages against the Stu's defendants,
the Named Insureds, Hamilton, and Frazier.
At the time of the shooting on March 20, 1992, the Named
Insureds were listed as the named insureds in a commercial
general liability insurance policy (the "Policy") issued by
Drake. The Policy contained a limit of liability of $100,000.00
and had effective dates from June 6, 1991 to June 6, 1992. On
March 14, 1994, the Named Insureds were served with the complaint
filed by Clark and McCuff in the state court. On March 22, 1994,
the Named Insureds notified Drake of the claims and sought
coverage and a defense under the Policy. See Defs.' Mot. for
Summ.J., at Ex. A. On April 5, 1994, Drake declined to provide a
defense, contending that the assault and battery exclusion, as
well as the liquor liability exclusion, precluded coverage for
Clark's and McCuff's claims. See Defs.' Mot. for Summ.J., at
On February 6, 1998, the Named Insureds advised Drake that the
state court non-jury trial was to begin on March 6, 1998 before
the Honorable Amanda Cooperman. See Defs.' Mot. for Summ.J., at
Ex. E. Drake did not provide the Named Insureds a defense nor did
it otherwise appear at trial. On March 4, 1998, two (2) days
before trial, Drake filed the instant declaratory judgment
complaint, but did not seek a stay of the state court action. On
April 15, 1998, Judge Cooperman entered findings of fact,
conclusions of law, and judgment in favor of Clark, in her own
right, and as Administratrix of the estate of McCuff, and against
the Named Insureds.*fn3 See Defs.' Mot. for Summ.J., at Ex. G.
Specifically, Judge Cooperman found that the shooting of Clark
and McCuff was an accident, and not the result of an assault and
battery. Judge Cooperman concluded that the Named Insureds'
negligence in padlocking the emergency exit was the proximate
cause of the injuries to Clark and McCuff because it prevented
them from fleeing the dangerous situation inside the bar. On May
13, 1998, the Named Insureds assigned all of their rights,
claims, and causes of action, including the right to defend
declaratory judgment actions, to Clark and the estate of McCuff.
See Defs.' Mot. for Summ. J., at Ex. I. Therefore, for purposes
of this action, Clark and McCuff stand in the shoes of the Named
Insureds. To restate, for ease of reference, the individuals and
named as insureds under the Policy are referred to as the "Named
Insureds." On the other hand, Clark and McCuff, as assignees of
the Named Insureds, are referred to in this memorandum as the
"Insureds" or "defendants."
Drake's instant declaratory judgment complaint asserts three
(3) Policy exclusions that preclude coverage of Clark's and
McCuff's claims: (1) the liquor liability exclusion; (2) the
assault and battery/negligent hiring exclusion; and (3) the
punitive damages exclusion endorsement. Neither the liquor
liability exclusion nor the punitive damages exclusion is
implicated at this time since Clark and McCuff did not rely for
their claims in the state court on the Named Insureds' conduct in
serving liquor to Hamilton after Hamilton had been visibly
intoxicated, and no punitive damages were awarded by the state
court. The sole issue, therefore, is the applicability of the
assault and battery exclusion.
The Insureds have moved for summary judgment, asserting that:
(1) Drake's declaratory judgment action is untimely and the Court
should refuse to exercise jurisdiction; (2) Drake failed to
attach the entire Policy to its complaint, which allegedly is a
fatal defect; and (3) Clark's and McCuff's claims are not
precluded by the assault and battery exclusion because the state
court judge specifically found that the shooting was an accident,
and not an assault and battery.*fn4 Therefore, according to the
Insureds, Drake has a duty to defend and indemnify the Named
Insureds against the claims of Clark and McCuff. In answer to the
Insureds' motion, Drake filed a cross-motion for judgment on the
pleadings, reasserting its position that the assault and battery
exclusion is clear, unambiguous, and precludes coverage of
Clark's and McCuff's claims, and, therefore, Drake has no duty to
defend and indemnify.
A. Summary Judgment Pursuant to Fed.R.Civ.P. 56(c).
Summary judgment is appropriate if the moving party can "show
that there is no genuine issue as to any material fact and the
moving party is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(c). When ruling on a motion for summary judgment,
the Court must view the evidence in the light most favorable to
the non-movant. Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
The Court must accept the non-movant's version of the facts as
true, and resolve conflicts in the non-movant's favor. Big Apple
BMW, Inc. v. BMW of North America, Inc., 974 F.2d 1358, 1363 (3d
Cir. 1992), cert. denied, 507 U.S. 912, 113 S.Ct. 1262, 122
L.Ed.2d 659 (1993).
The moving party bears the initial burden of demonstrating the
absence of genuine issues of material fact. See Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265
(1986). Once the movant has done so, however, the non-moving
party cannot rest on its pleadings. See Fed.R.Civ.P. 56(e).
Rather, the non-movant must then "make a showing sufficient to
establish the existence of every element essential to his case,
based on the affidavits or by depositions and admissions on
file." Harter v. GAF Corp., 967 F.2d 846, 852 (3d Cir. 1992);
see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255,
106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).*fn5
B. Review of Insurance Contracts Under Pennsylvania Law.*fn6
Under Pennsylvania law, it is the province of the Court to
interpret contracts of insurance. Niagara Fire Ins. Co. v.
Pepicelli, Pepicelli, Watts and Youngs, P.C., 821 F.2d 216, 219
(3d Cir. 1987). The primary consideration in interpreting an
insurance contract is "to ascertain the intent of the parties as
manifested by the language of the written instrument." Standard
Venetian Blind Co. v. American Empire Ins. Co., 503 Pa. 300,
469 A.2d 563, 566 (Pa. 1983). In doing so, "an insurance policy must
be read as a whole [by the court] and construed according to the
plain meaning of its terms." C.H. Heist Caribe Corp. v. American
Home Assurance Co., 640 F.2d 479, 481 (3d Cir. 1981); see also
Koval v. Liberty Mut. Ins. Co., 366 Pa. Super. 415, 531 A.2d 487,
489 (Pa.Super. 1987) ("[The court] must construe a contract of
insurance as a whole and not in discrete units."). Where a
provision of a contract of insurance is ambiguous, the provision
must be construed in favor of the insured, and against the
insurer, the drafter of the contract. Standard Venetian Blind
Co., 469 A.2d at 566. However, "a court should read policy
provisions to avoid ambiguities, if possible, and not torture the
language to create them." St. Paul Fire & Marine Ins. Co. v.
United States Fire Ins. Co., 655 F.2d 521, 524 (3d Cir. 1981).
An insurer's duty to defend an insured arises "whenever the
complaint filed by the injured party may potentially come within
the policy's coverage." Pacific Indem. Co. v. Linn,
766 F.2d 754, 760 (3d Cir. 1985). The duty to defend is triggered even if
the complaint asserting claims against the insured is
"groundless, false, or fraudulent." Gedeon v. State Farm Mut.
Auto. Ins. Co., 410 Pa. 55, 188 A.2d 320, 321 (1963). In
determining whether the complaint asserts a claim against the
insured to which the policy potentially applies, the factual
allegations of the complaint are controlling. Id. at 760;
Humphreys v. Niagara Fire Ins. Co., 404 Pa. Super. 347,
590 A.2d 1267, 1271 (1991), appeal denied, 528 Pa. 637, 598 A.2d 994
(Pa. 1991). If the factual allegations of the complaint, taken as
true and construed liberally, state a claim to which the policy
potentially applies, the insurer must defend, unless and until it
can narrow the claim to a recovery that the policy does not
cover. Cadwallader v. New Amsterdam Cas. Co., 396 Pa. 582,
152 A.2d 484, 488 (Pa. 1959); Biborosch v. Transamerica Ins. Co.,
412 Pa. Super. 505, 603 A.2d 1050, 1052 (Pa.Super. 1992), appeal
denied, 532 Pa. 653, 615 A.2d 1310 (Pa. 1992). Where a claim may
potentially come within the scope of the policy, an insurer's
refusal to defend its insured is a decision it makes at its own
peril. Cadwallader, 152 A.2d at 488. However, the insurer is
not required to defend the claim "when it is apparent from the
face of the complaint that none of the injuries that are alleged
falls within the coverage of the policy." Britamco Underwriters,
Inc. v. O'Hagan, No. 94-1160, 1994 WL 477551, at *3 (E.D.Pa.
Sep.2, 1994), aff'd, 60 F.3d 814 (3d Cir. 1995). To determine
whether a claim may potentially come within the coverage of a
policy, the Court must ascertain the scope of the insurance
coverage, and then analyze the allegations in the complaint.
Britamco Underwriters, Inc. v. Grzeskiewicz, 433 Pa. Super. 55,
639 A.2d 1208, 1210 (Pa.Super. 1994).
The duty to defend is a distinct obligation separate from an
insurer's duty to indemnify. Erie Ins. Exchange v. Transamerica
Ins. Co., 516 Pa. 574, 533 A.2d 1363, 1368 (Pa. 1987). The duty
to indemnify is more limited than an insurer's duty to defend,
and "arises only when the insured is determined to be liable for
damages within the coverage of the policy." Britamco
Underwriters, Inc. v. Logue's Tavern, Inc., No. 95-2997, 1995 WL
710570, at *2 (E.D.Pa. Dec.1, 1995). The burden is on the insured
to establish coverage under an insurance policy. Erie Ins.
Exchange, 533 A.2d at 1366-67. The insurer has the burden of
showing that policy exclusions preclude coverage. American
States Ins. Co. v. Maryland Cas. Co., 427 Pa. Super. 170,
628 A.2d 880, 887 (Pa.Super. 1993); Miller v. Boston Ins. Co.,
420 Pa. 566, 218 A.2d 275, 277
(Pa. 1966). Exclusions are strictly construed against the
insurer. Selko v. Home Ins. Co., 139 F.3d 146, 152 n. 3 (3d
Cir. 1998). However, "[e]xclusions from coverage contained in an
insurance policy will be effective against an insured if they are
clearly worded and conspicuously displayed, irrespective of
whether the insured read the limitations or understood their
import." Pacific Indem. Co., 766 F.2d at 761. Thus, if there is
no possibility that any of the underlying claims could fall
within the coverage of the policy, then the insurer has no duty
to defend and indemnify. Germantown Ins. Co. v. Martin,
407 Pa. Super. 326, 595 A.2d 1172 (Pa.Super. 1991), appeal denied,
531 Pa. 646, 612 A.2d 985 (Pa. 1992).
In assessing whether Drake has a duty to defend, the Court must
first ascertain the scope of the coverage, and then assess
whether the factual allegations asserted within the ...