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SPHERE DRAKE v. 101 VARIETY

January 29, 1999

SPHERE DRAKE, P.L.C., PLAINTIFF,
v.
101 VARIETY, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Eduardo C. Robreno, District Judge.

    MEMORANDUM

I. INTRODUCTION

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.

II. BACKGROUND

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.

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 Ex. B.

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 entities 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.

III. LEGAL STANDARDS

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).

IV. ANALYSIS

A. Duty to Defend.

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 ...


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