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JERRY DAVIS, INC. v. MARYLAND INS. CO.

March 18, 1999

JERRY DAVIS, INC., PLAINTIFF,
v.
MARYLAND INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Katz, Senior District Judge.

MEMORANDUM & ORDER

Plaintiff Jerry Davis, Inc. (JDI) seeks a declaration that its insurer, Maryland Insurance Company (Maryland), is required under its "Commercial General Liability" policy to indemnify it in a lawsuit against it in state court. Before the court is Maryland's motion to dismiss and plaintiff's response thereto.

Factual Background*fn1

JDI contracted with Nunzio Terra and Nufab Corporation, doing business as Gothum, The New City (referred to collectively as "Gothum"), to perform the electrical wiring work at a nightclub Gothum was building. JDI did the work and arranged for a bonding company to inspect it. The bonding company inspected and approved the work. Gothum opened its nightclub, only to be shut down five months later after an inspection by the City of Philadelphia's Department of Licenses and Inspections revealed a series of violations stemming from JDI's electrical work. Gothum was forced to remain closed for six months while a new contractor did extensive electrical work. Based on the financial hardship caused by the closing and additional work, the owners were forced to sell a percentage of their interest in the nightclub, resulting in further financial losses. See Compl.Ex. B ¶¶ 3-9.

Gothum filed suit against JDI and the bonding company in state court. The complaint contains counts purporting to state claims in negligence, breach of contract, fraudulent misrepresentation, breach of implied warranties, and breach of express warranties.*fn2 Upon notification of the suit, Maryland informed JDI that it had no duty to defend or indemnify JDI in the case. See Compl.Ex. C at 1. Among other reasons, Maryland explained, "The allegations as contained in the Complaint do not fall within the meaning of occurrence insured contract or property damage which are defined in your policy." Id. at 6. JDI filed this suit, seeking a declaration that Maryland is required to indemnify it in the Gothum suit.

Legal Standards

For the purposes of a 12(b)(6) motion to dismiss a complaint, this court must accept as true all the allegations of fact in plaintiff's complaint, must construe the complaint in the light most favorable to plaintiff, and must determine whether, under any reasonable reading of the pleadings, plaintiff may be entitled to relief. See Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996).

The court's first step is to determine the scope of the policy's coverage. The terms of the policy must be compared to the nature of the allegations in the complaint to determine whether, if the allegations are sustained, the insurer would be obligated to bear the expense of the judgment. See Snyder Heating Co., Inc. v. Pennsylvania Mfrs. Assoc. Ins. Co., 715 A.2d 483, 484 (Pa.Super. 1998). In determining whether the claims made by Gothum against JDI in the underlying lawsuit fall within the policy and thus trigger Maryland's duty to defend and indemnify, the court should look solely to the allegations of the complaint in the underlying action. See, e.g., Pacific Indem. Co. v. Linn, 766 F.2d 754, 760 (3d Cir. 1985) ("The obligation to defend is determined solely by the allegations of the complaint in the action."); Snyder Heating, 715 A.2d at 484 ("The nature of the claim, rather than the actual details of any injuries suffered by the insured, determines whether the insurer is required to defend."); Scopel v. Donegal Mut. Ins. Co., 698 A.2d 602, 605 (Pa.Super. 1997) ("[T]he nature of the allegations contained in a complaint control.").

The court in Britamco Underwriters, Inc. v. Stokes, 881 F. Supp. 196 (E.D.Pa. 1995) summed up the relevant determination:

  If there is a possibility that any of the underlying
  claims could be covered by the policy at issue, the
  insurer is obliged to provide a defense at least
  until such time as those facts are determined, and
  the claim is narrowed to one patently outside of
  coverage. On the other hand, if there is no
  possibility that any of the underlying claims could
  be covered by the policy at issue, judgment in the
  insurer's favor with regard to the duty to defend and
  indemnification is appropriate.

Id. at 198.*fn3

Analysis

JDI argues that Maryland has a duty to indemnify based on the following policy language:

  We will pay those sums that the insured becomes
  legally obligated to pay as damages because of
  "bodily injury" or "property damage" to which this
  insurance applies. We will have the right and duty to
  defend any "suit" seeking those damages. . . . This
  insurance applies to "bodily injury" and "property
  damage" only if . ...

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