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May 17, 1999


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



This is a declaratory judgment action between two insurance companies who supply truckers' liability insurance. Plaintiff, Diamond State Insurance Co. ("Diamond"), seeks a declaration as to its duty to provide a defense and primary coverage to certain insureds of defendant Ranger Insurance Co. ("Ranger") in an underlying wrongful death action. Diamond, as assignee of certain of its insureds' claims, also asserts a bad faith claim against Ranger. In response, Ranger has counterclaimed against Diamond also requesting declaratory relief, and contending that it did not act in bad faith. Before the Court are Diamond's and Ranger's cross-motions for summary judgment as to the priority of coverage, and Ranger's motion for partial summary judgment on the bad faith claim.

The Court concludes that Ranger, and not Diamond, is responsible for providing primary coverage and defense of certain of Ranger's insureds, and that Diamond is responsible for providing excess coverage. The Court also finds that, under the circumstances of this case, Ranger did not act in bad faith.


The following facts are undisputed. Diamond and Ranger are insurance companies that sell truckers' liability insurance. In 1993, Diamond issued a truckers' liability insurance policy to Kenneth Schuck Trucking, Inc. ("Schuck") with a policy limit of $1 million. The policy ran from June 15, 1993 to June 15, 1994. Also in 1993, Ranger issued a truckers' liability insurance policy to Aetna Freight Lines, Inc. ("Aetna") with a policy limit of $1 million. The policy ran from July 1, 1993 to July 1, 1994.

In 1993, Joe Gavalis, Sr. d/b/a Gavalis Trucking ("Gavalis Trucking") owned a 1985 Freightliner tractor and a Great Dane trailer ("truck"), which was operated by Joe Gavalis, Jr. ("Driver"). On March 15, 1993, Gavalis Trucking, as the lessor, leased the truck to Schuck, as the lessee, pursuant to a Transportation Agreement ("Long Term Lease"). The Long Term Lease had a term of one year, and was terminable by either party upon thirty days' notice. The Long Term Lease provided that Gavalis Trucking could sublease the truck to other motor carriers on behalf of Schuck, and that Schuck would be considered the owner of the truck for subleasing purposes.

On July 14, 1993, pursuant to the Long Term Lease with Schuck, the Driver for Gavalis Trucking completed a delivery from Gary, Indiana to Akron, Ohio. Thereafter, Schuck informed the Driver that there was no return load for the Driver at that time. The Driver then entered into a single trip sublease ("Trip Lease") with Aetna to transport a load of steel pipes from Girard, Ohio to Easton, Pennsylvania. According to federal regulations of the Interstate Commerce Commission ("I.C.C."), Aetna, as the sublessee, was required to provide placards to the Driver identifying Aetna as the motor carrier for whom the Driver was operating. However, Aetna never issued the requisite placards to the Driver. Nevertheless, and in accordance with the Trip Lease, the Driver traveled to Girard, Ohio where he picked up the load of steel pipes.

The following day, on July 15, 1993, and pursuant to the Trip Lease, while the Driver drove the truck through Schuylkill County, Pennsylvania on his way to the destination at Easton, Pennsylvania, the load of steel pipes fell from the truck into an automobile driven by Phyllis Adams ("Adams"), killing Adams. At the time of the accident, the truck did not display the requisite placards identifying Aetna as the responsible motor carrier. Rather, the truck displayed the identification placards previously issued by Schuck.

In 1995, the administrator of Adams' estate brought a wrongful death action in the Court of Common Pleas, Schuylkill County against six defendants, including the Driver, Gavalis Trucking, Schuck, and Aetna.*fn1 Diamond provided a defense for the Driver, Gavalis Trucking, and Schuck, while Ranger provided a defense for Aetna. In February, 1998, the wrongful death action settled for a total of $2.1 million, with $1.1 million attributed to the Driver, Gavalis Trucking, Schuck, and Aetna. To fund the settlement, Diamond and Ranger entered into a Letter Agreement, whereby Diamond agreed to pay $600,000.00 and Ranger agreed to pay $500,000.00. Both parties reserved their rights to determine whether Diamond and/or Ranger had a duty to provide a defense and primary coverage to the insureds. Diamond now demands that Ranger assume sole financial responsibility for providing a defense and primary coverage to the Driver and Schuck. In response, Ranger offered to share equally in the defense and coverage costs for the Driver and Schuck, an offer that Diamond has rejected. Consequently, Ranger filed a counterclaim demanding that Diamond fund the entire settlement amount, and that Diamond and Ranger share the defense costs for the Driver, Schuck, and Aetna.

There are, therefore, four principal issues in this case: (1) are the Driver, Schuck, and Aetna insureds under the Diamond's and/or Ranger's insurance policies? (2) Is the Diamond policy primary or excess coverage? Correspondingly, is the Ranger policy primary or excess coverage? (3) Does the primary insurer, whether Diamond or Ranger, have a duty to provide a defense and indemnification to its insureds? (4) Did Ranger act in bad faith in denying full payment on its insureds' claim?


A. Summary Judgment.

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. See 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. See 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).

  B. Review of Insurance Contracts Under Pennsylvania and Ohio

Under Pennsylvania law, it is the province of the court to interpret contracts of insurance. See 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 (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 (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. See 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. See American States Ins. Co. v. State Auto Ins. Co., 721 A.2d 56, 59 (Pa.Super. 1998) (citing 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. See id. at 760; Humphrey's v. Niagara Fire Ins. Co., 404 Pa. Super. 347, 590 A.2d 1267, 1271 (1991), appeal denied, 528 Pa. 637, 598 A.2d 994 (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. See Cadwallader v. New Amsterdam Cas. Co., 396 Pa. 582, 152 A.2d 484, 488 (1959); Biborosch v. Transamerica Ins. Co., 412 Pa. Super. 505, 603 A.2d 1050, 1052 (1992), appeal denied, 532 Pa. 653, 615 A.2d 1310 (1992). 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. See Britamco Underwriters, Inc. v. Grzeskiewicz, 433 Pa. Super. 55, 639 A.2d 1208, 1210 (1994).

On the other hand, the duty to defend is a distinct obligation separate from an insurer's duty to indemnify. See Erie Ins. Exchange v. Transamerica Ins. Co., 516 Pa. 574, 533 A.2d 1363, 1368 (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. See Erie Ins. Exchange, 533 A.2d at 1366-67.


A. Who Is An Insured Under Diamond's and Ranger's Policies?

To determine which party owes a duty to defend and to provide primary coverage, the Court must ascertain who is an insured under the parties' respective policies, the scope of the coverage as to each insured, and whether the factual allegations within the underlying complaint potentially fall within that scope. In its analysis, the Court observes that significant parts of the insurance policies issued by Diamond and Ranger are identical, particularly the Truckers' Coverage Form. The Truckers' Coverage Form defines an insured as follows:




The following are "insureds":

a. You for any covered "auto".

  b. Anyone else while using with your permission a
    covered "auto" you own, hire or borrow. . . .
  c. The owner or anyone else from whom you hire or
    borrow a covered "auto" that is a "trailer" while
    the "trailer" is connected to another covered
    "auto" that is a power unit, or if not connected:
    (1) Is being used exclusively in your business as a
        "trucker"; and
    (2) Is being used pursuant to operating rights
        granted to you by a public authority.
  d. The owner or anyone else from whom you hire or
    borrow a covered "auto" that is not a "trailer"
    while the covered "auto":
    (1) Is being used exclusively in your business as a
        "trucker"; and
    (2) Is being used pursuant to operating rights
        granted to you by ...

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