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?
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).
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
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). When there are cross-motions, each motion
must be considered separately, and each side must still establish
a lack of genuine issues of material fact and that it is entitled
to judgment as a matter of law. See Rains v. Cascade Indus.,
Inc., 402 F.2d 241, 245 (3d Cir. 1968); see also Sterling v.
Southeastern Pennsylvania Transp. Auth., 926 F. Supp. 65, 68
(E.D.Pa. 1996) (citing United States v. Hall, 730 F. Supp. 646,
648 (M.D.Pa. 1990)); Wright, Miller & Kane, Federal Practice and
Procedure: Civil 3d § 2720.
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,
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:
SECTION II LIABILITY COVERAGE
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
(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
(2) Is being used pursuant to operating rights
granted to you by ...