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April 27, 2001


The opinion of the court was delivered by: Robert F. Kelly, District Judge.


Presently before this Court is the Motion for Summary Judgment filed by the Defendants, Tyson Associates and Jerald Mirrow ("Tyson" and "Mirrow", or collectively "Defendants") and the Cross Motion for Summary Judgment filed by the Plaintiff, CGU Insurance ("CGU"). These Motions concern CGU's duty to defend the Defendants in both federal and state actions arising from the same factual scenario. For the following reasons, the Defendants' Motion for Summary Judgment is granted in part and denied in part and CGU's Cross Motion for Summary Judgment is denied.


Plaza Furs, Inc. ("Plaza Furs") and Peter Vakkas ("Vakkas"), the principal owner of Plaza Furs, entered into a lease with Tyson on April 15, 1994 for retail space in which to sell furs. Mirrow controls Tyson.*fn1 As part of the lease arrangement, Tyson perfected a security interest in Plaza Furs' fur inventory. In February, 1997, a dispute arose between the parties over Plaza Furs' alleged failure to pay rent under the lease. While Vakkas was on vacation, and the leased premises was closed, Mirrow sent Vakkas a letter indicating Tyson's intent to enter the premises and seize inventory, pursuant to the terms of the April, 1994 lease and security agreement. Because Vakkas was on vacation, he did not receive the letter. On August 14, 1997, Mirrow, accompanied by others, entered into the leased premises and removed approximately $200,000 to $500,000 worth of furs from the property.

After Vakkas discovered that Mirrow had removed the inventory, he filed an action against Tyson captioned Plaza Furs Inc. v. Tyson Assoc., Court of Common Pleas, Philadelphia County, No. 33197, August Term 1997, seeking the return of the furs and amounts for other damages. Much of the seized inventory had allegedly been on consignment from Grecophilia, a fur dealer from New York, who also filed a suit against Tyson captioned Grecophilia/The New York Fur Place, Inc., et al. v. Tyson Assoc., Court of Common Pleas, Philadelphia County, No. 3589, January Term 1998, (collectively, the "State Court Actions"). The two State Court Actions were eventually joined together.

On September 18, 1998, Vakkas and Plaza Furs also filed a case captioned Vakkas v. Tyson Assoc., No. 98-4981, 2000 WL 325916 (E.D.Pa., Mar.28, 2000) (the "Underlying Action") against, inter alia, Tyson and Mirrow in this Court alleging violation of 42 U.S.C. § 1983 and various state law violations similar to those raised in the State Court Action. CGU provided a defense in the Underlying Action, under a written reservation of rights, pursuant to a commercial general liability insurance policy ("CGL Policy") issued by CGU's predecessor to Mirrow. Tyson and Mirrow then filed Motions for Summary Judgment with this Court. On March 28, 2000, this Court granted Tyson's and Mirrow's Motions for Summary Judgment regarding the 42 U.S.C. § 1983 claim and dismissed Plaintiffs' state law claims without prejudice for lack of jurisdiction. On June 27, 2000, the Court of Common Pleas found in favor of Tyson and against the consolidated plaintiffs in the State Court Actions.

On May 14, 1999, while the Underlying Action was pending, CGU commenced this action seeking declaratory relief that it was not obligated under the CGL Policy to defend Mirrow in the Underlying Action. On October 26, 1999, the Defendants filed their Answer and Counterclaim alleging that CGU had a duty to continue defending Mirrow in the Underlying Action. The Defendants further alleged that CGU also had a duty to defend Tyson in the State Court Actions and was responsible for the expenses incurred by Tyson in defending itself in those actions. On December 14, 2000, the Defendants filed the current Motion for Summary Judgment on CGU's Complaint and on their Counterclaim. On December 29, 2000, CGU filed the present Cross Motion for Summary Judgment on its Complaint and on the Defendants' Counterclaim.


A. Summary Judgment

Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper "if 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). The moving party has the initial burden of informing the court of the basis for the motion and identifying those portions of the record that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). An issue is genuine only if there is a sufficient evidentiary basis on which a reasonable jury could find for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual dispute is material only if it might affect the outcome of the suit under governing law. Id. at 248, 106 S.Ct. 2505.

To defeat summary judgment, the non-moving party cannot rest on the pleadings, but rather that party must go beyond the pleadings and present "specific facts showing that there is a genuine issue for trial." FED.R.CIV.P. 56(e). Further, the non-moving party has the burden of producing evidence to establish prima facie each element of its claim. Celotex, 477 U.S. at 322-23, 106 S.Ct. 2548. If the court, in viewing all reasonable inferences in favor of the non-moving party, determines that there is no genuine issue of material fact, then summary judgment is proper. Id. at 322, 106 S.Ct. 2548; Wisniewski v. Johns-Manville Corp., 812 F.2d 81, 83 (3d Cir. 1987).

B. Duty to Defend

Under Pennsylvania law, the Court has the responsibility of interpreting insurance contracts. Niagara Fire Ins. Co. v. Pepicelli, Pepicelli, Watts and Youngs, P.C., 821 F.2d 216, 219 (3d Cir. 1987); Sphere Drake, P.L.C. v. 101 Variety, Inc., 35 F. Supp.2d 421, 427 (E.D.Pa. 1999). Furthermore, ambiguous insurance contract provisions must be construed in favor of the insured, and against the drafter of the contract, the insurer. Sphere Drake, 35 F. Supp.2d at 427; Standard Venetian Blind Co. v. Am. Empire Ins. Co., 503 Pa. 300, 469 A.2d 563, 566 (1983). However, "`a court should read policy provisions to avoid ambiguities, if possible, and not torture the language to create them.'" Id. (quoting St. Paul Fire & Marine Ins. Co. v. U.S. Fire Ins. Co., 655 F.2d 521, 524 (3d Cir. 1981)).

The insurer has a duty to defend its insured in an action if the factual allegations of the complaint state a claim which could potentially fall within the coverage of the policy. Roman Mosaic & Tile Co. v. Aetna Cas. & Sur. Co., 704 A.2d 665, 669 (Pa.Super. 1997) (citing Biborosch v. Transamerica Ins. Co., 412 Pa. Super. 505, 603 A.2d 1050, 1052 (1992)). The insurer has a duty to defend even if the complaint is "groundless, false, or fraudulent." Sphere Drake, ...

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