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
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.
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).
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, ...