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Regis Insurance Co. v. All American Rathskeller

May 28, 2009


Appeal from the Judgment entered April 9, 2007, Court of Common Pleas, Centre County, Civil Division at No. 2004-4369.

The opinion of the court was delivered by: Donohue, J.


¶ 1 Appellant Regis Insurance Company ("Regis") filed this declaratory judgment action to resolve a dispute over the extent of its coverage obligations to Appellee All-American Rathskeller*fn1 ("Rathskeller") under a Special Multi-Peril Policy. The trial court granted summary judgment to Rathskeller. In this appeal, Regis contends that the trial court erred in doing so and should instead have granted summary judgment in its favor or allow the declaratory judgment action to proceed to trial. After careful review, we reverse the entry of summary judgment in favor of Rathskeller and remand with instructions to enter summary judgment in favor of Regis.

¶ 2 Rathskeller owns a tavern (the "Rathskeller") located in State College, Pennsylvania. On October 23, 2003, Salvadore Peter Serrano ("Serrano"), Brooke E. Morgan ("Morgan"), Timothy Padalino ("Padalino"), and Alison Bresnehan ("Bresnehan") were walking on the street immediately adjacent to the Rathskeller's parking lot. Padalino stopped to urinate in the parking lot and was soon confronted by employees of the Rathskeller. An altercation ensued between the group of Serrano, Morgan, Padalino and Bresnehan and Rathskeller's employees. During the incident, Rathskeller's employees restrained Serrano by kneeling on his back until the police could arrive on the scene. When the police arrived, Serrano was dead.

¶ 3 Jiminez and Morgan filed suit in the United States District Court for the Middle District of Pennsylvania against Rathskeller and its employees; the owner of the parking lot adjacent to Rathskellers; another tavern and its employees; and the Borough of State College Police Department ("Underlying Lawsuit"). The complaint in the Underlying Lawsuit alleged alternative theories of liability against the various defendants including negligence. Two counts in the complaint against Rathskeller sounded solely in negligence.*fn2

¶ 4 At the time of the incident, Rathskeller was insured by Regis under a Special Multi-Peril Policy, which contained an exclusion from coverage for acts of assault and battery (form "RAB-3").*fn3 When the Underlying Lawsuit was filed against its insured, Regis recognized its interim duty to defend and hired independent defense counsel for Rathskeller in the Underlying Lawsuit, subject to a reservation of rights letter. Regis then filed this declaratory judgment action, in which it contends that it has no duty to defend*fn4 or indemnify Rathskeller because the conduct at issue falls within the assault and battery exclusion of the insurance policy.

¶ 5 After the close of pleadings, Regis filed motions for judgment on the pleadings and for summary judgment. In its written opinion and order dated March 15, 2006, the trial court found that: "Clearly the language of the Exclusion excludes coverage for the very allegations averred in the underlying Complaint. Therefore, Plaintiff would not be required to indemnify or defend Defendant Rathskeller in the federal suit." Trial Court Opinion, 3/15/06, ("Original Opinion") at 10. The trial court nevertheless denied the motions because material issues of fact remained with regard to whether Rathskeller was aware of the assault and battery exclusion in its policy. After obtaining evidence to prove that Rathskeller was aware of the exclusion in its policy, Regis filed a renewed motion for summary judgment. The trial court also denied this renewed motion, however, finding that the available evidence still did not resolve the issue of whether the assault and battery exclusion constituted a change in Rathskeller's coverage and, if so, whether the insurance agent who sold the policy adequately explained the change to Rathskeller.

¶ 6 Rathskeller subsequently filed its own motion for summary judgment, which the trial court granted based upon its interpretation of this Court's decision in QBE Ins. Corp. v. M&S Landis Corp., 915 A.2d 1222 (Pa. Super. 2007), appeal denied, 956 A.2d 436 (Pa. 2008). The trial court focused on the following language from the QBE opinion:

[T]he QBE Court explained that "in light of the allegations of negligence in the underlying complaint which seeks relief only for negligence, the assault and battery exclusion does not apply." 915 A.2d 1229. As a result, the Court stated as follows: "We find that QBE has an obligation to defend [Fat Daddy's] in the underlying action, with its obligation to indemnify [Fat Daddy's] depending on the facts developed at the trial in that action." Id. at 1229-30.

¶ 7 Relying on these excerpts from QBE, the trial court found that Regis has a duty to indemnify Rathskeller since (1) the pleadings in the underlying civil action sound in negligence, and (2) because the underlying civil action has settled,*fn5 "no facts will ever be developed" at a trial that might support Regis' contention that the facts giving rise to the underlying civil action fall within the ambit of an "assault and battery exclusion" in the Rathskeller policy. Trial Court Opinion, 4/9/07, at 4.

¶ 8 On appeal, Regis maintains that the trial court erred in granting summary judgment in favor of Rathskeller. Regis argues that the trial court misapplied QBE in this case because QBE addresses only an insurer's duty to defend and not an insurer's duty to indemnify.*fn6 We agree with Regis that the trial court's reliance upon QBE in granting summary judgment to Rathskeller on the issue of Regis' duty to indemnify was error. In QBE, we found that the insurer had a duty to defend because the pleadings in the underlying action sounded solely in negligence rather than in intentional conduct amounting to assault and battery. QBE, 915 A.2d at 1229. The issue in QBE was the insurer's duty to defend. The dispositive issue in this case, in significant contrast, is Regis' duty to indemnify Rathskeller for the amount of a settlement in the underlying civil action. As this Court has repeatedly acknowledged, the duties to defend and indemnify are separate and distinct: "Unlike the duty to defend, the duty to indemnify cannot be determined merely on the basis of whether the factual allegations of the complaint potentially state a claim against the insured." American States Ins. Co. v. State Auto Ins. Co., 721 A.2d 56, 63 (Pa. Super. 1998); see also Britamco Underwriters, Inc. v. Stokes, 881 F. Supp. 196, 198 (E.D. Pa. 2005) ("The duty to defend arises whenever claims asserted by the injured party potentially come within the coverage of the policy, while the duty to indemnify arises only when the insured is determined to be liable for damages within the coverage of the policy.").

¶ 9 The trial court's interpretation of the previously quoted dicta in QBE would result in a blanket rule holding that where there is no trial in the underlying civil action because of a settlement, the insurer's declaratory judgment rights are terminated and there is an automatic duty to indemnify -- even if the facts would clearly provide to the contrary in a trial in the declaratory judgment action. No such blanket rule exists in Pennsylvania. In fact, such a rule is contrary to the purpose of filing a declaratory judgment action to determine coverage issues.*fn7 Regis' declaratory judgment action was filed for the purpose of determining, inter alia, whether Regis has an indemnity obligation to Rathskeller. As a matter of law and to the extent necessary, Regis was entitled to an opportunity to introduce evidence proving the applicability of the subject exclusion.*fn8

¶ 10 To the extent that genuine issues of material facts remained unresolved, the fact that the Underlying Lawsuit settled did not, as the trial court found, make it "impossible for Regis to prove now, or in the future, that its assault and battery policy exclusion applies to deny [Rathskeller] coverage in this case." Trial Court Opinion, 4/9/07, at 16. Although the settlement would prevent development of the facts in a trial of the Underlying Lawsuit, the facts pertinent to the duty to indemnify could be determined at a trial in the declaratory judgment action. When an action under the Declaratory Judgment Act involves the determination of an issue of fact, that issue may be tried and determined in the same manner that issues of fact are determined in other civil proceedings in the court in which the action is pending. 42 Pa.C.S.A. § 7539. Regis argues, however, that a trial on the declaratory judgment action is not warranted in this case because it is entitled to summary judgment. We agree.

¶ 11 Prior to granting summary judgment in favor of Rathskeller, the trial court twice denied motions for summary judgment filed by Regis. On appeal, Regis now contends that the trial court's second denial, of Regis' "Renewed Motion for Summary Judgment",*fn9 was error because it was entitled to summary judgment based upon the evidence presented to the trial court at that time. In support of this position, Regis argues (1) the allegations in the Underlying Lawsuit all fall within the policy's assault and battery exclusion and, if proven, Regis would have no duty to indemnify Rathskeller for any liability resulting from the claims, and (2) the trial court mistakenly applied the "reasonable expectations" doctrine and thus incorrectly imposed an obligation on Regis to prove that Rathskeller had notice of and understood the assault and battery exclusion. We will address these two issues in turn.

ΒΆ 12 With respect to the first issue, at the close of the pleadings Regis filed its first dispositive motion, entitled a "Motion for Judgment on the Pleadings/Motion for Summary Judgment." Although the trial court denied this motion for other reasons (the "reasonable expectations" doctrine, discussed hereinbelow), it agreed with Regis that the allegations in the Underlying Lawsuit all fell within the scope of the assault and battery exclusion in the Regis policy. In its Original ...

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