The opinion of the court was delivered by: James Knoll Gardner, United States District Judge
This matter is before the court on cross-motions for summary judgment: Strausser Enterprises, Inc. and Gary J. Strausser's Motion for Summary Judgment filed November 11, 2009; and Plaintiff Regent Insurance Company's Motion for Summary Judgment filed November 12, 2009. *fn1
Each motion for summary judgment was accompanied by a brief and attached exhibits. *fn2
The Defendants, Gary J. Strausser and Strausser Enterprises, Inc.'s Response to Plaintiff Regent Insurance Company's Motion for Summary Judgment ("Defendants' Response") was filed on November 18, 2009. *fn3 Plaintiff Regent Insurance Company's Response to Defendant's Motion for Summary Judgment ("Plaintiff's Response") was filed November 20, 2009.
The Defendants, Gary J. Strausser and Strausser Enterprises, Inc.'s, Reply in Support of Their Motion for Summary Judgment ("Defendants' Reply Brief") was filed on December 17, 2009. On April 12, 2012 The Defendants' Supplemental Memorandum in Support of Their Summary Judgment Motion to Discuss a Recently Decided Case was filed ("Defendants' Supplemental Brief").
For the reasons expressed below, I grant in part, and deny in part, defendants' motion for summary judgment. I also grant in part, deny in part, and dismiss in part, plaintiff's motion for summary judgment.
Specifically, I conclude that Coverage B of the Comprehensive Insurance Policy issued by plaintiff Regent Insurance Company to Strausser Enterprises, Inc. covers the claim for malicious prosecution in the underlying action captioned as Segal v. Strausser Enterprises, Inc., No. 07-4647, in the United States District Court for the Eastern District of Pennsylvania. More specifically, I conclude that the policy exclusion "Knowing Violation of Rights of Another", as applied to a malicious prosecution claim, is ambiguous and therefore does not apply.
Accordingly, plaintiff as defendants' insurer, is required to defend and indemnify defendants for compensatory damages in the malicious prosecution claim against defendants in the underlying action. However, plaintiff is not required to indemnify defendants for any damages which may be awarded against defendants for any other claims asserted in the underlying action, or for any punitive damages which may be awarded on any claim against defendants in the underlying action.
This action is properly before the court on diversity jurisdiction. Plaintiff Regent Insurance Company is a Wisconsin corporation with its principal place of business in Sun Prairie, Wisconsin. Defendant Strausser Enterprises, Inc. is a Pennsylvania corporation with its principal place of business is in Easton, Pennsylvania. Defendant Gary Strausser is a Pennsylvania citizen who resides in Easton, Pennsylvania. The amount in controversy is in excess of $75,000. See 28 U.S.C. § 1332. *fn4
Venue is proper because plaintiff alleges that a substantial portion of the events giving rise to this claim occurred in Northampton County, Pennsylvania, which is in this judicial district. 28 U.S.C. §§ 118 and 1391.
PROCEDURAL HISTORY Plaintiff's Complaint and Defendants' Counterclaim
On July 29, 2009 plaintiff Regent Insurance ("Regent") filed an eight-Count Complaint for Declaratory Judgment seeking an Order declaring that it does not have a duty to defend or indemnify defendant Strausser Enterprises, Inc. ("SEI") or defendant Gary Strausser (collectively "the Strausser defendants") for claims brought in the underlying action of Segal v. Strausser Enterprises, Inc., No. 07-4647, in the United States District Court for the Eastern District of Pennsylvania ("Segal Action"). Regent seeks declaratory judgment on Comprehensive Insurance Policy, number CCI 0446717 ("Policy").
On October 22, 2009 the Strausser defendants filed their Answer to the Complaint, together with affirmative defenses and a Counterclaim seeking a declaration that Regent has a duty to defend and indemnify them in the Segal Action. *fn5
On October 7, 2010 plaintiff filed an Amended Declaratory Judgment Complaint which established that this court had subject matter jurisdiction, but did not change the substance of plaintiff's allegations. *fn6
Regent's Amended Declaratory Judgment Complaint contained eight
counts seeking declaratory judgment based upon two coverage provisions
and numerous exclusions contained in the Policy. *fn7
Plaintiff initially sought summary judgment on all
Counts, I through VIII, arguing that neither Coverage A nor Coverage B
in the Policy applied to the Segal Action; and, alternatively, that if
either Coverage A or Coverage B did apply, then several policy
exclusions under each Coverage applied to bar coverage.
The Strausser defendants also sought summary judgment with respect to their Counterclaim regarding Regent's duty to defend and indemnify. The Strausser defendants argued that Coverage B applied to the malicious prosecution claim in the Segal Action, and that none of the four Coverage B exclusions asserted by plaintiff applied to bar coverage. *fn8
Despite the wide-ranging pleadings and supporting briefs, the parties conceded at oral argument on June 17, 2010 that the only contested issue is whether the Knowing Violation of Rights of Another ("Knowing Violation") Policy exclusion bars the malicious prosecution claim in the Segal Action from coverage under Coverage B. *fn9
On November 5, 2007 plaintiffs Kenneth Segal, The Karen and Kenneth Segal Descendants Trust ("Trust"), and Segal and Morel, Inc. ("S&M") (collectively "the Segal plaintiffs") initiated the civil action underlying the within case. The Segal Action is captioned as Segal v. Strausser Enterprises Inc., and was assigned to me as case number 07-cv-04647.
The Segal Action arose from purchase agreements whereby S&M contracted to purchase several parcels of land from defendant SEI. *fn10 The Segal Complaint alleges that S&M assigned all rights and obligations arising under the purchase agreements and subsequent amendments to several limited liability companies (the "S&M LLCs") of which Kenneth Segal and the Trust are the only members. Then, on December 21, 2005, Kenneth Segal and the Trust (collectively the "Segal sellers") contracted to sell their interests in the S&M LLCs to K. Hovnanian Pennsylvania Acquisitions, LLC ("Hovnanian Acquisitions"), by way of a sales agreement that took several months to negotiate and finalize ("the Hovnanian Agreement"). *fn11
The Segal Complaint alleges that the Segal sellers attempted to meet with the Strausser defendants to discuss the sale of memberships in the S&M LLCs to Hovnanian Acquisitions, but that, in an attempt to interfere with the Hovnanian Agreement and to gain leverage by which to exact monetary concessions from the Segal sellers, defendant Gary Strausser and other SEI representatives refused to meet with the Segal sellers. *fn12
The Segal Complaint further alleges that two days prior to closing on the Hovnanian Agreement, SEI, through its attorney, Leonard Mellon, filed a lawsuit in the Court of Common Pleas of
Northampton County, Pennsylvania ("Northampton County Action") to stop the transfer of the properties based on a right of first refusal, as well as a notice of entry of lis pendens against the property. *fn13
As a result of the lis pendens, the Segal Plaintiffs allege that Hovnanian Acquisitions refused to proceed with the closing. They aver that the Strausser defendants refused to withdraw the lis pendens, and that Hovnanian Acquisitions terminated the Hovnanian Agreement because the Segal sellers were unable to provide good title to the properties. *fn14
The Segal Complaint alleges that the filing of the Northampton County Action was frivolous and in bad faith because:
(1) the Strausser defendants and attorney Mellon knew that the purchase agreements had binding arbitration clauses and very limited rights of first refusal, and that the Hovnanian Agreement did not trigger those rights of refusal; and (2) the Strausser defendants lacked the financial ability to exercise the rights of first refusal, even if properly triggered. *fn15
The Strausser defendants advised Regent, their insurer, of their involvement as defendants in the Segal Action and claimed that they were entitled to coverage for the claims asserted in the Segal Complaint. Regent provided a defense for the Strausser defendants' in the ongoing Segal Action subject to a reservation of rights. *fn16 In an attempt to exercise its reserved rights, Regent now seeks a declaration ...