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. e du/thir dc ir c uit_1996/94UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

________________

Nos. 95-1845 and 95-1864

________________

12TH STREET GYM, INC; ROBERT GUZZARDI
, Appellants at No. 95-1864

v.

GENERAL STAR INDEMNITY COMPANY, Appellant at N o. 95-1845

__________________________________________ _____

On Appeal from the United States District Court for the Eastern District of Pennsylvan ia (D.C. Civil Action No. 94-cv-05757)

___________________

Submitted Pursuant to Third Circuit LAR 34 .1(a) May 2, 1996

Before: SCIRICA, ROTH and GODBOLD*, Circuit Judges

(Filed August 28, l996)

WILLIAM H. BLACK, JR., ESQUIRE Hecker, Brown, Sherry & Johnson 1700 Two Logan Square

18th and Arch Streets Philadelphia, Pennsylvania 19103

Attorney for Appellant/Cross-Appellee, General Star Indemnity Company

H. GRAHAM McDONALD, ESQUIRE

Turner & McDonald 1725 Spruce Street Philadelphia, Pennsylvania 19103

Attorney for Appellees/Cross-Appellants, 12th Street Gym, Inc. and Robert Guzzardi

*The Honorable John C. Godbold, United States Circu it Judge for the Eleventh Judicial Circuit, sitting by designati on.__________________

OPINION OF THE COURT

__________________

SCIRICA, Circuit Judge.

The issue on appeal is whether a liability insurance policy's Sexually Transmitted Disease Exclusion exc ludes coverage for claims arising out of a gym member's expulsion from a gym due to his Acquired Immune Deficiency Syndrome ("AIDS") . Because we believe the Sexually Transmitted Disease Exclusion is ambiguous, we will vacate the district court's judgment that t he exclusion does not bar coverage, and remand for the factfinde r to consider extrinsic evidence on the exclusion's meaning. I. Background The plaintiffs, 12th Street Gym, Inc. ("Gy m") and its co-owner and president, Robert Guzzardi, brought th is action seeking a declaration of their rights under a liabi lity insurance policy issued by the defendant, General Star Indemn ity Company ("General Star"). General Star is an excess and su rplus lines insurer which provides third-party liability insura nce to entities that cannot secure insurance through conve ntional
commercial lines insurers. The Gym and Guzzardi seek indemnification for the settlement of an underlying suit filed against them by Irving Silverman. Silverman was a Gym member who had been diagnosed with AIDS in 1990. Based on events that took place in the Gym's exercise facility in Philadelphia during February a nd March of 1994, Silverman sued the Gym and Guzzardi in the Un ited States District Court for the Eastern District of Pennsylv ania.

A. On February 23, 1994, Silverman approached the Gym management with a suggestion for a special membersh ip option for people diagnosed with AIDS. After submitting his s pecial membership proposal, Silverman was advised by a Gym employee that he would not be allowed to return to the Gym withou t a note from a doctor. Silverman was permitted to enter the Gym when he returned several days later and presented a note fr om his doctor stating he was fit to exercise. After exercising, Silverman nicked his finger on a gym locker. He bandaged his cut with a band-aid given to him by a Gym employee, and then s howered and
dressed in the locker room. According to Silverman, Guzzardi confronte d him in the lobby as he was leaving and demanded to know whethe r he had AIDS. Guzzardi began yelling until Silverman publicly adm itted he had AIDS. After noticing the bandage on Silverman's fi nger, Guzzardi allegedly shouted: "We don't want your kind in her e. You're careless! You could infect everybody!" Guzzardi d emanded Silverman leave the gym and told him not to return. In his complaint Silverman sought damages and declaratory and injunctive relief based on the Gym and Guzzardi'salleged discrimination in violation of the American s with

Disabilities Act ("ADA"), intentional and negligent infliction of emotional distress, invasion of privacy, fraudulent misrepresentation, civil conspiracy, and defamation

. At the time of the incidents alleged in Si lverman's Complaint, the Gym and Guzzardi were named insureds under General Star's policy of general liability insurance, Polic y No. IMA 212509. The policy had general provisions providin g coverage for four different categories of harm: bodily injury, p roperty damage, advertising injury and personal injury. At tached to the policy was an endorsement that contained the follow ing exclusion: 15. Sexually Transmitted Disease Exclusio ns (GSI-52-C200)

This insurance does not apply to "bodily injury," "property damage," "personal injury," "professional liability" or "advertising injury" with respect to any claim, suit or cause of action arising directly or indirectly out of instances, occurrences or allegations involving sexua lly transmitted diseases, including Acquired Immune Deficiency Syndrome (AIDS). This exclusion shall apply regardless of the le gal form any claim may take. As an example, t his insurance shall provide no coverage for a claim alleging that any Insured was neglig ent or in breach of contract by maintaining premises where the Insured knew, or should have known, diseases might be sexually
transmitted. The Gym and Guzzardi filed a claim for def ense and
indemnification of the Silverman suit under General Star's policy. General Star declined to defend or indemni fy the Gym and Guzzardi due, in part, to the Sexually Transmitted Disease Exclusion ("STDE"). On September 20, 1994, while S ilverman's suit was pending, the Gym and Guzzardi instituted t his suit in
the District Court for the Eastern District of Penn sylvania against General Star. In the complaint, the Gym an d Guzzardi sought a declaration that General Star had a duty t o defend against the Silverman suit, a duty to indemnify for any judgment entered against them in the Silverman suit, damages in excess of $50,000, and punitive damages. On December 10, 1994, Silverman died, and his estate was substituted as plaintiff. Subsequently the par ties settled the Silverman suit for $35,000 and other nonmonetar y relief. The settlement agreement provided for a complete releas e of all claims against the Gym, Guzzardi and General Star. General Star agreed to pay the defense costs incurred by the Gym and Guzzardi in litigating the underlying action. General Star also advanced the cost of settlement to the Gym and Guzzardi, but reserved its right to contend it was not obligated to indemnify and therefore was entitled to repayment of the $35,000. The Gym and Guzzardi agreed to drop all counts against General Star exce pt for theclaim that General Star had a duty to indemnify for the

settlement. By order entered January 31, 1995, the district
court dismissed the Silverman suit.

B. The Gym and Guzzardi filed an Amended Comp laint on February 6, 1995, alleging General Star had a duty to indemnify
them for the Silverman suit liabilities. In its An swer to the Amended Complaint, General Star set forth several a ffirmative defenses, including one based on the policy's Sexua lly
Transmitted Disease Exclusion. General Star also c ounterclaimed for a declaration that it had no duty to indemnify, and for judgment in the amount of $35,000 to reimburse it f or the

settlement cost. The parties filed cross-motions for summar y judgment. By order entered June 22, 1995, the district court determined the STDE did not exclude coverage for the remaining cla ims in the
Silverman suit and denied General Star's motion for summary judgment. But the court also held General Star was not obligated to indemnify the Gym and Guzzardi for Silverman's A DA claim. In addition, the court determined that the pre-trial s ettlement of the Silverman suit did not prevent General Star fro m contesting its obligation to indemnify the Gym and Guzzardi fo r the settlement of the Silverman action. Finally, the d istrict court found the facts were insufficiently developed to de termine which counts of the underlying complaint, if any, gave ri se to liability and coverage. 12th Street Gym, Inc. v. G eneral Star Indem. Co., No. 94-5757, slip op. at 2 (E.D. Pa. Ju ne 22, 1995). On September 6, 1995, the parties filed a stipulation in the district court under which General Star agre ed to withdraw all affirmative defenses except for the defense bas ed on the STDE. The district court granted the Gym and Guzza rdi's renewed Motion for Summary Judgment based on this stipulati on and on its previous holding that the STDE did not bar coverage for the Silverman suit. 12th Street Gym, Inc. v. General S tar Indem. Co., No. 94-5757 (E.D. Pa. September 5, 1995). General Star appeals the district court's determination that the STDE does not preclude indemnification for the Silverman suit. The Gym and Guzzardi cross-appeal from the d istrict court's holding that pre-trial settlement and dismi ssal of the underlying suit did not require General Star to ind emnify for the
Silverman settlement.

C. We have jurisdiction over the district cou rt's final order pursuant to 28 U.S.C. § 1291. We exercise pl enary review of the district court's grant of summary judgment. Oritani Savings & Loan Ass'n v. Fidelity & Deposit Co., 989 F.2d 635, 637 (3d Cir. 1993). The parties agree that Pennsylvani a law governs this dispute. The district court's application and interpretation of state law is subject to plenary r eview. Salve Regina College v. Russell, 499 U.S. 225, 231 (1991) ; Grimes v. Vitalink Communications Corp., 17 F.3d 1553, 1557 ( 3d Cir.), cert. denied, 115 S. Ct. 480 (1994). Inquiry into the "legal operation" of an insurance policy is a conclusion o f law and is also subject to plenary review. Dickler v. CIGNA P roperty &Casualty Co., 957 F.2d 1088, 1094 (3d Cir. 1992); s ee also Linder

v. Inhalation Therapy Services, Inc., 834 F.2d 306, 310 (3d Cir. 1987) (citing Cooper Labs. Inc. v. Int'l Surplus Li nes Ins. Co., 802 F.2d 667, 671 (3d Cir. 1986) (holding judicial construction of an insurance policy to account for events not fo reseen by the parties is subject to plenary review)).

II. Discussion A. Duty to Indemnify General Star is not obligated to indemnify the Gym and Guzzardi for claims that fall outside the general s cope of the insurance policy. Accordingly, before we examine t he meaning of the STDE, we must determine whether each of Silverm an's claims is potentially covered under a reasonable interpretati on of the policy. As we have noted, Silverman alleged seven claims in his first amended complaint: (1) discrimination in viol ation of the ADA; (2) intentional infliction of emotional distre ss; (3) negligent infliction of emotional distress; (4) inv asion of privacy; (5) fraudulent misrepresentation; (6) civi l conspiracy; and (7) defamation. The district court determined General Star is not obligated to indemnify the Gym and Guzzardi for the ADA claim, and this holding has not been appealed. 12t h Street Gym, Inc. v. General Star Indem. Co., No. 94-5757, slip op. at 2 (E.D. Pa. June 22, 1995). The insurance policy provides coverage for four categories of harm: bodily injury, property damage, advertising injury, and personal injury. Neither party suggest s that Silverman's remaining claims pertain to "bodily inj ury" or "property damage" as those terms are defined in the policy. Moreover, our review of the policy confirms these c laims do not allege harm that could be considered a part of eith er category. Thus, Silverman's claims are only covered to the ex tent they allege either "advertising injury" or "personal inj ury." The Gym and Guzzardi suggest some or all o f Silverman's claims could be considered "advertising injury." T he policy defines "advertising injury" in part as injury aris ing out of: a. Oral or written publication of materia l that slanders or libels a person or organization or disparages a person's or organization's goods, products or services ;

b. Oral or written publication of materia l that violates a person's right to privacy

. .

. . But there is a limiting definition of "advertising injury." A separate section of the policy states it covers onl y: "[a]dvertising injury" caused by an offens e committed in the course of advertising you r goods, products or services . . . . None of Silverman's claims were for injury caused b y an offense committed in the course of advertising goods, produ cts or services. Since the parties do not contend Silverm an's allegations were in any way related in an advertise ment, theclear terms of the policy preclude characterizing h is claims as

"advertising injury." The remaining category of harm, "personal injury," is defined in the part as: injury, other than "bodily injury," arisin g out of one or more of the following offens es:

. . .

d. Oral or written publication of
material that slanders or libels a person or organization or disparages a person's or organization's goods, products, or services; or

e. Oral or written publication of material that violates a person's rig ht of privacy. (Emphasis added). The body of the policy provides the insurance applies to all: "[p]ersonal injury" caused by an offense arising out of your business, excluding advertising, publishing, broadcasting or telecasting done by or for you . . . .
Slander and libel are both forms of defama tion; slander is defamation by words spoken, and libel is defamat ion by written or printed material. Sobel v. Wingard, 531 A.2d 52 0 (Pa. Super. 1987) (citing Solosko v. Paxton, 119 A.2d 230 (Pa. 1956), and Corabi v. Curtis Publishing Co., 273 A.2d 899 (Pa. 1971)). In Pennsylvania, "a statement is defamatory if it tend s to harm an individual's reputation so as to lower him in the e stimation of the community or deter third persons from associati ng or dealing with him." Kryeski v. Schott Glass Technologies, 6 26 A.2d 595, 600 (Pa. Super. 1993) (quoting Zartman v. Lehigh Co unty Humane Soc., 482 A.2d 266, 268 (Pa. Super. 1984)), appeal denied, 639 A.2d 29 (1994); see also U.S. Healthcare v. Blue Cr oss of Greater Phila., 898 F.2d 914, 923 (3d Cir.) (citing Birl v. Philadelphia Elec. Co., 167 A.2d 472 (Pa. 1960)), cert. denied, 498 U.S. 816 (1990). The court makes the initial determination of whether the statement at issue is capable of defamatory meaning . U.S. Healthcare, 898 F.2d at 923 (citing Corabi, 273 A.2 d at 904).
We think that Silverman's claims for inten tional and negligent infliction of emotional distress, invasio n of privacy, civil conspiracy and defamation all state potential claims for "personal injury." All of these claims arose from Guzzardi's
accusation that Silverman was "careless" and that " his kind" was not wanted at the Gym. These statements tended to harm Silverman's reputation and deter third persons from associating or dealing with him. In addition, Guzzardi's actio ns may have violated Silverman's right to privacy. To the exte nt Silverman's claims allege injuries arising out of t he Gym or Guzzardi's slander or publication of material that violated Silverman's right to privacy, the Gym and Guzzardi may be
entitled to indemnification for the settlement amou nt paid toSilverman's estate.

The district court held the underlying com plaint was "based on Irving Silverman's alleged exclusion from the 12th Street Gym -- not on his purportedly having a sexua lly transmissible disease." 12th Street Gym, Inc. v. G eneral Star Indem. Co., No. 94-5757, slip op. at 1 (E.D. Pa. Ju ne 22, 1995) (citing First Amended Complaint at ¶¶ 8-35). Altho ugh the district court's characterization of the complaint is feasible, it is misleading for the purposes of this case. Th e Gym and Guzzardi are only entitled to indemnification to th e extent Silverman's claims can be considered "personal inju ry." Exclusion from the Gym, without more, cannot reason ably be construed as slander, invasion of a right to privac y, or any other form of "personal injury" as it is defined in the policy. On the other hand, the court was correct t o point out that Silverman's complaint was not based on his "pu rportedly having a sexually transmitted disease." Careful re view of the complaint reveals that Silverman's allegations were based on the allegation that he had AIDS, without reference to t he manner in
which he contracted the disease. Since AIDS can be transmitted in a number of ways, only one of which is sexual, i t is not accurate to say Silverman's complaint was based on his having a "sexually transmitted" disease. Thus while we reje ct the district court's conclusion that the underlying com plaint was based solely on Silverman's exclusion from the Gym, we adopt the
court's alternative determination that "to the exte nt AIDS was implicated, it was not as a sexually transmissible disease." 12th Street Gym, Inc. v. General Star Indem. Co., N o. 94-5757, slip op. at 1-2 (E.D. Pa. September 5, 1995).
We now turn to the STDE to examine the ext ent to which Silverman's claims for "personal injury" may be exc luded from coverage by the STDE.

B. STDE
1. On appeal, General Star argues the STDE un ambiguously precludes coverage for the Silverman claims. As we have noted, the STDE precludes coverage for claims: arising directly or indirectly out of instances, occurrences or allegations involving sexually transmitted diseases, including Acquired Immune Deficiency Syndr ome (AIDS). According to General Star, the district court erred in holding this language is limited to "transmittal of the dis ease." General Star contends the STDE bars coverage for al l claims presented in the Silverman suit because Silverman's disease was so central and integral to the alleged actions of t he Gym and Guzzardi that, but for the disease, Silverman would not have a
claim. Emphasizing the extensive scope of the phr ase "arising directly or indirectly from," General Star claims i t means something broader than normal proximate or substant ial factor causation and suggests that "but for" causation is sufficient to trigger the exclusion. Furthermore, the word "invo lving"evidences the parties' intent to give the exclusion a broad, all

encompassing range. General Star maintains the lan guage of the STDE is comprehensive and applies to all claims "re motely related" to a sexually transmitted disease, regardl ess of nature

or scope. In contrast, the Gym and Guzzardi examine the same provision and conclude the STDE was intended to exc lude only those claims which allege contraction, exposure, or fear of exposure to sexually transmitted diseases. They ar gue the mere existence of a disease that can be sexually transmi tted, particularly one that may not have been contracted through sexual activity, is not sufficient to trigger the exclusio n. Instead, the Gym and Guzzardi contend, the exclusion was onl y intended to prohibit coverage of claims alleging conduct relate d to sexually
transmitted diseases. In support of this argument, the Gym and G uzzardi cite the following language in the STDE: This exclusion shall apply regardless of t he legal form any claim may take. As an example, this insurance shall provide no coverage for a claim alleging that any Insured was negligent or in breach of contract by maintaining premises where the Insured knew, or should have known, diseas es might be sexually transmitted. The Gym and Guzzardi claim this example indicates t he parties' intent to exclude from coverage only claims allegin g the transmission of diseases through sexual activity. Because Silverman's claims were premised only on the existe nce of AIDS, and not transmission or exposure to the disease, th ey maintain
the claims should not be excluded from insurance co verage. In summary, each party examines the langua ge of the STDE and draws opposite conclusions regarding the " clear and unambiguous" language of the provision.

2. Under Pennsylvania law, a court, rather th an a jury, generally interprets the language of an insurance c ontract. Standard Venetian Blind Co. v. American Empire Ins. , Co., 469 A.2d 563, 566 (Pa. 1983) (citing Gonzalez v. United States Steel Corp., 398 A.2d 1378 (Pa. 1979) (holding "the commo n law has long thought it best to leave to the court rather than t o the jury the essentially factual question of what the contractin g parties intended.") (quotations omitted)). The goal of ins urance contract interpretation is to "ascertain the intent of the parties as manifested by the language of the policy ." Visiting Nurse Ass'n v. St. Paul Fire & Marine Ins., 65 F.3d 1097, 1100 (3d Cir. 1995). Where the language of an insurance policy is clear and unambiguous, it must be given its plain a nd ordinary meaning. Id. (citing Pennsylvania Mfr. Ass'n Ins. Co. v. Aetna Casualty & Surety Ins. Co., 233 A.2d 548, 551 (Pa. 1967)). After reviewing the language of the policy , we believe the STDE is ambiguous. Whether an ambiguity exists is a question of law. Kiewit Eastern Co. v. L & R Constr. Co., 4 4 F.3d 1194, 1199 (3d Cir. 1995) (citing Hutchison v. Sunbeam Co al Corp., 519A.2d 385, 390 (Pa. 1986)). Disagreement between th e parties over

the proper interpretation of a contract does not ne cessarily mean that a contract is ambiguous. Vogel v. Berkley, 51 1 A.2d 878, 881 (Pa. Super. 1986). But a contract is ambiguous "if it is reasonably susceptible of different constructions a nd capable of being understood in more than one sense." Steele v . Statesman Ins. Co., 607 A.2D 742, 743 (Pa. 1992). In this case, the STDE is reasonably susce ptible to more than one interpretation. First, it is difficu lt to determine from the contract language alone the part ies' intended meaning of the term "sexually transmitted disease." The term is not defined in the policy. It could reasonably be understood to encompass all diseases that could conceivably be se xually transmitted, or it could be limited to diseases tha t have actually been transmitted through sexual conduct. Moreover, the language of the STDE does no t indicate the intended scope of the exclusion. The STDE coul d reasonably be understood to exclude from coverage all claims a rising indirectly out of allegations involving the existen ce of a sexually transmitted disease. Support for this int erpretation comes from the first sentence of the STDE, which pr ovides in
part, [t]his insurance does not apply to . . . "personal injury" . . . with respect to an y claim . . . arising directly or indirectly out of instances, occurrences or allegatio ns involving sexually transmitted diseases .

. .

. (emphasis added). As we have noted, the definition of "personal injury" includes injury arising out of: oral or written publication of material th at slanders or libels a person's or organization's goods, products, or service s; or . . . oral or written publication of material that violates a person's right to privacy . . . . This definition suggests the mere existence of (and reference to) a sexually transmitted disease in an oral or writte n publication might establish a "personal injury" that is exclude d from

coverage. But at least an equally reasonable interpr etation of the STDE would limit the exclusion to claims allegi ng transmission, or fear of transmission, of disease t hrough sexual conduct. Thus "personal" injury may be limited to allegations of actual sexual conduct in an oral or written publica tion. Moreover, the "mere existence" interpretation of th e STDE would virtually eliminate coverage for an extremely broad set of claims. For example, this interpretation might exc lude coverage for injuries sustained in a fall caused in part by the weakened physical condition of a person with AIDS. The wide range of claims excluded by the "mere existence" interpretat ion tends to undermine its validity. Hence, both the "mere exis tence" and the "conduct or exposure" interpretations have some bas is in the text of the policy.More importantly, the language of the STDE does not

clearly reveal the required nexus between a claim a nd a sexually transmitted disease. General Star argues the STDE applies to all claims which are even "remotely" related to inciden ts, occurrences or allegations involving a sexually tra nsmitted disease. But they also contend the exclusion does not apply if the claim has only an "incidental" or "irrelevant" connection to a sexually transmitted disease. As we have noted, the district court held, "[t]he underlying complaint is based on Irving Silverman's alleged exclusion from the 12th Street Gym -- not on his purportedly having a sexually transmissible dis ease." Alternatively, the district court found "to the ext ent AIDS was implicated, it was not as a sexually transmissible disease." 12th Street Gym, Inc. v. General Star Indemnity Co. , No. 94-5757, slip op. at 1-2 (E.D. Pa. September 5, 1995). Thus the
distinction between a "remote" connection and an "i ncidental" connection to a sexually transmitted disease may be significant
in this case.

3. The Gym and Guzzardi contend the ambiguous language in the STDE should be construed against General Star. See, e.g., Standard Venetian Blind Co., 469 A.2d at 566 (where the language is ambiguous, "the policy provision is to be constr ued in favor of the insured and against the insurer, the drafter of the agreement"). But a court will only construe ambigu ous language against the drafter in the absence of relevant extr insic evidence. Hutchison, 519 A.2d at 390-91 n.5. Unde r Pennsylvania law, a court determines as a matter of law whether there is an ambiguity. If so, the factfinder shall resolve the ambiguity. Id. at 390, 391 n.6; see also Peerless Dyeing Co. v . Industrial Risk Insurers, 573 A.2d 541 (Pa. Super. 1990) ("it is the duty of the court to interpret an unambiguous [insurance po licy] provision while interpretation of ambiguous clauses may properly be left to a jury") (emphasis in original), appeal denied, 592 A.2d 1303 (1991). At this stage, the only available extrinsi c evidence is an affidavit from the president of the company that underwrote the insurance policy. The affidavit was submitted by General Star with its Motion for Summary Judgment and state s "it was the underwriter's intention to exclude from coverage cl aims such as those which are stated in [Silverman's complaint] . . . ." But the affidavit also states "it was not [the underwri ter's] intention . . . to exclude coverage for claims in w hich the involvement of a sexually transmitted disease was i rrelevant or purely incidental to the claim . . . ." In view of this, we do
not believe the available extrinsic evidence here i s sufficient to resolve the ambiguities in the STDE. Accordingl y, we will
remand this matter to the district court. C. Pacific Indemnity Co. v. Linn On the cross-appeal, the Gym and Guzzardi argue the district court erred in denying summary judgment on their claim that the pre-trial settlement and dismissal of the Silverman suit required, as a matter of law, a finding that Genera l Star has a duty to indemnify them for the cost of settling the Silvermansuit. The Gym and Guzzardi argue that, under our h olding in

Pacific Indemnity Co. v. Linn, 766 F.2d 754 (3d Cir . 1985), General Star has a duty to indemnify because the Si lverman suit
was dismissed before Silverman's claims could be co nfined to those outside the scope of policy coverage. The di strict court rejected this argument finding the present case dis tinguishable from Linn and analogous to Cooper Labs., Inc. v. In t'l Surplus Lines Ins. Co., 802 F.2d 667, 674 n.1 (3d Cir. 1986 ), and Safeguard Scientifics, Inc. v. Centercore, Inc., 76 6 F. Supp. 324, 334 (E.D. Pa. 1991), rev'd on other grounds, 9 61 F.2d 209 (3d Cir. 1992) (Table). In Linn, Pacific Indemnity brought a decla ratory judgment action to determine which of several insur ers had a duty to defend and indemnify Dr. Linn in suits against h im to recover for injuries or death suffered by persons who had r ead and followed his diet book. Several of the suits again st Dr. Linn were settled by the insurance companies before suff icient facts were developed to determine the basis for Dr. Linn' s liability. Consequently, it was impossible to determine whethe r the policies provided coverage for the settlement amount. Becau se we could not determine which of the injured bookreaders clai ms would have prevailed, we held "the duty to defend carries with it the conditional obligation to indemnify until it become s clear that there can be no recovery within the insuring clause ." Id. at
766. We observed: [t]o reach the opposite conclusion could conceivably result in an insured never bei ng indemnified in a suit that its insurer
settles where that insurer defends under a reservation of rights. In such a situatio n, it would behoove the insurer to reserve it s rights and to settle the suit to avoid bot h the costs of litigation and, at the same time, the costs of indemnification. Id. at 766. Thus our holding was based, in part, o n the concern
that an insurer would be able to settle a suit with out an agreement with the insured, and attempt to avoid it s duty to indemnify by claiming a jury would have found the c laims in the underlying suit were not covered by the policy. The Gym and Guzzardi argue Linn is analogo us to this
case because the Silverman suit was settled before the claims were confined to those outside of the scope of the policy. But unlike the insured in Linn, the Gym and Guzzardi pa rticipated and acquiesced in the settlement of the underlying case. Because the Gym and Guzzardi were not exposed to the risk t hat influenced the Linn decision, the district court correctly den ied their motion for summary judgment. See Cooper Labs., Inc . v. Int'l Surplus Lines Insurance Co., 802 F.2d at 674 (holdi ng the Linnduty to indemnify rule did not apply to a case settled by t he insured) (applying New Jersey law); Safeguard Scien tifics, Inc. v. Centercore, Inc., 766 F. Supp. at 334 (same).
III. Conclusion
We will vacate the district court's order granting the Gym and Guzzardi's motion for summary judgment. We will remandthe matter to the district court for proceedings co nsistent with

this opinion.

12TH STREET GYM, INC. v. GENERAL STAR INDEMNITY CO. , ET AL Nos. 95-1845/1864

Roth, Circuit Judge: The issue in this appeal is the proper int erpretation of a Sexually Transmitted Disease Exclusion ("STDE" ) included in a liability insurance policy. As I read the broadl y-worded STDE, it unambiguously excludes from coverage all of the claims in Irving Silverman's Complaint for which the insured, 12th Street Gym ("Gym"), could possibly have been indemnified. I therefore believe that the Gym is not entitled to indemnity f or the settlement of any of Silverman's claims. According ly, I dissent. I would reverse the district court's entry of summa ry judgment for the Gym and its co-owner and president, Robert Guzzardi, and enter summary judgment for the insurer, General Sta r Indemnity Company. As the majority has explained, Silverman's complaint is based on an incident that took place in the Gym lob by in 1994. After Silverman finished exercising, he nicked his finger on a gym locker. He bandaged his cut with a band-aid, s howered, and dressed in the locker room. Silverman alleges that as he was leaving the Gym, he was confronted by Guzzardi. In front of other Gym patrons, Guzzardi demanded to know whethe r Silvermanhad AIDS, and Silverman affirmed that he did. Noti cing the

bandage on Silverman's finger, Guzzardi allegedly s houted, "We don't want your kind in here. You're careless! Yo u could infect everybody!" Silverman was thereafter banned from t he Gym.

The majority notes that under the insuranc e policy the Gym would be entitled to indemnity in this case onl y to the
extent that Silverman's claims could be characteriz ed as "personal injury." Thus, the Gym is entitled to in demnity from General Star only to the extent that Silverman suff ered damages as a result of the Gym's slander or the Gym's publi cation of material that violated Silverman's right to privacy . I therefore agree with the majority that one of the district co urt's alternative holdings is flawed.
The district court held that the STDE did not preclude indemnity for Silverman's claims because "[t]he und erlying Complaint is based on Irving Silverman's alleged ex clusion from the 12th Street Gym -- not on his purportedly havin g a sexually transmissible disease." 12th Street Gym, Inc. v. G eneral Star Indem. Co., No. 94-5757 (E.D. Pa. Sept. 5, 1995). If Silverman's
claims were based on his exclusion from the 12th St reet Gym alone, however, those claims would not be covered u nder the insurance policy at all. As the majority demonstra tes, the only potentially relevant coverage is for "personal inju ry," and personal injury, by definition, involves defamation or invasion of privacy, not physical exclusion from the Gym. G iven the relevant insurance coverage, General Star could not possibly be required to indemnify the Gym for claims based only on Silverman's exclusion from the Gym. Because such a claim would not be covered by the insurance policy to begin wit h, we need not consider whether it is excluded from coverage by th e STDE.
It is in our consideration of the district court's alternative holding that the majority and I part wa ys. The district court held that the STDE does not preclude coverage in this case because Silverman's complaint was not bas ed on his "purportedly having a sexually transmitted disease. " The assumption underlying this holding is that the STDE can be read narrowly to exclude from coverage only those claims that allege transmission of a disease through actual sexual con duct, as opposed to excluding from coverage all claims invol ving the genre of diseases known generally as sexually transmitted diseases (no matter how the disease was transmitted in a particu lar instance). I believe that this reading of the STDE is insuppor tably narrow when read against the exclusion's broad language. The majority divides its support for this holding into three separate but closely related arguments. Firs t, the majority makes a textual argument. In essence, the majority argues that the term "sexually transmitted disease" is inherently ambiguous because it is unclear whether it refers g enerally to the genre of diseases that may be sexually transmit ted or only to diseases that were transmitted by sexual conduct in the particular case at hand. Second, the majority argu es that the STDE fails to indicate the intended scope of the ex clusion. Third, the majority argues that the STDE does not r eveal therequired nexus between a claim and a sexually trans mitted

disease. I will address these arguments in turn. Before specifically addressing the majorit y's arguments, however, I believe that the broad langua ge of the STDE bears repeating in its entirety: This insurance does not apply to "bodily i njury," "property damage," "personal injury," "pro fessional liability" or "advertising injury" with re spect to any claim, suit or cause of action arising dir ectly or indirectly out of instances, occurrences o r allegations involving sexually transmitted diseases, i ncluding Acquired Immune Deficiency Syndrome (AIDS) . This exclusion shall apply regardless of the le gal form any claim may take. As an example, this insur ance shall provide no coverage for a claim alleging t hat any Insured was negligent or in breach of cont ract by maintaining premises where the Insured kne w, or should have known diseases might be sexually tran smitted. App. at 166a. Thus this extremely broad exclusion precludes indemnification for any claim for "personal injury, " even if the injury arose only indirectly from an occurrence or allegation involving sexually transmitted diseases, such as AI DS. The majority relies heavily on a narrowly- focused textual argument in order to avoid the broad sweep of the STDE. According to the majority, this case may not "invol ve" a sexually
transmitted disease at all because: [c]areful review of the complaint reveals that Silverman's allegations were based on the allegation that he had AIDS, without reference to the manner in
which he contracted the disease. Since AI DS can be transmitted in a number of ways, only one of which is sexual, it is not accurate to say Silverma n's complaint was based on his having a "sexually transm itted" disease. Thus . . . we adopt the [distric t] court's
alternative determination that "to the ext ent AIDS was implicated, it was not as a sexually trans missible
disease." Slip op. at [Typescript at 13] (quoting district court opinion). The majority reemphasizes this argument later by stating that the term "sexually transmitted disease " could be understood to "encompass all diseases that could co nceivably be sexually transmitted, or it could be limited to dis eases that have actually been transmitted through sexual condu ct." Id. at [Typescript at 16]. The majority's reading of the term "sexual ly transmitted disease" is unconvincing, given the common usage of that term. Words of common usage in an insurance p olicy must be construed in their natural, plain and ordinary sens e, Slate Construction Co. v. Bituminous Casualty Corp., 228 Pa. Super. 1, 323 A.2d 141, 145 (1974) (citing Blue Anchor Overal l Co. v. Pennsylvania Lumbermens Mutual Ins. Co., 385 Pa. 39 4, 123 A.2d 413 (1956)), and we should not torture the plain me aning of a writing merely to find an ambiguity. Monti v. Rock wood Ins. Co., 303 Pa. Super. 473, 450 A.2d 24 (1982); see Techall oy Co., Inc.v. Reliance Ins. Co., 338 Pa. Super. 1, 487 A.2d 82 0 (1984).

In common usage, the term "sexually transm itted disease" refers to a genre of communicable diseases , no matter how they are actually transmitted in an individual case (e.g., AIDS is a "sexually transmitted disease," even thou gh it may be transmitted through blood transfusions or the use o f contaminated hypodermic needles). Nothing in the context of the STDE indicates that the designation "sexually transmitte d disease" should be read to require the occurrence of actual sexual
transmission or sexual conduct in each individual c ase. An interpretation of the term "sexually tr ansmitted disease" as referring to a genre of diseases as opp osed to a singular mode of transmission in an individual case is reinforced by the inclusion of an example of such sexually tra nsmitted
diseases at the end of the relevant sentence in the STDE: "involving sexually transmitted diseases, including Acquired Immune Deficiency Syndrome (AIDS)" (emphasis added) . In other words, the STDE excludes from coverage any claim ar ising out of instances or allegations involving the genre of dis eases known as sexually transmitted diseases, which includes the d isease known

as AIDS. Contrary to the majority's emphasis on act ual sexual conduct, the STDE uses sweeping language to exclude from coverage a broad swath of claims "arising directly or indire ctly out of instances, occurrences or allegations involving sex ually
transmitted diseases . . .." There is no reference to conduct or sexual conduct anywhere in the STDE. The majority' s reading of the term "sexually transmitted disease" to emphasiz e transmission by sexual conduct is strained on its face, given th e accepted meaning of that term. In the context of the entire STDE, the majority's reading is untenable. The majority also argues that the scope of the STDE is unclear. According to the majority it would be rea sonable to limit the STDE "to claims alleging transmission, or fear of transmission, of disease through sexual conduct. T hus 'personal' injury may be limited to allegations of actual sexu al conduct in an oral or written publication." Slip op. at [T ypescript at 17] (emphasis added). This argument merely restate s in the "personal injury" context the majority's unfounded emphasis on sexual conduct. There is no express mention whatso ever in the STDE of "conduct" or "sexual conduct" in any contex t. A straightforward comparison of the STDE a nd the claim in this case is instructive on this point. The STD E excludes claims for personal injury (i.e., defamation or def amation leading to invasion of privacy) "arising directly o r indirectly out of instances, occurrences or allegations involv ing sexually transmitted diseases, including Acquired Immune Def iciency Syndrome (AIDS)." In this case, Silverman nicked h is finger on a gym locker and was wearing a band-aid when he was c onfronted by Guzzardi. Guzzardi allegedly exclaimed that Silver man was careless and "could infect everybody." Based upon Guzzardi's outburst, Silverman alleges a number of causes of a ction that could be characterized as personal injury under the policy. Silverman's claims for personal injury arise direct ly fromGuzzardi's allegation that Silverman might transmit AIDS in the

Gym. Under any reasonable interpretation of the word "involving," Guzzardi's allegation involves a sexua lly transmitted disease and fear of its possible transm ission. Silverman's claim arises directly from Guzzardi's u tterance, which makes explicit reference to Silverman's AIDS and the possibility that he could infect others. Under the majority's interpretation, Guzzardi's exclamation would appare ntly have to
include some additional reference to sexual conduct . Given the broad language of the STDE, I find that such a narr ow reading of its coverage is implausible. Finally, the majority argues that the lang uage of the
STDE "does not reveal a clear nexus between a claim and a sexually transmitted disease." Slip op. at [Typ escript at 18]. The majority is troubled by the STDE's purpor ted failure to define an appropriate nexus because "the distinctio n between a
'remote' connection and an 'incidental' connection to a sexually transmitted disease may be significant in this case ." I disagree. The broadly-worded STDE excludes persona l injury from coverage even if the injury arose only "indirectly" from an occurrence or allegation "involving" sexually trans mitted diseases, such as AIDS. In this case, the entire s um and substance of Guzzardi's allegedly injurious remarks involved AIDS, Silverman's status as an individuals with AID S, and the potential that Silverman could infect others in the Gym with AIDS. We could, perhaps, imagine a claim on the ma rgin of coverage where the alleged ambiguity surrounding th e word "involving" might come into play. Nevertheless, if the exclusion applies to "personal injury" at all (which it clear ly does), this
case is in the heartland of those cases that the ST DE excludes from coverage. In the course of its opinion, the majority acknowledges that its interpretation of the STDE is motivated to some extent by a reluctance to carry the STDE to its logical ex tension. The majority correctly states that the STDE might poten tially eliminate coverage "for an extremely broad set of c laims." Slip op. at [Typescript at 18]. There is no reason t o assume, however, that the parties did not appreciate the fu ll import of their agreement when they signed it. In fact, it i s highly unlikely that General Star and the Gym agreed to th e STDE without considering just the sort of claim presented in thi s case. Before the parties agreed to the STDE, a number of courts had awarded damages and/or non-monetary relief to HIV-p ositive or AIDS-infected individuals who were illegally exclud ed from public accommodations or employment. Some of these cases awarded damages for associated emotional pain and mental an guish. The issue presented in this case was of ob vious importance to both parties. The Gym estimates that approximately sixty percent of its members, both male and female, are gay, and that "of the gay population, approximately ten to t welve percent (10-12%) of the membership were either HIV positive or had AIDS in March of 1994." Appellees' Brief at 11. Given the existing case law on the topic and the importance of the iss ue for the Gymand for General Star, I see no reason to suppose th at the parties

did not consider the implications of the broad lang uage employed in the STDE. We should feel no compunction about h olding the Gym to the bargain that it struck. The majority's identification of an ambigu ity in the STDE relies heavily on a tortured construction of t he term "sexually transmitted disease" to require actual se xual conduct. This narrow interpretation of a key term ignores th e normal usage of the words as well as the context in which they a re used in the STDE. The underlying claims that give rise to the Gym's only valid claim for indemnification hinge on remarks pe rmeated with references to Silverman's AIDS. Therefore, I would reverse the district court's decision in favor of the Gym, and I would remand this case to the district court for entry of judgme nt in favor of

General Star.