1996 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

8-28-1996

12th Street Gym Inc v. Gen Star Indemnity

Precedential or Non-Precedential:

Docket 95-1845,95-1864

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Recommended Citation

"12th Street Gym Inc v. Gen Star Indemnity" (1996). 1996 Decisions. Paper 94.

http://digitalcommons.law.villanova.edu/thirdcircuit_1996/94
 UNITED 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 No. 95-1845 

 _______________________________________________ 

 On Appeal from the United States District Court 

 for the Eastern District of Pennsylvania 

 (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 Circuit Judge for 

the Eleventh Judicial Circuit, sitting by designation. 
 __________________ 

 OPINION OF THE COURT 

 __________________ 

SCIRICA, Circuit Judge. 

 The issue on appeal is whether a liability insurance 

policy's Sexually Transmitted Disease Exclusion excludes 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 the exclusion 

does not bar coverage, and remand for the factfinder to consider 

extrinsic evidence on the exclusion's meaning. 

 I. Background 

 The plaintiffs, 12th Street Gym, Inc. ("Gym") and its 

co-owner and president, Robert Guzzardi, brought this action 

seeking a declaration of their rights under a liability insurance 

policy issued by the defendant, General Star Indemnity Company 

("General Star"). General Star is an excess and surplus lines 

insurer which provides third-party liability insurance to 

entities that cannot secure insurance through conventional 

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 and March of 

1994, Silverman sued the Gym and Guzzardi in the United States 

District Court for the Eastern District of Pennsylvania. 

 A. 

 On February 23, 1994, Silverman approached the Gym 

management with a suggestion for a special membership option for 

people diagnosed with AIDS. After submitting his special 

membership proposal, Silverman was advised by a Gym employee that 

he would not be allowed to return to the Gym without a note from 

a doctor. Silverman was permitted to enter the Gym when he 

returned several days later and presented a note from 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 showered and 

dressed in the locker room. 

 According to Silverman, Guzzardi confronted him in the 

lobby as he was leaving and demanded to know whether he had AIDS. 

Guzzardi began yelling until Silverman publicly admitted he had 

AIDS. After noticing the bandage on Silverman's finger, Guzzardi 

allegedly shouted: "We don't want your kind in here. You're 

careless! You could infect everybody!" Guzzardi demanded 

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's 
alleged discrimination in violation of the Americans 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 Silverman's 

Complaint, the Gym and Guzzardi were named insureds under General 

Star's policy of general liability insurance, Policy No. IMA 

212509. The policy had general provisions providing coverage for 

four different categories of harm: bodily injury, property 

damage, advertising injury and personal injury. Attached to the 

policy was an endorsement that contained the following exclusion: 

 15. Sexually Transmitted Disease Exclusions 

 (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 sexually 

 transmitted diseases, including Acquired 

 Immune Deficiency Syndrome (AIDS). This 

 exclusion shall apply regardless of the 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, diseases might be sexually 

 transmitted. 

 The Gym and Guzzardi filed a claim for defense and 

indemnification of the Silverman suit under General Star's 

policy. General Star declined to defend or indemnify the Gym and 

Guzzardi due, in part, to the Sexually Transmitted Disease 

Exclusion ("STDE"). On September 20, 1994, while Silverman's 

suit was pending, the Gym and Guzzardi instituted this suit in 

the District Court for the Eastern District of Pennsylvania 

against General Star. In the complaint, the Gym and Guzzardi 

sought a declaration that General Star had a duty to 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 parties settled 

the Silverman suit for $35,000 and other nonmonetary relief. The 

settlement agreement provided for a complete release 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 except for the 
claim 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 Complaint on 

February 6, 1995, alleging General Star had a duty to indemnify 

them for the Silverman suit liabilities. In its Answer to the 

Amended Complaint, General Star set forth several affirmative 

defenses, including one based on the policy's Sexually 

Transmitted Disease Exclusion. General Star also counterclaimed 

for a declaration that it had no duty to indemnify, and for 

judgment in the amount of $35,000 to reimburse it for the 

settlement cost. 

 The parties filed cross-motions for summary judgment. 

By order entered June 22, 1995, the district court determined the 

STDE did not exclude coverage for the remaining claims 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 ADA claim. In 

addition, the court determined that the pre-trial settlement of 

the Silverman suit did not prevent General Star from contesting 

its obligation to indemnify the Gym and Guzzardi for the 

settlement of the Silverman action. Finally, the district court 

found the facts were insufficiently developed to determine which 

counts of the underlying complaint, if any, gave rise to 

liability and coverage. 12th Street Gym, Inc. v. General Star 

Indem. Co., No. 94-5757, slip op. at 2 (E.D. Pa. June 22, 1995). 

 On September 6, 1995, the parties filed a stipulation 

in the district court under which General Star agreed to withdraw 

all affirmative defenses except for the defense based on the 

STDE. The district court granted the Gym and Guzzardi's renewed 

Motion for Summary Judgment based on this stipulation and on its 

previous holding that the STDE did not bar coverage for the 

Silverman suit. 12th Street Gym, Inc. v. General Star 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 district 

court's holding that pre-trial settlement and dismissal of the 

underlying suit did not require General Star to indemnify for the 

Silverman settlement. 

 C. 

 We have jurisdiction over the district court's final 

order pursuant to 28 U.S.C. § 1291. We exercise plenary 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 Pennsylvania law governs 

this dispute. The district court's application and

interpretation of state law is subject to plenary review. 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 of law and is 

also subject to plenary review. Dickler v. CIGNA Property & 
Casualty Co., 957 F.2d 1088, 1094 (3d Cir. 1992); see also Linder 

v. Inhalation Therapy Services, Inc., 834 F.2d 306, 310 (3d Cir. 

1987) (citing Cooper Labs. Inc. v. Int'l Surplus Lines Ins. Co., 

802 F.2d 667, 671 (3d Cir. 1986) (holding judicial construction 

of an insurance policy to account for events not foreseen 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 scope of the 

insurance policy. Accordingly, before we examine the meaning of 

the STDE, we must determine whether each of Silverman's claims is 

potentially covered under a reasonable interpretation of the 

policy. 

 As we have noted, Silverman alleged seven claims in his 

first amended complaint: (1) discrimination in violation of the 

ADA; (2) intentional infliction of emotional distress; (3) 

negligent infliction of emotional distress; (4) invasion of 

privacy; (5) fraudulent misrepresentation; (6) civil 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. 12th 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 suggests that 

Silverman's remaining claims pertain to "bodily injury" or 

"property damage" as those terms are defined in the policy. 

Moreover, our review of the policy confirms these claims do not 

allege harm that could be considered a part of either category. 

Thus, Silverman's claims are only covered to the extent they 

allege either "advertising injury" or "personal injury." 

 The Gym and Guzzardi suggest some or all of Silverman's 

claims could be considered "advertising injury." The policy 

defines "advertising injury" in part as injury arising out of: 

 a. 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; 

 b. Oral or written publication of material 

 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 only: 

 "[a]dvertising injury" caused by an offense 

 committed in the course of advertising your 

 goods, products or services . . . . 

None of Silverman's claims were for injury caused by an offense 

committed in the course of advertising goods, products or 

services. Since the parties do not contend Silverman's 

allegations were in any way related in an advertisement, the 
clear terms of the policy preclude characterizing his claims as 

"advertising injury." 

 The remaining category of harm, "personal injury," is 

defined in the part as: 

 injury, other than "bodily injury," arising 

 out of one or more of the following offenses: 

 . . . 

 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 right 

 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 defamation; slander 

is defamation by words spoken, and libel is defamation by written 

or printed material. Sobel v. Wingard, 531 A.2d 520 (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 tends to harm an 

individual's reputation so as to lower him in the estimation of 

the community or deter third persons from associating or dealing 

with him." Kryeski v. Schott Glass Technologies, 626 A.2d 595, 

600 (Pa. Super. 1993) (quoting Zartman v. Lehigh County Humane 

Soc., 482 A.2d 266, 268 (Pa. Super. 1984)), appeal denied, 639 

A.2d 29 (1994); see also U.S. Healthcare v. Blue Cross 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.2d at 904). 

 We think that Silverman's claims for intentional and 

negligent infliction of emotional distress, invasion 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 actions may have 

violated Silverman's right to privacy. To the extent 

Silverman's claims allege injuries arising out of the 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 amount paid to 
Silverman's estate. 

 The district court held the underlying complaint was 

"based on Irving Silverman's alleged exclusion from the 12th 

Street Gym -- not on his purportedly having a sexually 

transmissible disease." 12th Street Gym, Inc. v. General Star 

Indem. Co., No. 94-5757, slip op. at 1 (E.D. Pa. June 22, 1995) 

(citing First Amended Complaint at ¶¶ 8-35). Although the 

district court's characterization of the complaint is feasible, 

it is misleading for the purposes of this case. The Gym and 

Guzzardi are only entitled to indemnification to the extent 

Silverman's claims can be considered "personal injury." 

Exclusion from the Gym, without more, cannot reasonably be 

construed as slander, invasion of a right to privacy, or any 

other form of "personal injury" as it is defined in the policy. 

 On the other hand, the court was correct to point out 

that Silverman's complaint was not based on his "purportedly 

having a sexually transmitted disease." Careful 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 AIDS can be transmitted 

in a number of ways, only one of which is sexual, it is not 

accurate to say Silverman's complaint was based on his having a 

"sexually transmitted" disease. Thus while we reject the 

district court's conclusion that the underlying complaint was 

based solely on Silverman's exclusion from the Gym, we adopt the 

court's alternative determination that "to the extent AIDS was 

implicated, it was not as a sexually transmissible disease." 

12th Street Gym, Inc. v. General Star Indem. Co., No. 94-5757, 

slip op. at 1-2 (E.D. Pa. September 5, 1995). 

 We now turn to the STDE to examine the extent to which 

Silverman's claims for "personal injury" may be excluded from 

coverage by the STDE. 

 B. STDE 

 1. 

 On appeal, General Star argues the STDE unambiguously 

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 Syndrome 

 (AIDS). 

According to General Star, the district court erred in holding 

this language is limited to "transmittal of the disease." 

General Star contends the STDE bars coverage for all claims 

presented in the Silverman suit because Silverman's disease was 

so central and integral to the alleged actions of the Gym and 

Guzzardi that, but for the disease, Silverman would not have a 

claim. 

 Emphasizing the extensive scope of the phrase "arising 

directly or indirectly from," General Star claims it means 

something broader than normal proximate or substantial factor 

causation and suggests that "but for" causation is sufficient to 

trigger the exclusion. Furthermore, the word "involving" 
evidences the parties' intent to give the exclusion a broad, all 

encompassing range. General Star maintains the language of the 

STDE is comprehensive and applies to all claims "remotely 

related" to a sexually transmitted disease, regardless of nature 

or scope. 

 In contrast, the Gym and Guzzardi examine the same 

provision and conclude the STDE was intended to exclude only 

those claims which allege contraction, exposure, or fear of 

exposure to sexually transmitted diseases. They argue the mere 

existence of a disease that can be sexually transmitted, 

particularly one that may not have been contracted through sexual 

activity, is not sufficient to trigger the exclusion. Instead, 

the Gym and Guzzardi contend, the exclusion was only intended to 

prohibit coverage of claims alleging conduct related to sexually 

transmitted diseases. 

 In support of this argument, the Gym and Guzzardi cite 

the following language in the STDE: 

 This exclusion shall apply regardless of the 

 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, diseases 

 might be sexually transmitted. 

The Gym and Guzzardi claim this example indicates the parties' 

intent to exclude from coverage only claims alleging the 

transmission of diseases through sexual activity. Because 

Silverman's claims were premised only on the existence of AIDS, 

and not transmission or exposure to the disease, they maintain 

the claims should not be excluded from insurance coverage. 

 In summary, each party examines the language of the 

STDE and draws opposite conclusions regarding the "clear and 

unambiguous" language of the provision. 

 2. 

 Under Pennsylvania law, a court, rather than a jury, 

generally interprets the language of an insurance contract. 

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 common law has long 

thought it best to leave to the court rather than to the jury the 

essentially factual question of what the contracting parties 

intended.") (quotations omitted)). The goal of insurance 

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 and 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., 44 F.3d 1194, 

1199 (3d Cir. 1995) (citing Hutchison v. Sunbeam Coal Corp., 519 
A.2d 385, 390 (Pa. 1986)). Disagreement between the parties over 

the proper interpretation of a contract does not necessarily mean 

that a contract is ambiguous. Vogel v. Berkley, 511 A.2d 878, 

881 (Pa. Super. 1986). But a contract is ambiguous "if it is 

reasonably susceptible of different constructions and 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 susceptible to 

more than one interpretation. First, it is difficult to 

determine from the contract language alone the parties' 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 sexually 

transmitted, or it could be limited to diseases that have 

actually been transmitted through sexual conduct. 

 Moreover, the language of the STDE does not indicate 

the intended scope of the exclusion. The STDE could reasonably 

be understood to exclude from coverage all claims arising 

indirectly out of allegations involving the existence of a 

sexually transmitted disease. Support for this interpretation 

comes from the first sentence of the STDE, which provides in 

part, 

 [t]his insurance does not apply to . . . 

 "personal injury" . . . with respect to any 

 claim . . . arising directly or indirectly

 out of instances, occurrences or allegations 

 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 that 

 slanders or libels a person's or 

 organization's goods, products, or services; 

 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 written publication 

might establish a "personal injury" that is excluded from 

coverage. 

 But at least an equally reasonable interpretation of 

the STDE would limit the exclusion to claims alleging 

transmission, or fear of transmission, of disease through sexual 

conduct. Thus "personal" injury may be limited to allegations of 

actual sexual conduct in an oral or written publication. 

Moreover, the "mere existence" interpretation of the STDE would 

virtually eliminate coverage for an extremely broad set of 

claims. For example, this interpretation might exclude 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" interpretation tends to 

undermine its validity. Hence, both the "mere existence" and the 

"conduct or exposure" interpretations have some basis in the text 

of the policy. 
 More importantly, the language of the STDE does not 

clearly reveal the required nexus between a claim and a sexually 

transmitted disease. General Star argues the STDE applies to all 

claims which are even "remotely" related to incidents, 

occurrences or allegations involving a sexually transmitted 

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 disease." 

Alternatively, the district court found "to the extent 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 "incidental" 

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 construed in favor 

of the insured and against the insurer, the drafter of the 

agreement"). But a court will only construe ambiguous language 

against the drafter in the absence of relevant extrinsic 

evidence. Hutchison, 519 A.2d at 390-91 n.5. Under 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 policy] 

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 extrinsic 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 states "it was the 

underwriter's intention to exclude from coverage claims such as 

those which are stated in [Silverman's complaint] . . . ." But 

the affidavit also states "it was not [the underwriter's] 

intention . . . to exclude coverage for claims in which the 

involvement of a sexually transmitted disease was irrelevant or 

purely incidental to the claim . . . ." In view of this, we do 

not believe the available extrinsic evidence here is sufficient 

to resolve the ambiguities in the STDE. Accordingly, 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 General Star has a 

duty to indemnify them for the cost of settling the Silverman 
suit. The Gym and Guzzardi argue that, under our holding in 

Pacific Indemnity Co. v. Linn, 766 F.2d 754 (3d Cir. 1985), 

General Star has a duty to indemnify because the Silverman suit 

was dismissed before Silverman's claims could be confined to 

those outside the scope of policy coverage. The district court 

rejected this argument finding the present case distinguishable 

from Linn and analogous to Cooper Labs., Inc. v. Int'l Surplus 

Lines Ins. Co., 802 F.2d 667, 674 n.1 (3d Cir. 1986), and 

Safeguard Scientifics, Inc. v. Centercore, Inc., 766 F. Supp. 

324, 334 (E.D. Pa. 1991), rev'd on other grounds, 961 F.2d 209 

(3d Cir. 1992) (Table). 

 In Linn, Pacific Indemnity brought a declaratory 

judgment action to determine which of several insurers had a duty 

to defend and indemnify Dr. Linn in suits against him to recover 

for injuries or death suffered by persons who had read and 

followed his diet book. Several of the suits against Dr. Linn 

were settled by the insurance companies before sufficient facts 

were developed to determine the basis for Dr. Linn's liability. 

Consequently, it was impossible to determine whether the policies 

provided coverage for the settlement amount. Because we could 

not determine which of the injured bookreaders claims would have 

prevailed, we held "the duty to defend carries with it the 

conditional obligation to indemnify until it becomes 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 being 

 indemnified in a suit that its insurer 

 settles where that insurer defends under a

 reservation of rights. In such a situation, 

 it would behoove the insurer to reserve its 

 rights and to settle the suit to avoid both 

 the costs of litigation and, at the same 

 time, the costs of indemnification. 

Id. at 766. Thus our holding was based, in part, on the concern 

that an insurer would be able to settle a suit without an 

agreement with the insured, and attempt to avoid its duty to 

indemnify by claiming a jury would have found the claims in the 

underlying suit were not covered by the policy. 

 The Gym and Guzzardi argue Linn is analogous 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 participated 

and acquiesced in the settlement of the underlying case. Because 

the Gym and Guzzardi were not exposed to the risk that influenced 

the Linn decision, the district court correctly denied their 

motion for summary judgment. See Cooper Labs., Inc. v. Int'l 

Surplus Lines Insurance Co., 802 F.2d at 674 (holding the Linnduty to 

indemnify rule did not apply to a case settled by the 

insured) (applying New Jersey law); Safeguard Scientifics, 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 remand 
the matter to the district court for proceedings consistent 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 interpretation 

of a Sexually Transmitted Disease Exclusion ("STDE") included in 

a liability insurance policy. As I read the broadly-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 for the 

settlement of any of Silverman's claims. Accordingly, I dissent. 

I would reverse the district court's entry of summary judgment 

for the Gym and its co-owner and president, Robert Guzzardi, and 

enter summary judgment for the insurer, General Star Indemnity 

Company. 

 As the majority has explained, Silverman's complaint is 

based on an incident that took place in the Gym lobby in 1994. 

After Silverman finished exercising, he nicked his finger on a 

gym locker. He bandaged his cut with a band-aid, showered, 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 whether Silverman 
had AIDS, and Silverman affirmed that he did. Noticing the 

bandage on Silverman's finger, Guzzardi allegedly shouted, "We 

don't want your kind in here. You're careless! You could infect 

everybody!" Silverman was thereafter banned from the Gym. 

 The majority notes that under the insurance policy the 

Gym would be entitled to indemnity in this case only to the 

extent that Silverman's claims could be characterized as 

"personal injury." Thus, the Gym is entitled to indemnity from 

General Star only to the extent that Silverman suffered damages 

as a result of the Gym's slander or the Gym's publication of 

material that violated Silverman's right to privacy. I therefore 

agree with the majority that one of the district court's 

alternative holdings is flawed. 

 The district court held that the STDE did not preclude 

indemnity for Silverman's claims because "[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 disease." 12th Street Gym, Inc. v. General Star 

Indem. Co., No. 94-5757 (E.D. Pa. Sept. 5, 1995). If Silverman's 

claims were based on his exclusion from the 12th Street Gym 

alone, however, those claims would not be covered under the 

insurance policy at all. As the majority demonstrates, the only 

potentially relevant coverage is for "personal injury," and 

personal injury, by definition, involves defamation or invasion 

of privacy, not physical exclusion from the Gym. Given 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 with, we need not 

consider whether it is excluded from coverage by the STDE. 

 It is in our consideration of the district court's 

alternative holding that the majority and I part ways. The 

district court held that the STDE does not preclude coverage in 

this case because Silverman's complaint was not based 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 conduct, as 

opposed to excluding from coverage all claims involving the genre 

of diseases known generally as sexually transmitted diseases (no 

matter how the disease was transmitted in a particular instance). 

I believe that this reading of the STDE is insupportably narrow 

when read against the exclusion's broad language. 

 The majority divides its support for this holding into 

three separate but closely related arguments. First, 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 generally to 

the genre of diseases that may be sexually transmitted or only to 

diseases that were transmitted by sexual conduct in the 

particular case at hand. Second, the majority argues that the 

STDE fails to indicate the intended scope of the exclusion. 

Third, the majority argues that the STDE does not reveal the 
required nexus between a claim and a sexually transmitted 

disease. I will address these arguments in turn. 

 Before specifically addressing the majority's 

arguments, however, I believe that the broad language of the STDE 

bears repeating in its entirety: 

 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 sexually transmitted diseases, including 

 Acquired Immune Deficiency Syndrome (AIDS). This 

 exclusion shall apply regardless of the 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 diseases might be sexually transmitted. 

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 AIDS. 

 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 "involve" 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 AIDS can be 

 transmitted in a number of ways, only one of which is 

 sexual, it is not accurate to say Silverman's complaint 

 was based on his having a "sexually transmitted" 

 disease. Thus . . . we adopt the [district] court's 

 alternative determination that "to the extent AIDS was 

 implicated, it was not as a sexually transmissible 

 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 conceivably be 

sexually transmitted, or it could be limited to diseases that 

have actually been transmitted through sexual conduct." Id. at 

[Typescript at 16]. 

 The majority's reading of the term "sexually 

transmitted disease" is unconvincing, given the common usage of 

that term. Words of common usage in an insurance policy must be 

construed in their natural, plain and ordinary sense, Slate 

Construction Co. v. Bituminous Casualty Corp., 228 Pa. Super. 1, 

323 A.2d 141, 145 (1974) (citing Blue Anchor Overall Co. v. 

Pennsylvania Lumbermens Mutual Ins. Co., 385 Pa. 394, 123 A.2d 

413 (1956)), and we should not torture the plain meaning of a 

writing merely to find an ambiguity. Monti v. Rockwood Ins. Co., 

303 Pa. Super. 473, 450 A.2d 24 (1982); see Techalloy Co., Inc. 
v. Reliance Ins. Co., 338 Pa. Super. 1, 487 A.2d 820 (1984). 

 In common usage, the term "sexually transmitted 

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 though it may be 

transmitted through blood transfusions or the use of contaminated 

hypodermic needles). Nothing in the context of the STDE 

indicates that the designation "sexually transmitted disease" 

should be read to require the occurrence of actual sexual 

transmission or sexual conduct in each individual case. 

 An interpretation of the term "sexually transmitted 

disease" as referring to a genre of diseases as opposed to a 

singular mode of transmission in an individual case is reinforced 

by the inclusion of an example of such sexually transmitted 

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 arising out of 

instances or allegations involving the genre of diseases known as 

sexually transmitted diseases, which includes the disease known 

as AIDS. 

 Contrary to the majority's emphasis on actual sexual 

conduct, the STDE uses sweeping language to exclude from coverage 

a broad swath of claims "arising directly or indirectly out of 

instances, occurrences or allegations involving sexually 

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 emphasize transmission 

by sexual conduct is strained on its face, given the 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 reasonable to 

limit the STDE "to claims alleging transmission, or fear of 

transmission, of disease through sexual conduct. Thus 'personal' 

injury may be limited to allegations of actual sexual conduct in 

an oral or written publication." Slip op. at [Typescript at 

17] (emphasis added). This argument merely restates in the 

"personal injury" context the majority's unfounded emphasis on 

sexual conduct. There is no express mention whatsoever in the 

STDE of "conduct" or "sexual conduct" in any context. 

 A straightforward comparison of the STDE and the claim 

in this case is instructive on this point. The STDE excludes 

claims for personal injury (i.e., defamation or defamation 

leading to invasion of privacy) "arising directly or indirectly 

out of instances, occurrences or allegations involving sexually 

transmitted diseases, including Acquired Immune Deficiency 

Syndrome (AIDS)." In this case, Silverman nicked his finger on a 

gym locker and was wearing a band-aid when he was confronted by 

Guzzardi. Guzzardi allegedly exclaimed that Silverman was 

careless and "could infect everybody." Based upon Guzzardi's 

outburst, Silverman alleges a number of causes of action that 

could be characterized as personal injury under the policy. 

Silverman's claims for personal injury arise directly from 
Guzzardi's allegation that Silverman might transmit AIDS in the 

Gym. 

 Under any reasonable interpretation of the word 

"involving," Guzzardi's allegation involves a sexually 

transmitted disease and fear of its possible transmission. 

Silverman's claim arises directly from Guzzardi's utterance, 

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 apparently have to 

include some additional reference to sexual conduct. Given the 

broad language of the STDE, I find that such a narrow reading of 

its coverage is implausible. 

 Finally, the majority argues that the language of the 

STDE "does not reveal a clear nexus between a claim and a 

sexually transmitted disease." Slip op. at [Typescript at 

18]. The majority is troubled by the STDE's purported failure to 

define an appropriate nexus because "the distinction 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 personal injury from 

coverage even if the injury arose only "indirectly" from an 

occurrence or allegation "involving" sexually transmitted 

diseases, such as AIDS. In this case, the entire sum and 

substance of Guzzardi's allegedly injurious remarks involved 

AIDS, Silverman's status as an individuals with AIDS, and the 

potential that Silverman could infect others in the Gym with 

AIDS. We could, perhaps, imagine a claim on the margin of 

coverage where the alleged ambiguity surrounding the word 

"involving" might come into play. Nevertheless, if the exclusion 

applies to "personal injury" at all (which it clearly does), this 

case is in the heartland of those cases that the STDE 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 extension. The 

majority correctly states that the STDE might potentially 

eliminate coverage "for an extremely broad set of claims." Slip 

op. at [Typescript at 18]. There is no reason to assume, 

however, that the parties did not appreciate the full import of 

their agreement when they signed it. In fact, it is highly 

unlikely that General Star and the Gym agreed to the STDE without 

considering just the sort of claim presented in this case. 

Before the parties agreed to the STDE, a number of courts had 

awarded damages and/or non-monetary relief to HIV-positive or 

AIDS-infected individuals who were illegally excluded from public 

accommodations or employment. Some of these cases awarded 

damages for associated emotional pain and mental anguish. 

 The issue presented in this case was of obvious 

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 twelve 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 issue for the Gym 
and for General Star, I see no reason to suppose that the parties 

did not consider the implications of the broad language employed 

in the STDE. We should feel no compunction about holding the Gym 

to the bargain that it struck. 

 The majority's identification of an ambiguity in the 

STDE relies heavily on a tortured construction of the term 

"sexually transmitted disease" to require actual sexual conduct. 

This narrow interpretation of a key term ignores the normal usage 

of the words as well as the context in which they are used in the 

STDE. The underlying claims that give rise to the Gym's only 

valid claim for indemnification hinge on remarks permeated 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 judgment in favor of 

General Star.