2013 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

4-26-2013

American Western Home Ins Co v. Donnelly

Distribution Inc

Precedential or Non-Precedential: Non-Precedential

Docket No. 11-3753

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Recommended Citation

"American Western Home Ins Co v. Donnelly Distribution Inc" (2013). 2013 Decisions. Paper 927.

http://digitalcommons.law.villanova.edu/thirdcircuit_2013/927
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NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT

____________

No. 11-3753

_____________

AMERICAN WESTERN HOME INSURANCE CO., 

 Appellant,

v.

DONNELLY DISTRIBUTION, INC.

_____________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(E.D. Pa. No. 2-11-cv-01415-BMS)

District Judge: Honorable Berle M. Schiller

_____________

Submitted Under Third Circuit L.A.R. 34.1(a)

March 18, 2013

Before: FUENTES, CHAGARES and BARRY, Circuit Judges

(Opinion Filed: April 26, 2013)

_____________

OPINION OF THE COURT 

_____________

FUENTES, Circuit Judge:

This appeal arises out of an insurance contract dispute between PlaintiffAppellant, American Western Home Insurance Company (“American Western”), and

Defendant-Appellee, Donnelly Distribution, Inc. (“Donnelly”). The question before us is 

whether, under Pennsylvania law, American Western has a duty to defend or indemnify 
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Donnelly in connection with a civil action filed in Pennsylvania state court (“Underlying 

Action”), under the terms of a Commercial General Liability policy it issued to Donnelly

(the “Policy”). The District Court held that it did. 

I. Background 

A. The Parties and the Underlying Action 

Because we write primarily for the parties, we set forth only the facts relevant to 

this appeal. Donnelly distributes newspapers, advertisements, and other paper circulars in 

Philadelphia, Pennsylvania. Donnelly purchased the Policy from American Western,

providing coverage for commercial tort liability and losses to commercial property. The 

Policy contains a provision (the “Premises Provision”) restricting coverage to bodily 

injuries “arising out of . . . [t]he ownership, maintenance or use” of 1301-05 N. Howard 

Street, Philadelphia, Pennsylvania 19122 (“Howard Street Premises”) and operations 

“necessary or incidental” to those premises. App. 32.1 Donnelly‟s Howard Street 

Premises is a regional warehouse that serves as a drop point for Donnelly‟s distributors to 

pick up materials and deliver them to designated neighborhoods. 

In November 2007, Donnelly was sued by a woman who claimed that she was 

injured when she slipped and fell on plastic ties that bind the materials Donnelly 

distributes, and that its employees negligently discarded. The complaint in the 

Underlying Action claimed that the accident occurred on the pavement near 5353 Saul 

 

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The parties also dispute the effect of a provision excluding coverage for “„bodily injury‟ 

. . . due to the rendering or failure to render [the professional services of paper 

distributing].” App. 69. Because we hold that the Premises Provision is dispositive of this 

case, we do not reach that issue. 
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Street. The parties do not contest that these premises are not the same as the Howard 

Street Premises. 

American Western agreed to fund Donnelly‟s defense of the Underlying Action

and appointed counsel, but reserved its rights and defenses under the Policy. Eventually, 

American Western filed this action in the District Court seeking a declaratory judgment 

that the Premises Provision bars coverage of the Underlying Action and that American 

Western is under no duty to fund Donnelly‟s defense of, nor to indemnify Donnelly for,

any loss resulting from the Underlying Action. A settlement was reached in the 

Underlying Action while this case was pending in the District Court. 

B. Proceedings in the District Court

The parties cross-moved for summary judgment. The District Court granted 

Donnelly‟s motion. The Court concluded that the Premises Provision did not bar 

coverage of the Underlying Action, and held that American Western had a duty to defend 

Donnelly. It also concluded that because the Underlying Action settled, American 

Western had a duty to indemnify Donnelly for amounts Donnelly may be obligated to pay 

under the terms of that settlement. American Western timely appealed. 

II. Discussion

The District Court had jurisdiction pursuant to 28 U.S.C. § 1332 and we have 

jurisdiction under 28 U.S.C. § 1291. We review the District Court‟s entry of summary 

judgment de novo and apply “the same standard as the District Court in determining 

whether summary judgment was appropriate.” United States ex rel. Kosneske v. Carlisle 

HMA, Inc., 554 F.3d 88, 94 (3d Cir. 2009). 
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A. Pennsylvania Law on Insurance Contracts 

A Pennsylvania court tasked with determining the scope of coverage of an 

insurance policy must examine the plain language of the policy to infer the intent of the 

parties. Am. & Foreign Ins. Co. v. Jerry’s Sport Ctr., Inc., 2 A.3d 526, 540 (Pa. 2010). If 

the policy contains any ambiguities, they are construed against the insurer. Id. Where the 

policy contains clear and unambiguous language, however, the court is required to give 

effect to that language. Lexington Ins. Co. v. W. Pa. Hosp., 423 F.3d 318, 326 (3d Cir. 

2005).

The Pennsylvania Supreme Court has explained that an insurer has the duty to 

defend an insured if the factual allegations of the Underlying Action “on [their] face 

encompass an injury that is actually or potentially within the scope of the policy.” Jerry’s 

Sport Ctr., 2 A.3d at 541. If the insurer is doubtful as to whether the complaint may or 

may not fall within the scope of the policy, it is obligated to defend the insured. Id. By 

contrast, the duty to indemnify is narrower, and only arises as to those losses that are 

actually within the policy‟s coverage. Caplan v. Fellheimer Eichen Braverman & 

Kaskey, 68 F.3d 828, 831 n.1 (3d Cir. 1995). 

B. Duty to Defend

The parties agree that American Western has a duty to fund Donnelly‟s defense of

the Underlying Action unless the injury at issue in that action is found to be outside the 

scope of the injuries covered by the Premises Provision. Donnelly argues that the injury 

at issue in the Underlying Action is within the scope of the Premises Provision because it 

arose out of the “operations necessary or incidental to the [Howard Street Premises].”
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App. 32. Donnelly contends that this is so because the injury was caused by the plastic 

ties that bind Donnelly‟s papers, which are connected to the paper distribution activities 

that are conducted at least in part out of the Howard Street Premises pick-up point. 

We reject Donnelly‟s broad reading of the Premises Provision. That Provision

explicitly limits coverage to injuries arising out of the ownership, maintenance, or use of

the Howard Street Premises, and limits the type of covered operations to those necessary 

or incidental to those premises. Donnelly‟s reading in effect means that any accident,

occurring anywhere, that may be somehow connected to Donnelly‟s paper distribution 

business is covered by the Policy simply because the Howard Street Premises are used as 

a pick up point in that business and are mentioned explicitly in the Policy‟s Premises 

Provision. But, based on the plain terms of the Premises Provision, we doubt that the 

parties intended a reference to one distribution center to trigger coverage for losses

resulting from the entirety of Donnelly‟s business. Had the parties intended to provide for 

business-wide coverage, they surely would have found a clear way to say so, rather than 

by including an oblique reference to one particular (and seemingly random) distribution 

center.

The court in Colony National Insurance Company v. Hing Wah Chinese Rest., 546 

F. Supp. 2d 202 (E.D. Pa. 2008), persuasively explained the proper scope of coverage of 

a clause like the Premises Provision. In Hing Wah, an insurer brought an action seeking a 

determination that it had no duty to defend or indemnify an insured restaurant in an 

underlying action involving a car accident with the restaurant‟s food delivery driver. Id.

at 204-05. The policy there insured the location of the restaurant and contained a
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premises provision identical in all material respects to the one at issue here, providing

that “„[t]he insurance applies only to . . . injury . . . arising out of . . . [t]he ownership, 

maintenance or use of the premises in . . . operations necessary or incidental to those 

premises.‟” Id. at 209 n.10. Relying on Pennsylvania law, the district court construed the 

premises provision as excluding accidents that occurred due to the restaurant‟s delivery 

business, reasoning that the phrase “necessary or incidental” referred to the premises that 

were the subject of the policy and not the restaurant‟s business. Id. The court 

distinguished the act of delivering food for a restaurant business from activities that 

would classify as necessary or incidental to the operations of the specifically listed 

premises, such as food preparation and maintenance of the parking area, taking delivery 

of a new refrigerator, and shoveling snow from the entrance. Id.

We adopt the Hing Wah court‟s analysis. The Premises Provision by its terms only 

contemplates coverage of operations that are necessary or incidental to the insured 

premises, not the entirety of Donnelly‟s business operations. The Underlying Action 

involves an accident allegedly caused by the negligent disposal of plastic ties at a location 

other than the Howard Street Premises, an activity not necessary for the operation of the 

Howard Street Premises. Moreover, such activity is incidental to Donnelly‟s business, not 

to the Howard Street Premises. The Underlying Action does not involve an accident 

where, for example, an individual was injured while receiving a delivery of machinery 

for use at the insured premises. Thus, the necessary causal relationship between the 

Underlying Action and the insured premises is not present and American Western does 

not have a duty to defend Donnelly in connection with the Underlying Action.
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C. Duty to Indemnify After Settlement

Donnelly also argues that under our decision in Pacific Indemnity v. Linn, 766 

F.2d 754 (3d Cir. 1985), American Western has a duty to indemnify Donnelly because 

the Underlying Action settled while American Western was believed to have a duty to 

defend Donnelly. 

In Linn we held that the duty to indemnify followed the duty to defend where 

settlement of an underlying action involving multiple theories of liability and several 

competing insurers made it impossible to determine which of the multiple insurers had a 

duty to indemnify. Linn, 766 F.2d at 766. However, unlike Linn, this case involves only 

one insurer and liability is based on a single theory. There is nothing to indicate that in 

this case settlement made it impossible to determine whether coverage under the Policy 

was warranted. Linn is therefore inapposite. See, e.g., 12th Street Gym, Inc. v. Gen. Star 

Indemn. Co., 93 F.3d 1158, 1167 (3d Cir. 1996) (distinguishing Linn where the insured 

participated in the settlement of the underlying case).

Moreover, Pennsylvania courts have explicitly rejected Donnelly‟s expansive 

reading of Linn, and explained that there is no blanket rule giving rise to a duty to 

indemnify where the insured settles the underlying action. See, e.g., Regis Ins. Co. v. All 

Am. Rathskeller, Inc., 976 A.2d 1157, 1161 n.8 (Pa. Super. Ct. 2009). To the contrary, 

Pennsylvania courts have made clear that the very purpose of filing a declaratory action 

in an insurance dispute such as this is to determine whether a duty to indemnify exists in 

the first place. Id. at 1161. In this case, because we hold that American Western does not 

have a duty to defend Donnelly in connection with the Underlying Action, it follows that 
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American Western does not have a duty to indemnify Donnelly for any amount due 

pursuant to the settlement of the Underlying Action. 

III. Conclusion 

For the foregoing reasons, we will reverse the judgment of the District Court.