Opinion ID: 3015680
Heading Depth: 3
Heading Rank: 1

Heading: MPC is liable for delay damages.

Text: The insurance contract between plaintiffs and MPC provides: B. Upon receipt of notice the Company shall immediately assume its responsibility for the defense of any such claim. Such defense shall be maintained until final judgment in favor of the Insured shall have been obtained or until all remedies by appeal, writ of error or other legal proceedings deemed reasonable and appropriate by the Company shall have been exhausted at the Company’s cost and without limit as to the amount expended. ... E. Except as respects the cost of defense provided under paragraph B . . . the Company’s liability is limited as follows: Regardless of the number of (a) insureds or interests named in this contract or any endorsement or (b) persons or organizations who sustain damages or (c) claims made or suits brought on account of such injury or damage or (d) the number of policy years involved or (e) the imposition of prejudgment interest or any final adjudication against the insured, the Company’s liability for damages shall not exceed the stated amount for any one occurrence [$200,000] and, subject to the same limit for each occurrence, the Company’s total liability during any one policy year shall not exceed the stated annual aggregate [$600,000]. 4 Federal courts exercising diversity jurisdiction apply the choice of law rules of the state in which the District Court sat. “This action was instituted in the [Eastern] District of Pennsylvania. Under Pennsylvania choice of law rules, an insurance contract is governed by the law of the state in which the contract was made. An insurance contract is ‘made’ in the state in which the last act legally necessary to bring the contract into force takes place.” J.C. Penney Life Ins., 393 F.3d 360-361 (quotation marks and citations omitted). The District Court applied Pennsylvania law. We agree. We note that all parties briefed Pennsylvania’s substantive contract law. 9 (italics added). The contract, however, contained several riders. Significantly for the issue before us, the last rider deleted ¶ E, supra, and replaced it as follows: E. Except as respects the cost of defense provided under paragraph B ... the Company’s liability is limited as follows: Regardless of the number of (a) insureds or interests named in this contract or any endorsement or (b) persons or organizations who sustain damages or (c) claims made or suits brought on account of such injury or damage, or (d) the number of policy years involved, the Company’s liability for damages shall not exceed the stated amount for any one occurrence [$200,000] and, subject to the same limit for each occurrence, the Company’s total liability during any one policy year shall not exceed the stated annual aggregate [$600,000]. It is clear that the only material change to the agreement effectuated by the rider was the deletion of the italicized language. Two such identical agreements are being contested in this litigation. MPC has taken the position that it is not liable under the terms of the insurance contract for prejudgment interest in excess of the stated amount: $200,000. Although this would have been true under the riderless agreement, it strains credulity to suggest that it is true under the finalized agreement. To adopt this position is to take the position that the rider effected no substantive change in the meaning of the agreement. We assume that the purpose of a rider is to change the meaning of the agreement. Cf., e.g., Styer v. Harleysville Mut. Cas. Co., 38 Pa. D. & C. 2d 232, 335 (Pa. Com. Pl. 1965) (noting that a “rider changes the basic policy by amending one or more of its ... primary components”). MPC contends that we should interpret only the provisions actually agreed upon by 10 the parties, and not look to the riderless agreement to determine the effect of the rider on the meaning of the executed agreement. We note that MPC points to no Pennsylvania case or statute compelling us to blind ourselves in this matter. Indeed, if anything, Pennsylvania case law strongly suggests that we must take the exact opposite approach. The Supreme Court of Pennsylvania has held that “an insurance policy, like every other written contract, must be read in its entirety and the intent of the policy is gathered from consideration of the entire instrument.” Riccio v. American Republic Ins. Co., 705 A.2d 422, 426 (Pa. 1997) (emphasis added); see also J.C. Penney Life Ins., 393 F.3d at 363 (“The goal of th[e] task [of interpreting an insurance contact under Pennsylvania law] is, of course, to ascertain the intent of the parties as manifested by the language of the written instrument.”) (emphasis added). The word instrument connotes the physical document executed by the parties, not merely the in-force provisions of the agreement between them. See B LACK’S L AW D ICTIONARY 719-20 (5th ed. 1979) (defining instrument as a “written document ... of a type which is in ordinary course of business transferred by delivery”). In the context of insurance litigation, this policy is particularly appropriate as the insurer generally controls the structure and wording of both the original instrument and its amended form. Cf. Styer, 38 Pa. D. & C. at 335 (“A given policy, as delivered to the insured, contains a vast torrent of words not a part of the company’s agreement because nonapplicable provisions are not physically removed.”). To the extent that there remains any ambiguity that costs of defense include delay 11 damages or interest running to the time of the verdict, these ambiguities are construed against the drafter-insurer. See Riccio, 705 A.2d at 426; cf. Incollingo v. Ewing, 379 A.2d 79 (Pa. 1977) (holding that post-verdict interest is a cost of defense under the terms of an insurance contract similarly worded to the contracts in the instant litigation). In his April 11, 2003 order, the District Judge ordered MPC to pay plaintiffs $136,931 in delay damages. See Pa. R. Civ. P. 238. We agree.