Opinion ID: 3009707
Heading Depth: 2
Heading Rank: 1

Heading: General Principles and The Pleading Question

Text: Under the governing law, an insurance company is obligated to defend an insured whenever the allegations in a complaint filed against the insured potentially fall within the policy's coverage. This duty to defend remains with the insurer until facts sufficient to confine the claims to liability not within the scope of the policy become known to the insurer. See Imperial Casualty & Indem. Co. v. High Concrete Structures, Inc., 0 The only real choice of law issue in this case involves the applicability of Pennsylvania's insurer bad faith statute, 42 Pa. C.S. § 8371. We need not reach this issue given our resolution of the duty to defend and duty to indemnify questions. 11 858 F.2d 128, 131-32 (3d Cir. 1988); Sola Basic Indus., Inc. v. United States Fidelity & Guar. Co., 280 N.W.2d 211, 213 (Wis. 1979) ([I]t is necessary to determine whether the complaint alleges facts which, if proven, would give rise to liability covered under the terms and conditions of the policy.); Stidham v. Millvale Sportsmen's Club, 618 A.2d 945, 953-54 (Pa. Super. 1992) (if indemnification depends upon the existence or nonexistence of disputed facts, the insurer has a duty to defend until the claim is narrowed to one patently outside the policy coverage). Before considering whether a complaint is potentially covered by a policy, it is necessary to determine the coverage of the policy in the first instance. In both Pennsylvania and Wisconsin (as in the majority of jurisdictions), the inquiry into coverage is independent of and antecedent to the question of duty to defend.0 See Erie Ins. Exch. v. Transamerica Ins. Co, 533 A.2d 1363, 1368 (Pa. 1987) (first construing the terms of the policy, and then determining whether the complaint alleged facts which, if proven, would come within the scope of the policy as 0 A minority of courts have held that where the question of coverage is an open question the insurer has a duty to defend. See St. Paul Fire & Marine Ins. Co. v. National Computer Sys., Inc., 490 N.W.2d 626, 632 (Minn Ct. App. 1992) (where the question whether binders with confidential information in them were covered was an open one, the insurer had a duty to defend); see also Centennial Ins. Co. v. Applied Health Care Sys., Inc., 710 F.2d 1288, 1291 (7th Cir. 1983) (applying California law, the court determined that the question whether information stored in a data processing system could be tangible property was irrelevant for purposes of determining the duty to defend because it was an unresolved question). 12 construed); U.S. Fire Ins. Co. v. Good Humor Corp., 496 N.W.2d 730 (Wis. Ct. App. 1993) (same). Traditional principles of insurance policy interpretation control the inquiry into coverage. The policy language must be tested by what a reasonable person in the position of the insured would have understood the words to mean. See Imperial, 858 F.2d at 131. We must construe ambiguous language to provide coverage. Id. A provision is ambiguous if reasonable persons considering the relevant language in the context of the entire policy could honestly differ as to its meaning. Id.; see also Harford Mutual Ins. Co. v. Moorhead, 578 A.2d 492, 503 (Pa. Super. 1990) (the policy must unequivocally indicate coverage or non-coverage), appeal denied, 590 A.2d 757 (Pa. 1991). Nevertheless, a court should be careful not to create an ambiguity and, likewise, it should avoid rewriting the policy language in such a way that it conflicts with the plain meaning of the language. Imperial, 858 F.2d at 131. Once coverage of the policy is determined, the court then looks to the underlying complaint to see if it triggers coverage. The underlying complaint need not track the policy language for there to be coverage: under the liberal rules of notice pleading, Lucker's complaint needed only to indicate the type of litigation involved so that the defendant would have a fair notice of the claim and its defenses. See First State Underwriters Agency of New England Reinsurance Corp. v. Travelers Ins. Co., 803 F.2d 1308, 1315 (3d Cir. 1986); Ollerman v. O'Rourke Co., 288 N.W.2d 95, 98 (Wis. 1980); see also Western 13 Casualty & Sur. Co. v. Budrus, 332 N.W.2d 837, 839-40 (Wis. Ct. App. 1983) (liberally construing a complaint to include a claim for loss of use of tangible property). Thus, the fact that Lucker did not include the magic words loss of use or tangible property in its complaint does not relieve The Home of its duty to defend. As the district court recognized, the complaint, reduced to its relevant essentials, averred that the failure of the Grede castings prevented Lucker from being able to sell the LMS design to Shell. Lucker, 818 F. Supp. at 825. The main question in this appeal, then, is not whether there was adequate notice of such a claim, but rather whether, given traditional principles of insurance policy interpretation, such a claim is properly considered a claim for loss of use of tangible property. With these general principles in mind, we discuss first the question whether Lucker's damages represented a loss of use of the LMS design. We then turn to the question of whether the LMS design was tangible property.