Opinion ID: 763468
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Heading: Delaware Law on Interpreting Insurance Policies

Text: 15 As we must predict how the Delaware Supreme Court would decide this issue, it is necessary that we first understand Delaware law on this matter. Before an insurer is obligated to defend or indemnify a policyholder, the insured must demonstrate that coverage is available under the policy. See New Castle County v. Hartford Accident and Indem. Co., 933 F.2d 1162, 1181 (3d Cir.1991) (New Castle v. Hartford I ) (applying Delaware law). An insurer's duty to defend is broader than its duty to indemnify, see Charles E. Brohawn & Bros., Inc. v. Employers Commercial Union Insurance Co., 409 A.2d 1055, 1058 (Del.1979), but is limited to suits which assert claims for which it has assumed liability under the policy. Continental Cas. Co. v. Alexis I. duPont School Dist., 317 A.2d 101, 103 (Del.1974). [W]here there exists some doubt as to whether the complaint against the insured alleges a risk insured against, that doubt should be resolved in favor of the insured. Id. at 105. Most importantly therefore, an insurer is required to defend any action which potentially states a claim which is covered under the policy. New Castle County v. Hartford Accident and Indem. Co., 673 F.Supp. 1359, 1367 (D.Del.1987) (New Castle v. Hartford II ). Thus, in this case, if the Acierno actions potentially state a claim that is covered under definition 10(c), National is required to defend the county in those actions. 16 Whether the Acierno actions potentially state a claim for which National has assumed liability depends upon how we interpret definition 10(c). As a basic matter, Delaware law requires us to interpret insurance contracts in a common sense manner. SI Management L.P. v. Wininger, 707 A.2d 37, 42 (Del.1998); see also New Castle v. Hartford I, 933 F.2d at 1189 (according the terms of an insurance policy their ordinary, usual meaning). We must also examine the disputed language in the context of the entire policy. See, e.g., New Castle v. Hartford I, 933 F.2d at 1194 (ascertaining whether a term is ambiguous in the context of a specific insurance policy); New Castle County v. Hartford Accident and Indem. Co., 970 F.2d 1267, 1271 (3d Cir.1992) (New Castle v. Hartford III ) (construing a term in context with the function of the [insurance] policy); see also Porter v. Pathfinder Servs., Inc., 683 A.2d 40, 42 (Del.1996) (construing language of an employment contract in its context as a whole). 17 Absent some ambiguity, Delaware courts will not destroy or twist policy language under the guise of construing it, Rhone-Poulenc Basic Chemicals Co. v. American Motorists Insurance Co., 616 A.2d 1192, 1195 (Del.1992) (citation omitted), because creating an ambiguity where none exists could, in effect, create a new contract with rights, liabilities and duties to which the parties ha[ve] not assented. Hallowell v. State Farm Mut. Auto. Ins. Co., 443 A.2d 925, 926 (Del.1982) (citations omitted). When policy language is ambiguous, however, under Delaware law this Court must apply the doctrine of contra proferentem. See Oglesby v. Penn Mut. Life Ins. Co., 877 F.Supp. 872, 881 (D.Del.1994) (applying Delaware law). That is, ambiguous language must be construed against the drafter and in conformance with the reasonable expectations of the insured. See Swfte Int'l, Ltd. v. Selective Ins. Co. of Am., No. Civ. A. 94-44-SLR, 1994 WL 827812, at  5 (D.Del. Dec.30, 1994); see also Steigler v. Ins. Co. of N. Am., 384 A.2d 398, 400 (Del.1978). 18 The premise underlying the principle of contra proferentem is that an insurance contract is one of adhesion. See State Farm Mut. Auto. Ins. Co. v. Johnson, 320 A.2d 345, 347 (Del.1974). As the Delaware Supreme Court recently explained, 19 [T]he insurer ... is the entity in control of the process of articulating the terms [of an insurance contract]. The other party ... usually has very little to say about those terms except to take them or leave them or to select from limited options offered by the insurer.... Therefore, it is incumbent upon the dominant party to make the terms clear. Convoluted or confusing terms are the problem of the insurer ...--not the insured.... 20 Penn Mut. Life Ins. Co. v. Oglesby, 695 A.2d 1146, 1149-50 (Del.1997). As noted earlier, due to the insurer's dominant position, when an ambiguity is found in insurance policy language, we must construe the language against the insurer as a matter of Delaware law. And therefore, unlike with other types of contracts, we need not inquire into the parties' actual intent. See New Castle v. Hartford I, 933 F.2d at 1182 n. 43; Oglesby, 877 F.Supp. at 881 (noting that Delaware courts ... consistently constru[e] ambiguities in favor of the insured as a matter of law.). 21 Because ambiguous language is construed against the insurer as a matter of law, we take special note of Delaware law for determining whether language is ambiguous. The settled test for ambiguity is whether the provisions in controversy are reasonably or fairly susceptible of different interpretations or may have two or more different meanings. Phillips Home Builders, Inc. v. Travelers Ins. Co., 700 A.2d 127, 129 (Del.1997) (internal quotation marks and citation omitted). An insurance policy is not ambiguous, however, merely because two conflicting interpretations may be suggested. Rather, both interpretations must reflect a reasonable reading of the contractual language. Aetna Cas. and Sur. Co. v. Kenner, 570 A.2d 1172, 1174 (Del.1990). Thus, we must examine, not only whether the county's reading of definition 10(c) is possible, but also whether it is reasonable. See id.; see also New Castle v. Hartford III, 970 F.2d at 1271 (rejecting one reading of the policy language at issue because, while possible, it was not reasonable).