Court Opinion

ID: 859167
Source: CourtListenerOpinion
Date Created: 2013-04-26 16:43:21.90717+00
Date Added: 2024-06-11T09:06:42.492579
License: Public Domain

NOT PRECEDENTIAL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 Plaintiff-

Appellant, 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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Ohio 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.

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