Court Opinion

ID: 9465120
Source: CourtListenerOpinion
Date Created: 2023-08-05 00:36:21.439106+00
Date Added: 2024-06-11T17:38:59.099921
License: Public Domain

GARTH, Circuit Judge,
dissenting.
I must respectfully dissent from the majority’s affirmance of the district court’s order granting summary judgment in favor of the defendant Jefferson Insurance Company. The majority has concluded — as did the district court — that as a matter of law the plaintiff Treasure Craft’s insurance policy must be construed such that paragraph 7 of the policy (an insuring condition limiting coverage to the Levittown premises) controls to deny Treasure Craft coverage in this case, and that paragraph 2E as modified by an Endorsement (a limitation of liability limiting coverage to $25,000 for property “away from” the insured premises if it is in the “custody” of certain named individuals) is of no effect here. I believe that this holding is contrary to the law of Pennsylvania,1 and provides an artificial *655construction which must necessarily lead to an absurd result. In my view, property of the Insured, although at premises of the Insured other than Levittown, is nevertheless covered up to $25,000, if that property is a part of the Levittown inventory, if it is located “elsewhere” than the Levittown premises, and if it is in the “custody” of one of the individuals named in the “Property in Custody of Personnel Away From Premises Endorsement” to paragraph 2E.2 Since at least two of these conditions present disputed material issues of fact, I believe that granting summary judgment was improper. Fed.R.Civ.P. 56.
I
A.
When a dispute arises concerning insurance contracts, it is a truism that such contracts are to be construed strictly against the insurer, and in favor of coverage. See, e. g., Hionis v. Northern Mutual Insurance Co., 230 Pa.Super. 511, 327 A.2d 363, 365 (1974); Eastcoast Equipment Co. v. Maryland Casualty Co., 38 Pa.D. & C.2d 499; 207 Pa.Super. 383, 218 A.2d 91 (1966). In particular, since insurance contracts are viewed as adhesion contracts and since the purchaser of the policy is often little concerned with definitional and exclusionary clauses, the Pennsylvania courts have been especially particular to construe strictly exclusionary provisions and exceptions to the insurer’s general liability under the policy. See, e. g., Hionis v. Northern Mutual Insurance Co., supra; Frisch v. State Farm Fire & Casualty Co., 218 Pa.Super. 211, 275 A.2d 849 (1971); Simon v. Hospital Service Association of Pittsburgh, 192 Pa.Super. 68, 159 A.2d 52 (1960); Kraftsow v. Brown, 172 Pa.Super. 581, 94 A.2d 183 (1953).3
Moreover, it is “settled that any ambiguity or contradiction in an insurance policy must be construed against the insurer, and in a manner favorable to coverage.” Buntin v. Continental Insurance Co., 583 F.2d 1201, at 1207 (3d Cir. 1978) (emphasis in original). See, e. g., Stroehmann v. Mutual Life Insurance Co. of New York, 300 U.S. 435, 57 S.Ct. 607, 81 L.Ed. 732 (1937); Transport Indemnity Co. v. Home Indemnity Co., 535 F.2d 232 (3d Cir. 1976); Daburlos v. Commercial Insurance Co. of Newark, New Jersey, 521 F.2d 18 (3d Cir. 1975); Mohn v. American Casualty Co. of Reading, 458 Pa. 576, 326 A.2d 346 (1974); Burne v. Franklin Life Insurance Co., 451 Pa. 218, 301 A.2d 799 (1973); Hionis v. Northern Mutual Insurance Co., supra. If there is more than one reasonable reading of a policy provision, a court is bound to construe that provision against the insurance company which has drafted it. See, e. g., Blue Anchor Overall Co. v. Pennsylvania Lumbermen’s Mutual Insurance Co., 385 Pa. 394, 123 A.2d 413 (1956); Blocker v. Aetna Casualty & Surety Co., 232 Pa.Super. 111, 332 A.2d 476 (1975); Burns v. Employers’ Liability Assurance Corp., 205 Pa.Super. 389, 209 A.2d 27 (1964); Vowinckel v. Donegal Mutual Insurance Co., 201 Pa.Super. 229, 191 A.2d 706 (1963); Good v. Metropolitan Life Insurance Co., 166 Pa.Super. 334, 71 A.2d 805 (1950). See also Buntin v. Continental Insurance Co., supra; Continental *656Assurance Co. v. Conroy, 209 F.2d 539 (3d Cir. 1954).
I believe that the only logical and natural construction of the insurance policy in this case, as it is applied to the situation here presented, is one that affords coverage to the insured when property from its Levit-town store is in the custody of a named individual, who is away from the Levittown premises, no matter where that individual may be located (within, of course, the policy’s territorial limits) — including other premises of the insured. Indeed, it seems to me that the interpretation put forward by the insurance company leads to anomalous results. For example, let us suppose that Donald Bound had taken some jewelry from the Levittown store and was on his way to Treasure Craft’s Southampton store. If Bound had been robbed just before he stepped through the doorway of the Southampton store, the theft clearly would be covered up to a loss of $25,000 by paragraph 2E. However, Jefferson would argue, and the majority apparently agrees, that if the robbery took place after Bound had stepped through the doorway of the Southampton store, there would be no coverage since paragraph 7 would operate to cut off its paragraph 2E liability. To hinge coverage on whether or not Bound has stepped over the Southampton store’s threshold does not seem to me to be a reasonable result. The fact that property of the insured from its Levittown store happens to be physically present for a time at another store, does not, in my opinion, take that property out of the insuring provision of paragraph 2E: the property is covered up to $25,000 if it is away from the Levittown premises and if it is in the custody of one of the named individuals.
If there is disagreement with my reading of the policy, at best that disagreement can only lead to the conclusion that the policy is susceptible of two interpretations. The second interpretation, as adopted by the majority, is that Levittown jewelry, if found upon uninsured premises of Treasure Craft (j. e., at the Southampton store), is excluded from coverage by paragraph 7, even though it is in the custody of a person named in the Endorsement to paragraph 2E. To be sure, such a construction is, in my view, strained. But to the extent that it has attracted at least two members of this court, it cannot be said that such a construction — even though clearly incorrect by my lights — is entirely unreasonable.
If indeed the majority’s construction of the policy is a reasonable one, then we are faced with an ambiguity in the policy, inasmuch as the intended interpretation and effect of paragraphs 2E and 7 cannot clearly be ascertained. See Buntin v. Continental Insurance Co., supra; Consolidation Coal Co. v. Liberty Mutual Insurance Co., 406 F.Supp. 1292, 1295 (W.D.Pa.1976).
Application of the basic tenets of insurance law expressed above requires that we resolve this ambiguity in favor of the insured. In Buntin, for example, applying the same legal principles, this court was presented with two contradictory versions of the effect of an endorsement on a clause contained in the main policy. We did not find it necessary to accept one interpretation over the other; rather, since the policy language was fairly susceptible of both interpretations (thereby creating an ambiguity), and since the effect of the endorsement was unclear, we held that the policy must be construed to provide coverage to the plaintiff.
Similarly, in this case, giving every benefit of the doubt to the majority’s interpretation, at the least we are faced with two versions of the relationship which exists between two provisions of the policy. As I stated above, I believe that only one construction can reasonably be adopted. However, even if we view each version of the policy as tenable, then we must, under Pennsylvania law, accept the version adverse to the insurance company, and favorable to the insured. Thus, in my opinion, the policy must as a matter of law be construed such that jewelry from the Levit-town inventory — but temporarily away from the Levittown premises — in the custody of an individual named in the Endorsement is covered by paragraph 2E up to *657$25,000, no matter where it is located within the policy’s territorial limits.
To the argument that such a construction could lead to the sham practice of describing all property in other stores as being from the Levittown inventory, thereby avoiding altogether the effect of paragraph 7, I would rejoin that that type of abuse must pass through the filter of the fact-finding process. It would be for a fact-finder — jury or judge — to determine whether in fact the property was from the Levit-town store, or whether it was not.
To summarize, I think that the effect of paragraph 2E as endorsed and paragraph 7, as they apply in the situation presented by this case, is clear. However, even if their effect were not clear, at best an ambiguity in the insurance policy would be created. That being the case, we must accept the construction which is more favorable to the insured. Moreover, were we required to choose one of the two possible interpretations, in my opinion there is no question but that the one put forward by Treasure Craft is the only reasonable construction of the policy.
B.
Once it is determined that paragraph 2E applies to the property at issue in this case, it becomes apparent that summary judgment was not a proper disposition. Summary judgment, of course, may be granted only when “there is no genuine issue as to any material fact,” Fed.R.Civ.P. 56. The construction of the insurance contract which I believe must be adopted presents at least two genuine issues of material fact, viz., whether the jewelry in question was actually from the Levittown store (or whether it had in fact been transferred to the Southampton store), and whether the jewelry in question was in the “custody” of Donald Bound at the time of the theft. Giving Treasure Craft (the opponent of summary judgment) the benefit of all reasonable doubts and inferences, see Braden v. University of Pittsburgh, 552 F.2d 948, 966-67 (3d Cir. 1977) (en banc) (Garth, J., concurring), it is clear that these factual determinations are in issue in this case. These fact issues must go to trial and must be submitted to the jury. See, e. g., Ball v. Aetna Casualty & Surety Co., 58 F.R.D. 362 (E.D.Ky.1973) (in an action based on a personal property floater the court held that summary judgment must be denied because issues of fact existed as to whether plaintiff was a member of the insured household). See also Atlanta Tallow Co. v. Fireman’s Insurance Co., 119 Ga.App. 430, 167 S.E.2d 361 (1969) (in an action on a theft insurance policy it was held to be error to grant summary judgment for insurer on theory that the stolen money was not in the insured’s “custody” at the time of the robbery). Cf. Fox West Coast Theatres v. Union Indemnity Co., 167 Wash. 319, 9 P.2d 78 (1932) (in action on a robbery insurance policy issue of “custody” of money treated as a fact issue).
II
Even adopting the majority’s view that paragraph 7 must be construed to apply to property of the insured on a premises other than Levittown (even though that property is from the Levittown inventory and is in the custody of an individual named in the Endorsement to paragraph 2E), I still believe that this case should have proceeded to trial.
Under Pennsylvania law, the defendant insurer, when invoking an exclusionary provision in order to disclaim coverage, must bear the burden of proving that the exclusionary clause is applicable to the particular case. See Daburlos v. Commercial Insurance Co., supra; Weissman v. Prashker, 405 Pa. 226, 175 A.2d 63 (1961). Moreover, “[e]ven where a policy is written in unambiguous terms, the burden of establishing the applicability of an exclusion or limitation involves proof that the insured was aware of the exclusion or limitation and that the effect thereof was explained to him.” Hionis v. Northern Mutual Insurance Co., 230 Pa.Super. 511, 516-17, 327 A.2d 363, 365 (1974).
Here, Jefferson Insurance is asserting as a defense to Treasure Craft’s action the *658exclusionary provision of paragraph 7. Thus, even if paragraph 7 unambiguously applied to deny coverage in this case, it would be incumbent upon the insurer, Jefferson Insurance, to prove that Treasure Craft was aware of the paragraph 7 exclusion, and that the provision’s effect — viz., that coverage of Levittown jewelry ceased if an individual named in the endorsement to paragraph 2E, with that Levittown property in his custody, entered another premises of the insured — was explained. I can find no evidence in the record which indicates that Jefferson has undisputedly met this burden. At best, therefore, this question constitutes a disputed issue of material fact, as to which a grant of summary judgment was improper. See Daburlos v. Commercial Insurance Co., supra.
The majority seeks to avoid the doctrine of Daburlos and Hionis by its reading of, and reliance on, Miller v. Prudential Insurance Co. of America, 239 Pa.Super. 467, 362 A.2d 1017 (1976). In my opinion, Miller is inapposite; the majority’s reading of Miller is overly generous, and therefore its reliance on Miller is completely misplaced. Miller, as the majority opinion reflects, involved a major medical insurance policy which by its explicit terms provided for the deductibility of benefits received from other medical insurance before major medical benefits would be paid. The majority opinion properly refers to four distinguishing factors between that situation and the situation presented in Hionis, where no such clear cut, unambiguous provisions appeared. However, the majority opinion fails to acknowledge a principal factor in the Miller decision, viz., the fact that the plaintiff had already received full compensation for those medical expenses for which he sought a second reimbursement from the defendant insurer. The last paragraph of the Miller opinion makes clear the reason why in such a case the court imputed to the insured a knowledge of the “exclusion”:
The appellant’s major medical policy on its face covered his medical expenditures. The policy, however, provided for an exception to payment if the insured was otherwise reimbursed from other medical insurance policies. Because the appellant has already received full compensation for his medical expenses, it would be inequitable to require Prudential to demonstrate affirmatively that the insured was aware of the exception and had its effect explained to him. Under the circumstances of this case, such knowledge should be imputed to the appellant.
362 A.2d at 1021 (emphasis in original).
In this case, it is undisputed that Treasure Craft has received no reimbursement for its loss from any other source. Thus, even if the initial four factors found in Miller could be said to be present in Treasure Craft’s case — and in my opinion they are not — the absence here of the determinative factor in Miller, i. e. the equities, makes reference to Miller completely inappropriate.
Ill
For the reasons stated above, I dissent from the majority’s affirmance of the judgment in favor of the insurance company. I believe that, under Pennsylvania law, the insurance policy in this case must be construed such that paragraph 2E can cover the stolen jewelry, if it is determined that the jewelry was from the Levittown store and that it was in Donald Bound’s custody at the time it was stolen. Since these are genuine issues of material fact, summary judgment was, in my opinion, erroneously granted. See part I of this dissenting opinion, supra.
Moreover, even accepting the majority’s view that paragraph 7 of the policy precludes coverage, I believe that summary judgment should not have been granted since under Pennsylvania law an issue of fact exists as to whether the exclusionary effect of paragraph 5 as applied to this situation had been explained to the plaintiff. See part II of this dissenting opinion, supra.
Thus, I think that the district court’s order granting the defendant’s motion for summary judgment should be reversed, and the case remanded so that it may proceed to trial.

. There is no question but that Pennsylvania law governs in this case under the principle of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). See Daburlos v. *655Commercial Ins. Co. of Newark, N.J., 521 F.2d 18 (3d Cir. 1975).

. Donald Bound is one of those named individuals.

. Kraftsow, for example, concerned the liability of an insurer under a water damage policy. The loss in Kraftsow had been caused by water which had collected on the roof during heavy storms, and which had run into a drain pipe on the roof. The water ran into the plaintiffs basement from an uncapped outlet of the drain pipe, and from the sinks and toilets which were connected to that pipe. The insurance policy insured against “all Direct Loss and Damage caused solely by the accidental discharge, leakage, or overflow of water . . from within the [Plumbing System].” The policy also excluded from coverage damage caused by “backing up of sewers or drains.” The insurer claimed that this latter exclusion excused it from liability. The court rejected this claim, holding that even if the loss were due to such “backing up”, an excepting clause appearing in a paragraph dealing with subjects not connected to plumbing systems could not be invoked to deny coverage in a situation which was clearly within’the ambit of the insuring clause. Also, see World Fire & Marine Ins. Co. v. Carolina Mills Distrib. Co., 169 F.2d 826 (8th Cir. 1946).