Fed. Ins. Co. v. KDW Restructuring & Liquidation Servs., LLC, CIVIL ACTION NO. 3:07-01357

CourtUnited States District Courts. 3th Circuit. United States District Court of Middle District of Pennsylvania
Writing for the CourtNEALON
Docket NumberCIVIL ACTION NO. 3:07-01357
Decision Date17 August 2012

not individually but solely as the TRUSTEE OF THE UNI-MARTS LIQUIDATION TRUST, Defendant

CIVIL ACTION NO. 3:07-01357


Date: August 17, 2012



On July 26, 2007, Federal Insurance Company ("Federal") filed a declaratory judgment action against Uni-Marts, LLC ("Uni-Marts"). (Doc. 1). The complaint seeks a declaration that Uni-Marts' insurance policies with Federal do not cover the action against Uni-Marts filed in the Pennsylvania Court of Common Pleas of Luzerne County by, inter alia, Alliance Trading, Inc. ("Alliance Action"), and that Federal has no obligation to defend or indemnify Uni-Marts in connection with that action. (Doc. 1). The Alliance Action was brought by persons who purchased convenience stores in Pennsylvania from Uni-Marts in 2004 and 2005 alleging that Uni-Marts made misrepresentations and omissions about costs and expenses to induce prospective buyers. (Doc. 1-5). In the Alliance Action, judgment was entered against Uni-Marts as a result of a settlement agreement. See Eagle International Services, Inc. v. Uni-Marts, LLC, No. 11-CV-2007 (Luz. Co. Nov. 16, 2007) (Burke, J). In the case sub judice, Federal asserts that coverage under the policies is barred by Uni-Marts' failure to meet the policies' notice requirements, by the contract exclusion of the policies, and by the absence of covered loss. (Doc. 1, pp. 9-10).

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On September 19, 2007, Uni-Marts filed an answer and counterclaim asserting affirmative defenses and requesting a declaration that the policies do cover the Alliance Action and that Federal has the obligation to indemnify Uni-Marts for costs and damages from that action. (Doc. 13). On October 12, 2007, Federal filed an answer to Uni-Marts' counterclaim. (Doc. 14). On November 30, 2007, Federal filed a motion for judgment on the pleadings and brief in support thereof (Docs. 20-21); Uni-Marts filed a brief in opposition (Doc. 29) to Federal's motion on December 21, 2007; Federal filed a reply brief (Doc. 31) on January 14, 2008. On June 18, 2008, this Court converted Federal's motion for judgment on the pleadings into a motion for summary judgment and granted the parties time to conduct further discovery. (Doc. 34).

On February 25, 2009, this matter was stayed pending the disposition of Uni-Marts' Chapter 11 Voluntary Bankruptcy Petition. (Doc. 37). On January 30, 2012, pursuant to a stipulation by the parties, the stay was lifted and "KDW Restructuring and Liquidation Services, LLC, not individually, but solely as the Trustee of the Uni-Marts Liquidation Trust" was substituted for Uni-Marts, LLC as the Defendant.1 (Docs. 43 & 44). Also pursuant to stipulation, the parties agreed on a time-frame for the completion of discovery and the filing of briefs and exhibits regarding the motion for summary judgment. (Docs. 43 & 44).

On May 16, 2012, Federal filed a motion for summary judgment2 , a brief in support

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thereof, and a statement of facts. (Docs. 56 & 57). Uni-Marts filed a brief in opposition and a statement of facts on June 15, 2012. (Doc. 58). On June 29, 2012, Federal filed a reply brief. (Doc. 59).

Federal now moves for summary judgment on count I of its complaint on two grounds: 1) Uni-Marts failed to give Federal notice of a claim "as soon as practical," and 2) coverage is barred by the policies' contract exclusion. (Docs. 56 & 57). Federal's motion is now ripe for disposition and, based on its latter argument, Federal's motion will be granted. Because this Court finds that coverage for the Alliance Action is barred by the contract exclusion, the other ground for summary judgment need not be addressed.


A. Standard of Review

Summary judgment "should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c); Turner v. Schering-Plough Corp., 901 F.2d 335, 340 (3d Cir. 1990). The party moving for summary judgment bears the burden of showing the absence of a genuine issue as to any material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). Once such a showing has been made, the non-moving party must offer specific facts contradicting those averred by the movant to establish a genuine issue of material fact. Lujan v. National Wildlife Federation, 497 U.S. 871, 888, 110 S. Ct. 3177, 111 L. Ed. 2d 695 (1990). All inferences "should be drawn in the light most favorable to the nonmoving party, and where the

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nonmoving party's evidence contradicts the movant's, then the non-movant's must be taken as true." Pastore v. Bell Tel. Co., 24 F.3d 508. 512, quoting Big Apple BMW. Inc. v. BMW of North America. Inc., 974 F.2d 1358, 1363 (3d Cir. 1992), cert. denied, 507 U.S. 912, 113 S. Ct. 1262, 122 L. Ed. 2d 659 (1993).

B. Construction of the Insurance Policies

Federal and Uni-Marts agree that the insurance policies are to be interpreted under Pennsylvania law. (Doc. 57, p. 26); (Doc. 58, pp. 30-34). Under Pennsylvania law, the interpretation of an insurance contract is a question of law for the court to decide. Reliance Ins. Co. v. Moessner, 121 F.3d 895, 900 (3d Cir. 1997): see also General Accident Ins. Co. of America v. Allen, 692 A.2d 1089, 1093 (Pa. 1997) ("The task of interpreting a contract of insurance is generally performed by the court."). "The goal of that task is, of course, to ascertain the intent of the parties as manifested by the language of the written instrument." Standard Venetian Blind Co. v. American Empire Insurance Co., 469 A.2d 563, 566 (Pa. 1983). A court should read an insurance policy as a whole and construe it according to the plain and ordinary meaning of its terms. Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193 F.3d 742, 746 (3d Cir. 1999); Pac. Indem. Co. v. Linn, 766 F.2d 754, 760-61 (3d Cir. 1985). "Where a provision of a policy is ambiguous, the policy provision is to be construed in favor of the insured and against the insurer .... Where, however, the language of the contract is clear and unambiguous, a court is required to give effect to that language." Minnesota Fire and Casualty Co., v. Greenfield, 855 A.2d 854, 861 (Pa. 2004) (citing Gene & Harvey Builders, Inc. v. Pennsylvania Manufacturers' Association Insurance Company, 517 A.2d 910, 913 (Pa. 1986)). Courts interpret coverage clauses broadly "to afford the greatest possible protection to the insured," and, accordingly, they

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interpret exceptions to an insurer's general liability narrowly against the insurer. Westport Ins. Corp. v. Bayer, 284 F.3d 489, 498 n.7 (3d Cir. 2002) (quoting Eichelberger v. Warner, 434 A.2d 747, 750 (Pa. Super. 1981)). An insurer bears the burden of proving that a contract exclusion or limitation on coverage applies. Koppers Co., Inc. v. Aetna Cas. and Sur. Co., 98 F.3d 1440, 1446 (3d Cir. 1996). However, while it is the insurer's duty to establish that a policy exclusion applies, if the language of the exclusion is clear and unambiguous, it is to be construed in accordance with its plain meaning. Madison Construction Co. v. Harleysville Mutual Insurance Co., 735 A.2d 100 (Pa. 1999) (Interpreting a policy exclusion as unambiguous and giving plain meaning to its terms; see also Lower Paxon Township v. United States Fidelity & Guaranty Co., 557 A.2d 393, 402 (Pa. Super. 1989).

It should also be noted that the reasonable expectations doctrine is inapplicable sub judice because Uni-Marts is a commercial insured. See Canal Ins. Co. v. Underwriters at Lloyd's London, 435 F.3d 431, 440 (3d Cir. 2006) (holding that, under Pennsylvania law, the reasonable expectations of an insured may overcome unambiguous policy language only when the insured is a noncommercial entity); Reliance Insurance Co., 121 F.3d at 905 (recognizing that, as a general matter, "sophisticated insureds may exercise more bargaining power vis-á-vis the insurers, and therefore be in less need of protection from the courts than other insureds"); see also United States Fidelity and Guaranty Co. v. Lehigh Valley Ice Arena, Inc, 121 Fed. Appx. 976, 980 (3d Cir. 2005) (citing Madison Construct. Co., 735 A.2d at 109, n.8.


Uni-Marts purchased two insurance policies from Federal for coverage from June 20,

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2005 to June 30, 2006 and June 30, 2006 to June 30, 2007. (Doc. 1, ¶ 1); (Doc. 13, ¶ 1); (Doc. 56-2, ¶ 1); (Doc. 58-1, ¶ 1). Both policies supplied coverage for: 1) Directors & Officers Liability Coverage, 2) Fiduciary Liability Coverage, and 3) Kidnap/Ransom & Extortion Non-Liability Coverage. (Doc. 1-2, pp. 1-2); (Doc. 1-3, pp. 1-2). The policies' liability coverage sections "provide claims made coverage, which applies only to 'claims' first made during the 'policy period' or any extended reporting period." (Doc. 1-2, p. 1); (Doc. 1-3, p. 1). The insurance policies include contract exclusions which state that no coverage will be available:

based upon, arising from, or in consequence of any actual or alleged liability of an Insured Organization under any written or oral contract or agreement, provided that this Exclusion (C)(2) shall not apply to the extent

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