Gardner v. State Farm Fire and Cas. Co.

• Citation: 544 F.3d 553
• Decision Date: 22 July 2008
• Docket Number: No. 07-3051.,07-3051.
• Parties: Nicole GARDNER, as Administratrix of the Estate of Sharon Ann Gardner, deceased as Assignee of Kevin Harper, Appellant v. STATE FARM FIRE AND CASUALTY COMPANY.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

544 F.3d 553

Nicole GARDNER, as Administratrix of the Estate of Sharon Ann Gardner, deceased as Assignee of Kevin Harper, Appellant v. STATE FARM FIRE AND CASUALTY COMPANY.

No. 07-3051.

United States Court of Appeals, Third Circuit.

Argued May 13, 2008.

Opinion Filed: July 22, 2008.

Jerome W. Kiger, Amy B. Kubisiak (Argued), Pittsburgh, PA, for Appellant.

C. Leon Sherman (Argued), C. Leon Sherman & Associates, P.C., Pittsburgh, PA, for Appellee.

Before: McKEE and ROTH, Circuit Judges, and PADOVA, Senior District Judge.^*

OPINION OF THE COURT

PADOVA, Senior District Judge:

Nicole Gardner ("Appellant") appeals the order of the United States District Court for the Western District of Pennsylvania granting summary judgment in favor of State Farm Fire and Casualty Company ("State Farm"), and denying summary judgment in Appellant's favor. At issue is the District Court's disposition of Appellant's claims arising out of State Farm's refusal to defend or indemnify its insured, Kevin Harper, in connection with negligence claims Appellant asserted against Harper in a state court action. We have jurisdiction pursuant to 28 U.S.C. § 1291. We affirm.

I.

Kevin Harper purchased a residence on Sole Street in McKeesport, Pennsylvania (the "Property") sometime in the 1980's. Harper lived at the Property until March 1, 2002, when he moved in with his girlfriend on Scott Street, around the corner from the Property. To maintain the mortgage on the Property, he rented it to Appellant pursuant to a March 1, 2002 written lease agreement. Although the initial term of the lease agreement was six months, Appellant continued to rent the Property until February 1, 2003, when Harper evicted her on account of her failure to keep current on the rent. Meanwhile, on August 29, 2002, Appellant's mother, Sharon Ann Gardner ("Appellant's Mother"), slipped and fell on the sidewalk outside the Property and was injured.

Harper had a Homeowner's Insurance Policy with State Farm (the "Policy"). On March 7, 2003, Appellant advised State Farm of her Mother's fall and resulting injuries. As a result, State Farm conducted an investigation, which included obtaining the statements of Appellant and Harper. Pursuant to that investigation, State Farm learned for the first time that Harper was renting out the Property. On April 4, 2003, State Farm sent a letter to Harper, denying coverage and explaining that the Policy "does not offer coverage for bodily injury when the property is held for rental and is no longer occupied by the insured." App. at A189.

On March 31, 2004, Appellant's Mother passed away. On August 25, 2004, Appellant filed a negligence action against Harper on behalf of her Mother's estate in the Court of Common Pleas of Allegheny County (the "State Court Action"). In a September 10, 2004 letter to Harper, State Farm reiterated that because Harper "held the residence premises for rental and did not occupy any part of it when this accident occurred," it was denying coverage and would not provide him with a defense to Appellant's claims. App. at A195. Appellant obtained an entry of default against Harper in the State Court Action on May 18, 2006, and the court entered judgment against Harper in the amount of $1,664,757.52, plus costs and interest, on June 16, 2006.

On April 8, 2005, Appellant's counsel filed a Praecipe for Writ of Summons in the Court of Common Pleas of Allegheny County, and captioned the case Kevin Harper v. State Farm Fire & Cas. Co., even though Appellant had not received an assignment of Harper's rights against State Farm and Harper had not authorized Appellant's counsel to act on his behalf. Subsequently, on June 22, 2005, Harper assigned his rights against State Farm to Appellant (the "Assignment"), and Appellant executed the Assignment on June 29, 2005. That same day, Appellant served the Praecipe for Writ of Summons on State Farm. Exactly one month later, on July 29, 2005, State Farm removed the action to federal court. On September 14, 2005, Appellant's counsel filed a Complaint against State Farm, again in Harper's name, and on December 6, 2005, counsel filed a motion pursuant to Federal Rule of Civil Procedure 17 to substitute Appellant, as administratrix of her Mother's estate, as the real party in interest. The District Court granted that motion on December 13, 2005.

Appellant's Complaint in this case asserts six claims: breach of contract, breach of fiduciary duty, negligence, statutory bad faith pursuant to 42 P.S. § 8371, violation of Pennsylvania's Unfair Trade Practices and Consumer Protection Law (the "UTPCPL"), 73 P.S. § 201-1 et seq., and a claim for punitive damages. Appellant's essential complaint is that State Farm breached its contractual and statutory duties to Harper by refusing to defend Appellant's suit against him, failing to indemnify him for the judgment against him, and failing to evaluate the case in good faith. At the completion of discovery, both parties filed motions for summary judgment. The District Court granted State Farm's motion, denied Appellant's cross-motion, and entered judgment in State Farm's favor.

II.

Appellant asks us to find that the District Court erred in granting summary judgment in State Farm's favor and denying judgment in her favor.¹ Our standard of review of a grant of summary judgment is plenary. See Fed. Home Loan Mortgage Corp. v. Scottsdale Ins. Co., 316 F.3d 431, 443 (3d Cir.2003). In reviewing the decision of the District Court, we assess the record using the same summary judgment standard that guides the district courts. See Farrell v. Planters Lifesavers Co., 206 F.3d 271, 278 (3d Cir.2000). To prevail on a motion for summary judgment, the moving party must demonstrate "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).

III.

Appellant first argues that the District Court erred in finding that the Policy afforded Harper no coverage for her claims against him and therefore erred in entering judgment in State Farm's favor on her breach of contract and breach of fiduciary duty claims. This argument is meritless.

In denying coverage for Appellant's claims, the District Court relied on the following exclusion in the Policy, i.e., the "Rental Exclusion."

Section II — Exclusions

1. Coverage L [Liability] and Coverage M [Medical] do not apply to:

* * *

b. bodily injury or property damage arising out of the business pursuits of any insured or the holding for rental of any part of the premises by any insured. This exclusion does not apply:

* * *

(3) to the rental or holding for rental of a residence of yours:

(a) on an occasional basis for the exclusive use as a residence;

...

App. at A 140.

Appellant argued to the District Court, and continues to argue, that the Rental Exclusion is inapplicable because Harper's rental of the Property was on "an occasional basis" and was therefore subject to the exception set forth in subparagraph (3)(a), the "Occasional Basis Exception." In the alternative, Appellant argues that the Occasional Basis Exception is ambiguous and should therefore should be construed in Harper's favor.

Under Pennsylvania law, which the parties agree is applicable here, the "interpretation of an insurance contract regarding the existence or non-existence of coverage is generally performed by the court." Donegal Mut. Ins. Co. v. Baumhammers, 595 Pa. 147, 938 A.2d 286, 290 (2007) (quoting Minnesota Fire and Cas. Co. v. Greenfield, 579 Pa. 333, 855 A.2d 854, 861 (2004)). "When the language of the policy is clear and unambiguous, we must give effect to the language." Id. (quoting Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 589 Pa. 317, 908 A.2d 888, 893 (2006)). On the other hand, "where a provision of a policy is ambiguous, the policy provision is to be construed in favor of the insured and against the insurer, the drafter of the agreement." Standard Venetian Blind Co. v. Am. Empire Ins. Co., 503 Pa. 300, 469 A.2d 563, 566 (1983). Contractual language is ambiguous if "it is reasonably susceptible of different constructions and capable of being understood in more than one sense." Hutchison v. Sunbeam Coal Corp., 513 Pa. 192, 519 A.2d 385, 390 (1986).

In rejecting Appellant's argument that the Occasional Basis Exception was either ambiguous or plainly applicable under the circumstances of this case, the District Court considered the definition of "occasional" in the 2003 edition of the Merriam-Webster Dictionary, which is, in relevant part: (1) "of or relating to a particular occasion," or (2) "encountered, occurring, appearing, or taken at irregular or infrequent intervals." App. at A17 (quoting Merriam-Webster's Collegiate Dictionary (Merriam-Webster, 11th Ed.2003)). The court held that under either of these definitions, coverage was not available for Appellant's claims as Appellant's rental was neither on a particular occasion nor taken at irregular or infrequent intervals. In this regard, the trial court emphasized that Appellant "rented the property continuously for almost one (1) year which is, practically speaking, the entire term of the annually renewable policy." App. at A18. It further stated that requiring coverage under those circumstances would not be reasonable as it would distort the meaning of the Policy language and would "effectively transform a homeowner's insurance policy into a landlord's insurance policy and render the applicable exclusions meaningless." App. at A18.

We agree with the District Court that, under the circumstances of this case, the Rental Exclusion unambiguously excludes coverage and the Occasional Basis Exception is unambiguously inapplicable. Appellant attempts to inject ambiguity into the Occasional Basis Exception by arguing that the rental was on the single "occasion" of Harper's attempting to get caught up on his mortgage, and that it was likewise "infrequent" and "irr...