Michael Carbone, Inc. v. General Acc. Ins. Co.

Decision Date09 August 1996
Docket NumberCivil Action No. 96-1442.
Citation937 F. Supp. 413
PartiesMICHAEL CARBONE, INC., Plaintiff, v. GENERAL ACCIDENT INSURANCE CO. and Keith Edward Wilson, Defendants.
CourtU.S. District Court — Eastern District of Pennsylvania


David T. Lewis, Archer and Greiner, Philadelphia, PA, for Plaintiff.

Jacques Mann, Law Offices of Ralph L. Herbst, III, Philadelphia, PA, for General Accident Insurance Company.

Justine Gudenas, Philadelphia, PA, for Keith Edward Wilson.


VanARTSDALEN, Senior District Judge.

The plaintiff, Michael Carbone, Inc. ("Carbone") seeks a declaratory judgment requiring defendant General Accident Insurance Co. ("General Accident") to defend and indemnify it pursuant to a Commercial General Liability ("CGL") policy written by General Accident. The loss at issue arose on September 28, 1993 when Keith Edward Wilson's car was rear-ended by an automobile driven by Dennis Sebelist, a Carbone employee traveling to a customer service call on behalf of his employer. In a related civil matter, Wilson sued both Sebelist and Carbone. See Wilson v. Sebelist, No. 95-5462 (E.D.Pa.1995) (unreported case). This underlying action has been settled through a two-tiered settlement in which the amount of plaintiff's recovery is contingent upon whether the defendants are covered by the Carbone CGL policy.

In this action, both Carbone and General Accident have moved for summary judgment. General Accident argues that it has no duty to defend or indemnify Carbone because the CGL policy at issue contained an exclusion for losses arising out of the ownership, maintenance, or use an automobile. Carbone, in contrast, seizes upon a "separation of insureds" clause in the CGL policy, which it argues makes the automobile exclusion inapposite. After carefully considering the briefs filed by both parties and the oral argument on the cross-motions for summary judgment, I have concluded that the automobile exclusion does apply and that General Accident is not required to defend or indemnify Carbone. Therefore, General Accident's motion for summary judgment will be granted and Carbone's will be denied.

I. Undisputed Facts

Although the parties desire very different outcomes in this action, they agree on all of the pertinent facts. Carbone concedes that Sebelist was acting in the scope of his employment when he was involved in the collision with Wilson's car. The parties agree that Sebelist owned and insured the car he was driving at the time of the accident; it was not owned by Carbone.

Furthermore, the parties agree that the CGL policy contained an automobile exclusion and a separation of insureds clause, although they disagree vehemently on the proper interpretation of those provisions. The CGL policy obligated General Accident to defend and indemnify Carbone and the other "insureds" for a wide variety of losses. Since Carbone is a corporation, Section II.1.c. of the policy provides the relevant definition of "insureds":

If you are designated in the Declarations as:

c. An organization other than a partnership or joint venture, you are an insured. Your executive officers and directors are insureds, but only with respect to their duties as your officers or directors. Your stockholders are also insureds, but only with respect to their liability as stockholders.

A subsequent provision, Section II.2.a., extends the definition of "insured":

Each of the following is also an insured:
a. Your employees, other than your executive officers, but only for acts within the scope of their employment by you.

The policy also contains an "automobile exclusion," the relevant portion of which states:

This insurance does not apply to:
g. "Bodily injury" or "property damage" arising out of the ownership, maintenance, use or entrustment to others of any aircraft, "Auto" or watercraft owned or operated by or rented or loaned to any insured.

Finally, the CGL policy includes a "Separation of Insureds" clause which states, in toto:

Except with respect to the Limits of Insurance, and any rights or duties specifically assigned in this Coverage Form to the first Named Insured, this insurance applies:
a. As if each Named Insured were the only Named Insured; and
b. Separately to each insured against whom claim is made or "suit" is brought.
II. Summary Judgment Standard

Both sides have moved for summary judgment. A motion for summary judgment is appropriate only when there is no genuine issue of material fact, and one party is entitled to judgment as a matter of law. Williams v. Borough of West Chester, 891 F.2d 458, 463-64 (3d Cir.1989). In a motion for summary judgment, the court may examine evidence beyond the pleadings. The court must always consider the evidence, and the inferences from it, in the light most favorable to the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962); Tigg Corp. v. Dow Corning Corp., 822 F.2d 358, 361 (3d Cir.1987); Baker v. Lukens Steel Co., 793 F.2d 509, 511 (3d Cir.1986). If a conflict arises between the evidence presented by both sides, the court must accept as true the allegations of the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513-14, 91 L.Ed.2d 202 (1986). For a dispute to be "genuine," a reasonable jury must be able to return a verdict for the non-moving party. Anderson, 477 U.S. at 248, 106 S.Ct. at 2510.

III. Legal Analysis

Given that there are no disputes as to any material fact, this case is particularly eligible for resolution by summary judgment. The determination of which party's motion should be granted turns on the interpretation of the CGL policy. General Accident claims that the automobile exclusion bars coverage. General Accident notes that the loss at issue was caused by Sebelist's operation of an automobile while Sebelist was acting within the scope of his employment. Furthermore, since Sebelist was acting on behalf of Carbone, his employer, General Accident argues that Sebelist's acts must be imputed to Carbone under ordinary agency law doctrines. Therefore, General Accident contends that the loss arose out of use or operation of an automobile by an insured (i.e. Carbone Inc.), and thus, the automobile exclusion applies to bar coverage.

A. The Separation of Insureds Clause and the Auto Exclusion

Carbone concedes that the automobile exclusion plays some role in the present analysis. However, Carbone argues that the exclusion must be read in light of the separation of insureds clause. Essentially, this requires that the automobile exclusion must be applied to each insured separately. In particular, Carbone believes that when the automobile exclusion is read to determine how it applies to Carbone it reads as follows:

This insurance does not apply to:
g. "Bodily injury" or "property damage" arising out of the ownership, maintenance, use or entrustment to others of any aircraft, "Auto" or watercraft owned or operated by or rented or loaned to Carbone Inc.

In short, Carbone thinks that the phrase "any insured" must be replaced by each insured individually when determining the scope of the exclusion. In essence, Carbone views "any insured" to be synonymous with "the insured." Similarly, when read to determine how it applies to Sebelist as an employee, Carbone contends that the policy reads:

This insurance does not apply to:
g. "Bodily injury" or "property damage" arising out of the ownership, maintenance, use or entrustment to others of any aircraft, "Auto" or watercraft owned or operated by or rented or loaned to an employee of Carbone Inc.

Carbone argues that these two readings of the automobile exclusion should be applied to determine which insureds were covered for the loss caused by the car accident. First, Carbone concedes that the exclusion clearly bars coverage for Sebelist. The loss caused by the accident arose out of use of an auto operated by Sebelist, an employee of Carbone Inc. Carbone argues that this is irrelevant, however, in deciding whether Carbone is covered. Carbone argues that the car was used or operated by one of its employees, who is a separate insured, and not by the company itself. Under Carbone's logic, the loss did not arise out of the use or operation of an automobile by Carbone, and therefore the automobile exclusion is inapposite, and General Accident must indemnify and defend Carbone Inc. pursuant to the CGL policy.

Before examining which party has the better argument, I should note that New Jersey law governs this action. A federal court sitting in a diversity case must apply the choice of law rules of the forum state. Klaxon Co. v. Stenton Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Since Pennsylvania is the forum state, its choice of law rules control. Pennsylvania follows the "significant contacts" rule and applies the law of the state with the most important contacts to the action. Nationwide Mut. Ins. Co. v. Walter, 290 Pa.Super. 129, 434 A.2d 164 (1981); Griffith v. United Air Lines, 416 Pa. 1, 203 A.2d 796 (1964). In interpreting an insurance contract, the most significant contacts are the place the contract was formed and the insured's domicile. The Carbone CGL contract at issue here was formed in New Jersey and insures a New Jersey corporation. Thus, its interpretation is governed by New Jersey law, even though Sebelist's accident occurred in Pennsylvania. See Licenziato v. United States, 889 F.Supp. 162 (D.N.J.1995) (applying New Jersey law to case involving an auto insurance contract issued in New Jersey even though the accident occurred elsewhere). Therefore, I will examine New Jersey law to determine which party's reading of the policy is correct. Unfortunately, New Jersey courts have not addressed the exact issue presented here (i.e. the interpretation of an exclusion using the phrase "any insured" in light of a severability provision), so I will also examine holdings from other co...

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