New Castle County, Del. v. National Union Fire Ins. Co. of Pittsburgh, Pa.

• Decision Date: 23 April 1999
• Docket Number: No. 98-7091,98-7091
• Citation: 174 F.3d 338
• Parties: NEW CASTLE COUNTY, DELAWARE, Appellant, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.
• Court: U.S. Court of Appeals — Third Circuit

Page 338

174 F.3d 338

NEW CASTLE COUNTY, DELAWARE, Appellant, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

No. 98-7091.

United States Court of Appeals Third Circuit.

Argued Dec. 7, 1998.

Decided April 23, 1999.

Peter J. Walsh, Jr. (Argued), Peter L. Tracey, Potter Anderson & Corroon LLP, Wilmington, DE, for Appellant.

James F. Bailey Jr., Christopher J. Sipe (Argued), Bailey & Wetzel, P.A., Wilmington, DE, for Appellee.

Before: STAPLETON and NYGAARD, Circuit Judges, and GOLDBERG, Judge. ^*

OPINION OF THE COURT

GOLDBERG, Judge:

I. INTRODUCTION

This case reviews whether a provision in an insurance policy is ambiguous. Upon review of the relevant case law and the tenets of contract construction, we find there are two reasonable interpretations of the policy language. Therefore, pursuant to Delaware law, we conclude that the provision is ambiguous, and we construe it in favor of the insured. We remand the case to the District Court for further findings in accordance with this decision.

II. BACKGROUND

This case addresses whether particular language contained in a "personal injury" provision of a comprehensive general liability ("CGL") insurance policy is ambiguous. The CGL policy at issue is a standard form policy prepared by the Insurance Service Office ("ISO"). It provides that the insurer will defend and indemnify the insured against claims alleging damages for "personal injury." The personal injury offenses covered under the policy include definition 10(c), which reads as follows:

10. "Personal injury" means injury, other than "bodily injury," arising out of one or more of the following offenses: ...

c. The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies by or on behalf of its owner, landlord or lessor.

App. of Appellant, at A141 (CGL Policy No. GL 590-62-18-RA).

The above language gave rise to a declaratory judgment action brought on October 21, 1996 by New Castle County, Delaware ("the county") in the District Court for the District of Delaware against National Union Fire Insurance Company of Pittsburgh, Pennsylvania ("National"). ¹ Between 1991 and 1994, the county purchased a series of CGL policies from National (collectively "the CGL policy" or "the policy"). ² When Frank E. Acierno, a developer, filed three lawsuits against the county (collectively, "the Acierno actions"), the county turned to National to defend and indemnify it against the suits. In general, the Acierno actions alleged that the county violated Acierno's constitutional rights by re-zoning or refusing to issue building permits for his property. More specifically, the actions were styled as follows: (1) the first suit alleged violations of Acierno's constitutional rights for failure to issue a commercial building permit on a parcel of land owned by Acierno; ³ (2) the second alleged that an ordinance passed by the county to re-zone one of his properties violated his civil rights; ⁴ and (3) the third, filed after the county's final denial of the building permit, essentially restated the same facts and violations as the first suit. ⁵

Because the county believed that the Acierno actions state a claim for "invasion of the right of private occupancy" as defined in definition 10(c) of the CGL policy, it sought to have National defend and indemnify it in those suits. National disclaimed coverage under the CGL policy for the Acierno actions. ⁶ The county then filed the declaratory judgment action underlying this appeal.

National responded to the County's declaratory judgment action with two counter-arguments. First, National asserted that the offense of "invasion of the right of private occupancy," as contemplated by definition 10(c), is limited to tangible interference with a possessory interest in property. Since the Acierno actions did not allege interference with a possessory interest, but rather with the use and enjoyment of land, National asserted that the actions do not fall within the coverage of definition 10(c) and, consequently, National had no obligation to defend or indemnify the county. Second, National argued that based on the "by or on behalf of" language in definition 10(c), coverage is available only when the insured commits an "invasion" as the owner, landlord, or lessor of the property at issue. Since the county does not claim to be the owner, landlord, or lessor of any Acierno properties, National maintained that it had no obligation to defend the county in those suits.

On December 30, 1997, the District Court issued an opinion granting summary judgment to National, holding that definition 10(c) unambiguously "contemplates coverage for acts such as evictions, entries and invasions committed by one acting by or on behalf of the property's owner, landlord or lessor." New Castle County v. National, 1997 WL 809207, at * 7. According to the District Court, the county cannot be considered the owner, landlord, or lessor of the property and therefore National had no obligation to defend or indemnify the county. Having thus held, the court explicitly declined to reach the question of whether the constitutional violations alleged in the Acierno actions "constitute an invasion of the right of private occupancy." New Castle County v. National, 1997 WL 809207, at * 8.

This appeal ensued. The county asserts that the District Court erred in finding that definition 10(c) only provides coverage for acts committed by or on behalf of an owner, landlord, or lessor. On appeal, the county argues that definition 10(c) is ambiguous and should be construed in its favor. The issue presented to this Court on appeal is thus a narrow one. In short, we must determine whether definition 10(c) is ambiguous.

Because the issue addressed in this opinion is one of first impression under Delaware law, we must predict how the Delaware Supreme Court would resolve it. After examining the parties' conflicting interpretations, relevant case law, tenets of contract construction, and the policy's language and purpose as a whole, we conclude that definition 10(c) is ambiguous and must be construed in favor of the county. Like the District Court we, too, will not reach the question of whether the allegations made in the Acierno actions state a colorable claim for an invasion of the right of private occupancy. Accordingly, the District Court's determination that definition 10(c) is unambiguous will be reversed, and this case will be remanded to the District Court to determine, in light of our holding, whether the violations alleged in the Acierno actions constitute an invasion of the right of private occupancy.

III. DISCUSSION

A. Scope and Standard of Review

We assert jurisdiction over this appeal under 28 U.S.C. § 1291. Jurisdiction below was premised on diversity of citizenship, and the District Court properly applied the substantive law of Delaware. See Erie R.R. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Since the Delaware Supreme Court has yet to address the issue presented by this appeal, we must predict how that court would decide it. See Epstein Family Partnership v. Kmart Corp., 13 F.3d 762, 766 (3d Cir.1994).

The issue before this Court, simply put, is whether definition 10(c) is ambiguous. Whether an insurance policy is ambiguous is a question of law, see International Union v. Mack Trucks, Inc., 917 F.2d 107, 111 (3d Cir.1990), and we have plenary review over the issue. See Pacific Indem. Co. v. Linn, 766 F.2d 754, 760 (3d Cir.1985). And, as a general rule, we will consider only issues passed upon by the court below. See, e.g., Selected Risks Ins. Co. v. Bruno, 718 F.2d 67, 69 (3d Cir.1983).

B. Delaware Law on Interpreting Insurance Policies

As we must predict how the Delaware Supreme Court would decide this issue, it is necessary that we first understand Delaware law on this matter. Before an insurer is obligated to defend or indemnify a policyholder, the insured must demonstrate that coverage is available under the policy. See New Castle County v. Hartford Accident and Indem. Co., 933 F.2d 1162, 1181 (3d Cir.1991) ("New Castle v. Hartford I ") (applying Delaware law). An insurer's duty to defend is broader than its duty to indemnify, see Charles E. Brohawn & Bros., Inc. v. Employers Commercial Union Insurance Co., 409 A.2d 1055, 1058 (Del.1979), but "is limited to suits which assert claims for which it has assumed liability under the policy." Continental Cas. Co. v. Alexis I. duPont School Dist., 317 A.2d 101, 103 (Del.1974). "[W]here there exists some doubt as to whether the complaint against the insured alleges a risk insured against, that doubt should be resolved in favor of the insured." Id. at 105. Most importantly therefore, an insurer is "required to defend any action which potentially states a claim which is covered under the policy." New Castle County v. Hartford Accident and Indem. Co., 673 F.Supp. 1359, 1367 (D.Del.1987) ("New Castle v. Hartford II "). Thus, in this case, if the Acierno actions potentially state a claim that is covered under definition 10(c), National is required to defend the county in those actions.

Whether the Acierno actions potentially state a claim for which National has assumed liability depends upon how we interpret definition 10(c). As a basic matter, Delaware law requires us to interpret insurance contracts "in a common sense manner." SI Management L.P. v. Wininger, 707 A.2d 37, 42 (Del.1998); see also New Castle v. Hartford I, 933 F.2d at 1189 (according the terms of an insurance policy their "ordinary, usual meaning"). We must also examine the disputed language in the context of the entire policy. See, e.g., New Castle v. Hartford I, 933 F.2d at 1194 (ascertaining whether a term "is ambiguous in the context of a specific insurance policy"); New Castle County v. Hartford Accident and Indem. Co., 970 F.2d 1267, 1271 (3d Cir.1992) ("New Castle v. Hartford III ")...