Northbrook Ins. Co. v. Kuljian Corp.

• Decision Date: 15 October 1982
• Docket Number: No. 82-1141,82-1141
• Citation: 690 F.2d 368
• Parties: NORTHBROOK INSURANCE COMPANY v. KULJIAN CORPORATION, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 368

690 F.2d 368

NORTHBROOK INSURANCE COMPANY v. KULJIAN CORPORATION, Appellant.

No. 82-1141.

United States Court of Appeals, Third Circuit.

Argued Sept. 14, 1982.

Decided Oct. 15, 1982.

Leonard Dubin (argued), C. Gary Wyncoop, George H. Kalikman, Blank, Rome, Comisky & McCauley, Philadelphia, Pa., for appellant.

Ralph B. Powell, Jr. (argued), Steven D. Johnson, Richard F. Wells, Philadelphia, Pa., for appellee.

Before GIBBONS, WEIS and SLOVITER, Circuit Judges.

OPINION OF THE COURT

SLOVITER, Circuit Judge.

After a bench trial in a diversity action, the district court entered judgment requiring defendant, one of two "named insureds" on a professional liability insurance policy, to pay the deductible amount notwithstanding that it was the other "named insured" which had incurred the underlying liability. The district court rejected the defendant's contention that the policy was ambiguous. We affirm.

I.

H. A. Kuljian & Company and The Kuljian Corporation are concededly separate entities, both having been founded by Harry A. Kuljian. In 1934, Harry A. Kuljian, a professional engineer, began business as a sole proprietor under the name H. A. Kuljian & Co. performing consulting engineering services. That business was incorporated in 1941 as H. A. Kuljian & Company, Inc., expanding into the field of contracting and construction. In 1944, Harry A. Kuljian and James Cherry, an architect, established an unincorporated business under the name H. A. Kuljian & Company to perform engineering and architecture services. To avoid confusion, the name of the corporation was changed in 1946 to The Kuljian Corporation. Thus, at the times relevant for this lawsuit, The Kuljian Corporation's principal business was construction; H. A. Kuljian & Company's business was architecture and engineering. Harry A. Kuljian died in 1974; Cherry had retired previously, and the company ceased to undertake any new business. It continued to exist and receive money for contracts entered into earlier.

The Northbrook Insurance Company issued a professional liability insurance policy, on or about September 12, 1975, to H. A. Kuljian & Company and The Kuljian Corporation. ¹ The policy provided that Northbrook made the agreement "in consideration of ... the undertaking of the Insured to pay the deductible as described herein and in the amount shown in the Declarations"; that Northbrook agreed to pay "on behalf of the Insured all sums in excess of the deductible amount stated in the Declarations which the Insured shall become legally obligated to pay as damages ..." provided that "(t)he Insured's legal liability arises out of the performance of professional services as described in the Declarations ..."; that the deductible amount "shall include loss payments and claims expenses, whether or not loss payment is made"; and that the "Named Insured" will pay such part of the claims expenses as demanded but that "the total payments requested from the Named Insured in respect of each single claim shall not exceed the deductible amount ..."

"Insured" is defined in the policy as follows:

II. Insured. The unqualified word "Insured" whenever used in this Policy shall mean the Named Insured so designated in the Declarations and any partner, director, officer or employe of the Named Insured while acting in the course of his duties conducted by him for and on behalf of the Named Insured solely in their professional capacity as described in the Declarations.

In applying for this policy, Edward Kuljian, as President of The Kuljian Corporation, had listed "The Kuljian Corporation; H. A. Kuljian & Company" under the heading "Name of applicant." As a result, the policy Declarations identified the Named Insured as "The Kuljian Corporation; H. A. Kuljian & Company." Likewise, the application specified the applicants to be architects, civil engineers, electrical engineers, mechanical engineers, structural engineers and environmental engineers without differentiating those lines of business engaged in by The Kuljian Corporation from those lines of business engaged in by H. A. Kuljian & Company. Consequently, the policy Declarations listed the "Named Insured's Professional Activity" as "Architecture; Civil; Structural, Mechanical, Electrical and Environmental Engineering."

The policy Declarations fixed the deductible amount at $25,000. The effective date of the policy was specified as September 5, 1975 to September 5, 1976.

In late 1975, shortly after the issuance of the Northbrook policy, H. A. Kuljian & Company was named as one of the defendants in two actions filed by the PENN-DELCO Union School District to recover damages arising from the allegedly negligent design and/or construction of the roof of a junior high school building. The claim against H. A. Kuljian & Company was based upon its alleged negligence in the preparation of the plans and specifications. Northbrook was responsible for the potential liability of H. A. Kuljian & Company by virtue of paragraph I of the policy, which specified coverage as extending to claims first made during the policy period. The Kuljian Corporation was named in one of the actions as an additional defendant by one of the original defendants but was never served. ² Counsel stipulated at trial that The Kuljian Corporation had no contractual relationship with the School District and was in no way liable in the PENN-DELCO lawsuits. App. at 32a.

After the PENN-DELCO lawsuits were filed, George Mooradian, counsel for H. A. Kuljian & Company, informed Richard Traub, counsel for Northbrook, of the existence of the actions, and shortly thereafter was authorized by Traub to conduct the litigation on behalf of Northbrook, but was asked to confer with Traub before taking major decisions. At that time, Mooradian was also general counsel of The Kuljian Corporation and an executor of Harry A. Kuljian's estate.

On May 17, 1978, confirmed by letter of May 18, 1978, Mooradian informed Traub that the School District was willing to settle and that H. A. Kuljian & Company's share of that settlement would be around $25,000. Mooradian also informed Traub, for the first time, that H. A. Kuljian & Company sat in the estate of Harry A. Kuljian, that the estate was virtually insolvent, and that H. A. Kuljian & Company would be unable to pay the deductible amount of the policy with regard to any settlement. On May 18, 1978, Traub authorized Mooradian to settle for any sum up to $25,000. On the same day, Traub notified Edward Kuljian, the President of the Kuljian Corporation, of the potential settlement with a possible contribution of $25,000 on the part of H. A. Kuljian & Company, and made demand upon The Kuljian Corporation, as a Named Insured under the policy, to pay the $25,000 deductible amount. ³

Settlement in the PENN-DELCO lawsuits was entered on October 3, 1978. As a part of this settlement, H. A. Kuljian & Company was obligated to pay $20,000. Northbrook paid this amount. As required by the policy, Northbrook also paid $12,153 to Mooradian covering attorney's fees and costs arising from the PENN-DELCO lawsuits and the settlement.

Northbrook then brought this action against The Kuljian Corporation seeking payment of the deductible amount. Following a full trial, the district court, sitting without a jury, found that "The policy of insurance is not ambiguous as to the obligations of the named insured"; that the named insured as defined in the policy is "the same named insured that is responsible for payment of the deductible"; and that "(b)oth the Kuljian Corporation and the H. A. Kuljian & Company accepting the policy as each did, accepted the terms which obligated the named insured, which was both to pay whatever deductible might be in order, following payment of a claim made pursuant to the policy by either." App. at 249-50a. Accordingly, the court entered judgment against The Kuljian Corporation for the deductible amount ⁴ plus interest from the date defendant refused the demand for payment.

II.

This court in previously applying Pennsylvania law, as we also must in this case, has held that the decision whether a written contract is ambiguous is one for the court to decide as a matter of law. Mellon Bank, N. A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1011 (3d Cir. 1980); Brokers Title Co. v. St. Paul Fire & Marine Insurance Co., 610 F.2d 1174, 1178 (3d Cir. 1979). Our review therefore is plenary.

In determining that the contract was not ambiguous, the district court did not restrict itself to the "four corners" of the instrument. Instead, it followed the approach which we recommended in Mellon Bank, N. A. v. Aetna Business Credit, Inc., 619 F.2d at 1011-12, 1012 n. 13, and gave the defendant the opportunity to put forth any "reasonable" alternative interpretation of the words in the contract. Thus, the decision in this case was made after a full trial, not on a motion on the pleadings or on summary judgment. Significantly, defendant did not use the opportunity to put forth extrinsic evidence to show that the terms of the contract are susceptible of differing meanings. Nor did it introduce any evidence as to why it undertook to obtain a joint policy or regarding the circumstances and negotiations between the parties. Indeed, the only witness produced by defendant was one who was not familiar with the events leading to the purchase of the insurance policy in question. ⁵

On this state of the record, The Kuljian Corporation makes essentially two arguments: that the policy's terms are ambiguous and therefore should be construed against Northbrook, and that under the correct construction of the policy only the insured on whose behalf the loss payments were made or the claim expenses were incurred would be required to pay the deductible. Both arguments require us to turn to the contract language itself.

In determining whether the policy is ambiguous, we are guided by several principles well established under...