On Air Entertainment v. Nat'l Indemnity, 98-2038

• Decision Date: 20 October 1999
• Docket Number: No. 98-2038,No. 98-2039,Nos. 98-2038,98-2038,98-2039,s. 98-2038
• Citation: 210 F.3d 146
• Parties: (3rd Cir. 2000) ON AIR ENTERTAINMENT CORP.; NISE PRODUCTIONS, INC.; MICHAEL NISE, Appellants atv. NATIONAL INDEMNITY CO. Appellant at& 98-2039 ARGUED:
• Court: U.S. Court of Appeals — Third Circuit

Page 146

210 F.3d 146 (3rd Cir. 2000)

ON AIR ENTERTAINMENT CORP.; NISE PRODUCTIONS, INC.; MICHAEL NISE, Appellants at No. 98-2038 v. NATIONAL INDEMNITY CO. Appellant at No. 98-2039

Nos. 98-2038 & 98-2039

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

ARGUED: October 20, 1999

Opinion Filed March 29, 2000

APPEAL AND CROSS-APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (D.C. Civil Action No. 96-cv-02597) (District Judge: Ronald L. Buckwalter)

Michael R. Needle, Esquire (ARGUED) Law Offices of Michael R. Needle 2401 Pennsylvania Avenue Suite 1C-44 Philadelphia, PA 19130 Counsel for Appellants/Cross Appellees

Nancy F. Peters, Esquire (ARGUED) National Indemnity Company 4016 Farnam Street Omaha, NE 68131, Barry L. Kroll, Esquire Williams & Montgomery 20 North Wacker Drive 2100 Opera Building Chicago, IL 60606, Peggy B. Greenfeld, Esquire Klett, Lieber, Rooney & Schorling 18th & Arch Streets Two Logan Square, 12th Floor Philadelphia, PA 19103 Counsel for Appellee/Cross Appellant

BEFORE: SCIRICA, COWEN, and MAGILL,^* Circuit Judges

OPINION OF THE COURT

MAGILL, Senior Circuit Judge.

This appeal raises issues concerning the extent of coverage provided by Owner's, Landlord's and Tenant's Liability (OL&T) insurance policies. The appeal arises out of a suit by On Air Entertainment Corp. (On Air) against National Indemnity Co. (National) in which On Air, under an OL&T policy from National, sought defense costs and damages for bad faith in connection with the defense of two lawsuits (Suit One and Suit Two).¹ On Air appeals the District Court's grant of National's motion for judgment as a matter of law on its bad faith claims, the Court's denial of its request to amend its complaint to add a fraud claim, and the Court's ruling that a release that it signed was enforceable and barred its action against National for damages in connection with Suit Two. National cross-appeals the District Court's finding that coverage exists under the OL&T policy for Suit One and also appeals the District Court's holding that New Jersey law applies to the coverage issues. We affirm all of the District Court's rulings from which On Air appeals and reverse the District Court's holding of coverage and attorneys' fees under the OL&T policy.

I. BACKGROUND

In 1988, On Air purchased a standard OL&T insurance policy (Policy) from National to insure its premises.² On Air produced two syndicated television teen dance shows called Dancing on Air and Dance Party USA (Dance Shows) on its premises. Edward O'Neil (O'Neil) was one of the hosts of the Dance Shows. In 1987, directors of On Air met with O'Neil regarding his off-show conduct with minor females who appeared on the Dance Shows and instructed him to not have any further involvement with underage females. Despite these warnings, O'Neil continued in a relationship with an underage female and was subsequently removed as a host of the Dance Shows. However, in 1989, On Air reinstated O'Neil as a host of the Dance Shows. Shortly after his reinstatement, O'Neil allegedly raped two minor females who were dancers on the Dance Shows. Both of the alleged rapes occurred on social occasions off On Air's premises.

In January 1991, Suit One was filed against On Air alleging that On Air's negligent hiring and supervision of O'Neil contributed to the alleged rape of one of the underage females. On Air tendered Suit One to National, but National initially denied coverage under the Policy for various reasons. In October 1991, Suit Two was filed against On Air and contained similar allegations of negligent hiring and supervision. After receiving notice of Suit Two, National determined that while there was no coverage for either suit, it would defend both suits under a full and complete reservation of rights, pending a declaratory judgment action.

Shortly after National agreed to take over the defense of the suits, Suit Two was settled by On Air's private counsel for $30,000 and National agreed to contribute $13,500 in exchange for a complete release of On Air. In connection with the settlement, On Air released National from all claims arising from Suit Two, including claims for coverage and attorneys' fees.³ Suit One settled in April 1994, and National paid the alleged rape victim $101,000 in exchange for a complete release of On Air.

On March 29, 1996, On Air brought the current suit against National alleging bad faith in connection with Suit One and Suit Two and claiming that it was entitled to attorneys' fees in connection with the defense of the suits. The District Court denied National's motion for summary judgment on its claim that the Policy did not provide coverage for Suit One and Suit Two and ruled that New Jersey law applied to the coverage issues. On Air's suit was scheduled for a jury trial on September 30, 1997. Prior to trial, the District Court ruled that the Policy provided coverage to On Air for Suit One and Suit Two. The Court proceeded to trial on the remaining issues of whether National had acted in bad faith in connection with the suits, and the amount of attorneys' fees owed to On Air by National.

On the third day of trial, the District Court informed On Air that it had not made a showing of bad faith by National. The Court allowed On Air to proffer all of its remaining evidence in order to make a showing of bad faith. Following On Air's proffer, the District Court granted National's motion for judgment as a matter of law on the bad faith claims. The Court scheduled the remaining issue, the amount of attorneys' fees to which On Air was entitled, for trial in June 1998. Prior to the June 1998 trial, the District Court granted National's motion claiming that On Air was not entitled to any attorneys' fees in connection with Suit Two because On Air had signed a release of any potential claims.⁴ Following a bench trial on the issue of attorneys' fees in connection with Suit One, the Court awarded On Air $63,600.08 for attorneys' fees, plus interest accrued. Subsequently, the District Court denied National's motion for an order to vacate the judgment or for a new trial, and this appeal and cross-appeal followed.

II. ANALYSIS

A. Choice of Law Issue

National cross-appeals the District Court's ruling that New Jersey law controls the case and argues that Pennsylvania law should control. Because this is a diversity case, we apply the choice of law principles of Pennsylvania, the forum state. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97, 61 S.Ct. 1020, 1021 (1941). The District Court applied Pennsylvania's choice of law test, which it termed "a combination of the `most significant' test and an `interest' analysis," and held that New Jersey, and not Pennsylvania, law controls the case.

National contends that the District Court misapplied Pennsylvania's choice of law test, and that Pennsylvania law should control the case. However, before a choice of law question arises, there must actually be a conflict between the potentially applicable bodies of law. See Lucker Mfg. v. Home Ins. Co., 23 F.3d 808, 813 (3d Cir. 1994); Williams v. Stone, 109 F.3d 890, 893 (3d Cir. 1997). National admits that it cannot point to any differences between Pennsylvania and New Jersey law relevant to this case. In addition, our own research has not identified any relevant differences. Under these circumstances, there is no conflict of law, and the court should avoid the choice of law question. See Lucker, 23 F.3d at 813. The court can, therefore, refer interchangeably to the laws of New Jersey and Pennsylvania in discussing the law applicable to the case. See id.

B. Coverage under the Policy

The District Court held that the Policy provided coverage in this case, but did not give the reasons for its ruling.⁵ On cross-appeal, National argues, among other things, that there is no coverage in this case because the Policy is an OL&T policy, a limited form of insurance which does not provide coverage for off-premises injuries. Our review of the District Court's coverage ruling is plenary. See Carey v. Employers Mut. Cas. Co., 189 F.3d 414, 417 (3d Cir. 1999).

National argues that OL&T policies, in contrast to broader comprehensive general liability policies, do not cover off-premises injuries such as those in the present case. On Air counters that the underlying lawsuits alleged that its negligence in hiring and supervising O'Neil resulted in the alleged rapes of the plaintiffs. On Air claims that because hiring and supervising necessary personnel, including the host, is "necessary or incidental" to the Dance Shows, one of the "operations" conducted on the insured premises, the injuries alleged in the lawsuit therefore "aris[e] out of the ownership, maintenance or use of the insured premises and all operations necessary or incidental thereto."

Neither the parties' briefs nor our research reveal a decision by either New Jersey or Pennsylvania courts on the coverage provided by OL&T policies for off-premises injuries. Therefore, it is appropriate for the court to consider other state court decisions, federal decisions, and the general weight and trend of authority. See Farmers Alliance Mut. Ins. Co. v. Salazar, 77 F.3d 1291, 1294-95 (10th Cir. 1996). In construing the policy language, we must keep in mind that it is well established that ambiguity in insurance contracts must be construed in favor of the insured. See Nationwide Mut. Fire Ins. Co. v. Pipher, 140 F.3d 222, 227 (3d Cir. 1998).

In construing the "operations necessary or incidental thereto" language in OL&T policies, one court has noted that "[n]umerous courts have addressed whether off-site injuries may be covered by such language in a premises liability policy, and there is a definite lack of consensus as to the correct result." Hartford Fire Ins. Co. v. Annapolis Bay Charters, Inc., 69 F.Supp.2d 756, 761-62 (D. Md. 1999) (citation omitted). The cases construing OL&T policies can be grouped...