St. Paul Fire and Marine Ins. Co. v. U.S. Fire Ins. Co.

• Citation: 655 F.2d 521
• Decision Date: 30 July 1981
• Docket Number: No. 80-2522,80-2522
• Parties: ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Appellant, v. UNITED STATES FIRE INSURANCE COMPANY, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 521

655 F.2d 521

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Appellant, v. UNITED STATES FIRE INSURANCE COMPANY, Appellee.

No. 80-2522.

United States Court of Appeals, Third Circuit.

Argued June 8, 1981.

Decided July 30, 1981.

Richard R. Galli (argued), T. E. Byrne, Krusen, Evans & Byrne, Philadelphia, Pa., for appellant.

Jerome E. Marks (argued), Deasey, Scanlan & Bender, Ltd., Philadelphia, Pa., for appellee.

Before ALDISERT, WEIS and SLOVITER, Circuit Judges.

OPINION OF THE COURT

WEIS, Circuit Judge.

The issue in this appeal is whether a claim against the insured for slander comes within an insurance policy endorsement that provides coverage for professional malpractice. The district court determined that language in the policy that extends protection only for bodily injury or property damage was applicable and, therefore, slander was not covered. We conclude that the definition of injury and damages contained in the malpractice endorsement, which is more favorable to the insured, controls and, accordingly, remand for the entry of a declaratory judgment establishing coverage.

St. Paul Insurance Company filed a complaint in the United States District Court for the Eastern District of Pennsylvania to obtain a declaratory judgment that the defendant, U. S. Fire Insurance Company, owes primary coverage for a claim of slander against their mutual insured, Dr. Robert A. Weisberg. After a bench trial, the district court entered judgment for the defendant.

The facts are largely undisputed. Dr. Weisberg was sued in state court by a professional associate, who alleged he had been slandered by the doctor during the course of a hospital board meeting. The St. Paul Insurance Company had issued an excess "umbrella" policy to Weisberg, and U. S. Fire had written the doctor's primary malpractice policy. St. Paul undertook defense of the case, but later tendered it to U. S. Fire, contending the latter was the primary carrier. St. Paul concedes that it owes coverage, but asserts it is excess only. U. S. Fire denies that its policy protects against slander, but admits that if coverage is due, it is primary. The construction of the U. S. Fire policy, therefore, is the narrow issue in this case.

An independent insurance agent sold the policy to Dr. Weisberg. It provides, by two endorsements attached to a general automobile liability policy, owners', landlords', and tenants' (OL&T) liability insurance and physicians' professional liability coverage. The premiums for each type of insurance are stated separately.

The OL&T liability insurance has "bodily injury liability" limits of $250,000-$500,000. This is shown on the face sheet of "Part Two," which recites, "This Declarations page and Coverage Part(s) with 'Policy Provisions-Part One' completes the below numbered POLICY...." In the coverage part, the company agrees to

"pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

Coverage A. bodily injury or

Coverage B. property damage

to which this insurance applies...."

In the general automobile liability policy, "Part One," under the heading "definitions," the policy provides, " '(D)amages' includes damages for death and for care and loss of services resulting from bodily injury and damages for loss of use of property...."

The malpractice section of the policy, like the OL&T insurance, is also contained in a separate endorsement. Under its terms, the insured is described as an osteopathic physician, and the company agrees to pay all sums that he

"shall become obligated to pay as damages because of

Coverage M Individual Professional Liability

Injury arising out of the rendering of ... professional services by the individual insured ... as a member of a ... professional board or committee of a hospital or professional society."

Later in the endorsement, the following appears:

"IV. AMENDED DEFINITION

When used in reference to this insurance 'damages' means all damages, including damages for death, which are payable because of injury to which this insurance applies."

The district court concluded that the dispositive issue was the construction of the term "injury" in the U. S. Fire policy. If it were found to "encompass all personal injury," and not just bodily injury, "plaintiff would prevail, because damages for slander are clearly personal injuries." In his findings, the district judge held that "(v)iewed as a whole, the terms of the defendant's policy are more consistent with a construction of the word 'injury' as meaning only 'bodily injury' than a construction of that word as meaning 'personal injury.' " The court therefore concluded that the defendant's policy was not intended to provide coverage "for personal injuries of the kind sub judice" and did not "provide coverage for the slander action in question." Having decided the "injury" question adversely to the plaintiff, the court did not meet the defendant's contention that Dr. Weisberg failed to provide it with proper notice of the claim against him.

On appeal, St. Paul asserts that the language in the defendant's policy is unambiguous and by its terms provides coverage for the slander suit. The defendant apparently contends that extrinsic evidence on the meaning of "injury" was properly admitted at the trial and that its policy does not provide coverage for slander.

In this diversity case, the parties agree that we should apply the law of Pennsylvania, where Dr. Weisberg practiced and the policies were issued and delivered. The applicable interpretative principles are familiar to us.

Pennsylvania holds that if the words of an insurance policy are clear and unambiguous, they are to be given their plain and ordinary meaning. Eastern Associated Coal Corp. v. Aetna Casualty & Surety Co., 632 F.2d 1068, 1075 (3d Cir. 1980), cert. denied, --- U.S. ----, 101 S.Ct. 2320, 68 L.Ed.2d 843 (1981); Pennsylvania Manufacturers' Association Insurance Co. v. Aetna Casualty & Surety Co., 426 Pa. 453, 457, 233 A.2d 548, 551 (1967). A court should read policy provisions to avoid ambiguities, if possible, and not torture the language to create them. If the language is unambiguous, interpretation of the contract is a matter of law for the court. In the event that ambiguities do exist in the wording adopted by the insurance company, then the provisions must be resolved in favor of the insured. Daburlos v. Commercial Insurance Co., 521 F.2d 18, 25-26 (3d Cir. 1975); Sykes v. Nationwide Mutual Insurance Co., 413 Pa. 640, 643, 198 A.2d 844, 845 (1964); Cadwallader v. New Amsterdam Casualty Co., 396 Pa. 582, 587, 152 A.2d 484, 487 (1959).

Additionally, rules of construction have developed to meet the situation where an endorsement has been added to the general policy. If there is a conflict between the terms of the endorsement and those in the body of the main policy, then the endorsement prevails, particularly when it favors the insured. Lumbermens Mutual Casualty Co. v. Sutch, 197 F.2d 79, 81-82 (3d Cir. 1952) (applying Pennsylvania law); see Buntin v. Continental Insurance Co., 583 F.2d 1201, 1205-06 (3d Cir. 1978) (applying "general principles of insurance law as developed by courts throughout the nation," id. at 1204 n.3); Farmers Insurance Exchange v. Ledesma, 214 F.2d 495, 498 (10th Cir. 1954) (applying New Mexico law); 13A J. Appleman & J. Appleman, Insurance Law and Practice § 7537 (1976 & Supp. 1980).

These rules have developed as a result of the common industry practice of using a basic policy form and then attaching endorsements to provide specialized forms of coverage. To the extent that the standard conditions in the underlying form are applicable, this procedure avoids unnecessary repetition. But when a specific form of insurance is provided by an endorsement tailored to meet the particular needs of the insured and the company, that language must be followed to carry out the intentions of the parties. Thus, it is clear that in this situation the malpractice insurance that Dr. Weisberg purchased is governed primarily by the terms of the endorsement which expands the scope of coverage, and only secondarily by the general terms of the automobile policy to which it is attached. ¹

The defendant has consistently refused to recognize this elementary rule of insurance policy construction. It argues that the malpractice insurance does not cover the slander claim because the basic policy defines "damages" as...