Opinions of the United
2002 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


3-27-2002

Westport Ins Corp v. Baker
Precedential or Non-Precedential:

Docket 01-1150




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PRECEDENTIAL

       Filed March 27, 2002

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 01-1150

WESTPORT INSURANCE CORPORATION,
a Missouri corporation

v.

*RONALD JAY BAYER; EVELYN LAKEN; **ALAN LAKEN,
all Pennsylvania residents, as a party in his own right
and as Executor of the Estate of Morton Laken

Westport Insurance Corporation,

       Appellant

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 00-cv-00811)
District Judge: Honorable John P. Fullam

Argued: January 16, 2002

BEFORE: SCIRICA, GREENBERG, and BRIGHT,***
Circuit Judges

(Filed: March 27, 2002)
_________________________________________________________________

       * (Amended in accordance with Clerk’s Order dated 8/7/01.)

       ** (Amended - See Clerk’s Order dated 10/1/01.)

       *** Honorable Myron H. Bright, Senior Judge of the United States Court
       of Appeals for the Eighth Circuit, sitting by designation.




       Brian C. Bendig, Esq. (Argued) and
        Jeffrey A. Goldwater, Esq.
       Bollinger, Ruberry & Garvey
       500 W. Madison St., Ste. 2300
       Chicago, IL 60661-2511
       Counsel for Appellant

       James J. West, Esq. (Argued)
       105 N. Front St.
       Harrisburg, PA 17101
       Counsel for Appellees

OPINION OF THE COURT

BRIGHT, Circuit Judge.
This dispute concerns the coverage afforded appellee,
Ronald Jay Bayer, under the lawyer’s professional liability
insurance policy issued to him by Westport Insurance
Corporation (Westport). In 1997, Morton Laken, Evelyn
Laken and Alan Laken (the Lakens) sued Bayer, alleging
fraud and misrepresentation, among other things. Westport
subsequently brought this action against Bayer and the
Lakens seeking a declaratory judgment that Westport was
not obliged to pay any judgment rendered against Bayer in
the Lakens’ action. In the underlying suit, Morton Laken,
Evelyn Laken, and Alan Laken v. Fryer Group of Cos., et al.,
No. 97-4413 (E.D. Pa. Nov. 17, 2000) [hereinafter Lakens v.
Fryer Group], the district court found for the Lakens on
their negligent misrepresentation claims against Bayer and
entered judgment for over $678,000.1 The district court
then entered judgment in the instant case. The court
declared Westport liable to the extent of the policy limits for
payment of the Lakens’ judgment against Bayer. The court
determined that the policy’s aggregate claims limit of
_________________________________________________________________

1. Bayer has appealed the district court’s judgment in the underlying
case to this court. We affirm the district court’s judgment in an
unpublished opinion that we file contemporaneously with this opinion.
See Laken v. Fryer Group of Cos., No. 00-4302 (3d Cir. Mar. 27, 2002).

                                2


$500,000, rather than the single claim limit of $250,000,
applied to this case.

On appeal, Westport argues that the district court erred
in concluding that Bayer’s Westport policy covers the
Lakens’ claims. Westport also argues that the district court
improperly addressed the question of the amount of
coverage provided by the policy, and erred in determining
that amount. We affirm the district court’s judgment that
Bayer’s Westport policy covers the Lakens’ claims to the
extent of the applicable policy limit. However, we vacate the
district court’s determination as to the dollar amount of
coverage and remand to the district court for further
consideration.

I. Introduction

A. The Underlying Case, Lakens v. Fryer Group

In July 1997, the Lakens filed suit against attorney
Ronald Bayer and several other defendants to recover
money lost in a Ponzi-type confidence scheme, in which the
perpetrators of the fraud paid interest to early investors
using money received from later investors.2 In February
2000, Westport filed the instant declaratory judgment
action. After some initial confusion resulting from
Westport’s failure to note that its declaratory judgment
action was related to the Lakens’ suit against Bayer, both
cases proceeded separately before the same district court
judge. In September 2000, after the conclusion of the
nonjury trial in Lakens v. Fryer Group, but before the
district court issued its decision, the court ordered that
Westport’s declaratory judgment action would be
determined on the basis of the record in Lakens v. Fryer
Group.3 A brief recitation of the factual background of that
underlying case is therefore a necessary part of our opinion
here.
_________________________________________________________________

2. The district court found that Bayer was not criminally involved in the
fraudulent scheme.

3. The order provided that Westport counsel receive a transcript of the
trial testimony in Lakens v. Fryer Group and that Westport have ten days
to request leave to produce additional testimony. Westport made no such
request.

                                3


In November 1990, Leonard Brown, a friend and
sometime client of Bayer’s, invested $500,000 with Keith
Fryer, who claimed to run a secondary mortgage business
in England. Fryer gave Brown a ten-year promissory note
bearing twenty-seven percent interest. Fryer told Brown
that the very high second-mortgage financing rates in
England allowed him to pay investors high rates of interest.
Fryer did not, in fact, run a mortgage business. Rather, he
used some of Brown’s money to make the interest
payments to Brown and kept the rest for himself.

Brown was pleased with the payments he received on his
investment and proposed to Fryer that Brown bring in other
investors in return for a commission. Brown recruited
another "finder" and retained Bayer as his attorney to
negotiate a commission arrangement with Fryer. Bayer
negotiated an agreement that paid the finders a five percent
commission each year on the additional money invested
with Fryer as a result of the finders’ activities. Bayer
received one-third of the commissions. Bayer himself
invested heavily with Fryer.

For the next several years Fryer maintained the pretense
that he ran a real mortgage business. Brown hosted
gatherings to which he invited prospective investors and at
which Fryer would present his nonexistent business as an
investment opportunity. Bayer attended these gatherings,
sometimes introduced Fryer, and generally promoted the
investment.

Morton and Alan Laken, father and son, attended such a
gathering. They each purchased installment notes issued
by one of Fryer’s dummy corporations, Park Securities, Ltd.
They made their initial investments at Bayer’s law office.
Together they purchased a total of $678,009.59 worth of
installment notes.4

Fryer’s confidence scheme lasted until 1996, when some
new investors insisted on an independent audit of Fryer’s
accounts. This audit exposed Fryer’s fraud.
_________________________________________________________________

4. Morton Laken purchased installment notes totaling $425,540.84.
These notes were made out variously to Morton Laken, to Morton and
Evelyn Laken (his wife), and to Morton Laken in trust for a third party.
Alan Laken purchased installment notes totaling $252,468.75.

                                4


The Lakens sued Bayer, the Fryer Group of Companies,
and several other defendants for misrepresentation and
fraud, among other things. Over time the Lakens learned
that all defendants except Bayer were fictitious, bankrupt,
or otherwise judgment proof. Bayer himself filed for
bankruptcy before the Lakens’ action against him reached
trial. The bankruptcy filing automatically stayed the trial in
the Lakens’ suit against Bayer. The Lakens eventually
obtained an order lifting the stay when they agreed to limit
any damages they might receive to those available under
Bayer’s professional liability insurance policy with
Westport. Westport then filed this action seeking a
declaratory judgment that Bayer’s Westport policy provides
no coverage for the Lakens’ claims against Bayer.

The Lakens’ suit against Bayer finally came to trial before
the district court on September 11, 2000. On November 16,
2000, the court issued its decision. The court found for the
Lakens and against Bayer on the Lakens’ negligent
misrepresentation claims and entered judgment in the
Lakens’ favor for $678,009.59.

In its decision, the district court found the following facts
regarding Bayer’s actions and his relationship to the
Lakens. Bayer was Fryer’s point of contact in America.
Bayer introduced Fryer to potential investors at investment
presentations. Bayer enthusiastically endorsed the
investment opportunity offered by Fryer. He received funds
from American investors and forwarded them to Fryer in
England. Bayer received one-third of the finders’
commissions on investments they solicited. He was
authorized to draw checks on Fryer’s American business
account in emergencies. At one point, Bayer suggested that
arrangements be made to give investors greater security in
their loans, such as blanket debentures covering all assets
of the Fryer Companies, but the idea was dropped when
Fryer said that any such arrangement would require a
reduction in the interest rates paid to the investors.

The court also found that the Lakens never retained
Bayer to act as their attorney, but Bayer (a longtime
attorney of the Lakens’ friend, Brown) created the
impression that he was "looking out for" the Lakens’
interests. He permitted the Lakens to believe that he had

                                5


"checked out" Fryer’s activities and claimed to have
performed a "due diligence" investigation. He let it be
known that he had gone to England as part of the
investigation. The Lakens relied on the information they
received from Bayer.

The trial court concluded that these facts provided a
basis for Bayer’s liability:

       In my view, the circumstances give rise to the legal
       obligation on the part of Mr. Bayer, either to make
       clear that he was not protecting plaintiffs’ interests and
       that they should seek legal advice elsewhere, or to
       exercise reasonable care to avoid misrepresentations to
       them. Since he did neither, he is liable for their losses
       if their reliance upon his misrepresentations was
       reasonable.

        The issue of justifiable reliance is a close one, but I
       believe the balance tips in favor of the plaintiffs on that
       issue. Although they did no independent investigation
       of their own, they were led to believe, by persons they
       trusted, that the proposed investment had been
       thoroughly investigated by others more knowledgeable
       than themselves.

Lakens v. Fryer Group, slip op. at 9.

B. The Policy

Bayer is the named insured on his "Lawyers Professional
Liability Insurance" policy with Mt. Airy Insurance
Company, a predecessor to Westport. Mt. Airy issued the
policy pursuant to Bayer’s application. That application
included a "Supplemental Practice Application" which
directed Bayer to describe any financial planning or
investment counseling that formed part of his practice. On
this form, Bayer answered "no" to questions asking whether
his practice involved "money management activities" or
recommending investment in "specific securities." However,
he described his activities regarding the Park Securities
investments in an addendum he attached to his
application:

       [K]indly be advised that Park Securities, Ltd., a
       mortgage company in Manchester, England, borrows

                                6


       money from individuals to be used in its mortgage
       portfolio. I prepare the Notes from the investors to Park
       Securities, Ltd. The distribution of the investment
       income was, for a period of time, in 1991, being wired
       to me, in bulk, and thereafter sent to the individual
       parties by my personal check. The current method of
       distribution [of investment income] is by wire to the
       mortgage company’s bank i[n] Philadelphia with
       distribution being made by checks signed by the
       principal of the company. I do have deputy authority
       on the checking account for use in emergencies. I do
       not counsel the investors except to advise them to pay
       income tax on the funds since the mortgage company
       does not send 1099’s. I do receive compensation for my
       work in cabling the funds and preparing the
       documents in the form of an override.

App. at A-2-26.

The insuring agreement of the policy issued to Bayer
declares that the policy provides coverage for claims against
Bayer "arising out of services rendered or which should
have been rendered by any insured . . . and arising out of
the conduct of the insured’s profession as a lawyer."

The policy contains two exclusions that are relevant to
this lawsuit. Exclusion E states that the policy does not
apply to "any claim arising out of any insured’s activities as
an officer, director, partner, manager or employee of any
company, corporation, operation, organization or
association other than [the] named insured." Exclusion G
precludes claims "arising out of or in connection with the
conduct of any business enterprise other than the named
insured . . . which is owned by any insured or in which any
insured is a partner, or which is directly or indirectly
controlled, operated or managed by any insured either
individually or in a fiduciary capacity."

C. Proceedings in Westport’s Declaratory Judgment
       Action

In its declaratory judgment action, Westport asserted
that the Lakens’ claims arose from Mr. Bayer’s activities in
a business enterprise separate from his law practice, an
enterprise in which he solicited investors and served as a

                                7


local representative for Fryer. Westport argued that the
insuring agreement in the policy, or either of the exclusions
mentioned above, precluded coverage for the Lakens’ claims
against Bayer.

Relying on the evidentiary record from the Lakens’ suit
against Bayer, the federal district court found the following
facts relevant to Westport’s action for declaratory judgment:
(1) in all his contacts with the Lakens, Bayer considered
himself to be practicing law as an attorney representing
Fryer in the United States and receiving contingency fees
based on the results he obtained for Fryer; (2) the Lakens
regarded Bayer as engaged in performing legal services in
his capacity as an attorney; (3) in all relevant activities,
Bayer held himself out to the Lakens as a practicing
attorney and realized that they dealt with him on that
basis; and (4) Bayer was never an officer, director, partner,
manager or employee of anyone other than himself.

Based upon these findings, the court concluded that,
although there "probably was not an actual attorney client
relationship" between Bayer and the Lakens, Bayer’s policy
covered the claims against him by the Lakens. The district
court also stated that the addendum to Bayer’s application
removed any doubt that Bayer’s policy with Westport
covered the Lakens’ claims. "Having issued its policy
pursuant to [Bayer’s] application, Westport cannot now
disclaim coverage for liabilities arising from the precise
activities thus described." The court ordered Westport liable
to pay the $678,009.59 judgment rendered against Bayer in
Lakens v. Fryer Group "to the extent of policy limits," which
in the body of the opinion it determined to be $500,000.5

II. Discussion

The district court sat as fact finder in this case. We
review the court’s findings for clear error. See Fed. R. Civ.
P. 52(a). In their briefs to this court, both parties profess to
_________________________________________________________________

5. The district court’s order declares Westport liable for payment of the
judgment rendered against Bayer in Lakens v. Fryer Group "to the extent
of policy limits." In its opinion, however, the court states that the
question before it is whether Westport must pay the judgment against
Bayer "to the extent of the policy limit ($500,000)."

                                8


accept and rely upon the district court’s findings of fact. We
note, however, that in places their representations of those
facts are quite different from one another and from those of
the district court. We consider it important, therefore, to
state clearly that our review of the record in this case,
including the Lakens v. Fryer Group trial transcript, shows
no clear error in the district court’s findings of fact.

Interpretation of the insurance policy’s coverage is a
question of law and our review is plenary. Pacific Indem. Co.
v. Linn, 

, 760 (3d Cir. 1985). Pennsylvania law
governs our interpretation of this insurance policy and the
extent of its coverage. We read policies to avoid ambiguities,
if possible. Northbrook Ins. Co. v. Kuljian Corp., 

, 372 (3d Cir. 1982).

A. The Insuring Agreement

The insuring agreement states that the policy covers
claims "arising out of services rendered or which should
have been rendered by any insured . . . and arising out of
the conduct of the insured’s profession as a Lawyer."
Westport argues that the Lakens’ claims did not arise out
of Bayer’s conduct as a lawyer and, therefore, the policy
does not cover Bayer’s liability for those claims. 6

Citing a Ninth Circuit appellate decision, General
Accident Ins. Co. v. Namesnik, 

(9th Cir.
1986), and a federal district court case from North
Carolina, H.M. Smith v. Travelers Indem. Co., 

(M.D.N.C. 1972), Westport contends that Bayer’s policy
covers only those claims that arise from acts or omissions
unique to the practice of law. Westport argues that the
_________________________________________________________________
6. Westport makes repeated reference to the fact that the Lakens were
not in an attorney-client relationship with Bayer. We note that
professional liability can arise out of an attorney’s activities with those
other than his own client. See Harad v. Aetna Cas. & Surety Co., 

, 984 (3d Cir. 1988) (stating that the plain meaning of the term
"professional service," does not of itself require an attorney-client
relationship); Humphreys v. Niagara Fire Ins. Co., 

, 1270
n.9 (Pa. Super. Ct. 1991) (noting that policy language similar to that in
the instant case "does not state that it will only cover claims brought by
clients of the attorney or third party beneficiaries to the attorney-client
relationship. . . . [or] that it will only cover claims for malpractice.")

                                9


district court’s findings in Lakens v. Fryer Group
demonstrate that Bayer’s liability to the Lakens does not
stem from "failure to do anything related to uniquely legal
skill or training." Thus, according to Westport, Bayer’s
liability is not covered by the insuring agreement.

We reject this argument. We note, as an initial matter,
that neither Namesnik nor H.M. Smith applies Pennsylvania
law. In addition, Namesnik does not stand for the
proposition that a lawyer’s professional liability insurance
policy covers only claims arising from acts unique to the
practice of law. H.M. Smith better supports Westport’s
argument, but we ultimately find it unpersuasive.

In Namesnik, an attorney had recommended to his clients
that they invest in corporations which he formed, operated,
and for which he performed legal work. At the same time,
the attorney continued to perform legal services for the
clients. He billed the clients for that legal work, but not for
any work performed in the financial ventures. When the
clients lost the money they had invested, they brought a
legal malpractice claim against the attorney and the insurer
sought a declaratory judgment of noncoverage. The district
court granted summary judgment to the insurer and the
Ninth Circuit Court of Appeals affirmed. The Ninth Circuit
determined that "the lack of fees directly traceable to the
[investments], at a time when fees were billed for legal
services" supported the insurer’s contention that the
clients’ claims against the attorney stemmed from his
actions as a business agent rather than a lawyer.

. The court held that the
clients’ failure to respond directly to this evidence left no
genuine issues of material fact, making summary judgment
for the insurer appropriate.

Namesnik does not require that the Lakens’ claims stem
from an act by Bayer that required "uniquely legal skill or
training." If Namesnik is applicable at all to the case before
us, it merely requires that the Lakens present evidence that
Bayer provided professional services from which the
Lakens’ claims arise. The facts found by the district court
support the conclusion that the Lakens presented such
evidence.
                                10


In H.M. Smith, a federal district court, citing a "helpful"
New Jersey Supreme Court case, determined that an
attorney did not act in a legal capacity when he solicited,
and then invested, funds from a 

. The court based its decision, in part, on its
determination that "the transaction itself is one that
requires no legal skill or training." We conclude, however,
that whatever persuasive authority that case provides is
overcome by the following analysis which applies
Pennsylvania law.

Bayer’s policy does not define what it means for an injury
to "aris[e] out of the conduct of the insured’s profession as
a lawyer." The Pennsylvania appellate courts have
determined that "use of the undefined phrase‘professional
services’ may well give rise to a finding of ambiguity" in an
insurance policy. Biborosch v. Transamerica Ins. Co., 

, 1056 (Pa. Super. Ct. 1992). Likewise, language
in a professional liability policy stating that the insurer will
cover all injuries "arising out of " the rendering or failure to
render professional services, and will defend "any" suit
against the insured seeking such damages, signals that the
coverage is to be broadly construed. Danyo v. Argonaut Ins.
Cos., 

, 502 (Pa. Super. Ct. 1983). We therefore
broadly construe the coverage afforded by the insuring
agreement of Bayer’s policy.

A policy provision is ambiguous if reasonably intelligent
people would honestly differ as to its meaning when
considering it in the context of the entire policy. 

. Under a broad construction of the
coverage in Bayer’s policy, reasonably intelligent people
would differ as to whether the provision covering claims
"arising out of services rendered or which should have been
rendered . . . and arising out of the conduct of the insured’s
profession as a Lawyer" includes Bayer’s actions in
preparing installment notes, transferring money, and
generally advising investment in Fryer’s companies while
holding himself out as an attorney who is watching over the
Lakens’ investments. See Home Ins. Co. v. Law Offices of
Jonathan DeYoung, P.C., 

, 230 (E.D. Pa.
1998) (denying summary judgment to attorney’s liability
insurer and concluding that under Pennsylvania law,

                                11


"[b]ecause the term ‘professional services’ is undefined in
the policy, it is possible for reasonable minds to reach
varying conclusions" as to whether an attorney who had
invested funds on client’s behalf had rendered professional
services). That policy provision is therefore ambiguous.

Where a policy provision is ambiguous, we construe the
provision in favor of the insured in a manner consistent
with the reasonable expectations insured had when
obtaining coverage. Standard Venetian Blind Co. v.
American Empire Ins. Co., 

, 566 (Pa. 1983);

. The addendum Bayer attached to
his application for coverage indicates his reasonable
expectation that his work concerning Park Securities, Ltd.
would be covered. We therefore construe the policy’s
language in favor of coverage. We conclude that the policy’s
insuring agreement provides coverage to Bayer for the
Lakens’ claims against him.

B. The Exclusions

For Exclusion E of Bayer’s policy to apply to this case,
Bayer must have been an officer, director, partner, manager
or employee of some entity other than his firm. The district
court found that Bayer never served as an officer, director,
partner, manager or employee of any entity other than his
firm. Westport disputes this finding, but offers no direct
evidence to the contrary. We have reviewed the record and
conclude that the district court did not clearly err in finding
that Bayer never held any such position. Our acceptance of
that finding precludes application of Exclusion E to the
facts of this case.

That same finding by the district court makes
inapplicable the terms in Exclusion G regarding ownership,
partnership, and management. As a result, in order for
Exclusion G to apply to this case, the Lakens’ claims must
"aris[e] out of or in connection with the conduct of any
business enterprise other than the named insured . ..
which is directly or indirectly controlled [or] operated . . . by
any insured."

Westport cites Coregis Ins. Co. v. LaRocca, 

(E.D. Pa. 1999), and Coregis Ins. Co. v. Bartos,
Broughal & Devito, LLP, 

(E.D. Pa.

                                12


1999), which address policies containing language similar
to Exclusion G. These cases are distinguishable. In each of
these cases, the insured attorney was a partner in a
business enterprises other than his law practice. The
opinions in these cases focus on the meaning of the terms
"arise out of " and "in connection with." The applicability of
Exclusion G in the case before us, in contrast, turns on
whether Bayer exerted the influence suggested by the terms
"operate" and "control."

The facts as found by the district court in Lakens v. Fryer
Group indicate that Bayer’s influence on Park Securities
extended only to preparing the installment notes, passing
investments and interest payments back and forth between
the investors and Fryer, and possessing authority to use
the entity’s checking account in emergencies. He was, as
the district court put it, a "point of contact." The district
court implicitly rejected the view that this constituted
control or operation of Park Securities, and we explicitly
reject it now. We conclude that Bayer’s activities, while
professional services broadly construed, do not bespeak
control or operation of Park Securities.7 We hold that
Exclusion G in Bayer’s policy does not apply to the
circumstances of this case.

C. Policy Limits

The district court determined that the Lakens’ claims
against Bayer triggered the policy’s $500,000 limit for
aggregate claims rather than the $250,000 single claim
limit. Westport contends that the issue of policy limits is
beyond the scope of the declaratory judgment action, and
urges us to vacate the district court’s determination on that
issue. Westport further argues that, in any case, the
applicable policy limit is $250,000.

Westport’s declaratory judgment complaint requests a
declaration of no coverage for the Lakens’ claims"along
_________________________________________________________________

7. "[C]overage clauses are interpreted broadly so as to afford the greatest
possible protection to the insured. Exceptions to an insurer’s general
liability are accordingly to be interpreted narrowly against the insurer."
Eichelberger v. Warner, 

, 750 (Pa. Super. Ct. 1981)
(citations omitted).

                                13


with such other and further relief in its favor and against
the defendants as is just and proper." Westport never
requested a declaration of the applicable limits of coverage.
Nor did the Lakens’ answer to the declaratory judgment
request such a declaration. The Lakens made no
counterclaim; they simply listed affirmative defenses and
requested a dismissal of the declaratory judgment action.
The parties did not put the question of limits before the
district court. Westport argues that under these
circumstances, the district court improperly went beyond
the scope of the declaratory judgment action by deciding
the applicable limit of coverage under the policy.

The Lakens reply that the Declaratory Judgment Act
provides the district court with authority to grant further
relief based on a declaratory judgment: "Further necessary
or proper relief based on a declaratory judgment or decree
may be granted, after reasonable notice and hearing,
against any adverse party whose rights have been
determined by such judgment." 28 U.S.C. S 2202. However,
Westport correctly points out that in this case the district
court offered no notice and held no hearing after the
declaratory judgment before granting further relief to the
Lakens by determining the applicable policy limits.

Generally, the judgment in a suit for declaratory
judgment must be responsive to the pleadings and issues
presented. See St. Paul Fire & Marine Ins. Co. v. Lawson
Bros. Iron Works, 

, 931 (10th Cir. 1970). A
judgment beyond the issues presented constitutes an
advisory opinion. 

research has failed to
uncover any United States Court of Appeals case affirming
a district court’s grant of declaratory relief to a defendant
beyond that requested in the pleadings, except where the
defendant brought a counterclaim. See, e.g., Starter Corp. v.
Converse, Inc., 

, 298 (2d Cir. 1999) (noting
that "[c]ourts have also entered injunctions against
unsuccessful [declaratory judgment] plaintiffs because
either the prevailing party requested such relief, which was
granted after notice and hearing, or the defendant had
initially sought injunctive relief in its counterclaims")
(emphasis added) (citations omitted); Penthouse Int’l, Ltd. v.
Barnes, 

, 950 (9th Cir. 1986) (holding that the

                                14


district court abused its discretion in awarding to
declaratory judgment defendant relief beyond the scope of
the issues presented in the action).

Moreover, we note that even if we were to address the
issue of the applicable limit of liability under the policy, we
would need further findings of fact by the district court or
greater development of the record before we could
determine whether the Lakens present a single claim or
multiple claims under the policy definitions. Under the
heading "Multiple Insureds, Claims and Claimants," the
policy states:

       The inclusion of more than one insured in any claim or
       the making of claims by more than one person or
       organization shall not operate to increase the limits of
       liability and deductible.

       Two or more claims arising out of a single act, error,
       omission or personal injury or a series of related acts,
       errors, omissions or personal injuries shall be treated
       as a single claim.

       All such claims whenever made shall be considered
       first made on the date on which the earliest claim
       arising out of such act, error, omission or personal
       injury was first made and all such claims are subject
       to the same limits of liability and deductible.

App. at A-2-12.

The policy defines a claim to be "a demand made upon any
insured for damages."8

We observe that under the Declaratory Judgment Act the
Lakens can request that the district court order further
relief based on the declaratory judgment. See 28 U.S.C.
S 2202. Assuming the Lakens undertake such action, the
district court may resolve this issue after notice and
hearing either on the present record or, at its option, by
_________________________________________________________________

8. For cases addressing similar issues regarding policies with similar
language, see Gregory v. Home Ins. Co., 

(7th Cir. 1989);
Continental Cas. Co. v. Brooks, 

(Ala. 1997); and Bay Cities
Paving & Grading, Inc. v. Lawyers’ Mut. Ins. Co., 

(Cal.
1993).

                                15


hearing additional evidence. See Edward B. Marks Music
Corp. v. Charles K. Harris Music Publ’g Co., 

,
522 (2d Cir. 1958).

We determine that the district court erred by granting
relief to the Lakens on an issue outside the scope of the
relief requested by Westport and without the notice and
hearing required by statute. We therefore vacate the district
court’s determination that the applicable policy limit is
$500,000.

III. Conclusion

We affirm the district court’s judgment that Bayer’s policy
with Westport covers the Lakens’ claims to the extent of the
policy limits as may be determined at a later date. We
vacate the district court’s determination of the dollar
amount of coverage and remand to the district court for
further consideration.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

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