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


3-19-2002

Unionamerica Ins Co v. Nufab Corp
Precedential or Non-Precedential:

Docket 1-2375




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Recommended Citation
"Unionamerica Ins Co v. Nufab Corp" (2002). 2002 Decisions. Paper 190.
http://digitalcommons.law.villanova.edu/thirdcircuit_2002/190


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                                                 NOT PRECEDENTIAL

             IN THE UNITED STATES COURT OF APPEALS
                     FOR THE THIRD CIRCUIT
                          ____________

                          No. 01-2375
                          ____________

               UNIONAMERICA INSURANCE CO., LTD

                                             v.
               NUFAB CORP, t/d/b/a Gothum; THE NEW CITY;
               EIGHTH FLOOR INC, t/d/b/a THE EIGHTH FLOOR
               NIGHTCLUB AND CIAO RISTORANTE,
                                             Appellant
                          ____________

          Appeal from the United States District Court
            For the Eastern District of Pennsylvania
                     D.C. No.: 99-cv-06542

        Magistrate Judge: Honorable Arnold C. Rapoport
                          ____________

                     Argued: March 4, 2002

Before: SCIRICA, ROSENN, Circuit Judges, and WARD, District Judge.

                  (Filed:   March 19, 2002 )

Anthony Granato (Argued)
Dante Mattioni
Mattioni Limited
399 Market Street, Suite 200
Philadelphia, PA 19106
     Counsel for Appellant

Carl D. Buchholz, III (Argued)
Rawle & Henderson
One South Penn Square
The Widener Building
Philadelphia, PA 19107
     Counsel for Appellee

                          ____________

                      OPINION OF THE COURT
                          ____________

ROSENN, Circuit Judge.
     Terminal Industrial Corporation and Mount Corporation (hereinafter
jointly
referred to as Terminal) owns several warehouses in Philadelphia,
Pennsylvania.
Terminal leased the eighth floor of one of the warehouses as a restaurant
and night club to
Eighth Floor, Inc. Subsequently, Terminal leased the ground floor of an
adjacent
warehouse it owned to Nufab Corporation, trading as Gothum (hereinafter
Gothum), also
as a night club. Gothum staged special events which allegedly attracted
large and unruly
crowds of young people that rendered Eighth Floor's premises inaccessible
to its patrons
and severely and adversely affected its business. Eighth Floor filed a
complaint in the
Court of Common Pleas of Philadelphia County, charging Gothum with
creating and
maintaining a nuisance that interfered with Eighth Floor's use of its
leased premises and
the development of its business. The complaint sought injunctive relief
and damages
from Gothum and Terminal.
     Unionamerica Insurance Company, LTD. (Unionamerica or insurer), a
foreign
corporation, had issued a commercial general liability policy (Policy) to
Gothum and
Diamond Insurance Company (Diamond) had also insured Gothum. When Diamond
requested Unionamerica to assume partial responsibility to defend and for
any potential
liability, Unionamerica applied to the United States District Court for
the Eastern District
of Pennsylvania for a declaratory judgment that it had no duty to defend
under the policy
and that the allegations in the Eighth Floor complaint in the state court
were beyond the
scope of the terms of the general liability policy. Unionamerica also
asserted that
coverage for the allegations in the underlying complaint was excluded by
various
exceptions in the policy. The District Court granted Unionamerica's
motion for summary
judgment on the ground that the Eighth Floor alleged only one incident
that occurred
during the applicable policy period, which incident was excluded from
coverage by the
"Assault and Battery Endorsement." We affirm in part and reverse in part.

                               I.
     Before we review the propriety of the District Court's decision
entering summary
judgment for the insurer, we consider the threshold question whether the
District Court
should have exercised jurisdiction over these declaratory judgment
proceedings. The
Declaratory Judgment Act, 28 U.S.C.   2201 empowers federal courts to
grant
declaratory relief and this court has emphasized that the exercise of this
declaratory relief
power is discretionary. State Auto Ins. Co. v. Summy, 234 F.3d 131,133
(3d Cir. 2000);
Terra Nova Ins. Co., Ltd. v. 900 Bar, Inc., 

, 1222 (3d Cir.
1989).
     Eighth Floor, on appeal, advances several strong reasons why the
District Court
should not have exercised jurisdiction and that the exercise amounted to
an abuse of
discretion. It points to the absence of any federal question or interest
in this litigation,
that the issue is one of state law, that the underlying proceedings are
pending for trial in
the state court, and that the court there had pending before it a
proceeding for a
declaratory judgment by the insurer, Diamond. We are also reminded that
the
proceedings in this court unnecessarily compel Eighth Floor to litigate in
both the state
court and in the federal court. Although the reasons asserted are
persuasive, they
regrettably were not raised in the District Court. In light of the
discretionary power of the
District Court and the failure to raise objections in the District Court,
we conclude that the
District Court did not abuse its discretion in exercising jurisdiction.

                              II.
     The major issue raised by Eighth Floor on its appeal concerns the
entry of
summary judgment by the District Court in favor of the insurer. Eighth
Floor's state
court complaint alleges, inter alia, that Gothum, having initially
operated its night club in
a generally acceptable and responsible manner, thereafter changed its
front entrance
making it adjacent to the entrance to Eighth Floor and "appealed to a
young and unruly
clientele who could only be controlled by the presence of large numbers of
police and
private security personnel" which the defendants never provided. Eighth
Floor also
alleged that it sought Gothum's cooperation to redesign its entrance and
create a safety
zone for Eighth Floor's patrons and employees to gain access to and egress
from its
leased premises but the defendants rejected such proposals.
     Eighth Floor further alleged that: (1) "[e]mployees and patrons of
Eighth Floor
have regularly been subjected to harassment, intimidation, name calling
and the sheer
negative impact of the extremely large crowds of largely uncontrolled
people ranging
generally in age from about 21 to 26 years of age"; and (2) "[w]ith as
many as 1,000
patrons waiting outside during a performance, the crowds have quickly
become
uncontrolled, and there have been many fights, pushing and shoving, open
drinking and
incidents of improper behavior, with insults and name calling to patrons
of the Eighth
Floor when they attempted to gain entrance to Eighth Floor." As an
illustration only of
such behavior, Eighth Floor alleged that on August 4, 1995, a Gothum
patron approached
the front door of Eighth Floor "waving a gun and verbally threatened" one
of its
employees and on August 9, 1997, three Eighth Floor patrons were "gunned
down by a
patron of Gothum."
     In entering summary judgment for the insurer, Unionamerica, the
District Court
found that the sole incident raised in the underlying state court action
during the policy's
coverage period was excluded by the Assault & Battery Exclusion of the
policy.
Summary judgment is appropriate if "the pleadings, depositions, answers to
interrogatories, and admissions on file, . . . show that there is no
genuine issue as to any
material fact and that the moving party is entitled to a judgment as a
matter of law." Fed.
R. Civ. P. 56(c). Our review of the grant of summary judgment is plenary
and we apply
the same standard as the lower court should have applied. Chisolm v.
McManimon, 

, 321 (3d Cir. 2001); Lighting Lube, Inc. v. Witco Corp., 

, 1167 (3d
Cir. 1993). In conducting such a review, the facts are viewed in the
light most favorable
to the non-moving party and the non-moving party is entitled to all
reasonable inferences.

.
     Both sides agree that Pennsylvania law governs the interpretation of
the insurance
policy. An interpretation of an insurance contract is a question of law
for the court.
Reliance Ins. Co. v. Moessner, 

, 900 (3d Cir. 1997) (citing
Standard
Venetian Blind Co. v. American Empire Ins. Co., 

, 566 (Pa.
1983)).
Further, both sides acknowledge that in the insurance context, two
separate duties    duty
to defend and duty to indemnify   exist. Erie Ins. Exch. v. Transamerica
Ins. Co., 

, 1368 (Pa. 1987) ("The duty to defend is a distinct obligation,
separate and
apart from the insurer's duty to provide coverage."). However, "[a]n
insurer has a duty to
indemnify its insured only if it is established that the insured's damages
are actually
within the policy coverage." Lucker Mfg., A Unit of Amclyde Engineered
Products, Inc.
v. The Home Ins. Co., 

, 821 (3d Cir. 1994). Thus, there must
be a duty to
defend before there is a duty to indemnify.
     Under the governing law, an insurance company is obligated to defend
an insured
     whenever the allegations in a complaint filed against the insured
potentially fall
     within the policy's coverage. This duty to defend remains with the
insurer until
     facts sufficient to confine the claims to liability not within the
scope of the policy
     become known to the insurer.

(citations omitted). Before considering whether there is a
duty to defend,
however, under Pennsylvania law, the coverage of the policy is determined
first. 

-14 (citing Erie Ins. 

) (construing terms of
policy first and
then determining if facts alleged in complaint if proven would come within
policy scope
as construed).
     Unionamerica contends that the Policy does not cover any of the
allegations
asserted in the underlying state complaint. It boldly asserts that
"Eighth Floor makes no
allegations against [Gothum] of . . . property damage that fall within the
Policy's
definition." The Policy, however, and this Court's decision in Lucker are
to the contrary.
The Policy provides coverage not only for bodily injury and personal
injury, but also for
commercial property loss, and of most relevance here, property damage.
Property
damage is defined in the Policy as:
          a.   Physical injury to tangible property, including all
resulting loss of use of
          that property. All such loss shall be deemed to occur at the
time of the
          physical injury that caused it; or
          b.   Loss of use of tangible property that is not physically
injured. All such loss
          of use shall be deemed to occur at the time of the "occurrence"
that caused
          it.
(emphasis added).
     Eighth Floor contends that it sustained property loss because Gothum
created a
nuisance that denied its employees and more importantly, its patrons of
the use of the
business premises. This, in turn, undermined Eighth Floor's ability to
sell its products, i.e
food, beverages and entertainment to its customers. In interpreting a
similar "loss of use"
provision in a Pennsylvania insurance contract, this Court held that "loss
of use" included
lost non-physical or economic use of the property. 

, 815 n.6.
     Next, we must determine whether the allegations in the complaint
filed against the
insured Gothum potentially fall within the Policy's coverage. 

The District
Court held that coverage was not triggered because the sole incident
alleged, an assault on
an Eighth Floor employee, in the underlying complaint occurring during
Unionamerica's
coverage period was excluded by the Assault and Battery Exclusion.
Further, it reasoned
that "as there is no evidence pled of any question that specifically
existed during the
pendency of this insurance policy, the plaintiff's motion for summary
judgment must be
granted."
     The District Court, however, seems to have seized on the illustrative
incident set
forth in the complaint as indicative of the nature of the entire
complaint. The allegations
to which we have referred above unequivocally allege a nuisance claim.
The complaint
alleges that the conduct at issue was ongoing from 1993 through 1997. The
allegations in
the complaint at the very least potentially fall within the policy's
coverage and obligate
the insurance company to defend. "This [obligation] to defend remains
with the insurer
until facts sufficient to confine the claims to liability not within the
scope of the policy
become known to the insurer." 

. We are also not persuaded on
the present
record that the Expected/Intended Injury Exclusion relieves Unionamerica
from its duty
to defend. Thus, in light of the result we reach, we do not decide the
question of the duty
to indemnify and leave it for the District Court to address on a more
developed record.

                              III.
     In summary, the District Court committed no error in exercising
jurisdiction.
However, the same cannot be said with respect to the entry of summary
judgment.   The
judgment will be reversed, and the case remanded to the District Court for
further
proceedings not inconsistent with this opinion. Costs taxed against the
appellee.
TO THE CLERK:

Please file the foregoing opinion.



                                     /s/ Max Rosenn
                                     Circuit Judge