On Appeal from the United States District Court for the District of New Jersey, D.C. Civ. No. 83-0566.
Before: WEIS, HIGGINBOTHAM and BECKER, Circuit Judges
A. LEON HIGGINBOTHAM, JR., Circuit Judge
This is an appeal from the final orders of the district court in a declaratory judgment action brought by First State Underwriters Agency of New England Reinsurance Corporation ("First State") pursuant to 28 U.S.C. § 1332 and 28 U.S.C. § 2201. The United States District Court for the District of New Jersey (1) granted summary judgment in favor of defendants. Certain-Teed Products Corporation ("Certain-Teed") and Travelers Insurance Company ("Travelers"); (2) denied First State's cross-motion for summary judgment; and (3) awarded attorney's fees to both defendants. For the reasons that follow, we will reverse and remand to the district court for proceedings consistent with this opinion.
This appeal arises out of a complaint filed by First State against Certain-Teed and Travelers seeking a declaratory judgment concerning the rights and liabilities of the parties under a primary insurance policy issued by Travelers to Certain-Teed and certain umbrella policies issued by both First State and Travelers to Certain-Teed. During the relevant period Certain-Teed carried both a primary insurance policy and an excess umbrella policy issued by Travelers which covered the periods from July 1, 1974 to July 1, 1977, and July 1, 1974 to July 1, 1975 respectively. In addition, Certain-Teed was insured under an umbrella policy issued by First State effective September 17, 1975 through July 1, 1976.
For several years prior to 1975, Certain-Teed, through its insurance broker, Johnson & Higgins ("J&H"), had maintained both its primary and excess comprehensive general liability policies with Travelers. Some time before July 1, 1975, Travelers informed Certain-Teed that the July 1 renewal premium for its umbrella policy, which provided Certain-Teed with coverage of $10,000,000 excess of the primary policy's $1,000,000 aggregate limit, would increase from approximately $12,500 to approximately $431,790. Due to Certain-Teed's unwillingness to pay the increased premium, J & H attempted to find another insurer for Certain-Teed's excess coverage, John Kutzler, Certain-Teed's insurance manager, renewed the Travelers primary policy and negotiated an agreement with Travelers under which the excess policy would continue in effect at a reduced premium from the July 1, 1975 renewal date until Certain-Teed purchased excess coverage from a different carrier.
Subsequently, in mid-September 1975, Certain-Teed, through new brokers, Rollins, Burdick, Hunter, Company of Pennsylvania ("RBH")*fn1, acquired substitute excess coverage from First State and Stonewall Insurance Company ("Stonewall") effective from September 17, 1975 to July 1, 1976. The First State policy provided the first $5,000,000 layer of excess coverage at an annual premium of $164,000, and the Stonewall policy provided a second layer of $5,000,000 coverage at an annual premium of $25,000. Accordingly, Certain-Teed terminated its excess umbrella coverage with Travelers.
The dispute underlying the declaratory judgment action and the instant appeal grew out of a lawsuit commenced in California in which Certain-Teed was named as a party defendant. In that action, entitled Central National Insurance Co. v. Keene Corp. and Certain-Teed Products Corp., et al., a jury verdict of $1,049,175.90, plus pre-judgment interest calculated at seven percent (7%), was entered in favor of the plaintiff. A compromise settlement of this verdict in the amount of $1,150,000 was subsequently reached with Certain-Teed's share of the settlement set at $414,477.50.
While the Central National Insurance action was pending, Travelers advised Certain-Teed and First State that there remained only $280,658 of the $1,000,000 aggregate limit of the Travelers primary policy. Thus, Travelers expressed its intention to pay only the $280,658 towards the settlement of the Central National Insurance action. Thereafter, Certain-Teed made demands upon First State to pay the $133,819 balance under the First State excess policy. First State refused, however, maintaining that Certain-Teed had not exhausted the limits of liability of the underlying Travelers primary policy during the policy period of First State's umbrella policy as required by that policy. Eventually, Certain-Teed, Travelers and First State reached an agreement under which the three companies each paid one-third of the Central National Insurance settlement to the extent that it exceeded the aggregate limits of the Travelers primary policy ($44,606.50 each). The parties agreed that all rights were reserved and the dispute would be resolved by commencement of a declaratory judgment action.
Shortly after First State initiated the declaratory judgment action, Certain-Teed, Travelers and First State all moved for summary judgment. Certain-Teed and Travelers urged in their motions for summary judgment that the terms and conditions of the First State umbrella policy required exhaustion of the aggregate limits of the Travelers primary policy within the July 1, 1975 to July 1, 1976 Travelers primary policy period as opposed to the September 17, 1975 to July 1, 1976 First State umbrella policy period. They further argued that "Condition N," relied upon by First State as clearly establishing the period during which its obligations arose, was at best ambiguous and therefore, should be strictly construed against First State.
In contrast, First State argued that Condition N of its policy was not ambiguous and clearly required exhaustion of the underlying limits during the effective dates of it policy. Alternatively, First State argued, assuming arguendo, that the policy language was ambiguous, questions of fact with regard to the intent of the parties precluded summary judgment. Specifically, First State argued that the general rule advising that contract ambiguities be resolved against the insurer is inapplicable where, as here, the parties are of equal sophistication and bargaining power. In addition, First State maintained that numerous losses listed by Travelers as falling within the policy year July 1, 1975 to July 1, 1976 were improperly included.
The district court (1) rejected First State's interpretation of its insurance policy and (2) refused to reach the issue concerning the disputed losses. On subsequent motion the court, over the objection of First State, applied the law of New Jersey as opposed to Pennsylvania, and awarded both Certain-Teed and Travelers counsel fees against First State. On appeal, First State renews it contentions raised in the declaratory judgment action. First State further contests the choice of law applied by the district court in awarding attorney's fees to Certain-Teed and Travelers.
We turn first to the question of the proper construction of the First State umbrella policy. Certain-Teed and Travelers argued before the district court that the First State umbrella policy, which was to absorb Certain-Teed's excess losses upon the exhaustion of Certain-Teed's primary policy with Travelers, was triggered once the Travelers primary policy's $1,000,000 aggregate limit was exhausted regardless of whether the underlying losses occurred during First State policy period. According to Certain-Teed and Travelers, the First State umbrella policy was concurrent with the terms and conditions of the Travelers primary policy. The district court granted summary judgment to Certain-Teed and Travelers holding that "Condition N" of the First State umbrella policy was ambiguous and would be strictly construed against First State as the author of the policy. Because we find that the district court erred in its construction of the First State insurance policy, we will reverse.
On review of the award of summary judgment we must apply the same test the district court should have employed in ruling on the motion. See Gans v. Mundy, 762 F.2d 338, 340 (3d Cir. 1985)(quoting Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir. 1976), cert. denied, 429 U.S. 1038, 97 S. Ct. 732, 50 L. Ed. 2d 748 (1977). Moreover, we must determine whether the district court "properly concluded that no genuine issue as to a material fact remained for trial, and that the moving party [was] entitled to judgment as a matter of law.'" Id.
As a preliminary matter, the trial court is charged with the responsibility to determine "as a matter of law which category written contract terms fall into -- clear or ambiguous." Mellon Bank, N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1011 (3d Cir. 1980). In Eastern Associated Coal Corp. v. Aetna Cas. & Sur. Co., 632 F.2d 1068 (3d Cir. 1980), this court summarized the rules governing the analysis of insurance contracts in Pennsylvania.
The court's duty is to ascertain the intent of the parties as manifested in the language of the agreement. The court should read policy provisions so as to avoid ambiguities, if the plain language of the contract permits. A court should not torture the language of the policy in order to create ambiguous, interpretation of the contract is a matter of law for the court. If an ambiguity does exist and if the insurer wrote the policy or is in a stronger bargaining position that the insured, the ambiguity is generally resolved in favor of the insured and against the insurer. However, the principle that ambiguities in policies should be strictly construed against the insurer does not control the situation where large corporations, advised by counsel and having equal bargaining power, are the parties to a negotiated policy.
Id. at 1075 (citations omitted). Guided by these principles we turn to the insurance policies here at issue.
All parties to the instant dispute point to specific language in the First State policy as clearly establishing the parameters of First State's obligations to Certain-Teed. Travelers asserts that the "Retained Limit -- Limit of Liability"*fn2 of the First State Insuring Agreement affirmatively and unconditionally "obligates First State to undertake coverage in the event of the reduction or exhaustion of the aggregate of the underlying policy" without regard to the period in which the reduction or exhaustion occurs. Brief for Defendant-Appellee Travelers Insurance Company at 17. Similarly, Certain-Teed interprets the "Retained Limit" provision as obligation First State to "either pay the excess of a reduced underlying limit or continue in force as underlying insurance upon the reduction or exhaustion of the limits of liability of the underlying primary policy by reason of 'losses paid thereunder.'" Brief for Defendant-Appellee, Certain-Teed Products Corp. at 22-23. First State's position throughout the course of this litigation has been that Condition N, not the "Retained Limit" provision of its policy, firmly establishes its duty to Certain-Teed. Moreover, First State argues that reading the Retained Limit provision in conjunction with Condition N reinforces its argument that exhaustion of the underlying policy must occur during the First State policy period.
II. Retained Limit -- Limit of Liability
With respect to Coverage I(a), I(b), or I(c), or any combination thereof, the Company's liability shall be only for the ultimate net loss in excess of the Insured's retained limit defined as the greater of:
(a) an amount equal to the limits of liability indicated beside underlying policy(ies) listed in Schedule A hereof, plus the applicable limit(s) of any other underlying insurance collectible by the Insured or
In the event of the reduction or exhaustion of the aggregate limit(s) of liability of the underlying policy(ies) listed in Schedule A by reason of losses paid thereunder, this policy, subject to the above limitations, (1) in the event of reduction, shall pay the excess of the reduced underlying limit(s) or (2) in the event of exhaustion, shall continue in force as underlying insurance. The Company's total limit of liability, in respect to (1) and (2) above only, shall not exceed the single limit any one occurrence stated in Item 3 of the ...