On Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Civ. No. 83-4737
Before: HUNTER, GARTH and HIGGINBOTHAM, Circuit Judges.
A. LEON HIGGINBOTHAM, JR., Circuit Judge.
The plaintiff in this case, Atlanta international Insurance Company ("Atlanta"), appeals from the final order of the district court granting declaratory judgment in favor of defendant, the School District of Philadelphia ("School District"). For the reasons set forth in the opinion that follows, we will reverse the judgment.
In May of 1980, Richard Donahue and James Slaughter, teachers employed by the School District, organized and supervised a trip from Philadelphia to Richmond, Virginia, over the Memorial day weekend. On the first night of the trip Loren Davis, a junior high school student, drowned in the pool at a Holiday Inn in Richmond. As a result of the drowning, two wrongful deaths and survival actions were brought in the court of Common Pleas of Philadelphia County by the child's parents.
In the first lawsuits, Davis v. School District of Philadelphia and Holiday Inns, Inc., C.C.P. October Term 1980, No. 3075, the Davises alleged that Loren's death was caused by the "joint and several negligence, carelessness and recklessness of the defendants [the School District and Holiday Inn], by and through their agents, servants, workmen and/or employees then and there acting within the course of their employment and scope of their authority." App. at 45a. Subsequently, the School District joined Messrs. Donahue and Slaughter as additional defendants alleging, inter alia, that the teachers were solely liable because they had supervised and organized the trip as individuals and not as agents, servants, workmen or employees of the School district. (App. at 55a-56a). The School District also alleged that it did not sponsor, organize or control the trip (App. at 56a). In a phrase, the School District asserted that the teachers had acted outside the scope of their employment by organizing the trip.
In the second lawsuit, Davis v. Holiday Inns of America, Inc., C.C.P. July Term, 1981, No. 2574, the School District, after being joined as an additional defendant by defendant Holiday Inns, again joined Donahue and Slaughter as additional defendants. The same allegations of negligence were raised in the second lawsuit as were raised in the first lawsuit. (App. at 123a-128a).
In a consolidated proceeding, the state court held that the claims against the School District were barred by the doctrine of governmental immunity. Davis v. Holiday Inns. Inc., and School District of Philadelphia, 10 Phila. 563 (1984), aff'd 91 Pa. Commw. 27, 496 A.2d 903 (1985). The claims against the teachers and others were still pending at the time this appeal was filed.
Pursuant to its contract with the Philadelphia Federation of Teachers (PFT), Atlanta provides liability coverage for members of the PFT. The insurance contract*fn1 provides that Atlanta's responsibility to defend arises only if the insureds are not entitled by law to defense or indemnification from another source (App. at 82a). Atlanta defended Donahue and Slaughter in the state court actions only after their defense had been tendered to and rejected by the School District (App. at 67a). Atlanta alleges that pursuant to the Political Subdivision Tort claims Act, No. 330, 1978, Pa. Laws 1399,*fn2 the School district was obligated to provide or pay for the defense of its employees. Accordingly, in an action brought in the United States District Court for the Eastern District of Pennsylvania, Atlanta sought reimbursement from the School District for the past costs of defending the teachers in addition to a declaration of the parties' rights and liabilities concerning future defense or indemnification obligations. The parties filed cross-motions for summary judgment which, by agreement, were treated by the district court as motions for a declaratory judgment on the issue of whether the School District was obligated to pay for the teachers' defense when it joined them as additional defendants in the state of actions. This determination required an analysis of the operation and effect of the Political Subdivision Tort Claims Act. Because the state courts had not yet dealt with this issue, the district court had to predict how the Pennsylvania Supreme Court would interpret § 303. After oral argument, the district court granted declaratory judgment in favor of the School District and against Atlanta stating that "defendant's interpretation [was] ...consistent with the language and purposes of the statute." App. at 233a-34a
the question for decision in this diversity case under Pennsylvania law is whether the district court erred in ruling (1) that this case was governed by § 303(b) of the Political Subdivision Torts Claim Act, which allows a political subdivision to provide legal assistance for its employees at its own option, rather than § 303(a), which makes the provision of legal assistance mandatory; and (2) that Atlanta was not entitled to past or future reimbursement in the absence of a judicial determination that the teachers were ...