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Granite State Ins. Co. v. Aamco Transmissions

filed: June 9, 1995.

GRANITE STATE INSURANCE COMPANY
v.
AAMCO TRANSMISSIONS, INC., MORGAN INDUSTRIES, INC. AAMCO TRANSMISSIONS, INC., APPELLAN



On Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. Civil No. 93-05094).

Before: Greenberg, Roth, and Aldisert, Circuit Judges.

Author: Greenberg

Opinion OF THE COURT

GREENBERG, Circuit Judge.

Aamco Transmissions, Inc., appeals from an order entered on September 20, 1994, granting the appellee Granite State Insurance Company judgment on the pleadings on both Granite's complaint and Aamco's counterclaim in this diversity of citizenship insurance coverage declaratory judgment action. The parties have briefed this case under Pennsylvania law and thus we will decide this case the way we believe the Supreme Court of Pennsylvania would decide it. As might be expected from the procedural posture of the case, the facts are not in dispute.

I.

FACTUAL AND PROCEDURAL HISTORY

This case arose out of a class action commenced in October 1990 in the Court of Common Pleas of Philadelphia County by Joseph R. Tracy and Joseph P. Tracy against Aamco. The Tracys asserted that Aamco operated a nationwide network of automobile transmission repair shops at about 800 franchised outlets. They claimed to have purchased "Lifetime Rebuilt Transmission Services" from Aamco franchisees. According to the Tracys, Aamco used deceptive advertising which did not describe its services accurately and which lured purchasers of transmission services into paying more than they should have paid and induced them to pay for unnecessary repairs.

The Tracys brought the action, with exclusions not material here, on behalf of themselves and all Pennsylvania residents who had purchased reconditioned, rebuilt or reassembled automatic transmission services from Pennsylvania Aamco franchisees during the six years before they started their action.*fn1 The Tracys asserted that Aamco was liable under the Pennsylvania Unfair Trade Practices and Consumer Protection Law, Pa. Stat. Ann. tit. 73, § 201-3 (1993), which provides a remedy for various unfair methods of competition and trade practices.

At the time the Tracys brought their action and during the six previous years, Granite insured Aamco under a comprehensive general liability insurance policy for "personal injury or advertising injury . . . arising out of the conduct of" Aamco's business. The policy defined "advertising injury" as an "injury arising . . . in the course of [Aamco's] advertising activities, if such injury arises out of libel, slander, defamation, violation of right of privacy, piracy, unfair competition, or infringement of copyright, title or slogan." Relying on the policy, Aamco demanded that Granite defend and indemnify it in the Tracy case, claiming that it had coverage under the "unfair competition" category of the "advertising injury" coverage. Granite, however, declined to cover Aamco, and Aamco then settled the Tracy action itself. Granite subsequently brought this action seeking a declaratory judgment that it was not obligated to provide coverage to Aamco for the claims in the Tracy action. Aamco counterclaimed for its expenses in defending and settling the Tracy case.

Subsequently Granite made a motion for judgment on the pleadings which the district court granted in a memorandum opinion. At the outset the court set forth familiar general principles of insurance law. It explained that under Pennsylvania law when the facts are not in dispute the court interprets an insurance policy as a matter of law. See Pacific Indem. Co. v. Linn, 766 F.2d 754, 760 (3d Cir. 1985). It then indicated that it would review the terms of the Granite policy to determine the parties' intent and in doing so would read the policy as a whole and construe it according to its plain meaning. See Atlantic Mut. Ins. Co. v. Brotech Corp., 857 F. Supp. 423, 427 (E.D. Pa. 1994), aff'd, No. 94-1897, F.3d (3d Cir. May 12, 1995) (table). The court said that if the policy language is clear it must be given effect according to its plain meaning but if the language is ambiguous all doubts as to its meaning should be resolved in favor of the insured. See St. Paul Fire & Marine Ins. Co. v. Lewis, 935 F.2d 1428, 1430 (3d Cir. 1991).

The court then addressed the particular issue at hand. It noted that inasmuch as the policy did not define "unfair competition," it would construe that term "in the context of insurance coverage according to case law," resolving all ambiguities in Aamco's favor. Although Aamco argued that the policy covered claims for all violations of Pennsylvania's business fraud statute, the court followed Atlantic Mutual and held that the term "unfair competition" in the Granite policy "does not include claims based on state or federal statute." See Atlantic Mutual, 857 F. Supp. at 428. Thus, as the Tracys predicated their claims solely on the Pennsylvania Unfair Trade Practices and Consumer Protection Law, the court held that Granite's policy did not cover the claims. The court further held that the term "unfair competition" was not ambiguous and that Aamco could not have had a reasonable expectation that the Tracys' claims were covered. In view of those Conclusions the court did not address Granite's alternative contention that the policy confines coverage for an advertising injury to claims by the insured's business competitors and does not cover claims by its customers. Aamco then appealed. We have jurisdiction under 28 U.S.C. § 1291.

II.

Discussi ...


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