Opinion
No. 00 Civ. 7907 (HB).
August 16, 2001.
OPINION ORDER
Plaintiff Gerling America Insurance ("Gerling") brings this action seeking a declaratory judgment that its insurance policies issued to Independence Blue Cross ("IBC"), Keystone Health Plan East ("Keystone") and AmeriHealth HMO ("AmeriHealth") (collectively "the insureds") do not cover claims arising from the tort actions brought against the Insureds in the Court of Common Pleas, Philadelphia County, Pennsylvania. Defendants Steadfast Insurance Company ("Steadfast") and CNA Insurance Companies and Columbia Casualty Company (collectively "CNA"), who have expended significant sums already defending the insureds, counterclaim for reimbursement for all expenses incurred to date as well as future liability. Both sides have moved for summary judgment. Because significant issues of fact remain, both summary judgment motions are denied.
This action was originally filed in New York Supreme Court, New York County but was removed to this Court based on diversity jurisdiction.
BACKGROUND
This case involves two insurance companies, CNA and Steadfast, who found themselves saddled with significant liability for policies they issued and now attempt to pass along some of that liability to a third insurance company, Gerling. They claim Gerling issued policies that also provide coverage. Thus, the focus of the dispute is on the interpretation of the policies that Gerling issued in 1993. Although no party disputes that IBC, Keystone and AmeriHealth, all health maintenance organizations, and Jones Lang Wootton, a real estate management corporation, are all listed on and separately covered by the Gerling policies, plaintiff and defendants sharply dispute the breadth of that coverage.
The defendant insurance companies concluded that the Gerling policies provided coverage for the defense and indemnification for the tort actions brought against the three HMO's. Tort actions were brought against the three insureds in the Court of Common Pleas, Philadelphia County, Pennsylvania (the "underlying actions") by the former patients of a David E. Tremoglie who alleged that the insureds referred them to Tremoglie for psychiatric treatment in 1996, when, in fact, Tremoglie was not licensed to practice medicine. Tremoglie apparently treated as many as 570 patients for a variety of mental, nervous or psychiatric conditions, for which . . . [he] prescribed medications, including powerful controlled substances, on a regular basis [and] conducted "therapy" sessions with plaintiffs, counseled plaintiffs, and enticed plaintiffs to divulge personal and sensitive confidences to [him]. See Straus Aff. Ex. F at 4. To date, CNA has spent approximately $1,400,000 in defense of these underlying actions and has agreed to contribute $3,000,000 towards the settlement of one of the suits, and Steadfast has expended $2,050,000 defending the insureds and has agreed to contribute $4,500,000 towards settlement.
CNA insures IBC, Keystone and AmeriHealth under a Miscellaneous Professional Liability policy. Steadfast insures IBC and Keystone under a Managed Care Professional Liability Policy.
These former patients brought two related lawsuits in the: Katlin v. Tremoglie Action No. 2703, a class action, and In re: Tremoglie, Civil Action No. 2103, the later consists of numerous individual claims that the court has organized into a single action under a Marster Complaint ("underlying actions"). AmeriHealth was named as a defendant in only one of the individual actions entitled Janet Wright v. David E. Tremoglie, et al., Civil Action No. 2793, Court of Common Pleas, Philadelphia, Pennsylvania, which was one of the actions consolidated under a Master Complaint in In re Tremoglie.
Thus, the defendants turned to Gerling in hopes of finding another company to share in their expenditures. However, when approached by CNA and Steadfast, Gerling denied coverage. Their dispute focuses on the language and construction of the Gerling policies. The policies include a Commercial General Liability Policy, number GL 4000 926 (the "primary policy") and a Commercial Umbrella Policy, number 4000776 (the "umbrella policy"). Since the umbrella policy by its terms provides identical coverage to the primary policy, I will concentrate on the language in the primary policy.
The primary policy was issued for the period of June 30, 1993 to June 30, 1994 but was renewed for the 1994-1995 and 1995-1996 policy years. The limits of liability under the primary policy is stated to be $1 million each occurrence and $1 million for personal and advertising injury liability, subject to a general aggregate limit of $2 million. The umbrella policy covers the term June 30, 1992 through June 30, 1993, extended through June 30, 1996, and has a policy limit of $5 million.
The primary policy lists Jones Lang Wootton ("JLW") as the "Named Insured" on the Declarations page, which is the signature page of the policy. The insureds are listed as "Specific Insureds" on an attachment entitled "Location Schedule." Gerling contends that its policy provided Jones Lang Wooten, the "Named Insured," with commercial general liability coverage while it provided "premises only" coverage for the insureds listed on the Location Schedule. And, since the torts did not occur on the IBC, Keystone or AmeriHealth premises, Gerling alleges that it incurred no liability. For this conclusion it relies on the fact that the insureds are not listed on the declarations page and are only listed on a page entitled, "Location Schedule." Gerling further contends that Jones Lang Wootton was involved in the "premises-only" coverage for the insureds in its role as a real estate management corporation, a role that Gerling claims included assisting businesses obtain this type of insurance. The defendants, on the other hand, contend that IBC, Keystone and AmeriHealth contracted with Gerling to obtain a commercial liability policy along with Jones Lang Wootton in a "pooled" policy that was intended to lower premiums. They explain that they were listed on the Location Schedule as "Specific Insureds" only because their names could not all fit on the pre-printed declarations page. Curiously, neither party makes much of an effort to explain the relationship between Jones Lang Wootton and the insureds, which is unfortunate as it seems that this information could shed light on how this policy came into being and, more importantly, its intended meaning.
When Gerling was unsuccessful in its attempts to convince the defendants that its policies did not cover the claims arising from the underlying actions, it brought the instant action for declaratory relief. Both parties now seek summary judgment on their respective interpretations of the Gerling policies.
DISCUSSION
The primary issue presented is straightforward — do the Gerling policies provide commercial general liability coverage to the insureds, which would cover the claims arising from the underlying actions, or does it merely provide limited "premises-only" coverage, which would not. As I find that this issue cannot be decided on the record before me, I defer this question, and the others presented in the motions, for trial.
The parties dispute the extent to which the Commercial General Liability policy would cover the claims here, however, as I am unable to determine at this stage whether the insureds are even entitled to this level of coverage, I reserve this issue for trial.
New York law applies here. New York's choice of law rules dictate which state's substantive law applies. See Klaxon v. Stentor Electric Mfg. Co., 313 U.S. 487 (1941). New York courts apply a center of gravity of "grouping of contacts" approach to resolve choice of law issues. See Integon Ins. Co. v. Garcia, 721 N.Y.S.2d 660, 661 (2d Dep't 2001). Under this approach "court may consider a spectrum of significant contacts, including the place of contracting, the places of negotiation and performance, the location of the subject matter and the domicile or place of business of the contracting parties." Lazard Freres Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1538-39 (2d Cir. 1997). Here, Gerling, Jones Lang Wootton, the named insured that arranged for the coverage, Hugh Wood, the insurance agent, all are located in New York. Furthermore, the negotiations leading up to the issuance of the policies and the premium payments occurred in New York. Although the Insureds are located in Pennsylvania, this fact, although not unimportant, is simply insufficient to outweigh the contacts to New York.
As described above, the parties have put forth dramatically different versions of the primary policy, based both on the language of the policy and extrinsic evidence, and no clear answer to this conflicted interpretation emerges from the face of the contract. A brief description of the most discussed portions of the contract highlights the confusion. First, the declarations page lists "Jones Lang Wooten USA, Et Al" as the named insured and the business description as "Real Estate Ownership /or Management including operations." While the "Et Al" suggests that there may be more named insureds, the business description appears limited to the business of Jones Lang Wooten and it certainly does not mention anything about the business of health insurance companies. The location schedule listing the insureds is no clearer. First, as the plaintiff suggests, the fact that the only reference to the insureds is on a "Location Schedule" suggests that their coverage may be somehow location related. This is reinforced by the fact that the declarations page has a pre-printed category entitled "Location of All Premises You Own, Rent or Occupy" after which is a type-written response, "Per Location Schedule." As this is the only reference to the location schedule on the declarations page, it similarly suggests that the location schedule lists properties that are entitled to premises only coverage. However, the remainder of the schedule confuses the matter by listing the insureds as "Specific Insureds," a term that is not defined and does not appear to be easily definable. The fact that the schedule includes yet another category, "Additional Insured," which is also not defined in the policy, only compounds the problem. Although each of these facts lends support to one or the other side's story, none of them provides a clear enough foundation for summary judgment.
The "Location Schedule" has four columns, "Item," "Specific Insureds," "Address," and "Additional Insured."
The parties, understandably, look to other parts of the contract to shed light on the extent of the coverage. First, plaintiff argues that Policy Change Number 11 establishes two tiers of coverage — full coverage for James Lang Wootton and the "premises-only" coverage for the all others named in the policy. Policy Change Number 11 reads:
CHANGES
Section IV — Commercial General Liability Conditions — Part 4 Other Insurance This insurance is primary insurance for additional named insureds as shown on the location schedule. It will not apply excess of any other insurance available to these named parties. This insurance is restricted solely as respects the additional named parties interest in the operation of the scheduled property covered hereunder.
Although this provision does not mention the specific insureds, plaintiff contends that it includes them as "additional named parties" and limits their coverage to the "operation of the scheduled property," in other words "premises only" coverage. Surely, this is one argument, but it is hardly conclusive. For their part, defendants rely on "Policy Change Number: 1" and assert that it supports their claim that the Insureds are "named insureds" under the policy. Policy Change Number 1 reads:
BROAD NAMED INSURED
1. Partners, Directors and Officers of Jones Lang Wootton USA and any corporation, subsidiary, affiliated or related company as they many now exist or hereafter be constituted; and/or any corporation, partnership, joint venture or other Entity for whom they have a contractual obligation to insure.
2. The specific named insured shown on the location schedule and any subsidiary organization, including subsidiaries thereof, additional named insureds, and any other organization coming under the named insured's control of which it assumes active management and/or any other parts in interest that is required by contract to be named insured's control of which it assumes active management and/or any other parts in interest that is required by contract to be named. If the specific named insured is comprised of more than one legal entity, liability under this form shall not exceed the amount of loss had all interest comprised a single legal entity.
While defendants find this statement abundantly clear, I do not share their view. Defendants could be correct that this passage was intended to establish that the "Specific Insureds" should be considered "Named Insureds" with the attendant comprehensive coverage. However, this is just one of the two, or more, reasonable interpretations.
In an attempt to bypass the ambiguities in the contract, the defendant's point to the doctrine of contra preferentem or its subset the "reasonable expectations" doctrine arguing that to the extent there is any ambiguity in the contract it must be interpreted in their favor. However, to conclude that the contra preferentem doctrine is dispositive here, I would have to conclude that the doctrine equals an automatic victory for any insured in a dispute involving an ambiguous policy, a practice that the Second Circuit has explicitly rejected. See Schering Corp., 712 F.2d at 10 n. 2 ("To conclude otherwise would require every ambiguously drafted policy to be automatically construed against the insurer, a proposition not even [the plaintiff] supports."). This view accords with the well-established rule that contra preferentem should be employed only after consideration of other means of interpretation, including the consideration of extrinsic evidence. See Schering Corp., 712 F.2d at 10 n. 2; Endicott Johnson Corp. v. Liberty Mut. Ins. Co., 928 F. Supp. 176, (N.D.N.Y. 1996) ("Only after all aids to construction have been employed but have failed to resolve the ambiguities' should the Court apply the maxim that ambiguities are to be construed against the insurer.") (citations omitted).
There is also an issue as to whether the doctrine of contra preferentem applies in cases involving two sophisticated parties. However the latest word from the Second Circuit appears to be that the contra preferentem doctrine does apply in cases involving two sophisticated parties, even when the insured is an insurance company itself. See Sea Ins. Co. v. Westchester Fire Ins. Co., 51 F.3d 22, (2d Cir. 1995) ("We cannot accept the district court's conclusion that the contra preferetem principle . . . does not apply because this dispute lies between two insurers."). It appears, therefore, that this principle would be applicable here, although perhaps with somewhat less force than if the insured was at more of a disadvantage in its negotiations with the insurer.
While to adopt: the defendants' contra proferentem argument would clearly provide an easy way out, it is not the law. The law requires that there be a consideration of extrinsic evidence after the finding of an ambiguity. See Endicott Johnson Corp., 928 F. Supp. at ("If [a policy] is susceptible of at least two fairly reasonable meanings . . . the Court must then examine any extrinsic evidence.") (citing American Home Prods. Corp. v. Liberty Mut. Ins. Co., 748 F.2d 760, 765 (2d cir. 1984) aff'g as modified, 565 F. Supp. 1485 (S.D.N.Y. 1983). Here, this path is particularly appropriate. See Schering Corp., 712 F.2d at 10 ("[W]here a contract is not wholly unambiguous, summary judgment must be denied even where both parties move for pre-trial resolution.").
Thus, as here where the policy is, to say the least, not a model of clarity and there are wildly different accounts of its meanings from both sides, the issues presented cannot be decided on a summary judgment and the case must proceed to trial.
CONCLUSION
For the foregoing reasons, the parties' respective motions for summary judgment are denied. A bench trial in this action will commence on September 11, 2001 at 9:30 a.m. All pretrial materials including any objections to exhibits, motions in limine and a joint pre-trial order must be received in Chambers no later than August 30, 2001.