                                                                                                                           Opinions of the United
1995 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


9-15-1995

Visiting Nurse Assn. v. St. Paul Fire and Marine Ins.
Co.
Precedential or Non-Precedential:

Docket 94-2037




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      UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT



                             No. 94-2037



       VISITING NURSE ASSOCIATION OF GREATER PHILADELPHIA

                                 v.

          ST. PAUL FIRE AND MARINE INSURANCE COMPANY,
                                                    Appellant



                             No. 94-2093



       VISITING NURSE ASSOCIATION OF GREATER PHILADELPHIA

                                 v.

           ST. PAUL FIRE AND MARINE INSURANCE COMPANY

   Visiting Nurse Association of Greater Philadelphia ("VNA"),
                                                     Appellant



         On Appeal from the United States District Court
            for the Eastern District of Pennsylvania
                      (D.C. No. 94-cv-01378)



                       Argued July 17, 1995

     Before:   SLOVITER, Chief Judge, SCIRICA, Circuit Judge,
                   and AMBROSE, District Judge298

                    (Filed   September 15, l995)


Robert R. Reeder (argued)
Joshua Wall
Cozen & O'Connor


                                 1
Philadelphia, PA   19103

            Attorney for Appellant/Cross-Appellee

Jeffrey B. Albert (argued)
Fox, Rothschild, O'Brien & Frankel
Philadelphia, PA 19103

            Attorney for Appellee/Cross-Appellant



                         OPINION OF THE COURT


SLOVITER, Chief Judge.

            St. Paul Fire and Marine Insurance Company appeals from

an order of the district court declaring that it has a duty to

defend its insured, Visiting Nurse Association of Greater

Philadelphia (VNA), in a case brought against VNA by American

Health Systems, Inc. (AHS), a competitor of VNA in the provision

of home health care services, under the professional liability

coverage it sold to VNA.    VNA cross appeals, preserving its

contention that St. Paul's obligation to defend is also based on

the comprehensive general liability coverage it purchased from

St. Paul.

                                  I.

                    Facts and Procedural History

            VNA is a non-profit corporation engaged in the business

of providing home health care and related services throughout the

Delaware Valley.   Agencies such as VNA typically provide home

health care to patients who are discharged from hospitals and

require follow-up care.    Such agencies receive referrals from

hospitals, which are required as a condition of participating in



                                  2
the Medicare and Medicaid programs to transfer or refer their

patients to appropriate facilities, agencies, or outpatient

services as needed for follow-up or ancillary care.    See 42

U.S.C. § 1395x(ee); 42 CFR § 482.43(d).   The hospitals employ

discharge planners to plan the appropriate transfer or referral

of discharged patients.

           St. Paul began providing insurance to VNA in 1988.

That policy contains coverage for both professional liability and

comprehensive general liability.    In February 1993 VNA was sued

by AHS, another home health agency.   AHS's complaint contains

claims against VNA under the antitrust laws, RICO and state law.

Its antitrust claim count alleges that VNA violated sections 1

and 2 of the Sherman Antitrust Act in that it "conspired with

various area hospitals in an attempt to monopolize the home

health care market and destroy competition."   App. at 45.

Essentially it alleges that VNA paid the salaries of the

hospitals' discharge planners, who held themselves out as

employees of their respective hospitals, and that this caused the

hospitals to refer virtually all of their home care patients to

VNA.   Two counts of AHS's complaint charge that VNA violated

provisions of the Racketeer Influenced and Corrupt Organization

Act (RICO), 18 U.S.C. §§ 1962(c) and (d), through a pattern of

mail and insurance fraud, including disguise of the salaries of

discharge planners as allowable costs in its annual cost reports

and regular monthly claims.   Another count alleges that VNA

intentionally interfered with AHS's prospective contractual

relations with home care patients.


                                3
            After receiving the AHS complaint, VNA twice asked St.

Paul to defend it in the AHS lawsuit, and St. Paul twice

declined.   VNA then commenced the present diversity action in the

district court, seeking a declaratory judgment that St. Paul was

required to defend VNA in the lawsuit brought by AHS and a

judgment for all monies expended by VNA and all liabilities

incurred but not yet paid by VNA with respect to the defense of

the AHS suit.    VNA also sought prejudgment interest, punitive

damages, and attorneys' fees and costs.

            VNA filed a motion for partial summary judgment on the

duty to defend issue, and St. Paul moved for summary judgment on

all issues.     On September 21, 1994, the district court entered an

order denying St. Paul's motion for summary judgment and granting

partial summary judgment to VNA, declaring that St. Paul has a

duty to defend VNA in the AHS lawsuit.    The district court held

that VNA is not entitled to coverage under the commercial general

liability portion of the policy, but that St. Paul has a duty to

defend under the professional liability provisions because AHS's

claims arise out of the profession named in the policy.    The

district court denied St. Paul's motion for reconsideration, and

St. Paul timely filed a notice of appeal.     VNA timely filed a

cross-appeal.

            After the notices of appeal were filed, the district

court, pursuant to agreement of counsel, dismissed VNA's claims

for indemnification.    We have jurisdiction under 28 U.S.C. §1291.

In re Emerson Radio Corp., 52 F.3d 50, 53 (3d Cir. 1995); Cape
May Greene, Inc. v. Warren, 698 F.2d 179, 184-85 (3d Cir. 1983).


                                  4
Our review of the district court's grant and denial of the

summary judgment motions is plenary.       Pennsylvania Power Co. v.

Local Union No. 272, 886 F.2d 46, 48 (3d Cir. 1989).       The parties

agree that Pennsylvania law controls the coverage issues. Because

the material facts are not in dispute, the only issue before us

is the legal question of determining the proper coverage of this

insurance contract.   Pacific Indemnity Co. v. Linn, 766 F.2d 754,

760 (3d Cir. 1985).

                                II.

                           Duty to Defend

           The legal principles applicable to this case are well

established.     In interpreting an insurance policy, the court

must ascertain the intent of the parties as manifested by the

language of the policy.   Standard Venetian Blind Co. v. American

Empire Ins. Co., 469 A.2d 563, 566 (Pa. 1983).       Where the

language of the policy is clear and unambiguous, it must be given

its plain and ordinary meaning.       Pennsylvania Mfrs.' Ass'n Ins.

Co. v. Aetna Casualty & Surety Ins. Co., 233 A.2d 548, 551 (Pa.

1967).    Where a provision of the policy is ambiguous, it must be

construed in favor of the insured.      Standard Venetian, 469 A.2d
at 566.   However, a court should read policy provisions to avoid

ambiguities and not torture the language to create them.         St.

Paul Fire & Marine Ins. Co. v. United States Fire Ins. Co., 655

F.2d 521, 524 (3d Cir. 1981).

           The obligation of an insurer to defend an action is

fixed solely by the allegations in the underlying complaint.

Humphreys v. Niagara Fire Ins. Co., 590 A.2d 1267, 1271 (Pa.


                                  5
Super. Ct.), appeal denied, 598 A.2d 994 (Pa. 1991).         If the

factual allegations of the complaint, taken as true, state a

claim to which the policy potentially applies, the insurer must

defend.   D'Auria v. Zurich Ins. Co., 507 A.2d 857, 859 (Pa.

Super. Ct. 1986).     If the complaint against the insured alleges

facts that support a recovery covered by the policy, the insurer

must defend the case until it can confine the claim to a recovery

that the policy does not cover.       Cadwallader v. New Amsterdam

Casualty Co., 152 A.2d 484, 488 (Pa. 1959).

             St. Paul agreed to defend any suit brought against VNA

"for covered claims."    App. at 12.    VNA contends that two

portions of its policy with St. Paul give rise to the duty to

defend: the professional liability provisions and the

comprehensive general liability provisions.      We examine each in

turn.

                                  A.

             The professional liability coverage provision of the

policy "provides protection against professional liability claims

which might be brought against [VNA] in [its] professional

practice."    App. at 12.   To be covered, "claims must be based on

events that arise out of the profession named in the Coverage

Summary," i.e., "home care providers."      App. at 11-12.    The

policy further recites that this coverage protects VNA "against

claims that result from professional services that were or should

have been provided by anyone for whose acts [VNA was] legally

responsible" and that St. Paul would "cover claims that result

from the professional service [VNA] performed or should have


                                  6
performed" after the applicable date.   App. at 12.   Other than

the reference to "home care providers," the term "professional

services" is not expressly defined in the professional liability

portion of the policy.

          In seeking to bring itself within this coverage,     VNA

contends that the services it provides include discharge

planning, that discharge planning is a professional service, and

that the essence of AHS's claim against it is that the hospitals'

discharge planners who were allegedly paid by VNA improperly

steered patients to VNA and deprived them of information about

and access to AHS's services.   Accordingly, VNA argues, St. Paul

has a duty to defend because AHS's claim arises out of VNA's

professional services and thus potentially falls within the

policy's professional liability coverage.

          In accepting VNA's position that St. Paul does have a

duty to defend VNA under the professional liability portion of

the policy, the district court rejected St. Paul's contentions

that the AHS claims did not "'aris[e] out of' the profession

named in the policy" and that the professional liability

protection is limited to claims by clients or patients.    App. at

83.   Instead, the court concluded that AHS's allegations of

"monopolization and conspiracy by VNA in its attempt to destroy

its competition in the business or profession of home care

provider" are "'events that arise out of the profession named' in

that VNA's actions relate to and involve its business or

professional activities of providing home care."   App. at 83-84.

The court found persuasive the opinions of the courts in


                                7
Jefferson-Pilot Fire & Casualty Co. v. Boothe, Prichard & Dudley,

638 F.2d 670 (4th Cir. 1980), and Jensen v. Snellings, 841 F.2d

600 (5th Cir. 1988), holding the insurer had a duty to defend

under the professional liability coverage.

          St. Paul argues that the district court erred in

concluding that AHS's claims arise out of the profession named in

the policy.   Its principal argument, however, is that the court

failed to give effect to the language of the policy covering only

claims that result from the providing or failure to provide

professional services.     We note that the district court did not

analyze the latter requirement, one that is repeated three times

in the policy.   We believe that coverage under the professional

liability portion of the policy can be disposed of by focusing on

the meaning of "professional services," and the requirement that

the claim sought to be covered must result from providing or

failing to provide them.

          This court had occasion in Harad v. Aetna Casualty &

Surety Co., 839 F.2d 979 (3d Cir. 1988), to consider how

Pennsylvania would interpret the "professional services" language

in the context of an insurance contract.   Harad, an attorney,

represented a client sued by Catania.   During the litigation

Harad signed a verification to an answer and counterclaim filed

on behalf of his client which alleged that Catania conspired or

contrived to defraud Harad's client by concealing or

misrepresenting certain facts.   Catania later sued Harad for

malicious prosecution, and The Aetna Casualty and Surety Company,

one of his liability insurers, declined to defend.   The policy


                                 8
Aetna had written for Harad was a business liability policy that

excluded claims "arising out of the rendering or failure to

render any professional service."    Id. at 983 (emphasis omitted).

          This court held that Aetna had no duty to defend,

because Harad's action that was the basis of Catania's lawsuit

fell into the category of "professional service" and was

therefore excluded by the professional liability exclusion.     We

adopted the generally held view that a "professional service"

must be "such as exacts the use or application of special

learning or attainments of some kind. . . .    A 'professional' act

or service is one arising out of a vocation, calling, occupation,

or employment involving specialized knowledge, labor, or skill."

Id. at 984 (quotation omitted). The relevant consideration is not

the title or character of the party performing the act but the

act itself.   Id.   We noted that the acts for which Harad had been

sued by Catania, the drafting and signing of pleadings, clearly

were "professional in nature and go to the heart of the type of

services an attorney provides to his clients."     Id. at 984-85.

          We noted the distinction between "two very different

and often overlooked components" in the practice of law, as well

as in other similarly regulated professional activity -- "the

professional and the commercial."    Id. at 985.   The professional

aspect "involves the rendering of legal advice to and advocacy on

behalf of clients for which the attorney is held to a certain

minimum professional and ethical standards."    Id.   On the other

hand, the commercial aspect involves "the setting up and running

of a business," including such tasks as securing office space,


                                 9
hiring staff, paying bills, and collecting on accounts

receivable.   Id.

           We stated that given the dual nature of the practice of

law, a lawyer's liability should be assessed depending on the

role the lawyer was playing at the time the potential liability

arose.   For example, if a lawyer is sued because a guest in the

lawyer's office is injured tripping over the lawyer's briefcase,

the lawyer's liability would not derive from the rendering of a

professional service but from the operation of a business.     Id.

           We concluded that Harad's liability was professional in

nature because it derived solely from the provision of legal

services, and thus fell within the exclusion from Aetna's

Business Owners Policy (Deluxe) for professional services.     Cf.

Knorr v. Commercial Casualty Ins. Co., 90 A.2d 387, 388 (Pa.

Super. Ct. 1952) (no duty to defend owner of beauty parlor

against claim by customer injured when hair dryer fell and struck

her head, where policy excluded "injuries arising from the

'rendering of any professional services,'" and term "professional

services" referred to "technical work performed by beauticians,

hair-dressers, etc.," including drying of hair).

           For purposes of this opinion, we accept VNA's

contention that discharge planning may involve professional

services as that term is understood in the policy.   However, AHS

has not based its suit against VNA on any aspect of the

application of any specialized skills, knowledge, learning, or

attainments by the discharge planners.   Even if the hospitals'

discharge planners are treated as VNA's employees, VNA's


                                10
liability to AHS, if any, derives from AHS's claims that VNA

conspired with hospitals to monopolize referrals, engaged in a

pattern of racketeering activity, and interfered with AHS's

prospective contractual relations with patients.   Similar

allegations could be made against any business competing for

referrals or customers.   These allegations stem from VNA's effort

to operate its business, not from any professional services that

were or should have been provided by the discharge planners, and

thus do not even potentially fall within the policy's coverage.

Cf. Crum & Forster Managers Corp. v. Resolution Trust Corp., 620

N.E.2d 1073, 1079 (Ill. 1993) (no duty to defend where claims

alleging that insureds "committed intentional business torts and

engaged in unfair competitive practices" did not "arise or result

because of the insureds' performance of real estate services,"

the service listed in policy's definition of "professional

services").

          Of course, disposition in each case will depend upon

the specific language of the provisions defining the coverage and

exclusions of a particular policy.   This is illustrated by the

decision of a Pennsylvania appellate court which had occasion, in

a case brought after Harad, to consider whether a policy covering
professional services applied to a suit brought against the

insured for wrongful termination.    In that case, Biborosch v.

Transamerica Ins. Co., 603 A.2d 1050 (Pa. Super. Ct.), appeal

denied, 615 A.2d 1310 (Pa. 1992), the insured, Biborosch, was the

general insurance agent and manager of a general insurance agency

engaged in selling and servicing insurance policies for Penn


                                11
Mutual Life Insurance Company and Penn Insurance and Annuity

Company (collectively, "Penn").      Biborosch's duties as manager

included recruiting, training, and supervising agents and

brokers.

            Biborosch and Penn terminated an agent who then sued

them, alleging tortious interference with contractual relations,

breach of contract, wrongful discharge, and breach of the duty of

good faith and fair dealing.      Biborosch was covered by a

professional liability policy issued by Transamerica Insurance

Company, which provided coverage for "[a]ny act, error or

omission of the INSURED . . . in the rendering or failing to

render PROFESSIONAL SERVICES . . . in the conduct of the NAMED

INSURED'S profession as Life Underwriter, [or] Licensed Life,

Accident and Health Insurance General Agent or Manager."       Id. at

1052 (emphasis added).      The term "professional services" was

defined as "those services necessary or incidental in the conduct

of the insurance business" of Biborosch, including the sale and

servicing of various insurance policies, annuities, and employee

benefit plans, and related advice, consultation, and

administration.      Id.
            The court held that Transamerica had a duty to defend

Biborosch, because Transamerica "specifically insure[d] Biborosch

not only as an insurance broker, but also as a general agent or

manager."   Id. at 1053.     This "crucial aspect" of the policy

brought the agent's lawsuit potentially within the coverage of

the policy.    Id.    Biborosch's termination of the agent was an act

"committed in the course of rendering professional services as


                                   12
general manager of the agency," thus satisfying the policy's

requirement that covered acts "must have been performed in the

conduct of the insured's profession as, inter alia, an insurance

broker and insurance general agent or manager."      Id.

          Relying on Harad, Transamerica argued that the agent's

complaint did not fall within the potential coverage of its

policy because Biborosch's actions in terminating the agent were

related to "running the business" of the agency and were not

"professional" in nature.   Transamerica contended that Harad

compelled the conclusion that personnel decisions are not

professional in nature.   The court stated that while it "might

agree with the statements of the Harad court in a case that

presented the same issue as was presented there," it did not find

Harad apposite to the case before it.      Id. at 1055.    Harad did

not involve a policy with "its own expansive definition of

'professional services,' specifically including all acts

'necessary or incidental' to the conduct of the insured's

insurance business and administration in connection therewith."

Id.   More importantly, Harad did not construe a policy insuring

against "liability arising from the performance of the profession

of general manager of a business."   Id.     Unlike a policy insuring

a lawyer acting as a lawyer, or a doctor acting as a doctor, the

Transamerica policy insured Biborosch "when acting as insurance

broker and when acting as general manager" and defined general

manager of an agency as a covered profession.     Id.

          In contrast to the more expansive coverage in

Biborosch, St. Paul merely agreed to cover claims "aris[ing] out


                                13
of the profession named in the Coverage Summary" ("home care

providers") and resulting from "professional services that were

or should have been provided."    App. at 11-12.    Inasmuch as St.

Paul, unlike Transamerica, did not define "profession" or

"professional services" to include conduct "necessary or

incidental in the conduct of [VNA's] business," it is not

required to defend claims that result from VNA's operation of a

business.    AHS's claim arises from VNA's competition for clients,

a business activity, rather than from its provision of

professional services.

            The district court relied heavily on Jefferson-Pilot

Fire & Casualty Co. v. Boothe, Prichard & Dudley, 638 F.2d 670

(4th Cir. 1980), a case that has some facial similarity in that

the issue was coverage under a professional services policy for

an antitrust claim against the insured.      In that case the

insured, Boothe, Prichard & Dudley, a law firm, was sued by a

client who claimed the firm had unlawfully conspired with

Suburban Savings and Loan Association to require Suburban's

borrowers to use Boothe for legal work involved in obtaining real

estate loans.    The policy required Jefferson-Pilot, Boothe's

professional liability insurer, to defend any suit against Boothe

raising "any claim made against the insured arising out of the

performance of professional services for others in the insured's

capacity as a lawyer . . . and caused by any act, error or

omission of the insured or any other person for whose acts the

insured is legally liable."    Id. at 674.   Inasmuch as the

client's claim was that he and members of the class he


                                 14
represented were "compelled to purchase legal and related

services from attorneys not of their choosing at fees greater

than those which could be obtained elsewhere and of a quality not

best suited to their individual needs," id. at 672 n.2, that

court concluded that the antitrust claim arose out of Boothe's

"performance of professional services" for the plaintiffs within

the meaning of the policy.

             In this case, the district court rejected St. Paul's

argument distinguishing the Jefferson-Pilot case on the ground

that there the claim had been asserted by the client of the

insured lawyer.     Although the court was correct in noting that

St. Paul's policy language is not written in terms of the

category of person asserting the claim, in each case the issue is

whether the underlying claim is covered by the policy.     When the

claim is one asserted by the client, i.e., the user of the

professional services, it would most likely follow that the claim

will be covered by a professional services policy.    See, e.g.,

Jensen v. Snellings, 841 F.2d 600, 613-14 (5th Cir. 1988) (duty

to defend attorney against suit by client alleging false tax

information and advice).     When the claim is one brought by a

competitor, it is far less likely to be within that coverage

unless, of course, the policy language is broader than that

written by St. Paul which limits the covered claims to those that

"result from professional services that were or should have been
provided."     App. at 12 (emphasis added).

             Even if we were to assume that AHS's claim "arises out

of" VNA's profession, the language on which the district court


                                  15
focused, it does not result from any professional services, i.e.,

services that require specialized skill, knowledge, learning, or

attainments that VNA provided or failed to provide.      We note that

the professional liability policy here, taken as a whole,

unambiguously provides that covered claims must both arise out of

VNA's profession and result from professional services that were

or should have been provided, and therefore conclude that St.

Paul does not have a duty to defend VNA under the professional

liability provisions.   Cf. Central Dakota Radiologists v.

Continental Casualty Co., 769 F. Supp. 323, 326 (D.N.D. 1991)

("While [injury] 'arising out of' [the performance of

professional services] may be construed to include conduct

collaterally related to the actual performance of professional

services, the more restrictive [injury] 'caused by' [the

rendering or failure to render professional services] may not.").

                                B.

           VNA cross-appeals, arguing that the district court

erred in holding that it was not entitled to coverage under the

commercial general liability portion of the policy.      This

provides coverage for "amounts any protected person is legally

required to pay as damages for covered personal injury that . . .

is caused by a personal injury offense."   App. at 21.     Personal

injury is defined to mean "injury, other than bodily injury or

advertising injury, caused by a personal injury offense."       App.

at 22.   Personal injury offense includes, inter alia,
"[i]nterfering with the rights provided to a person by a

Patients' Bill of Rights or any similar law."   Id.   St. Paul


                                16
agreed to defend "any claim or suit for covered injury or damage

made or brought against any protected person."   App. at 23.

          According to VNA, AHS's complaint alleges that VNA

deprived patients of the right to be provided the necessary

information to make decisions about their health care options.

VNA contends that such a right is inherent in all patients' bills

of rights, whether mandated by state or federal law or by private

associations.    VNA concedes that AHS does not expressly claim

that this alleged deprivation is the basis for its lawsuit but

argues that the "factual basis" for AHS's complaint demonstrates

that such conduct is the "focal point" of AHS's lawsuit.    Brief

for VNA at 18.

          However, while the AHS complaint contains 104 numbered

paragraphs detailing VNA's claims under the Sherman Act, RICO,

and state common law, VNA cites only two paragraphs that

assertedly touch on patients' rights.    The first states that home

care patients are typically 65 years of age or older and are

"rarely knowledgeable about the scope of Home Health Agencies and

the nature of their services.    The strenuous events preceding the

discharge from the hospital add to the confusion of these elderly

patients, who become almost totally dependent upon the expertise

of the hospital staff for information on home care."    App. at 43

(¶ 29 of AHS Complaint).    The second recites that "the patients

lost their freedom to choose among the home health care providers

operating in the relevant geographic market since the discharge

planners, placed and paid by VNA, held themselves out to be

employees of Defendant Hospitals and under such purported


                                 17
'neutral' role steered patients to VNA."    App. at 60 (¶ 95(b) of

AHS Complaint).

          We believe that the district court succinctly and

correctly disposed of VNA's contention.    The court noted that

AHS's complaint does not implicate the patients' bill of rights,

that such a right belongs to the patient, not to a home care

provider, and that no patient alleged any claim in connection

with information received or not received about home health care.

App. at 79.   We agree.   Thus, we reject VNA's contention that the

district court erred in holding that St. Paul has no duty to

defend under the commercial general liability portion of the

policy.

                                III.

                             Conclusion

          For the foregoing reasons, we will reverse the order of

the district court granting partial summary judgment to VNA and

remand for entry of an order granting summary judgment to St.

Paul.




298


  Honorable Donetta W. Ambrose, United States District Judge for
the Western District of Pennsylvania, sitting by designation.




                                 18
