                                                                                                                           Opinions of the United
1996 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


8-28-1996

12th Street Gym Inc v. Gen Star Indemnity
Precedential or Non-Precedential:

Docket 95-1845,95-1864




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                    UNITED STATES COURT OF APPEALS
                        FOR THE THIRD CIRCUIT

                            ________________

                        Nos. 95-1845 and 95-1864
                            ________________


                 12TH STREET GYM, INC; ROBERT GUZZARDI,
                                        Appellants at No. 95-1864

                                   v.

                   GENERAL STAR INDEMNITY COMPANY,
                                       Appellant at No. 95-1845

         _______________________________________________

         On Appeal from the United States District Court
             for the Eastern District of Pennsylvania
               (D.C. Civil Action No. 94-cv-05757)
                       ___________________


         Submitted Pursuant to Third Circuit LAR 34.1(a)
                           May 2, 1996

       Before:    SCIRICA, ROTH and GODBOLD*, Circuit Judges

                        (Filed   August 28, l996)


WILLIAM H. BLACK, JR., ESQUIRE
Hecker, Brown, Sherry & Johnson
1700 Two Logan Square
18th and Arch Streets
Philadelphia, Pennsylvania 19103

  Attorney for Appellant/Cross-Appellee,
  General Star Indemnity Company

H. GRAHAM McDONALD, ESQUIRE
Turner & McDonald
1725 Spruce Street
Philadelphia, Pennsylvania 19103

  Attorney for Appellees/Cross-Appellants,
  12th Street Gym, Inc. and Robert Guzzardi



*The Honorable John C. Godbold, United States Circuit Judge for
the Eleventh Judicial Circuit, sitting by designation.
                          __________________

                          OPINION OF THE COURT
                           __________________


SCIRICA, Circuit Judge.


         The issue on appeal is whether a liability insurance
policy's Sexually Transmitted Disease Exclusion excludes coverage
for claims arising out of a gym member's expulsion from a gym due
to his Acquired Immune Deficiency Syndrome ("AIDS"). Because we
believe the Sexually Transmitted Disease Exclusion is ambiguous,
we will vacate the district court's judgment that the exclusion
does not bar coverage, and remand for the factfinder to consider
extrinsic evidence on the exclusion's meaning.
                          I. Background
         The plaintiffs, 12th Street Gym, Inc. ("Gym") and its
co-owner and president, Robert Guzzardi, brought this action
seeking a declaration of their rights under a liability insurance
policy issued by the defendant, General Star Indemnity Company
("General Star"). General Star is an excess and surplus lines
insurer which provides third-party liability insurance to
entities that cannot secure insurance through conventional
commercial lines insurers.
         The Gym and Guzzardi seek indemnification for the
settlement of an underlying suit filed against them by Irving
Silverman. Silverman was a Gym member who had been diagnosed
with AIDS in 1990. Based on events that took place in the Gym's
exercise facility in Philadelphia during February and March of
1994, Silverman sued the Gym and Guzzardi in the United States
District Court for the Eastern District of Pennsylvania.
                                A.
         On February 23, 1994, Silverman approached the Gym
management with a suggestion for a special membership option for
people diagnosed with AIDS. After submitting his special
membership proposal, Silverman was advised by a Gym employee that
he would not be allowed to return to the Gym without a note from
a doctor. Silverman was permitted to enter the Gym when he
returned several days later and presented a note from his doctor
stating he was fit to exercise. After exercising, Silverman
nicked his finger on a gym locker. He bandaged his cut with a
band-aid given to him by a Gym employee, and then showered and
dressed in the locker room.
         According to Silverman, Guzzardi confronted him in the
lobby as he was leaving and demanded to know whether he had AIDS.
Guzzardi began yelling until Silverman publicly admitted he had
AIDS. After noticing the bandage on Silverman's finger, Guzzardi
allegedly shouted: "We don't want your kind in here. You're
careless! You could infect everybody!" Guzzardi demanded
Silverman leave the gym and told him not to return.
         In his complaint Silverman sought damages and
declaratory and injunctive relief based on the Gym and Guzzardi's
alleged discrimination in violation of the Americans with
Disabilities Act ("ADA"), intentional and negligent infliction of
emotional distress, invasion of privacy, fraudulent
misrepresentation, civil conspiracy, and defamation.
         At the time of the incidents alleged in Silverman's
Complaint, the Gym and Guzzardi were named insureds under General
Star's policy of general liability insurance, Policy No. IMA
212509. The policy had general provisions providing coverage for
four different categories of harm: bodily injury, property
damage, advertising injury and personal injury. Attached to the
policy was an endorsement that contained the following exclusion:
         15. Sexually Transmitted Disease Exclusions
         (GSI-52-C200)

         This insurance does not apply to "bodily
         injury," "property damage," "personal
         injury," "professional liability" or
         "advertising injury" with respect to any
         claim, suit or cause of action arising
         directly or indirectly out of instances,
         occurrences or allegations involving sexually
         transmitted diseases, including Acquired
         Immune Deficiency Syndrome (AIDS). This
         exclusion shall apply regardless of the legal
         form any claim may take. As an example, this
         insurance shall provide no coverage for a
         claim alleging that any Insured was negligent
         or in breach of contract by maintaining
         premises where the Insured knew, or should
         have known, diseases might be sexually
         transmitted.
         The Gym and Guzzardi filed a claim for defense and
indemnification of the Silverman suit under General Star's
policy. General Star declined to defend or indemnify the Gym and
Guzzardi due, in part, to the Sexually Transmitted Disease
Exclusion ("STDE"). On September 20, 1994, while Silverman's
suit was pending, the Gym and Guzzardi instituted this suit in
the District Court for the Eastern District of Pennsylvania
against General Star. In the complaint, the Gym and Guzzardi
sought a declaration that General Star had a duty to defend
against the Silverman suit, a duty to indemnify for any judgment
entered against them in the Silverman suit, damages in excess of
$50,000, and punitive damages.
         On December 10, 1994, Silverman died, and his estate
was substituted as plaintiff. Subsequently the parties settled
the Silverman suit for $35,000 and other nonmonetary relief. The
settlement agreement provided for a complete release of all
claims against the Gym, Guzzardi and General Star. General Star
agreed to pay the defense costs incurred by the Gym and Guzzardi
in litigating the underlying action. General Star also advanced
the cost of settlement to the Gym and Guzzardi, but reserved its
right to contend it was not obligated to indemnify and therefore
was entitled to repayment of the $35,000. The Gym and Guzzardi
agreed to drop all counts against General Star except for the
claim that General Star had a duty to indemnify for the
settlement. By order entered January 31, 1995, the district
court dismissed the Silverman suit.
                                B.
         The Gym and Guzzardi filed an Amended Complaint on
February 6, 1995, alleging General Star had a duty to indemnify
them for the Silverman suit liabilities. In its Answer to the
Amended Complaint, General Star set forth several affirmative
defenses, including one based on the policy's Sexually
Transmitted Disease Exclusion. General Star also counterclaimed
for a declaration that it had no duty to indemnify, and for
judgment in the amount of $35,000 to reimburse it for the
settlement cost.
         The parties filed cross-motions for summary judgment.
By order entered June 22, 1995, the district court determined the
STDE did not exclude coverage for the remaining claims in the
Silverman suit and denied General Star's motion for summary
judgment. But the court also held General Star was not obligated
to indemnify the Gym and Guzzardi for Silverman's ADA claim. In
addition, the court determined that the pre-trial settlement of
the Silverman suit did not prevent General Star from contesting
its obligation to indemnify the Gym and Guzzardi for the
settlement of the Silverman action. Finally, the district court
found the facts were insufficiently developed to determine which
counts of the underlying complaint, if any, gave rise to
liability and coverage. 12th Street Gym, Inc. v. General Star
Indem. Co., No. 94-5757, slip op. at 2 (E.D. Pa. June 22, 1995).
         On September 6, 1995, the parties filed a stipulation
in the district court under which General Star agreed to withdraw
all affirmative defenses except for the defense based on the
STDE. The district court granted the Gym and Guzzardi's renewed
Motion for Summary Judgment based on this stipulation and on its
previous holding that the STDE did not bar coverage for the
Silverman suit. 12th Street Gym, Inc. v. General Star Indem.
Co., No. 94-5757 (E.D. Pa. September 5, 1995).
         General Star appeals the district court's determination
that the STDE does not preclude indemnification for the Silverman
suit. The Gym and Guzzardi cross-appeal from the district
court's holding that pre-trial settlement and dismissal of the
underlying suit did not require General Star to indemnify for the
Silverman settlement.
                                C.
         We have jurisdiction over the district court's final
order pursuant to 28 U.S.C. § 1291. We exercise plenary review
of the district court's grant of summary judgment. Oritani
Savings & Loan Ass'n v. Fidelity & Deposit Co., 989 F.2d 635, 637
(3d Cir. 1993). The parties agree that Pennsylvania law governs
this dispute. The district court's application and
interpretation of state law is subject to plenary review. Salve
Regina College v. Russell, 499 U.S. 225, 231 (1991); Grimes v.
Vitalink Communications Corp., 17 F.3d 1553, 1557 (3d Cir.),
cert. denied, 115 S. Ct. 480 (1994). Inquiry into the "legal
operation" of an insurance policy is a conclusion of law and is
also subject to plenary review. Dickler v. CIGNA Property &
Casualty Co., 957 F.2d 1088, 1094 (3d Cir. 1992); see also Linder
v. Inhalation Therapy Services, Inc., 834 F.2d 306, 310 (3d Cir.
1987) (citing Cooper Labs. Inc. v. Int'l Surplus Lines Ins. Co.,
802 F.2d 667, 671 (3d Cir. 1986) (holding judicial construction
of an insurance policy to account for events not foreseen by the
parties is subject to plenary review)).

                         II. Discussion
                      A. Duty to Indemnify
         General Star is not obligated to indemnify the Gym and
Guzzardi for claims that fall outside the general scope of the
insurance policy. Accordingly, before we examine the meaning of
the STDE, we must determine whether each of Silverman's claims is
potentially covered under a reasonable interpretation of the
policy.
         As we have noted, Silverman alleged seven claims in his
first amended complaint: (1) discrimination in violation of the
ADA; (2) intentional infliction of emotional distress; (3)
negligent infliction of emotional distress; (4) invasion of
privacy; (5) fraudulent misrepresentation; (6) civil conspiracy;
and (7) defamation. The district court determined General Star
is not obligated to indemnify the Gym and Guzzardi for the ADA
claim, and this holding has not been appealed. 12th Street Gym,
Inc. v. General Star Indem. Co., No. 94-5757, slip op. at 2 (E.D.
Pa. June 22, 1995).
         The insurance policy provides coverage for four
categories of harm: bodily injury, property damage, advertising
injury, and personal injury. Neither party suggests that
Silverman's remaining claims pertain to "bodily injury" or
"property damage" as those terms are defined in the policy.
Moreover, our review of the policy confirms these claims do not
allege harm that could be considered a part of either category.
Thus, Silverman's claims are only covered to the extent they
allege either "advertising injury" or "personal injury."
         The Gym and Guzzardi suggest some or all of Silverman's
claims could be considered "advertising injury." The policy
defines "advertising injury" in part as injury arising out of:
         a. Oral or written publication of material
         that slanders or libels a person or
         organization or disparages a person's or
         organization's goods, products or services;

         b. Oral or written publication of material
         that violates a person's right to privacy . .
         . .
But there is a limiting definition of "advertising injury." A
separate section of the policy states it covers only:
         "[a]dvertising injury" caused by an offense
         committed in the course of advertising your
         goods, products or services . . . .
None of Silverman's claims were for injury caused by an offense
committed in the course of advertising goods, products or
services. Since the parties do not contend Silverman's
allegations were in any way related in an advertisement, the
clear terms of the policy preclude characterizing his claims as
"advertising injury."
         The remaining category of harm, "personal injury," is
defined in the part as:
         injury, other than "bodily injury," arising
         out of one or more of the following offenses:

         . . .

                 d. Oral or written publication of
                 material that slanders or libels a
                 person or organization or disparages a
                 person's or organization's goods,
                 products, or services; or

              e. Oral or written publication of
              material that violates a person's right
              of privacy.
(Emphasis added). The body of the policy provides the insurance
applies to all:
         "[p]ersonal injury" caused by an offense
         arising out of your business, excluding
         advertising, publishing, broadcasting or
         telecasting done by or for you . . . .
         Slander and libel are both forms of defamation; slander
is defamation by words spoken, and libel is defamation by written
or printed material. Sobel v. Wingard, 531 A.2d 520 (Pa. Super.
1987) (citing Solosko v. Paxton, 119 A.2d 230 (Pa. 1956), and
Corabi v. Curtis Publishing Co., 273 A.2d 899 (Pa. 1971)). In
Pennsylvania, "a statement is defamatory if it tends to harm an
individual's reputation so as to lower him in the estimation of
the community or deter third persons from associating or dealing
with him." Kryeski v. Schott Glass Technologies, 626 A.2d 595,
600 (Pa. Super. 1993) (quoting Zartman v. Lehigh County Humane
Soc., 482 A.2d 266, 268 (Pa. Super. 1984)), appeal denied, 639
A.2d 29 (1994); see also U.S. Healthcare v. Blue Cross of Greater
Phila., 898 F.2d 914, 923 (3d Cir.) (citing Birl v. Philadelphia
Elec. Co., 167 A.2d 472 (Pa. 1960)), cert. denied, 498 U.S. 816
(1990). The court makes the initial determination of whether the
statement at issue is capable of defamatory meaning. U.S.
Healthcare, 898 F.2d at 923 (citing Corabi, 273 A.2d at 904).
         We think that Silverman's claims for intentional and
negligent infliction of emotional distress, invasion of privacy,
civil conspiracy and defamation all state potential claims for
"personal injury." All of these claims arose from Guzzardi's
accusation that Silverman was "careless" and that "his kind" was
not wanted at the Gym. These statements tended to harm
Silverman's reputation and deter third persons from associating
or dealing with him. In addition, Guzzardi's actions may have
violated Silverman's right to privacy. To the extent
Silverman's claims allege injuries arising out of the Gym or
Guzzardi's slander or publication of material that violated
Silverman's right to privacy, the Gym and Guzzardi may be
entitled to indemnification for the settlement amount paid to
Silverman's estate.
         The district court held the underlying complaint was
"based on Irving Silverman's alleged exclusion from the 12th
Street Gym -- not on his purportedly having a sexually
transmissible disease." 12th Street Gym, Inc. v. General Star
Indem. Co., No. 94-5757, slip op. at 1 (E.D. Pa. June 22, 1995)
(citing First Amended Complaint at ¶¶ 8-35). Although the
district court's characterization of the complaint is feasible,
it is misleading for the purposes of this case. The Gym and
Guzzardi are only entitled to indemnification to the extent
Silverman's claims can be considered "personal injury."
Exclusion from the Gym, without more, cannot reasonably be
construed as slander, invasion of a right to privacy, or any
other form of "personal injury" as it is defined in the policy.
         On the other hand, the court was correct to point out
that Silverman's complaint was not based on his "purportedly
having a sexually transmitted disease." Careful review of the
complaint reveals that Silverman's allegations were based on the
allegation that he had AIDS, without reference to the manner in
which he contracted the disease. Since AIDS can be transmitted
in a number of ways, only one of which is sexual, it is not
accurate to say Silverman's complaint was based on his having a
"sexually transmitted" disease. Thus while we reject the
district court's conclusion that the underlying complaint was
based solely on Silverman's exclusion from the Gym, we adopt the
court's alternative determination that "to the extent AIDS was
implicated, it was not as a sexually transmissible disease."
12th Street Gym, Inc. v. General Star Indem. Co., No. 94-5757,
slip op. at 1-2 (E.D. Pa. September 5, 1995).
         We now turn to the STDE to examine the extent to which
Silverman's claims for "personal injury" may be excluded from
coverage by the STDE.
                             B. STDE
                                1.
         On appeal, General Star argues the STDE unambiguously
precludes coverage for the Silverman claims. As we have noted,
the STDE precludes coverage for claims:
         arising directly or indirectly out of
         instances, occurrences or allegations
         involving sexually transmitted diseases,
         including Acquired Immune Deficiency Syndrome
         (AIDS).
According to General Star, the district court erred in holding
this language is limited to "transmittal of the disease."
General Star contends the STDE bars coverage for all claims
presented in the Silverman suit because Silverman's disease was
so central and integral to the alleged actions of the Gym and
Guzzardi that, but for the disease, Silverman would not have a
claim.
         Emphasizing the extensive scope of the phrase "arising
directly or indirectly from," General Star claims it means
something broader than normal proximate or substantial factor
causation and suggests that "but for" causation is sufficient to
trigger the exclusion. Furthermore, the word "involving"
evidences the parties' intent to give the exclusion a broad, all
encompassing range. General Star maintains the language of the
STDE is comprehensive and applies to all claims "remotely
related" to a sexually transmitted disease, regardless of nature
or scope.
         In contrast, the Gym and Guzzardi examine the same
provision and conclude the STDE was intended to exclude only
those claims which allege contraction, exposure, or fear of
exposure to sexually transmitted diseases. They argue the mere
existence of a disease that can be sexually transmitted,
particularly one that may not have been contracted through sexual
activity, is not sufficient to trigger the exclusion. Instead,
the Gym and Guzzardi contend, the exclusion was only intended to
prohibit coverage of claims alleging conduct related to sexually
transmitted diseases.
         In support of this argument, the Gym and Guzzardi cite
the following language in the STDE:
         This exclusion shall apply regardless of the
         legal form any claim may take. As an
         example, this insurance shall provide no
         coverage for a claim alleging that any
         Insured was negligent or in breach of
         contract by maintaining premises where the
         Insured knew, or should have known, diseases
         might be sexually transmitted.
The Gym and Guzzardi claim this example indicates the parties'
intent to exclude from coverage only claims alleging the
transmission of diseases through sexual activity. Because
Silverman's claims were premised only on the existence of AIDS,
and not transmission or exposure to the disease, they maintain
the claims should not be excluded from insurance coverage.
         In summary, each party examines the language of the
STDE and draws opposite conclusions regarding the "clear and
unambiguous" language of the provision.
                                2.
         Under Pennsylvania law, a court, rather than a jury,
generally interprets the language of an insurance contract.
Standard Venetian Blind Co. v. American Empire Ins., Co., 469
A.2d 563, 566 (Pa. 1983) (citing Gonzalez v. United States Steel
Corp., 398 A.2d 1378 (Pa. 1979) (holding "the common law has long
thought it best to leave to the court rather than to the jury the
essentially factual question of what the contracting parties
intended.") (quotations omitted)). The goal of insurance
contract interpretation is to "ascertain the intent of the
parties as manifested by the language of the policy." Visiting
Nurse Ass'n v. St. Paul Fire & Marine Ins., 65 F.3d 1097, 1100
(3d Cir. 1995). Where the language of an insurance policy is
clear and unambiguous, it must be given its plain and ordinary
meaning. Id. (citing Pennsylvania Mfr. Ass'n Ins. Co. v. Aetna
Casualty & Surety Ins. Co., 233 A.2d 548, 551 (Pa. 1967)).
         After reviewing the language of the policy, we believe
the STDE is ambiguous. Whether an ambiguity exists is a question
of law. Kiewit Eastern Co. v. L & R Constr. Co., 44 F.3d 1194,
1199 (3d Cir. 1995) (citing Hutchison v. Sunbeam Coal Corp., 519
A.2d 385, 390 (Pa. 1986)). Disagreement between the parties over
the proper interpretation of a contract does not necessarily mean
that a contract is ambiguous. Vogel v. Berkley, 511 A.2d 878,
881 (Pa. Super. 1986). But a contract is ambiguous "if it is
reasonably susceptible of different constructions and capable of
being understood in more than one sense." Steele v. Statesman
Ins. Co., 607 A.2D 742, 743 (Pa. 1992).
         In this case, the STDE is reasonably susceptible to
more than one interpretation. First, it is difficult to
determine from the contract language alone the parties' intended
meaning of the term "sexually transmitted disease." The term is
not defined in the policy. It could reasonably be understood to
encompass all diseases that could conceivably be sexually
transmitted, or it could be limited to diseases that have
actually been transmitted through sexual conduct.
         Moreover, the language of the STDE does not indicate
the intended scope of the exclusion. The STDE could reasonably
be understood to exclude from coverage all claims arising
indirectly out of allegations involving the existence of a
sexually transmitted disease. Support for this interpretation
comes from the first sentence of the STDE, which provides in
part,
         [t]his insurance does not apply to . . .
         "personal injury" . . . with respect to any
         claim . . . arising directly or indirectly
         out of instances, occurrences or allegations
         involving sexually transmitted diseases . . .
         .
(emphasis added). As we have noted, the definition of "personal
injury" includes injury arising out of:
         oral or written publication of material that
         slanders or libels a person's or
         organization's goods, products, or services;
         or . . . oral or written publication of
         material that violates a person's right to
         privacy . . . .
This definition suggests the mere existence of (and reference to)
a sexually transmitted disease in an oral or written publication
might establish a "personal injury" that is excluded from
coverage.
         But at least an equally reasonable interpretation of
the STDE would limit the exclusion to claims alleging
transmission, or fear of transmission, of disease through sexual
conduct. Thus "personal" injury may be limited to allegations of
actual sexual conduct in an oral or written publication.
Moreover, the "mere existence" interpretation of the STDE would
virtually eliminate coverage for an extremely broad set of
claims. For example, this interpretation might exclude coverage
for injuries sustained in a fall caused in part by the weakened
physical condition of a person with AIDS. The wide range of
claims excluded by the "mere existence" interpretation tends to
undermine its validity. Hence, both the "mere existence" and the
"conduct or exposure" interpretations have some basis in the text
of the policy.
         More importantly, the language of the STDE does not
clearly reveal the required nexus between a claim and a sexually
transmitted disease. General Star argues the STDE applies to all
claims which are even "remotely" related to incidents,
occurrences or allegations involving a sexually transmitted
disease. But they also contend the exclusion does not apply if
the claim has only an "incidental" or "irrelevant" connection to
a sexually transmitted disease. As we have noted, the district
court held, "[t]he underlying complaint is based on Irving
Silverman's alleged exclusion from the 12th Street Gym -- not on
his purportedly having a sexually transmissible disease."
Alternatively, the district court found "to the extent AIDS was
implicated, it was not as a sexually transmissible disease."
12th Street Gym, Inc. v. General Star Indemnity Co., No. 94-5757,
slip op. at 1-2 (E.D. Pa. September 5, 1995). Thus the
distinction between a "remote" connection and an "incidental"
connection to a sexually transmitted disease may be significant
in this case.
                                3.
         The Gym and Guzzardi contend the ambiguous language in
the STDE should be construed against General Star. See, e.g.,
Standard Venetian Blind Co., 469 A.2d at 566 (where the language
is ambiguous, "the policy provision is to be construed in favor
of the insured and against the insurer, the drafter of the
agreement"). But a court will only construe ambiguous language
against the drafter in the absence of relevant extrinsic
evidence. Hutchison, 519 A.2d at 390-91 n.5. Under Pennsylvania
law, a court determines as a matter of law whether there is an
ambiguity. If so, the factfinder shall resolve the ambiguity.
Id. at 390, 391 n.6; see also Peerless Dyeing Co. v. Industrial
Risk Insurers, 573 A.2d 541 (Pa. Super. 1990) ("it is the duty of
the court to interpret an unambiguous [insurance policy]
provision while interpretation of ambiguous clauses may properly
be left to a jury") (emphasis in original), appeal denied, 592
A.2d 1303 (1991).
         At this stage, the only available extrinsic evidence is
an affidavit from the president of the company that underwrote
the insurance policy. The affidavit was submitted by General
Star with its Motion for Summary Judgment and states "it was the
underwriter's intention to exclude from coverage claims such as
those which are stated in [Silverman's complaint] . . . ." But
the affidavit also states "it was not [the underwriter's]
intention . . . to exclude coverage for claims in which the
involvement of a sexually transmitted disease was irrelevant or
purely incidental to the claim . . . ." In view of this, we do
not believe the available extrinsic evidence here is sufficient
to resolve the ambiguities in the STDE. Accordingly, we will
remand this matter to the district court.
                C. Pacific Indemnity Co. v. Linn
         On the cross-appeal, the Gym and Guzzardi argue the
district court erred in denying summary judgment on their claim
that the pre-trial settlement and dismissal of the Silverman suit
required, as a matter of law, a finding that General Star has a
duty to indemnify them for the cost of settling the Silverman
suit. The Gym and Guzzardi argue that, under our holding in
Pacific Indemnity Co. v. Linn, 766 F.2d 754 (3d Cir. 1985),
General Star has a duty to indemnify because the Silverman suit
was dismissed before Silverman's claims could be confined to
those outside the scope of policy coverage. The district court
rejected this argument finding the present case distinguishable
from Linn and analogous to Cooper Labs., Inc. v. Int'l Surplus
Lines Ins. Co., 802 F.2d 667, 674 n.1 (3d Cir. 1986), and
Safeguard Scientifics, Inc. v. Centercore, Inc., 766 F. Supp.
324, 334 (E.D. Pa. 1991), rev'd on other grounds, 961 F.2d 209
(3d Cir. 1992) (Table).
         In Linn, Pacific Indemnity brought a declaratory
judgment action to determine which of several insurers had a duty
to defend and indemnify Dr. Linn in suits against him to recover
for injuries or death suffered by persons who had read and
followed his diet book. Several of the suits against Dr. Linn
were settled by the insurance companies before sufficient facts
were developed to determine the basis for Dr. Linn's liability.
Consequently, it was impossible to determine whether the policies
provided coverage for the settlement amount. Because we could
not determine which of the injured bookreaders claims would have
prevailed, we held "the duty to defend carries with it the
conditional obligation to indemnify until it becomes clear that
there can be no recovery within the insuring clause." Id. at
766. We observed:
         [t]o reach the opposite conclusion could
         conceivably result in an insured never being
         indemnified in a suit that its insurer
         settles where that insurer defends under a
         reservation of rights. In such a situation,
         it would behoove the insurer to reserve its
         rights and to settle the suit to avoid both
         the costs of litigation and, at the same
         time, the costs of indemnification.
Id. at 766. Thus our holding was based, in part, on the concern
that an insurer would be able to settle a suit without an
agreement with the insured, and attempt to avoid its duty to
indemnify by claiming a jury would have found the claims in the
underlying suit were not covered by the policy.
         The Gym and Guzzardi argue Linn is analogous to this
case because the Silverman suit was settled before the claims
were confined to those outside of the scope of the policy. But
unlike the insured in Linn, the Gym and Guzzardi participated
and acquiesced in the settlement of the underlying case. Because
the Gym and Guzzardi were not exposed to the risk that influenced
the Linn decision, the district court correctly denied their
motion for summary judgment. See Cooper Labs., Inc. v. Int'l
Surplus Lines Insurance Co., 802 F.2d at 674 (holding the Linnduty to
indemnify rule did not apply to a case settled by the
insured) (applying New Jersey law); Safeguard Scientifics, Inc.
v. Centercore, Inc., 766 F. Supp. at 334 (same).
                         III. Conclusion
         We will vacate the district court's order granting the
Gym and Guzzardi's motion for summary judgment. We will remand
the matter to the district court for proceedings consistent with
this opinion.




12TH STREET GYM, INC. v. GENERAL STAR INDEMNITY CO., ET AL
                        Nos. 95-1845/1864


Roth, Circuit Judge:
         The issue in this appeal is the proper interpretation
of a Sexually Transmitted Disease Exclusion ("STDE") included in
a liability insurance policy. As I read the broadly-worded STDE,
it unambiguously excludes from coverage all of the claims in
Irving Silverman's Complaint for which the insured, 12th Street
Gym ("Gym"), could possibly have been indemnified. I therefore
believe that the Gym is not entitled to indemnity for the
settlement of any of Silverman's claims. Accordingly, I dissent.
I would reverse the district court's entry of summary judgment
for the Gym and its co-owner and president, Robert Guzzardi, and
enter summary judgment for the insurer, General Star Indemnity
Company.
         As the majority has explained, Silverman's complaint is
based on an incident that took place in the Gym lobby in 1994.
After Silverman finished exercising, he nicked his finger on a
gym locker. He bandaged his cut with a band-aid, showered, and
dressed in the locker room. Silverman alleges that as he was
leaving the Gym, he was confronted by Guzzardi. In front of
other Gym patrons, Guzzardi demanded to know whether Silverman
had AIDS, and Silverman affirmed that he did. Noticing the
bandage on Silverman's finger, Guzzardi allegedly shouted, "We
don't want your kind in here. You're careless! You could infect
everybody!" Silverman was thereafter banned from the Gym.

         The majority notes that under the insurance policy the
Gym would be entitled to indemnity in this case only to the
extent that Silverman's claims could be characterized as
"personal injury." Thus, the Gym is entitled to indemnity from
General Star only to the extent that Silverman suffered damages
as a result of the Gym's slander or the Gym's publication of
material that violated Silverman's right to privacy. I therefore
agree with the majority that one of the district court's
alternative holdings is flawed.
         The district court held that the STDE did not preclude
indemnity for Silverman's claims because "[t]he underlying
Complaint is based on Irving Silverman's alleged exclusion from
the 12th Street Gym -- not on his purportedly having a sexually
transmissible disease." 12th Street Gym, Inc. v. General Star
Indem. Co., No. 94-5757 (E.D. Pa. Sept. 5, 1995). If Silverman's
claims were based on his exclusion from the 12th Street Gym
alone, however, those claims would not be covered under the
insurance policy at all. As the majority demonstrates, the only
potentially relevant coverage is for "personal injury," and
personal injury, by definition, involves defamation or invasion
of privacy, not physical exclusion from the Gym. Given the
relevant insurance coverage, General Star could not possibly be
required to indemnify the Gym for claims based only on
Silverman's exclusion from the Gym. Because such a claim would
not be covered by the insurance policy to begin with, we need not
consider whether it is excluded from coverage by the STDE.
         It is in our consideration of the district court's
alternative holding that the majority and I part ways. The
district court held that the STDE does not preclude coverage in
this case because Silverman's complaint was not based on his
"purportedly having a sexually transmitted disease." The
assumption underlying this holding is that the STDE can be read
narrowly to exclude from coverage only those claims that allege
transmission of a disease through actual sexual conduct, as
opposed to excluding from coverage all claims involving the genre
of diseases known generally as sexually transmitted diseases (no
matter how the disease was transmitted in a particular instance).
I believe that this reading of the STDE is insupportably narrow
when read against the exclusion's broad language.
         The majority divides its support for this holding into
three separate but closely related arguments. First, the
majority makes a textual argument. In essence, the majority
argues that the term "sexually transmitted disease" is inherently
ambiguous because it is unclear whether it refers generally to
the genre of diseases that may be sexually transmitted or only to
diseases that were transmitted by sexual conduct in the
particular case at hand. Second, the majority argues that the
STDE fails to indicate the intended scope of the exclusion.
Third, the majority argues that the STDE does not reveal the
required nexus between a claim and a sexually transmitted
disease. I will address these arguments in turn.
         Before specifically addressing the majority's
arguments, however, I believe that the broad language of the STDE
bears repeating in its entirety:
         This insurance does not apply to "bodily injury,"
         "property damage," "personal injury," "professional
         liability" or "advertising injury" with respect to any
         claim, suit or cause of action arising directly or
         indirectly out of instances, occurrences or allegations
         involving sexually transmitted diseases, including
         Acquired Immune Deficiency Syndrome (AIDS). This
         exclusion shall apply regardless of the legal form any
         claim may take. As an example, this insurance shall
         provide no coverage for a claim alleging that any
         Insured was negligent or in breach of contract by
         maintaining premises where the Insured knew, or should
         have known diseases might be sexually transmitted.
App. at 166a. Thus this extremely broad exclusion precludes
indemnification for any claim for "personal injury," even if the
injury arose only indirectly from an occurrence or allegation
involving sexually transmitted diseases, such as AIDS.
         The majority relies heavily on a narrowly-focused
textual argument in order to avoid the broad sweep of the STDE.
According to the majority, this case may not "involve" a sexually
transmitted disease at all because:
         [c]areful review of the complaint reveals that
         Silverman's allegations were based on the allegation
         that he had AIDS, without reference to the manner in
         which he contracted the disease. Since AIDS can be
         transmitted in a number of ways, only one of which is
         sexual, it is not accurate to say Silverman's complaint
         was based on his having a "sexually transmitted"
         disease. Thus . . . we adopt the [district] court's
         alternative determination that "to the extent AIDS was
         implicated, it was not as a sexually transmissible
         disease."
Slip op. at    [Typescript at 13] (quoting district court
opinion). The majority reemphasizes this argument later by
stating that the term "sexually transmitted disease" could be
understood to "encompass all diseases that could conceivably be
sexually transmitted, or it could be limited to diseases that
have actually been transmitted through sexual conduct." Id. at
[Typescript at 16].
         The majority's reading of the term "sexually
transmitted disease" is unconvincing, given the common usage of
that term. Words of common usage in an insurance policy must be
construed in their natural, plain and ordinary sense, Slate
Construction Co. v. Bituminous Casualty Corp., 228 Pa. Super. 1,
323 A.2d 141, 145 (1974) (citing Blue Anchor Overall Co. v.
Pennsylvania Lumbermens Mutual Ins. Co., 385 Pa. 394, 123 A.2d
413 (1956)), and we should not torture the plain meaning of a
writing merely to find an ambiguity. Monti v. Rockwood Ins. Co.,
303 Pa. Super. 473, 450 A.2d 24 (1982); see Techalloy Co., Inc.
v. Reliance Ins. Co., 338 Pa. Super. 1, 487 A.2d 820 (1984).
         In common usage, the term "sexually transmitted
disease" refers to a genre of communicable diseases, no matter
how they are actually transmitted in an individual case (e.g.,
AIDS is a "sexually transmitted disease," even though it may be
transmitted through blood transfusions or the use of contaminated
hypodermic needles). Nothing in the context of the STDE
indicates that the designation "sexually transmitted disease"
should be read to require the occurrence of actual sexual
transmission or sexual conduct in each individual case.
         An interpretation of the term "sexually transmitted
disease" as referring to a genre of diseases as opposed to a
singular mode of transmission in an individual case is reinforced
by the inclusion of an example of such sexually transmitted
diseases at the end of the relevant sentence in the STDE:
"involving sexually transmitted diseases, including Acquired
Immune Deficiency Syndrome (AIDS)" (emphasis added). In other
words, the STDE excludes from coverage any claim arising out of
instances or allegations involving the genre of diseases known as
sexually transmitted diseases, which includes the disease known
as AIDS.
         Contrary to the majority's emphasis on actual sexual
conduct, the STDE uses sweeping language to exclude from coverage
a broad swath of claims "arising directly or indirectly out of
instances, occurrences or allegations involving sexually
transmitted diseases . . .." There is no reference to conduct or
sexual conduct anywhere in the STDE. The majority's reading of
the term "sexually transmitted disease" to emphasize transmission
by sexual conduct is strained on its face, given the accepted
meaning of that term. In the context of the entire STDE, the
majority's reading is untenable.
         The majority also argues that the scope of the STDE is
unclear. According to the majority it would be reasonable to
limit the STDE "to claims alleging transmission, or fear of
transmission, of disease through sexual conduct. Thus 'personal'
injury may be limited to allegations of actual sexual conduct in
an oral or written publication." Slip op. at     [Typescript at
17] (emphasis added). This argument merely restates in the
"personal injury" context the majority's unfounded emphasis on
sexual conduct. There is no express mention whatsoever in the
STDE of "conduct" or "sexual conduct" in any context.
         A straightforward comparison of the STDE and the claim
in this case is instructive on this point. The STDE excludes
claims for personal injury (i.e., defamation or defamation
leading to invasion of privacy) "arising directly or indirectly
out of instances, occurrences or allegations involving sexually
transmitted diseases, including Acquired Immune Deficiency
Syndrome (AIDS)." In this case, Silverman nicked his finger on a
gym locker and was wearing a band-aid when he was confronted by
Guzzardi. Guzzardi allegedly exclaimed that Silverman was
careless and "could infect everybody." Based upon Guzzardi's
outburst, Silverman alleges a number of causes of action that
could be characterized as personal injury under the policy.
Silverman's claims for personal injury arise directly from
Guzzardi's allegation that Silverman might transmit AIDS in the
Gym.
         Under any reasonable interpretation of the word
"involving," Guzzardi's allegation involves a sexually
transmitted disease and fear of its possible transmission.
Silverman's claim arises directly from Guzzardi's utterance,
which makes explicit reference to Silverman's AIDS and the
possibility that he could infect others. Under the majority's
interpretation, Guzzardi's exclamation would apparently have to
include some additional reference to sexual conduct. Given the
broad language of the STDE, I find that such a narrow reading of
its coverage is implausible.
         Finally, the majority argues that the language of the
STDE "does not reveal a clear nexus between a claim and a
sexually transmitted disease." Slip op. at     [Typescript at
18]. The majority is troubled by the STDE's purported failure to
define an appropriate nexus because "the distinction between a
'remote' connection and an 'incidental' connection to a sexually
transmitted disease may be significant in this case." I
disagree. The broadly-worded STDE excludes personal injury from
coverage even if the injury arose only "indirectly" from an
occurrence or allegation "involving" sexually transmitted
diseases, such as AIDS. In this case, the entire sum and
substance of Guzzardi's allegedly injurious remarks involved
AIDS, Silverman's status as an individuals with AIDS, and the
potential that Silverman could infect others in the Gym with
AIDS. We could, perhaps, imagine a claim on the margin of
coverage where the alleged ambiguity surrounding the word
"involving" might come into play. Nevertheless, if the exclusion
applies to "personal injury" at all (which it clearly does), this
case is in the heartland of those cases that the STDE excludes
from coverage.
         In the course of its opinion, the majority acknowledges
that its interpretation of the STDE is motivated to some extent
by a reluctance to carry the STDE to its logical extension. The
majority correctly states that the STDE might potentially
eliminate coverage "for an extremely broad set of claims." Slip
op. at    [Typescript at 18]. There is no reason to assume,
however, that the parties did not appreciate the full import of
their agreement when they signed it. In fact, it is highly
unlikely that General Star and the Gym agreed to the STDE without
considering just the sort of claim presented in this case.
Before the parties agreed to the STDE, a number of courts had
awarded damages and/or non-monetary relief to HIV-positive or
AIDS-infected individuals who were illegally excluded from public
accommodations or employment. Some of these cases awarded
damages for associated emotional pain and mental anguish.
         The issue presented in this case was of obvious
importance to both parties. The Gym estimates that approximately
sixty percent of its members, both male and female, are gay, and
that "of the gay population, approximately ten to twelve percent
(10-12%) of the membership were either HIV positive or had AIDS
in March of 1994." Appellees' Brief at 11. Given the existing
case law on the topic and the importance of the issue for the Gym
and for General Star, I see no reason to suppose that the parties
did not consider the implications of the broad language employed
in the STDE. We should feel no compunction about holding the Gym
to the bargain that it struck.
         The majority's identification of an ambiguity in the
STDE relies heavily on a tortured construction of the term
"sexually transmitted disease" to require actual sexual conduct.
This narrow interpretation of a key term ignores the normal usage
of the words as well as the context in which they are used in the
STDE. The underlying claims that give rise to the Gym's only
valid claim for indemnification hinge on remarks permeated with
references to Silverman's AIDS. Therefore, I would reverse the
district court's decision in favor of the Gym, and I would remand
this case to the district court for entry of judgment in favor of
General Star.
