New Castle County v. Natl Union Fire Ins ( 1999 )

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit
4-22-1999
New Castle County v. Natl Union Fire Ins
Precedential or Non-Precedential:
Docket 98-7091
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Filed April 23, 1999
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 98-7091
NEW CASTLE COUNTY, DELAWARE,
Appellant
v.
NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA
ON APPEAL FROM THE
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
(D.C. Civil No. 96-504-LON)
District Judge: Honorable J.J. Longobardi
Argued December 7, 1998
BEFORE: STAPLETON and NYGAARD, Circuit Judges,
and GOLDBERG, Judge*
(Filed April 23, 1999)
Peter J. Walsh, Jr., Esq. (Argued)
Peter L. Tracey, Esq.
Potter Anderson & Corroon LLP
Hercules Plaza
1313 N. Market Street
P.O. Box 951
Wilmington, DE 19899
Attorneys for Appellant
_________________________________________________________________
*The Honorable Richard W. Goldberg, Judge for the United States Court
of International Trade, sitting by designation.
James F. Bailey Jr., Esq.
Christopher J. Sipe, Esq. (Argued)
Bailey & Wetzel, P.A.
716 N. Tatnall Street
P.O. Box 2034
Wilmington, DE 19899
Attorneys for Appellee
OPINION OF THE COURT
GOLDBERG, Judge:
I. INTRODUCTION
This case reviews whether a provision in an insurance
policy is ambiguous. Upon review of the relevant case law
and the tenets of contract construction, we find there are
two reasonable interpretations of the policy language.
Therefore, pursuant to Delaware law, we conclude that the
provision is ambiguous, and we construe it in favor of the
insured. We remand the case to the District Court for
further findings in accordance with this decision.
II. BACKGROUND
This case addresses whether particular language
contained in a "personal injury" provision of a
comprehensive general liability ("CGL") insurance policy is
ambiguous. The CGL policy at issue is a standard form
policy prepared by the Insurance Service Office ("ISO"). It
provides that the insurer will defend and indemnify the
insured against claims alleging damages for "personal
injury." The personal injury offenses covered under the
policy include definition 10(c), which reads as follows:
10. "Personal injury" means injury, other than "bodily
injury," arising out of one or more of the following
offenses: . . .
c. The wrongful eviction from, wrongful entry into,
or invasion of the right of private occupancy of a
room, dwelling or premises that a person
2
occupies by or on behalf of its owner, landlord or
lessor.
App. of Appellant, at A141 (CGL Policy No. GL 590-62-18-
RA).
The above language gave rise to a declaratory judgment
action brought on October 21, 1996 by New Castle County,
Delaware ("the county") in the District Court for the District
of Delaware against National Union Fire Insurance
Company of Pittsburgh, Pennsylvania ("National").1 Between
1991 and 1994, the county purchased a series of CGL
policies from National (collectively "the CGL policy" or "the
policy").2 When Frank E. Acierno, a developer, filed three
lawsuits against the county (collectively, "the Acierno
actions"), the county turned to National to defend and
indemnify it against the suits. In general, the Acierno
actions alleged that the county violated Acierno's
constitutional rights by re-zoning or refusing to issue
building permits for his property. More specifically, the
actions were styled as follows: (1) the first suit alleged
violations of Acierno's constitutional rights for failure to
issue a commercial building permit on a parcel of land
owned by Acierno;3 (2) the second alleged that an ordinance
_________________________________________________________________
1. The District Court based its jurisdiction on diversity of citizenship.
See
28 U.S.C. S 1332 (1994).
2. The county purchased three CGL policies from National: Policy No. GL
590-44-26-RA, effective July 1, 1991 to July 1, 1992; Policy No. GL 590-
62-18-RA, effective July 1, 1992 to July 1, 1993; and Policy No. GL 590-
73-01-RA, effective July 1, 1993 to July 1, 1994. As the District Court
noted, these policies do not differ from one another in any significant
way. See New Castle County, Delaware v. National Union Fire Ins. Co. of
Pittsburgh, PA, No. CIV. A. 96-504 LON, 1997 WL 809207, at *1 n.1 (D.
Del. Dec. 30, 1997) ("New Castle County v. National"). National has
disclaimed coverage under Policy No. 590-44-26-RA, the one it considers
to have been in effect when the first two actions against the county were
filed. Br. of Appellee, at 7. National has not declared its coverage
position
with respect to the other two CGL policies.
3. Acierno v. Mitchell, No. Civ. A. 92-384-SLR ("Acierno I"). Acierno
moved
for a preliminary injunction, which the trial court granted on December
30, 1992. On appeal, this circuit held that the dispute was not ripe for
judicial review, vacated the lower judgment, and remanded the case with
instructions to dismiss it without prejudice. See Acierno v. Mitchell, 6
F.3d 970, 977-78 (3d Cir. 1993).
3
passed by the county to re-zone one of his properties
violated his civil rights;4 and (3) the third, filed after the
county's final denial of the building permit, essentially
restated the same facts and violations as the first suit.5
Because the county believed that the Acierno actions
state a claim for "invasion of the right of private occupancy"
as defined in definition 10(c) of the CGL policy, it sought to
have National defend and indemnify it in those suits.
National disclaimed coverage under the CGL policy for the
Acierno actions.6 The county then filed the declaratory
judgment action underlying this appeal.
National responded to the County's declaratory judgment
action with two counter-arguments. First, National asserted
that the offense of "invasion of the right of private
occupancy," as contemplated by definition 10(c), is limited
to tangible interference with a possessory interest in
property. Since the Acierno actions did not allege
interference with a possessory interest, but rather with the
use and enjoyment of land, National asserted that the
actions do not fall within the coverage of definition 10(c)
and, consequently, National had no obligation to defend or
indemnify the county. Second, National argued that based
on the "by or on behalf of" language in definition 10(c),
_________________________________________________________________
4. Acierno v. Cloutier, No. Civ. A. 92-385-SLR ("Acierno II"). This case
was
disposed of by a joint stipulation approved by the District Court on
October 24, 1997. Br. of Appellant, at 12.
5. Acierno v. New Castle County, No. Civ. A. 93-579-SLR ("Acierno III").
This case was tried in the Spring of 1997. According to the county, it
was required to issue a building permit and the case was eventually
settled in accordance with the Acierno II stipulation. Br. of Appellant,
at
14.
6. National has actually only disclaimed coverage under the CGL policy
for Acierno I and II. Yet, the District Court concluded in its opinion
that,
although National has apparently not declared its official coverage
position with regard to Acierno III, the issue of National's obligation to
defend and indemnify the county in Acierno III was nonetheless ripe for
adjudication, in part because it is likely that National would disclaim
any obligation to defend or indemnify the county in connection with
Acierno III. See New Castle County v. National, 1997 WL 809207 at *3-4.
We have no occasion to disrupt the District Court'sfinding on this
matter.
4
coverage is available only when the insured commits an
"invasion" as the owner, landlord, or lessor of the property
at issue. Since the county does not claim to be the owner,
landlord, or lessor of any Acierno properties, National
maintained that it had no obligation to defend the county
in those suits.
On December 30, 1997, the District Court issued an
opinion granting summary judgment to National, holding
that definition 10(c) unambiguously "contemplates coverage
for acts such as evictions, entries and invasions committed
by one acting by or on behalf of the property's owner,
landlord or lessor." New Castle County v. National, 1997 WL
809207, at *7. According to the District Court, the county
cannot be considered the owner, landlord, or lessor of the
property and therefore National had no obligation to defend
or indemnify the county. Having thus held, the court
explicitly declined to reach the question of whether the
constitutional violations alleged in the Acierno actions
"constitute an invasion of the right of private occupancy."
New Castle County v. National, 1997 WL 809207, at *8.
This appeal ensued. The county asserts that the District
Court erred in finding that definition 10(c) only provides
coverage for acts committed by or on behalf of an owner,
landlord, or lessor. On appeal, the county argues that
definition 10(c) is ambiguous and should be construed in
its favor. The issue presented to this Court on appeal is
thus a narrow one. In short, we must determine whether
definition 10(c) is ambiguous.
Because the issue addressed in this opinion is one of first
impression under Delaware law, we must predict how the
Delaware Supreme Court would resolve it. After examining
the parties' conflicting interpretations, relevant case law,
tenets of contract construction, and the policy's language
and purpose as a whole, we conclude that definition 10(c)
is ambiguous and must be construed in favor of the county.
Like the District Court we, too, will not reach the question
of whether the allegations made in the Acierno actions state
a colorable claim for an invasion of the right of private
occupancy. Accordingly, the District Court's determination
that definition 10(c) is unambiguous will be reversed, and
this case will be remanded to the District Court to
5
determine, in light of our holding, whether the violations
alleged in the Acierno actions constitute an invasion of the
right of private occupancy.
III. DISCUSSION
A. Scope and Standard of Review
We assert jurisdiction over this appeal under 28 U.S.C.
S 1291. Jurisdiction below was premised on diversity of
citizenship, and the District Court properly applied the
substantive law of Delaware. See Erie R.R. v. Tompkins, 304
U.S. 64, 78 (1938). Since the Delaware Supreme Court has
yet to address the issue presented by this appeal, we must
predict how that court would decide it. See Epstein Family
Partnership v. Kmart Corp., 13 F.3d 762, 766 (3d Cir. 1994).
The issue before this Court, simply put, is whether
definition 10(c) is ambiguous. Whether an insurance policy
is ambiguous is a question of law, see International Union
v. Mack Trucks, Inc., 917 F.2d 107, 111 (3d Cir. 1990), and
we have plenary review over the issue. See Pacific Indem.
Co. v. Linn, 766 F.2d 754, 760 (3d Cir. 1985)). And, as a
general rule, we will consider only issues passed upon by
the court below. See, e.g., Selected Risks Ins. Co. v. Bruno,
718 F.2d 67, 69 (3d Cir. 1983).
B. Delaware Law on Interpreting Insurance Policies
As we must predict how the Delaware Supreme Court
would decide this issue, it is necessary that wefirst
understand Delaware law on this matter. Before an insurer
is obligated to defend or indemnify a policyholder, the
insured must demonstrate that coverage is available under
the policy. See New Castle County v. Hartford Accident and
Indem. Co., 933 F.2d 1162, 1181 (3d Cir. 1991) ("New
Castle v. Hartford I") (applying Delaware law). An insurer's
duty to defend is broader than its duty to indemnify, see
Charles E. Brohawn & Bros., Inc. v. Employers Commercial
Union Insurance Co., 409 A.2d 1055, 1058 (Del. 1979), but
"is limited to suits which assert claims for which it has
assumed liability under the policy." Continental Cas. Co. v.
Alexis I. duPont School Dist., 317 A.2d 101, 103 (Del. 1974).
"[W]here there exists some doubt as to whether the
6
complaint against the insured alleges a risk insured
against, that doubt should be resolved in favor of the
insured." Id. at 105. Most importantly therefore, an insurer
is "required to defend any action which potentially states a
claim which is covered under the policy." New Castle
County v. Hartford Accident and Indem. Co., 673 F. Supp.
1359, 1367 (D. Del. 1987) ("New Castle v. Hartford II").
Thus, in this case, if the Acierno actions potentially state a
claim that is covered under definition 10(c), National is
required to defend the county in those actions.
Whether the Acierno actions potentially state a claim for
which National has assumed liability depends upon how we
interpret definition 10(c). As a basic matter, Delaware law
requires us to interpret insurance contracts "in a common
sense manner." SI Management L.P. v. Wininger, 707 A.2d
37, 42 (Del. 1998); see also New Castle v. Hartford I, 933
F.2d at 1189 (according the terms of an insurance policy
their "ordinary, usual meaning"). We must also examine the
disputed language in the context of the entire policy. See,
e.g., New Castle v. Hartford I, 933 F.2d at 1194
(ascertaining whether a term "is ambiguous in the context
of a specific insurance policy"); New Castle County v.
Hartford Accident and Indem. Co., 970 F.2d 1267, 1271 (3d
Cir. 1991) ("New Castle v. Hartford III") (construing a term
"in context with the function of the [insurance] policy"); see
also Porter v. Pathfinder Servs., Inc., 683 A.2d 40, 42 (Del.
1996) (construing language of an employment contract in
its context as a whole).
"Absent some ambiguity, Delaware courts will not destroy
or twist policy language under the guise of construing it,"
Rhone-Poulenc Basic Chemicals Co. v. American Motorists
Insurance Co., 616 A.2d 1192, 1195 (Del. 1992) (citation
omitted), because "creating an ambiguity where none exists
could, in effect, create a new contract with rights, liabilities
and duties to which the parties ha[ve] not assented."
Hallowell v. State Farm Mut. Auto. Ins. Co., 443 A.2d 925,
926 (Del. 1982) (citations omitted). When policy language is
ambiguous, however, under Delaware law this Court must
apply the doctrine of contra proferentem. See Oglesby v.
Penn Mut. Life Ins. Co., 877 F. Supp. 872, 881 (D. Del.
1994) (applying Delaware law). That is, ambiguous
7
language must be construed against the drafter and in
conformance with the reasonable expectations of the
insured. See Swfte Int'l, Ltd. v. Selective Ins. Co. of Am., No.
Civ. A. 94-44-SLR, 1994 WL 827812, at *5 (D. Del. Dec. 30,
1994); see also Steigler v. Ins. Co. of N. Am., 384 A.2d 398,
400 (Del. 1978).
The premise underlying the principle of contra
proferentem is that an insurance contract is one of
adhesion. See State Farm Mut. Auto. Ins. Co. v. Johnson,
320 A.2d 345, 347 (Del. 1974). As the Delaware Supreme
Court recently explained,
[T]he insurer . . . is the entity in control of the process
of articulating the terms [of an insurance contract]. The
other party . . . usually has very little to say about
those terms except to take them or leave them or to
select from limited options offered by the insurer. . . .
Therefore, it is incumbent upon the dominant party to
make the terms clear. Convoluted or confusing terms
are the problem of the insurer . . . -- not the insured
. . . .
Penn Mut. Life Ins. Co. v. Oglesby, 695 A.2d 1146, 1149-50
(Del. 1997). As noted earlier, due to the insurer's dominant
position, when an ambiguity is found in insurance policy
language, we must construe the language against the
insurer as a matter of Delaware law. And therefore, unlike
with other types of contracts, we need not inquire into the
parties' actual intent. See New Castle v. Hartford I, 933
F.2d at 1182 n. 43; Oglesby, 877 F. Supp. at 881 (noting
that "Delaware courts . . . consistently constru[e]
ambiguities in favor of the insured as a matter of law.").
Because ambiguous language is construed against the
insurer as a matter of law, we take special note of Delaware
law for determining whether language is ambiguous."The
settled test for ambiguity is whether the provisions in
controversy are reasonably or fairly susceptible of different
interpretations or may have two or more different
meanings." Phillips Home Builders, Inc. v. Travelers Ins. Co.,
700 A.2d 127, 129 (Del. 1997) (internal quotation marks
and citation omitted). An insurance policy is not
ambiguous, however, "merely because two conflicting
8
interpretations may be suggested. Rather, both
interpretations must reflect a reasonable reading of the
contractual language." Aetna Cas. and Sur. Co. v. Kenner,
570 A.2d 1172, 1174 (Del. 1990). Thus, we must examine,
not only whether the county's reading of definition 10(c) is
possible, but also whether it is reasonable. See id.; see also
New Castle v. Hartford III, 970 F.2d at 1271 (rejecting one
reading of the policy language at issue because, while
possible, it was not reasonable).
C. Definition 10(c) is Ambiguous
Against this backdrop of Delaware law, we turn to the
task before us of determining whether definition 10(c) is
ambiguous. First, we consider the respective arguments of
the parties and the relevant case law. We attempt to
balance the weight of authority on this precise issue, but
find that additional guidance is needed. Consequently, we
turn to the tenets of contract construction. Finally, we
examine the disputed language within the policy as a
whole. Using these tools, we conclude that definition 10(c)
is ambiguous.
National and the county assert different interpretations of
the phrase "by or on behalf of its owner, landlord or lessor."
National argues, and the District Court held, that the
phrase can only mean that the wrongful act -- the eviction,
entry or invasion -- was done "by or on behalf of [the
premises'] owner." The county replies that it is equally
logical, or at least reasonable, to interpret the phrase as
explaining how the premises in question is occupied. In its
view, the language indicates that the "room, dwelling or
premises" must have been occupied "by or on behalf of its
owner, landlord or lessor." This distinction is critical
because the county's reading does not require that the
wrongful act have been instigated by the "owner, landlord
or lessor" of the premises while National's does. As the
county clearly was not an "owner, landlord or lessor" of
Acierno's property, the latter interpretation is the only one
under which the county can claim coverage.
1. National's Interpretation of Definition 10(c)
Under National's construction, to qualify for coverage, the
invasion offense must be committed "by or on behalf of "
9
the owner, the landlord, or lessor. Applied to the facts in
this case, National would be obligated to defend the county
against claims of invasion only if the county were the
owner, landlord, or lessor of the property at issue in the
Acierno actions.
In support of this position, National cites three cases: (1)
United States Fidelity and Guaranty Co. v. Goodwin, 950 F.
Supp. 24 (D. Me. 1996); (2) Terramatrix, Inc. v. United
States Fire Insurance Co., 939 P.2d 483 (Colo. Ct. App.
1997); and (3) TGA Development, Inc. v. Northern Insurance
Co. of New York, 62 F.3d 1089 (8th Cir. 1995). National's
citations are instructive, yet ultimately we find the
reasoning in these cases unavailing.
In Goodwin, the court held that language identical to
definition 10(c) "unambiguously requires that the wrongful
entry be committed by the owner, landlord, or lessor of the
room, dwelling, or premises." 950 F. Supp. at 27. We fail to
understand the logic underlying Goodwin, however.
Reviewing the same phrase, i.e.,
[t]he wrongful eviction from, wrongful entry into, or
invasion of the right of private occupancy of a room,
dwelling or premises that a person occupies by or on
behalf of its owner, landlord or lessor,
the Goodwin court found that the word "its" modifies "room,
dwelling or premises," and not "person." 950 F. Supp. at
27. Yet, replacing "its" with any of the words the court
found "its" to modify does not foreclose either National or
the county's reading of the provision. For example, consider
the following: "The wrongful eviction from a room that a
person occupies by or on behalf of the room's owner,
landlord or lessor." Or, consider this: "The invasion of the
right of private occupancy of a premises that a person
occupies by or on behalf of the premises' owner, landlord or
lessor." Both examples illustrate the flaw in the Goodwin
court's reasoning; that is, neither clarifies whether "by or
on behalf of " requires the offense to be committed by the
owner, landlord, or lessor, or whether it defines the
possessory interest of the claimant. Thus, determining what
"its" modifies neither strengthens nor undermines either of
the competing interpretations of definition 10(c) forwarded
by National and the county.
10
In Terramatrix, the Colorado Court of Appeals also found
language identical to definition 10(c) "unambiguous and
applicable only to entries, evictions and invasions
committed by or on behalf of the owner, landlord or lessor."
939 P.2d at 489. Although the Terramatrix court professed
to be "persuaded by the reasoning of other courts," it cited
only Goodwin in support of its conclusion that the provision
was unambiguous. Id. As we explained above, the
reasoning in Goodwin is flawed at best. Because the
Terramatrix court does not offer any analysis of its own,
without more, we cannot accord significant weight to its
holding.
In TGA Development, the Eighth Circuit commented that
it "doubt[ed] very much that coverage is available under" a
personal injury provision identical to definition 10(c)
because the insured could not "even colorably be
characterized as owner, landlord, or lessor." TGA
Development, 62 F.3d at 1091 (internal quotation marks
omitted). National points to this language to bolster its
claim that the insured must be the owner, landlord, or
lessor to qualify for coverage under definition 10(c). The
Eighth Circuit's commentary is purely dicta, however.
Indeed, the TGA court explicitly "pass[ed] over" the issue
presented by this appeal. See id. Instead, the court based
its conclusion that coverage was not available on the
policy's exclusion of coverage clause prohibiting recovery
"for personal injury for which the insured has assumed
liability in a contract or agreement." See 62 F.3d at 1091.
The dicta from TGA Development has "no binding authority"
on this Court. Gruber v. Price Waterhouse, 911 F.2d 960,
967 (3d Cir. 1990).7
In addition to the above cases, the District Court also
cited Patel v. Northfield Insurance Co., 940 F. Supp. 995
(N.D. Tex. 1996), for the proposition that definition 10(c) is
unambiguous. In Patel, the court found that language
identical to definition 10(c) was unambiguous. The case is
_________________________________________________________________
7. We can, of course, accord dicta as much weight as we deem
appropriate. See, e.g., Girard Trust Co. v. United States, 161 F.2d 159,
162 (3d Cir. 1947) (recognizing that although a finding was dicta, it was
"made after a careful consideration of authorities").
11
different in one fundamental respect, however. The Patel
court based its finding on Decorative Center v. Employers
Casualty, 833 S.W.2d 257, 260 (Tex. App. 1992), which
examines language different from definition 10(c). In
Decorative Center, the personal injury offense was "other
invasion of the right of private occupancy." Id. at 1001.
Importantly, it does not include the "by or on behalf of"
language that forms the basis for this appeal. The Patel
court dismissed the difference between the Decorative
Center language and language identical to definition 10(c)
as having "no practical effect." Id. at 1001 n.10. We,
however, find that language critical to this case. Indeed, the
sole focus of this appeal is definition 10(c)'s "by or on behalf
of" language.8
In sum, National has offered some authority that
suggests definition 10(c) is not ambiguous. Upon close
inspection of the cases, however, we find the authority to be
unpersuasive or of limited precedential value. As such,
standing alone, the authority forwarded by National does
not resolve whether definition 10(c) is clear or ambiguous.
With that we turn to the county's interpretation of
definition 10(c).
2. The County's Competing Interpretation of Definition
10(c)
The county urges this Court to accept an alternative
reading of definition 10(c) as reasonable. According to the
county, the phrase "by or on behalf of" defines the
possessory interest of the person aggrieved in 10(c). Under
this interpretation, in order for the insured to invoke
coverage for an invasion, the claimant must have the right
to occupy the premises, either as owner, landlord, or lessor,
or with the permission of the owner, landlord, or lessor.
_________________________________________________________________
8. The ISO added the "by or on behalf of" language to definition 10(c) in
1986. Thus, in addition to Patel, we reject Liberty Mutual Insurance Co.
v. East Central Oklahoma Electric Cooperative, 97 F.3d 383 (10th Cir.
1996), Martin v. Brunzelle, 699 F. Supp. 167 (N.D. Ill. 1988), and Harbor
Insurance Co. v. Anderson Leasing, Inc., 1989 WL 112532 (Del. Super.
Ct. Sept. 27, 1989) as persuasive precedent, because they too are based
on the pre-1986 version of definition 10(c).
12
In support of its interpretation, the county cites United
States v. Security Management Co., 96 F.3d 260 (7th Cir.
1996). In that case, the Seventh Circuit examined language
identical to definition 10(c). Although the District Court
found the provision to be ambiguous, the Seventh Circuit
read the language beginning "that a person occupies . . ."
as unambiguously "refin[ing] the nature of the prerequisite
``right' of private occupancy." Id. at 265. In other words, in
the view of the Security Management court, the language at
issue "limit[s] coverage to those instances where ``a person
occupies by or on behalf of its owner, landlord or lessor' "
and functions to "exclude[ ] at least unapproved sub-lessees
from coverage." Id.
The Seventh Circuit's commentary on the meaning of the
clause again is dicta, however. Its holding is based on the
fact that the litigants claiming an invasion in that case
"unquestionably lacked any . . . enforceable claim of
occupancy," Id. at 265; indeed, the litigants were "testers,"
or civil rights activists who posed as apartment-hunters but
who did not actually rent a unit. Id. at 265. As we noted
earlier, we are not bound by this dicta, although we may
consider it in our analysis if we deem it appropriate. See
supra n.7.
The county also cites Blackhawk - Central City Sanitation
District v. American Guaranty & Liability Insurance Co., 856
F. Supp. 584 (D. Colo. 1994), for the proposition that
definition 10(c) is ambiguous. In that case, the court was
asked to construe language identical to definition 10(c), and
the parties' arguments mirror those presented here.
Appellee contended that language identical to definition
10(c) "requires that the eviction, entry or invasion be by or
on behalf of the owner, landlord or lessor of the premises."
Id. at 590. The appellant, on the other hand, argued that
the provision could "be read to modify, not the party who
evicts, enters or invades, but rather on whose authority the
current occupant holds the property." Id. Faced with these
competing interpretations, the court deemed the provision
ambiguous and construed the language in favor of the
insured. See id. The Blackhawk court, however, did not
elaborate on how it reached its conclusion and thus
provides us with little guidance.
13
In sum, the county has presented this Court with
authority to suggest that definition 10(c) is ambiguous. The
case law it cites -- Security Management and Blackhawk --
however, is either dicta or void of analysis and thus it does
not, by itself, establish that definition 10(c) is ambiguous or
that the county's interpretation is reasonable. Having
reviewed the relevant case law supporting both sides of the
issue, we consider the weight of the authority.
3. The Weight of the Authority
To predict how the Delaware Supreme Court would
decide this case, we must consider "reliable data tending
convincingly to show how the highest court in the state
would decide the issue at hand." McKenna v. Ortho Pharm.
Corp., 622 F.2d 657, 663 (3d Cir. 1980). This includes
"relevant state precedents, analogous decisions, considered
dicta, [and] scholarly works." Id. Having reviewed the
relevant precedent, it is difficult to predict how the
Delaware Supreme Court would decide the issue before us.
Importantly, we can discern no appreciable trend among
the cases. First, the universe of cases that examines
language identical to definition 10(c) is very small. While
our job is not simply to count the number of cases on both
sides, even if we did so, the line of cases on each side
would be roughly equal. Moreover, one Circuit Court of
Appeal has weighed in on each side of the issue, and each
time only in dicta. Still other cases offered only bare-boned
analyses. And finally, with particular relevance to our task,
not one of the cases cited is from a Delaware state court or
a federal court construing Delaware law.
The most we can glean from the conflicting case law on
this issue is that, as a starting point, definition 10(c) may
reasonably be susceptible to more than one interpretation.
When faced with a similar situation in another case, we
explained that
[a]lthough the presence of conflicting judicial decisions
does not automatically mandate a finding of ambiguity,
we think it has some relevance. . . . We are confronted
here with two lines of contrasting cases . . . While it is
our responsibility to ascertain which of these lines is
most likely to be followed in Delaware, we cannot help
14
but view such a division as at least suggesting that the
. . . [contested term] is susceptible of more than one
reasonable definition.
New Castle v. Hartford I, 933 F.2d at 1196. In short, "that
different courts have arrived at conflicting interpretations of
the policy is strongly indicative of th[is] policy's essential
ambiguity." Little v. MGIC Indem. Corp., 836 F.2d 789, 796
(3d Cir. 1987) (citation omitted). Thus, as a starting point,
we tend to view the case law as indicating that definition
10(c) is susceptible to more than one reasonable
interpretation and, as such, is ambiguous. For greater
guidance on this issue, we now turn to the traditional rules
of contract interpretation.
4. Rules of Contract Interpretation
Insurance policy disputes often turn on the meaning of a
single term or phrase. See, e.g., New Castle v. Hartford I,
933 F.2d at 1193-99. The case before us is somewhat
different because it turns on the function of a phrase -- "by
or on behalf of" -- within a larger provision. As a
consequence, we will look to the grammatical arrangement
of clauses in definition 10(c) to construe the meaning of
definition 10(c). See Lake County v. Rollins, 130 U.S. 662,
670 (1889) ("To get at the thought or meaning expressed in
a statute, a contract, or a constitution, the first resort, in
all cases, is to the natural significance of the words, in the
order of grammatical arrangement in which the framers of
the instrument have placed them."); see also 17A Am. Jur.
2d Contracts S 369 (1991) (instructing a court to give "due
force to the grammatical arrangement of clauses" because
grammatical construction of a contract "is often a reliable
signpost" in construing its language).
National argues that definition 10(c) is not ambiguous.
The heart of its argument is that the phrase "by or on
behalf of its owner, landlord or lessor" modifies "wrongful
eviction from, wrongful entry into, or invasion of the right
of private occupancy," and thus requires that the insured
be the owner, landlord or lessor of the property at issue.
The county, on the other hand, maintains that "by or on
behalf of" pertains to its nearer antecedent "person,"
establishing the requirement that the claimant have the
right to occupy the premises.
15
The grammatical construction of contracts generally
requires that a qualifying or modifying phrase be construed
as referring to its nearest antecedent. See Bakery and
Confectionery Union and Indus. Int'l Pension Fund v. Ralph's
Grocery Co., 118 F.3d 1018, 1026 (4th Cir. 1997)
(construing a collective bargaining agreement) (citation
omitted); see also Aks v. Southgate Trust Co., 1994 WL
171537 (D. Kansas Mar. 31, 1994), at *9 (concluding that
the "[r]ules of grammar and contract interpretation as well
as simple logic dictate" that a particular clause modifies the
word directly preceding it). The Ninth Circuit applied this
rule of contract interpretation in construing the language of
an insurance contract in Interstate Fire and Casualty Co. v.
Archdiocese of Portland in Oregon, 35 F.3d 1325 (9th Cir.
1994) (applying Florida law). Under the terms of the policy,
the underwriters agreed "to indemnify the Assured for all
sums which the Assured shall be obligated to pay by reason
of the liability imposed upon the Assured by law . .. for
damages . . . on account of personal injuries . . . arising out
of any occurrence happening during the period of
Insurance." Id. at 1329 (ellipses in original). The insurance
underwriter argued that the assuring clause required that
all damages occur within the policy period in order to be
covered. In contrast, the court concluded that "based on
the plain meaning of the assuring clause . . . it is the
occurrence, rather than the damages, that must happen
during the policy period." Id. (internal quotation marks
omitted). Thus, in this example, "happening during the
period of Insurance" modifies "occurrence," the noun that
directly precedes it, and not "damages," which is more
remote.9
_________________________________________________________________
9. Similarly, the Eleventh Circuit, in Gibbs v. Air Canada, applied the
same rule of contract construction to a contract in which a company
called Aircraft Services agreed to provide various ramp services to Air
Canada. 810 F.2d 1529, 1531 (11th Cir. 1987). A liability provision in
the contract stated that "Service Inc. does not assume any liability for
damages caused by or resulting from directly or indirectly, wholly or in
part, any failure or fault other than negligence or willful misconduct
. . . ." Id. at 1536. Noting that the"grammatical construction of
contracts
generally requires that a qualifying phrase be construed as referring to
its nearest antecedent," the court concluded that the "natural reading" of
the phrase was that "wholly or in part" modified "caused by or resulting
from directly or indirectly," id., the language that most directly
preceded
it.
16
When we apply this rule of construction to definition
10(c), it is plain that "by or on behalf of" modifies "that a
person occupies," the language that directly precedes it,
and not the "wrongful eviction from, wrongful entry into, or
invasion of the right of private occupancy" language that
commences definition 10(c). On this basis, we find the
county's interpretation of definition 10(c) to be entirely
reasonable. Because definition 10(c) is subject to more than
one reasonable interpretation, it is ambiguous, and must
be construed in favor of the county.10 See supra section
III.B. (noting that ambiguous language is construed against
the insurer as a matter of Delaware law).
Our finding that the county's interpretation of definition
10(c) is reasonable is not diminished by the fact that this
interpretation may render portions of the provision
surplusage in cases of "wrongful eviction" and"wrongful
entry." As noted earlier, under Delaware law, we must
consider the phrase "by or on behalf of " in the context of
definition 10(c) as a whole. See Cheseroni v. Nationwide
_________________________________________________________________
10. We hoped that an examination of the punctuation used in definition
10(c) might clarify any ambiguity therein. See, e.g., Plymouth Mut. Life
Ins. Co. v. Illinois Mid-Continent Life Ins. Co. of Chicago, IL, 378 F.2d
389,
391 (3d Cir. 1967) (stating that "punctuation may be used as an aid in
interpreting a contract"); 17A Am. Jur. 2d Contracts S 370 (1991) (stating
that "where words do not have a plain meaning, the rules of punctuation
may be of some assistance"). We were disappointed. At oral argument,
counsel for National represented to this Court that, in construing
definition 10(c), one is supposed to "breathe" in between the terms "that
a person occupies" and "by or on behalf of," presumably to break the
natural link between the two phrases. Yet in drafting this policy,
National could easily have inserted a comma in between "occupies" and
"by or on behalf of" to function as an "interruption in continuity of
thought or sentence structure." The Chicago Manual of Style (John
Grossman ed., University of Chicago Press, 14th ed. 1993). That is, a
comma would have alerted the reader that National did not intend for
"by or on behalf of " to flow uninterrupted from "that a person occupies."
National chose instead, however, to assume that the reader would
"breathe" in between "by" and "occupies." In making this choice, National
also assumed the risk that the language might be misconstrued. And,
"convoluted or confusing terms are the problem of " National, not the
county. Emmons v. Hartford Underwriters Ins. Co., 697 A.2d 742, 745
(Del. 1997).
17
Mut. Ins. Co., 402 A.2d 1215, 1217 (Del. 1979) ("[A] single
clause or paragraph of a contract cannot be read in
isolation, but must be read in context, and every portion of
the contract deserves consideration."); New Castle v.
Hartford III, 970 F.2d at 1271 ("[A] word or term cannot be
considered in isolation; it must be read in the semantic and
functional context of the policy or clause at issue to
determine if two competing, reasonable interpretations
exist."). We have said that "by or on behalf of" is
ambiguous because it can reasonably be interpreted to
require the insured to commit the offense as owner,
landlord, or lessor, or to define the possessory status of the
claimant. It follows, then, that "wrongful eviction from a
room . . . by or on behalf of the owner, landlord or lessor"
can mean either that the owner, landlord, or lessor must
commit the eviction, or that the claimant must have the
right to possess the room.11 The latter interpretation,
however, seems to render the term "wrongful" superfluous.
Indeed, an eviction is not "wrongful" unless the evicted
party (the claimant) has a right to possess the premises.
And this Court takes care not to render other portions of a
provision or contract superfluous when construing contract
language. See, e.g., Contrans, Inc. v. Ryder Truck Rental,
Inc., 836 F.2d 163, 169 (3d Cir. 1987) (applying
Pennsylvania law); see also Restatement (Second) of
Contracts S 203(a) (1979) (stating that "an interpretation
which gives a reasonable, lawful and effective meaning to
all the terms is preferred to an interpretation which leaves
a part unreasonable, unlawful, or of no effect").
In this vein, we note that interpreting the phrase "by or
on behalf of" to require a claimant to have the right to
_________________________________________________________________
11. The language "a room, dwelling or premises that a person occupies
by or on behalf of its owner, landlord or lessor" applies to all three
offenses -- wrongful eviction, wrongful entry, and invasion of the right
of
private occupancy. We know this because wrongful eviction is followed
by "from," entry by "into," and invasionby "of." "From," "into" and "of "
are all prepositions, and as such, have an object. The objects in this
case
are the room, dwelling, or premises. Thus, definition 10(c) must be read,
for example, as "wrongful eviction from a room . . . ," "wrongful entry
into a room . . . ," or "invasion of the right of private occupancy of a
room . . . ."
18
possess the room does not necessarily render the word
"wrongful" surplusage. Whereas an "invasion of the right of
private occupancy" is itself a tortious act, both evictions
and entries can be executed rightfully. For example, a
landlord may rightfully evict a tenant who has not paid
rent. Thus, the word "wrongful" complements the "by or on
behalf of" language by ensuring that coverage under
definition 10(c) is limited to situations in which the insured
has committed a wrongful, tortious act. As we have noted
in the past, insurance policies are often written with an
abundance of caution; indeed, they routinely use words or
groups of words that are fairly synonymous with one
another, particularly to underline a salient point. See New
Castle v. Hartford I, 933 F.2d at 1194 & n. 56 (concluding
that the Delaware Supreme Court would persist in giving a
term its plain meaning even though other courts feared that
construction rendered the term surplusage). Therefore,
notwithstanding a potential contextual defect, we are
unwilling to override our conclusion that the county's
interpretation of definition 10(c) is reasonable when the
contextual defect is itself subject to competing
interpretations. Although we would prefer to give equal
effect to all of the language in definition 10(c), we refuse to
reject an otherwise reasonable reading to avoid what might
only be a potential contextual infirmity. In sum, the
contextual complexity of definition 10(c) only reinforces our
conclusion that the provision is ambiguous.
We also reject National's argument that its interpretation
of definition 10(c) alone makes sense when viewed in the
context of the entire CGL policy. It argues that the"entire
object of the CGL policies" is "to insure against the tortious
conduct of the insured." Br. of Appellee, at 28. We recognize
that the Delaware Supreme Court has considered the
"purpose of liability policies in general" to determine the
scope of coverage. E.I. Du Pont De Nemours & Co. v. Allstate
Ins. Co., 686 A.2d 152, 157 (Del. 1996) (construing a CGL
insurance policy). Contrary to National's argument,
however, viewing "by or on behalf of " in the context of the
entire policy does not foreclose the county's interpretation
of definition 10(c). Indeed, the county's position that "by or
on behalf of " requires the claimant to have the right to
possess the premises is consistent with the purpose of the
19
policy as stated by National; the language as construed by
the county ensures that the only claims covered under the
policy are for tortious conduct.
Furthermore, we reject National's claim that under the
county's interpretation
there would have been no conceivable way for Appellee
to rate the actuarial risk involve in issuing the CGL
policies. . . . Appellee can only sell Appellant a policy
of CGL insurance if there is a readily quantifiable
number of properties which Appellee [sic: Appellant]
owns, leases or rents. If Appellant's interpretation had
been accepted by the parties at the time the subject
CGL policies were issued, the premium charged to
Appellant for such coverage would have been
astronomical since Appellant could potentially be held
liable for wrongfully entering or invading an ever-
expanding number of ``rooms, dwellings, or premises'
within New Castle County.
Br. of Appellee, at 41. In brief, National claims that its
interpretation of definition 10(c) is the only reasonable one
because otherwise, it would have been impossible for
National to assess the actuarial risk involved in issuing a
policy to the county. National's argument fails for several
reasons. First, National claims that it would only issue a
policy to the county if National could quantify the number
of properties the county owned, leased, or rented. Yet, this
Court could not find, and indeed National did not identify,
any provision in the policy that limited the county's ability
to buy, lease, or rent new properties while covered by the
policy. Thus, there does not appear to be any policy
mechanism that fixes the number of properties the county
owns, leases, or rents within the limits supposedly
established by the amount of the premium.
Second, the invasion offense is just one of several
personal injury offenses listed in definition 10. See App. to
Br. of Appellant, at A141 (CGL Policy). National claims that
without knowing the number of properties owned, leased,
or rented by the county, it could not assess the county's
risk for claims of eviction, entry, or invasion. Assuming that
is true, how does National assess the county's risk for "false
20
arrest, detention, or imprisonment" without knowing how
many people the county could falsely arrest? Or "malicious
prosecution," without knowing how many people the county
could potentially maliciously prosecute? And again National
has not indicated that the policy limits the coverage of
these personal injury offenses to a specific number. It
seems to this Court that there are a potentially infinite
number of people the county could libel or slander through
an infinite number of written and oral statements, and yet
National was able to calculate a premium to insure the
county in connection with those offenses.
Third, we must be sure to read the policy language from
the average consumer's point of view. See New Castle v.
Hartford I, 933 F.2d at 1190 (noting that "under Delaware
law, the parties to an insurance contract are bound by the
popular, lay meaning of its terms, regardless of the
sophistication of the insured."); see also Continental Ins. Co.
v. Burr, 706 A.2d 499, 501 (Del. 1998) (construing
ambiguous language to satisfy the average consumer's
expectations). The average consumer can be expected to
appreciate that the insurer will insure a particular risk only
under certain circumstances when those circumstances are
explicitly spelled out in the contract. For example, it is clear
that the insurer deems a particular event too risky for it to
insure the policyholder against when the insurer includes a
clause explicitly excepting that risk in the policy. This was
the case in New Castle v. Hartford III, where we stated that
an exclusion clause "embodies an understanding that the
insurer will only underwrite a certain, specific risk,
calculable to a margin of actuarial certainty and rational
from an economic point of view for both parties." Id. at
1272. In contrast, definition 10(c) is not an exclusion
clause and does not "embody" a similar understanding.
National's argument thus expects too much from the
average insurance consumer.
Lastly, and most importantly, what National intended
definition 10(c) to mean is very different from what the
provision's language conveys. At best, National's actuarial
argument suggests that National has a sound business
rationale for the interpretation of definition 10(c) it urges on
this Court. The argument does not, however, demonstrate
21
that National succeeded in drafting a policy that limited
coverage for the invasion offense only to cases when the
county was the owner, landlord, or lessor. Cf. Little, 836
F.2d at 796 (acknowledging an insurer's "sound business
reasons" for not wanting to be obligated to defend the
insured, while rejecting notion that such reasons prove that
the insurer "succeeded in drafting a policy that
unambiguously states this intention.").
In sum, both National and the county "offer reasonable,
though problematic, interpretations" of definition 10(c).
Phillips Home Builders, Inc. v. Travelers Ins. Co., 700 A.2d
127, 129, 130 (Del. 1997) ("We find problems with both
sides' interpretations. Neither one gives full effect to all of
the contract language and both could be applied in ways
that a reasonable person probably would not have
intended."). And, the case law before us fails to offer
definitive guidance, but leads us to suspect that definition
10(c) is ambiguous. This finding is supported by the rules
of contract construction. Also, in holding that definition
10(c) is ambiguous, we recognize Delaware's strong
insistence that insurance companies are accountable for
confusing policy language. In this case, National had the
"opportunity and responsibility to state the terms of its
coverage . . . in clear and understandable language." Id. at
130. Thus, because using the tools of contract
interpretation leads to two reasonable interpretations of the
"by or on behalf of" language in definition 10(c), we hold
that it is ambiguous.
Finally, because the District Court did not reach the
issue of whether the Acierno actions stated a claim for an
invasion, we decline to reach that issue on appeal. See
Selected Risks, 718 F.2d at 69 (stating that generally this
Court will not consider an issue not passed upon by the
court below). Thus, we will not address the county's
argument that the nature of Acierno's claims is consistent
with an invasion of the right of private occupancy. Nor will
we address National's response that the invasion offense is
limited to landlord-tenant scenarios and situations that
involve tangible interference with a possessory interest in
land. Such arguments go to the nature of the invasion
offense itself and are outside of our scope of review. We
22
leave it to the District Court to determine whether invasions
are limited to the landlord-tenant context and whether they
are limited to tangible interference with possessory interest.
The District Court will examine them on remand when it
decides whether the claims made in the Acierno actions
constitute an "invasion of the right of private occupancy."
IV. CONCLUSION
For the foregoing reasons, the portion of the District
Court judgment finding that definition 10(c) is
unambiguous will be reversed. The case will be vacated and
remanded to the District Court to determine whether the
Acierno actions constitute an invasion of the right of private
occupancy.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
23