12th Street Gym, Inc., Robert Guzzardi, at No. 95-1864 v. General Star Indemnity Company, at No. 96-1845

Citations: 93 F.3d 1158; 1996 U.S. App. LEXIS 22674Docket: 95-1845

Court: Court of Appeals for the Third Circuit; August 28, 1996; Federal Appellate Court

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The appeal involves a dispute over the interpretation of a liability insurance policy's Sexually Transmitted Disease Exclusion and its applicability to claims arising from the expulsion of a gym member, Irving Silverman, diagnosed with AIDS. The plaintiffs, 12th Street Gym, Inc. and co-owner Robert Guzzardi, sought a declaration of rights under a policy issued by General Star Indemnity Company, which provides coverage for entities unable to secure conventional insurance. Silverman filed suit against the Gym and Guzzardi, alleging discrimination under the Americans with Disabilities Act (ADA) and other claims after being expelled from the gym due to his condition.

The court found the exclusion clause ambiguous, prompting a decision to vacate the district court's ruling that the exclusion does not bar coverage. The case is remanded for further examination of extrinsic evidence to clarify the exclusion’s meaning. The background details include Silverman's proposal for a special membership for AIDS patients, his subsequent confrontation with Guzzardi, and the resulting legal claims against the Gym and its owner. The insurance policy in question included coverage for bodily injury, property damage, advertising injury, and personal injury, alongside the disputed exclusion.

Insurance coverage is excluded for "bodily injury, property damage, personal injury, professional liability," or "advertising injury" related to claims involving sexually transmitted diseases, including AIDS. This exclusion applies regardless of the legal nature of the claims. The Gym and Guzzardi sought defense and indemnification from General Star for a lawsuit (the Silverman suit) but were denied coverage due to the exclusion. Subsequently, they filed a suit against General Star in the Eastern District of Pennsylvania, seeking a declaration of General Star's duty to defend and indemnify, along with damages over $50,000 and punitive damages.

After the plaintiff Silverman died, his estate substituted him, and the parties settled the Silverman suit for $35,000. The settlement included a complete release of claims against the Gym, Guzzardi, and General Star, although General Star reserved the right to seek repayment for the settlement cost. The Gym and Guzzardi later amended their complaint to assert General Star's duty to indemnify for the settlement liabilities. 

General Star responded with affirmative defenses, including the Sexually Transmitted Disease Exclusion, and counterclaimed for a declaration of no indemnification duty and reimbursement for the settlement amount. The district court ruled that the exclusion did not apply to certain remaining claims in the Silverman suit but confirmed that General Star was not required to indemnify for Silverman's ADA claim. The court also determined that the pre-trial settlement did not preclude General Star from contesting its indemnification obligations. 

On September 6, 1995, General Star withdrew all defenses except that based on the Sexually Transmitted Disease Exclusion, leading the district court to grant the Gym and Guzzardi's renewed motion for summary judgment based on the previous ruling that the exclusion did not bar coverage for the Silverman suit.

General Star is appealing the district court's ruling that the STDE (standard terms of the insurance policy) does not bar indemnification related to the Silverman lawsuit. Conversely, the Gym and Guzzardi are cross-appealing, arguing that the pre-trial settlement and dismissal of the underlying suit should mandate indemnification from General Star for the Silverman settlement. 

The court first addresses the duty to indemnify, stating that General Star is not required to indemnify claims that fall outside the insurance policy's scope. Before analyzing the STDE, it is essential to ascertain whether Silverman's claims potentially fall under the policy's coverage. Silverman has filed seven claims: 1) ADA discrimination, 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 found that General Star is not obligated to indemnify for the ADA claim, a decision not under appeal.

The insurance policy covers four types of harm: bodily injury, property damage, advertising injury, and personal injury. Neither party contends that Silverman's claims involve "bodily injury" or "property damage." Therefore, the claims must be evaluated for coverage as "advertising injury" or "personal injury." The Gym and Guzzardi argue that some of Silverman's claims could be classified as "advertising injury," which is defined as harm resulting from the publication of defamatory material or violations of privacy rights. However, the policy stipulates that "advertising injury" must arise from offenses committed during the advertising of goods or services, and Silverman's claims do not link to any advertising context.

The other relevant category, "personal injury," is defined as injury not classified as "bodily injury," resulting from specific offenses, including slander, libel, or privacy violations. The policy also specifies that coverage applies only to personal injury caused by offenses arising from the insured's business, excluding advertising activities. Thus, Silverman's claims cannot be categorized as covered under either "advertising injury" or "personal injury" as per the policy's clear terms.

Slander and libel, both forms of defamation, are defined respectively as spoken and written or printed defamation. In Pennsylvania, a statement is deemed defamatory if it harms an individual's reputation, affecting how the community perceives them and deterring others from engaging with them. The court initially determines if the statement in question holds defamatory meaning. Silverman’s claims for emotional distress, invasion of privacy, civil conspiracy, and defamation are considered potential claims for "personal injury," arising from Guzzardi's statements that Silverman was "careless" and unwelcome at the Gym, which could damage his reputation and deter associations.

Furthermore, Guzzardi's actions possibly infringed upon Silverman's privacy rights. The Gym and Guzzardi may seek indemnification for any settlement paid to Silverman's estate if the claims align with "personal injury." The district court clarified that the complaint stemmed from Silverman's alleged exclusion from the Gym, not from having a sexually transmissible disease. Although this characterization was deemed feasible, it was misleading; exclusion alone does not qualify as slander or invasion of privacy under the policy's definition of "personal injury." The court acknowledged that Silverman's allegations of having AIDS do not explicitly connect to it being a sexually transmitted disease, as AIDS can be contracted through various means. The court thus rejects the district court's view that the complaint was solely about Gym exclusion but agrees that AIDS was not framed as a sexually transmissible disease. Lastly, the court will assess the scope of Silverman's "personal injury" claims in relation to the STDE coverage exclusions.

General Star contends that the STDE explicitly excludes coverage for claims related to sexually transmitted diseases, including AIDS, asserting that the language covers all claims tied to such diseases, given that Silverman's condition is central to the suit. They argue that the phrase "arising directly or indirectly from" should be interpreted broadly, suggesting that "but for" causation is sufficient to trigger the exclusion. In contrast, the Gym and Guzzardi maintain that the STDE only excludes claims alleging transmission or exposure to sexually transmitted diseases, arguing that the mere existence of AIDS, without evidence of transmission or exposure, does not invoke the exclusion. They reference specific language in the STDE to support their interpretation, suggesting that the intent was to preclude claims related to the act of transmitting the disease through sexual activity, rather than claims based solely on the existence of the disease. Each party interprets the STDE's language differently, leading to a disagreement over its clarity.

Under Pennsylvania law, courts interpret insurance contract language to determine the parties' intent, prioritizing clear and unambiguous language with its ordinary meaning. The document concludes that the STDE is ambiguous, as differing interpretations do not automatically indicate ambiguity, but a contract is deemed ambiguous if it can be understood in multiple ways.

The STDE (Sexually Transmitted Disease Exclusion) in this case presents multiple interpretations due to the lack of a defined meaning for "sexually transmitted disease" within the policy. It could be interpreted broadly to include all sexually transmissible diseases or narrowly to encompass only those transmitted through sexual conduct. The STDE's language suggests it could exclude coverage for claims related to any allegations involving such diseases, potentially categorizing even the mere mention of a sexually transmitted disease as a "personal injury" that falls outside coverage. Alternatively, it could limit exclusion to claims directly alleging transmission or fear of transmission resulting from sexual conduct. 

The "mere existence" interpretation could lead to extensive exclusions, undermining its validity by potentially denying coverage for a wide array of claims, such as injuries linked to a person’s health condition. The ambiguity in the STDE does not provide a clear connection between claims and sexually transmitted diseases. General Star asserts that the STDE applies to all claims with even a remote relation to such diseases, while also suggesting it does not apply to claims with only incidental connections. The district court noted that the underlying complaint was primarily about exclusion from a gym rather than the disease itself.

The Gym and Guzzardi argue that the ambiguous terms should be interpreted against General Star, as per Pennsylvania law, which favors the insured in cases of ambiguity unless there is relevant extrinsic evidence. The determination of ambiguity is a legal question for the court, while resolution of ambiguities may be left to a jury.

The only available extrinsic evidence at this stage is an affidavit from the president of the underwriting company, submitted by General Star with its Motion for Summary Judgment. The affidavit indicates that the underwriter intended to exclude coverage for claims similar to those in Silverman's complaint but did not intend to exclude claims where a sexually transmitted disease was irrelevant or incidental. The court finds the existing extrinsic evidence insufficient to clarify ambiguities regarding the insurance policy, leading to a remand to the district court.

In the cross-appeal, the Gym and Guzzardi contend that the district court wrongly denied summary judgment, asserting that the pre-trial settlement and dismissal of the Silverman suit necessitate a legal finding that General Star must indemnify them for their settlement costs. They reference Pacific Indemnity Co. v. Linn, arguing that since the Silverman suit was settled before narrowing the claims to those outside policy coverage, General Star has a duty to indemnify. However, the district court distinguished this case from Linn, aligning it instead with Cooper Labs. Inc. and Safeguard Scientifics, where the insured's participation in the settlement negated the chances of ambiguity in liability. The court concluded that the Gym and Guzzardi were not subject to the same risks as in Linn, justifying the denial of their summary judgment motion.

Ultimately, the court vacates the district court's order granting the Gym and Guzzardi's motion for summary judgment and remands the matter for further proceedings.

The dissenting opinion by Circuit Judge Roth focuses on the interpretation of a Sexually Transmitted Disease Exclusion (STDE) in a liability insurance policy regarding claims made by Irving Silverman against 12th Street Gym. Roth asserts that the STDE clearly excludes coverage for all claims in Silverman's complaint, thereby denying the Gym indemnity for any settlement related to those claims. Roth argues for the reversal of the district court's summary judgment in favor of the Gym and its co-owner, Robert Guzzardi, advocating instead for a summary judgment in favor of the insurer, General Star Indemnity Company.

The factual background involves an incident from 1994 where Silverman, after injuring his finger at the Gym, was confronted by Guzzardi, who publicly questioned Silverman about his AIDS status and subsequently banned him from the Gym. Roth agrees with the majority that the Gym could only seek indemnity if Silverman's claims qualified as "personal injury," which encompasses defamation or invasion of privacy. However, Roth criticizes the district court's reasoning that the STDE does not preclude indemnity because the complaint is based on Silverman's exclusion rather than his having a sexually transmissible disease. Roth contends that such exclusion claims would not fall under the policy's coverage at all, making the STDE's applicability moot. Roth emphasizes that the STDE should be interpreted broadly to exclude all claims related to sexually transmitted diseases, regardless of the mode of transmission, rejecting any narrow reading that limits the exclusion to claims involving sexual conduct.

The majority presents three interconnected arguments supporting its decision regarding the interpretation of the term "sexually transmitted disease" (STD) in the context of an insurance policy exclusion. First, the majority contends that the term is ambiguous, potentially referring to a general category of diseases or only to those transmitted through specific sexual conduct relevant to the case. Second, it asserts that the STD exclusion (STDE) fails to clarify its intended scope. Third, it argues that the STDE does not establish the necessary link between a claim and a sexually transmitted disease.

The broad language of the STDE states that the insurance does not cover claims arising from any instances involving STDs, explicitly including Acquired Immune Deficiency Syndrome (AIDS), and applies regardless of the legal nature of the claim. An example illustrates that claims related to negligence in maintaining premises where STDs might be transmitted are excluded from coverage. The majority focuses on a narrow interpretation of the term "sexually transmitted disease" to sidestep the expansive implications of the STDE, suggesting that Silverman's allegations regarding AIDS do not necessarily pertain to a sexually transmitted disease because AIDS can be contracted in various ways, not solely through sexual contact.

The majority’s interpretation is criticized for lacking persuasive force, as the term "sexually transmitted disease" is generally understood to encompass communicable diseases regardless of the transmission method. The common usage of the term should guide its interpretation, meaning the STDE applies broadly to any claim related to sexually transmitted diseases, including AIDS, without requiring evidence of sexual transmission in each individual case.

The STDE (Sexually Transmitted Disease Exclusion) broadly excludes claims related to sexually transmitted diseases (STDs) without specifying conduct. The majority's interpretation focuses excessively on sexual conduct, which is not mentioned in the STDE language. The majority suggests limiting the STDE to claims directly involving sexual transmission, but this misrepresents the STDE’s intent. 

In the case at hand, Silverman alleges personal injury after Guzzardi accused him of potentially infecting others with AIDS, directly linking the claim to the STD. Guzzardi’s comments clearly involve the disease, contradicting the majority’s requirement for an explicit reference to sexual conduct. 

The majority's concerns about the lack of a clear nexus between the claim and the STD are unfounded. The STDE excludes personal injury claims even with indirect connections to STDs. Silverman’s claims are directly related to Guzzardi's remarks about AIDS, placing them squarely within the STDE's exclusion. Overall, the interpretation that necessitates additional references to sexual conduct is implausible given the broad language of the STDE.

The majority opinion expresses hesitance in fully extending the Sexual Transmission Disease Exclusion (STDE), acknowledging its potential to exclude a wide range of claims. However, it argues that General Star and the Gym likely understood the implications of their agreement when they signed it. The Gym's membership demographics indicate a significant proportion of members are gay, with a notable percentage being HIV positive or having AIDS, suggesting the importance of these issues to both parties. Previous court cases have awarded damages for discrimination against HIV-positive individuals, which further emphasizes the relevance of the STDE's language. The opinion critiques the majority's narrow interpretation of "sexually transmitted disease," arguing it misrepresents the common understanding and context of the term. The dissenting opinion calls for overturning the district court's ruling in favor of the Gym and remanding the case for judgment in favor of General Star. The dissent also references the Gym and Guzzardi's argument based on Pacific Indemnity Co. v. Linn regarding General Star's duty to indemnify, while asserting that the legal scope of the insurance policy can still be examined. Definitions of "bodily injury" and "property damage" are provided to clarify the terms within the policy, and mention is made of Silverman's claim against the Gym for fraudulent misrepresentation related to his membership.

General Star is not required to indemnify the Gym and Guzzardi for settlement costs related to claims that do not involve slander or invasion of privacy. The district court determined that the facts presented were inadequate to identify which claims in the underlying complaint led to liability. There is no evidence indicating that the settlement was limited to a claim of fraudulent misrepresentation, and thus, apportionment of settlement costs is not warranted. Pennsylvania recognizes invasion of privacy as a common law tort, which consists of four distinct categories: intrusion upon seclusion, appropriation of name or likeness, publicity given to private life, and publicity placing a person in a false light. Personal injury, as defined in the relevant policy, includes injuries from offenses such as slander, libel, or violations of privacy rights, specifically excluding advertising-related activities. Various legal cases are cited to illustrate the courts' stances on issues related to HIV-positive individuals, highlighting rulings against discrimination and for compensatory damages in several contexts.