The state Superior Court has reversed a Lancaster County trial judge's grant of summary judgment in favor of Mutual Benefit Insurance Co. and against two property owners, reasoning that the judge erred in relying on the state Supreme Court's 1967 ruling in Pennsylvania Manufacturers' Association Insurance v. Aetna Casualty and Surety Insurance, rather than on the plain language of the policy at issue.

The court in PMA found that a company that qualified as an insured under an omnibus clause in another company's automobile insurance policy was an employer for coverage purposes and was therefore precluded from coverage under the employers' liability exclusion.

But in Mutual Benefit Insurance v. Politopoulas, a three-judge panel unanimously ruled that the unambiguous language of the policy at issue did not require one insured's employer status to be imputed on another insured.

In Mutual, according to Judge David N. Wecht, Christos Politopoulas and Dionysios Mihalopoulas — referred to as "owners" in the opinion — created Leola Restaurant Corp. — referred to in the opinion as "employer" — to run the day-to-day operations of Leola Family Restaurant, located on property they owned.

Politopoulas and Mihalopoulas then entered into a written agreement that leased the property to the corporation, Wecht said.

In December 2007, defendant Marina Denovitz, while working at Leola Family Restaurant, was injured when a flight of stairs she was descending came loose while she was taking out the trash, causing her to fall, according to Wecht.

In September 2009, Denovitz filed suit against Politopoulas and Mihalopoulas, claiming her injuries included a torn rotator cuff, and the two owners sought coverage under both their business owners policy and commercial umbrella policy with Mutual, Wecht said.

But Mutual denied coverage under both policies, according to Wecht.

Mutual said the owners were not insureds under the business owners policy and that, while they did qualify as insureds under the commercial umbrella policy, they were precluded from coverage under the employers' liability exclusion, which excluded coverage in situations where an employee was injured "'in the course of: a. employment by the insured; or b. performing duties related to the conduct of insured's business,'" according to Wecht.

In February 2010, Mutual informed the owners that it would defend them in the Denovitz action but would reserve the right to disclaim future coverage, as well as to seek a court order that it did not owe coverage, Wecht said.

In March 2010, Mutual filed a motion in the Lancaster County Court of Common Pleas seeking declaratory judgment that the owners were not covered under either policy, and, in December 2010, the court granted the motion with regard to the business owners policy but denied it with regard to the umbrella policy, according to Wecht.

In September 2011, Mutual filed a motion for summary judgment seeking to preclude coverage under the umbrella policy, arguing that the term "insured" under the policy language includes the employer and that the employers' liability exclusion bars all insureds from coverage, including the owners, according to Wecht.

Lancaster County Court of Common Pleas Judge Jeffery D. Wright granted the motion, finding that it was bound by the Supreme Court's ruling in PMA but expressing the belief that the PMA ruling was "'flawed,'" Wecht said.

In PMA, according to Wecht, Harry B. Niehaus Jr. had automobile injury liability and workers' compensation policies with PMA, while Aetna insured Delaware Wool Scouring Co. under a bodily injury policy.

One of Niehaus' employees drove a Niehaus truck to Delaware's facility and was injured by a Delaware employee operating a Delaware forklift, according to Wecht.

Niehaus' automobile policy included an "omnibus clause," which made Delaware an insured, according to Wecht, but PMA argued that Delaware was still precluded from coverage by the liability exclusion provision that barred insurance for injuries to Niehaus employees.

Wecht said PMA's policy stated that the definition of "insured" with regard to bodily injury liability coverage "'includes the named insured,'" but the severability-of-interests clause stated that the word "insured" "'is used severally and not collectively.'"

The high court found that because Delaware qualified as an insured under that definition, the injured party was, for coverage purposes, an employee of Delaware, therefore excluding Delaware from coverage pursuant to the liability exclusion provision, according to Wecht.

Wecht said that while the trial court in Mutual did not explicitly state why it believed PMA was controlling, "the obvious inference is that the trial court found that the severability of interests clause could not vitiate the conclusion forced upon the court by the umbrella policy's definition of 'the insured' — just as the Supreme Court found in PMA."

But Wright also took issue with PMA, interpreting the ruling as barring courts from interpreting the precise language of insurance policies.

Wecht, however, found that the separation-of-insureds clause in Mutual was much more specific than the severability-of-interests clause in PMA.

According to Wecht, the clause in Mutual stated that, "'Except with respect to the limit of insurance, and any rights or duties specifically assigned to the first named insured, this insurance applies: a. as if each named insured were the only named insured; and b. separately to each insured against whom claim is made or suit is brought.'"

"While this is not inconsistent with a severance clause indicating that coverage applies severally to numerous insureds rather than jointly, it speaks with greater precision," Wecht said. "Moreover, by way of defining the scope and application of the policy as among the named insureds, it prescribes a clear heuristic that governs the policy's application: When determining coverage as to any one insured, the policy must be applied as though there were only one insured, i.e., the one as to which coverage is to be determined.

"Moreover, neither the heading nor the content of the provision so much as uses the word 'several' or any variant thereof: Instead, it uses the words 'separation' and 'separately.'"

Wecht said the court was bound to apply the plain language of the policy as precisely as possible.

"As noted, by what we read to be the plain, unambiguous language of the separation-of-insureds clause, we are bound to evaluate whether owners are insured under the umbrella policy when they are evaluated as though they were the only named insured, an analytic conceit that appears to us both clearer and stronger than those that are implied when a severability clause simply identifies the insureds as 'several' rather than 'joint,'" Wecht said. "Thus, in no uncertain terms, the policy language directs us to evaluate coverage as though employer does not exist."

Wecht said that, under PMA, the court would have to consider Denovitz to be an employee of the owners because she was an employee of the employer, but the umbrella policy's plain language clearly states that the employer's relationship to Denovitz should be disregarded when determining whether the owners are covered.

Thus, Wecht said, the owners were never Denovitz's employers and could not be precluded from coverage by the employers' exclusion.

"An insured who does not exist cannot employ anyone," Wecht said. "Thus, if the person injured is not employed by the lone insured as to whom coverage is to be tested, the employers' exclusion simply does not come into play. This does not violate any aspect of the definitional section of the umbrella policy, and hence does not run afoul of our interpretive principles."

Counsel for Mutual, Robert W. Jozwik of Marshall Dennehey Warner Coleman & Goggin in Philadelphia, declined to comment.

According to the docket, Mutual filed for reargument on July 10.

Counsel for Denovitz, Neil E. Durkin of the Bauer Law Firm in West Conshohocken, Pa., could not be reached for comment at press time.

Counsel for Politopoulas and Mihalopoulas, Matthew A. Grosh of Russell, Krafft & Gruber in Lancaster, Pa., also could not be reached at press time.

(Copies of the 21-page opinion in Mutual Benefit Insurance v. Politopoulas, PICS No. 13-1456, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •