A property/casualty insurer is not obligated to defend and indemnify a policyholder if the policy clearly states that coverage is only for a particular location and the claim-causing incident occurred elsewhere, the 3rd U.S. Circuit Court of Appeals has ruled.

According to Friday's ruling in Philadelphia in American Western Home Insurance Co. v. Donnelly Distribution Inc., Philadelphia-based Donnelly Distribution Inc., which distributes newspapers, advertisements and other circulars, purchased a policy with Cincinnati-based American Western that included a “premises provision” that restricted coverage to bodily injuries arising out of its Howard Street, Philadelphia, location.

In November 2007, a woman sued Donnelly alleging she was injured when she slipped and fell on plastic ties that bind the materials Donnelly distributes that its employees negligently discarded on the pavement near Saul Street in Philadelphia.

American Western agreed to fund Donnelly's defense of the underlying action and appointed counsel, but reserved its rights and defenses under the policy. It eventually filed an action in federal court in Philadelphia seeking a declaratory judgment that the premises provision bars coverage of the underlying action and that it has no duty to neither defend nor indemnify the litigation.

Donnelly argued that American Western had the duty to defend and indemnify it because the premises provision arose out of “operations necessary or incidental” to the Howard Street premises.

However, the appeals court disagreed.

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The premises provision “limits coverage to injuries arising out of the ownership, maintenance or use of the Howard Street premises, and limits the type of covered operations to those necessary or incidental to those premises,” a three-judge appeals court panel ruled unanimously.

“Donnelly's reading in effect means that any accident, occurring anywhere, that may be somehow connected to Donnelly's paper distribution business is covered by the policy simply because the Howard Street premises are used as a pickup point in that business and are mentioned explicitly in the policy's premises provisions,” the appeals court said in overturning the lower court's ruling.

“But based on the plain terms of the premises provisions, we doubt that the parties intended a reference to one distribution center to trigger coverage for losses resulting from the entirety of Donnelly's business.

“Had the parties intended to provide for businesswide coverage, they surely would have found a clear way to say so, rather than by including an oblique reference to one particular (and seemingly random) distribution center,” the appeals court ruled.

Donnelly Distribution is not related to R.R. Donnelley & Sons Co.