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SELECTED RISKS INSURANCE COMPANY v. BRUNO (09/27/83)

decided: September 27, 1983.

SELECTED RISKS INSURANCE COMPANY, APPELLANT,
v.
BRUNO, ANTHONY V. AND BRUNO, LUCY C., HIS WIFE, AND BRUNO, JR., ANTHONY, APPELLEES



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA (SCRANTON).

Gibbons, Hunter, Circuit Judges and Mansmann,*fn* District Judge.

Author: Hunter

Opinion OF THE COURT

HUNTER, Circuit Judge:

1. Selected Risks Insurance Company ("Selected Risks") issued a homeowner's insurance policy, effective June 29, 1978 to June 29, 1979, to Anthony V. Bruno and his wife, Lucy Bruno (the "Brunos"). The policy provided bodily injury liability coverage in the amount of Fifty Thousand Dollars ($50,000) and medical payment coverage in the amount of One Thousand Dollars ($1,000). Anthony Bruno, Jr. ("Bruno Jr."), the Brunos' son, was not a named insured on the policy. He was nevertheless an insured because he was a resident of his parents' household.

2. On June 20, 1979, Bruno Jr. and Joseph Whah exchanged heated words at the Robo Car Wash, approximately one block from the Brunos' home. Bruno Jr. struck Whah, watched him fall to the ground, and left. Whah died on November 5, 1979 as a result of his injuries. Bruno Jr. was subsequently convicted of the crime of simple assault in the Lackawanna County Court of Common Pleas. The executrix of Whah's estate brought a state court action against Bruno, Jr., seeking monetary damages for Whah's death.

3. On August 25, 1981, Selected Risks brought this diversity action seeking a declaratory judgment that it was not required to defend or afford coverage to the Brunos in the state wrongful death action. Selected Risks moved for summary judgment, relying on the undisputed fact that Bruno Jr. had been found guilty of simple assault. Selected Risks argued that damages resulting from this intentional assault were not covered because the insurance policy contained the following exclusionary clause:

"1. Coverage E -- Personal Liability and Coverage F -- Medical Payments to others do not apply to bodily injury or property damage :

a) which is expected or intended by the insured. . . ." (emphasis in original)

4. The Brunos admitted that there were no issues of material fact, but submitted a signed affidavit attesting that they were unaware of the exclusion and that Selected Risks had never explained it to them. They asserted that the Pennsylvania rule established in Hionis v. Northern Mutual Insurance Co., 230 Pa. Super. 511, 327 A.2d 363 (1974), prevented Selected Risks from relying on that exclusion. In Hionis, the Pennsylvania Superior Court held that an insurer cannot rely on an exclusion unless it shows that the insured was aware of the exclusion and that the exclusion's effect had been explained to him. Id. at 517, 327 A.2d at 365.

5. Selected Risks argued that the Hionis rule did not apply because Bruno, Jr. was not a named insured, but a "fortuitous" or "additional" insured. Selected Risks asserted that an insurer has no duty under Hionis to explain exclusions to household members other than the named insured, and that an "additional insured" cannot benefit from the Hionis rule even if the named insured was not advised of the exclusions.

6. The United States District Court for the Middle District of Pennsylvania held that the Hionis rule requires an insurer to prove that the named insured was aware of and knew the effect of an exclusion irrespective of whether the named insured or an additional insured is actually seeking coverage. Because Selected Risks did not controvert the Brunos' claim that the named insureds were unaware of the exclusion, the district court granted summary judgment to the Brunos. See Selected Risks Insurance Co. v. Bruno, 555 F. Supp. 590 (M.D. Pa. 1982).

7. On appeal, Selected Risks argues that the rational underlying the Hionis rule is inapplicable in this case because it is unreasonable as a matter of law for an insured to expect that a homeowner's insurance policy will provide liability coverage for intentional criminal acts that result in personal injury. This argument was not proffered in the trial court. Initially, therefore, we must determine whether we will hear this argument.

8. It is the general rule that a federal appellate court does not consider an issue not passed upon below. Singleton v. Wulff, 428 U.S. 106, 120, 49 L. Ed. 2d 826, 96 S. Ct. 2868 (1976). This rule is one of discretion rather than jurisdiction,*fn1 and in the past we have heard issues not raised in the district court when prompted by exceptional circumstances. See, e.g., Abrams v. U.S. Department of the Navy, 714 F.2d 1219 (3rd Cir. 1983); Princeton Community Phone Book, Inc. v. Bate, 582 F.2d 706 (3d ...


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