## Facts

- Evelyn Vlastos owned a four-story commercial building in Pittsburgh, Pennsylvania and obtained a fire policy providing $345,000 coverage (less a $1,000 deductible) from multiple subscribing insurers.
- The first floor housed a luncheonette and bar operated by Vlastos and her son.
- The second and at least part of the third floors were leased to a corporation operating a massage parlor; a partitioned/padlocked room at the rear of the third floor was allegedly used as living quarters by Philip “Red” Pinkney, described as the building’s handyman/janitor.
- Vlastos used the fourth floor for storage and maintained a small office there; at the time of the fire, temporary occupants on the fourth floor were killed.
- The policy included Endorsement No. 4 stating: “Warranted that the 3rd floor is occupied as Janitor’s residence.”
- A fire occurred on April 23, 1980; the insurers denied coverage, asserting breach of the endorsement because the third floor was used for nonresidential purposes and/or because the janitor did not reside there as required.

## Issues

1. Whether “Warranted that the 3rd floor is occupied as Janitor’s residence” unambiguously requires exclusive third-floor use as a janitor’s residence, or is ambiguous and must be construed in favor of the insured.
2. Whether the district court erred by treating the endorsement as unambiguous and instructing the jury that any nonresidential third-floor use constituted a breach of warranty.
3. Whether, under the parties’ understanding of the endorsement, the relevant occupancy inquiry concerned residency at policy inception, at the time of loss, or continuously.

## Decision

- The Third Circuit vacated the judgment and remanded.
- The court held the endorsement language was ambiguous because it was reasonably susceptible to more than one interpretation.
- The district court erred by construing the endorsement to require exclusive third-floor residential use and by instructing the jury on that exclusive-use theory.
- On remand, breach and related factual disputes (including occupancy timing and the parties’ reasonable understanding) were to be reconsidered under the properly construed endorsement.

## Legal Principles

- Under Pennsylvania law, an insurance term is ambiguous if it is reasonably susceptible of more than one construction; ambiguous provisions are construed against the insurer and in favor of the insured.
- Courts should not read an “exclusive” or “sole use” requirement into policy language that does not clearly state such a limitation (e.g., by using “solely” or “exclusively”).
- Pennsylvania distinguishes warranties from representations: breach of a warranty may bar recovery without a separate showing of materiality, but the scope of the warranty must first be determined from the policy language as properly construed.
- Although ambiguity determination is a legal question for the court, once ambiguity is found, the construction that favors coverage governs, and remaining disputed facts bearing on breach are for the factfinder.

## Conclusion

The court held that the endorsement warranting the third floor was “occupied as Janitor’s residence” did not clearly require exclusive residential use, and because the language was ambiguous it had to be construed in favor of coverage; the insurer verdict based on an exclusive-use instruction was vacated and the case remanded for further proceedings.


Vlastos v. Sumitomo Marine & Fire Ins. Co. (Eur.) Ltd., 707 F.2d 775 (3d Cir. 1983)