GIANT EAGLE INC v. FEDERAL INSURANCE COMPANY (1996)

OPINION OF THE COURT

This is an insurance coverage dispute arising under our diversity jurisdiction.   Because of massive fraud by certain directors and officers of Phar-Mor corporation, plaintiff Giant Eagle, Phar-Mor's corporate parent, found itself subject to huge potential liability.   Giant Eagle sought coverage it believed to be due under its policy with defendant Federal Insurance Company, but Federal refused to pay.   Although Giant Eagle and Phar-Mor each had coverage of $20 million under separate director and officer (D & O) policies, Federal asserted that an endorsement to Giant Eagle's policy was meant to provide a “cap” of $20 million for claims common to both companies and that this amount had already been committed to Phar-Mor officials under the Phar-Mor policy.   As acknowledged by all concerned, however, the endorsement as written is gibberish.   Federal contended that the gibberish was the result of a scrivener's error and sought to “reform” the endorsement to make the policy “clearly and unambiguously” state the “capping” limitation.

Giant Eagle sued Federal in the district court for the Western District of Pennsylvania, seeking a coverage declaration in its favor.   Over Giant Eagle's objection, this issue was tried to a jury.   After the jury returned a verdict for Federal, the district court, reconsidering its earlier decision on Giant Eagle's motion, ruled that contract reformation is an equitable remedy that does not trigger the Seventh Amendment right to a jury trial.   The court therefore concluded that it-not the jury-was the appropriate fact-finder, and proceeded to find that Federal had failed to establish by clear and convincing evidence that it and Giant Eagle had agreed to limit coverage under these circumstances to $20 million.   See Giant Eagle v. Federal Ins. Co., 884 F.Supp. 979 (W.D.Pa.1995).

The appellate briefs and oral argument have focused primarily on fascinating issues relating the scope of the Seventh Amendment right to a trial by jury.   Although we have carefully considered these arguments, we have concluded that the solution to this difficult case lies in a more mundane legal framework-the sufficiency of the evidence.

We hold that the evidence, even when viewed in the light most favorable to Federal (the verdict winner), does not satisfy Federal's burden to prove by clear and convincing evidence that both parties agreed to a “cap” limiting coverage for common claims under the two policies.   We therefore affirm, not on the basis relied on by the district court, but on the different ground that a directed verdict for Giant Eagle was appropriate under Federal Rule of Civil Procedure 50.

I. FACTS AND PROCEDURAL HISTORY

A. Background Facts

Plaintiff Giant Eagle is a Pennsylvania corporation in the supermarket business, and Phar-Mor is one of its wholly owned subsidiaries.   Defendant Federal Insurance Company, a part of the Chubb Group of Insurance Companies, is an Indiana corporation writing, among other things, directors and officers insurance policies (D & O policies).   Although Giant Eagle and Phar-Mor are related, with a few exceptions they do not have common officers.   From 1984 until January 1992, Phar-Mor was insured by Federal under Giant Eagle's D & O policy.   This policy provided $20 million in coverage.   The premium for the 1991-92 D & O policy was $178,000, which Giant Eagle paid and Phar-Mor reimbursed it for in part.

By the early 1990s, Phar-Mor had outgrown its parent.   In 1991, therefore, Giant Eagle and Phar-Mor commenced negotiations with Federal for two separate D & O policies:  one for Giant Eagle and one for Phar-Mor, each policy providing for $20 million in coverage.   Giant Eagle employed the firm of Hilb, Rogal & Hamilton (HRH) to act as a broker on its behalf.   The negotiations were conducted by Loretta Stanish, Director of Financial Services for Giant Eagle;  William Shoemaker, a Vice President of HRH;  and Marci Nelson and John Burrows of Federal.   As a result of the negotiations, Federal issued two separate D & O policies to commence on the renewal date of January 14, 1992.   Giant Eagle's policy (8109-07-36-D) had a coverage limit of $20 million and a premium of $157,430, which Giant Eagle paid.   Phar-Mor's policy (8134-34-49) had a coverage limit of $20 million;  Phar-Mor paid the premium of $215,000 for that policy, bringing the total premiums for both policies to just over twice what Giant Eagle alone had paid the year before.   Neither policy contained an explicit and unambiguous provision that coverage would be limited for related or common acts.

After the policies were issued, Barbara Moeller of HRH noticed that Endorsement No. 2 to the Giant Eagle policy did not make sense as written.   Endorsement No. 2 read as follows:

It is understood and agreed that Item 6 of the Declarations Insured Organization, is amended to delete the following:

Phar-Mor, Inc. and Tamco, Inc.

It is further understood and agreed that Section 2-6 EXCLUSIONS, shall be amended by adding the following, but only as respects:

(e) Where all or part of such claim is, directly or indirectly based on, attributable to, arising out of, resulting from or in any manner related to the INSURED'S WRONGFUL ACT(S) committed, attempted or allegedly committed or attempted after January 14, 1992.

The policy contained no “Section 2-6 EXCLUSIONS.”   Furthermore, this provision, if taken literally as an exclusion for the insured's wrongful acts, would exclude all the coverage Giant Eagle was seeking.   Moeller wrote to Federal in April 1992, and again in May 1992, requesting clarification of Endorsement No. 2.App. 1278, 1282.   Federal did not respond.

In July 1992, about six months after the new policies were issued, Phar-Mor discovered a major fraud within the company.   As a result of this fraud, numerous lawsuits were filed against Phar-Mor directors and officers (some of whom also sat on the Giant Eagle board) and also against Giant Eagle officers and directors who were not on the Phar-Mor board.¹  Federal agreed to defend and pay the policy limits of $20 million under the Phar-Mor policy.   However, when Giant Eagle gave Federal notice of claims under the Giant Eagle policy, Federal denied coverage.   In a letter dated September 2, 1993, counsel for Federal explained that the Giant Eagle policy did not cover claims arising out of the fraud at Phar-Mor pursuant to Endorsement No. 2 to the Giant Eagle policy.   Although admitting that Endorsement No. 2, if read literally, “would eliminate virtually all coverage” under the Giant Eagle policy, App. 1299, Federal's counsel stated that:

The intent of Endorsement No. 2 was that the limits of liability under the Giant Eagle and Phar-Mor policies would not be stacked on top of each other for common claims or common wrongful acts relating to Phar-Mor.   Federal's maximum liability exposure under both policies for Phar-Mor related claims or wrongful acts was limited to $20 million dollars collectively.

App. 1300.  (Letter from Dan A. Bailey, Esq., to Jane S. Barnes, Esq., of 9/12/93) (footnote omitted).

B. The Lawsuit:  Proceedings Through Trial

On January 21, 1994, Giant Eagle filed a two-count complaint against Federal in district court.   In the first count, Giant Eagle sought a declaration that it is entitled to $20 million in coverage under its D & O policy for claims asserted against Giant Eagle officials in their capacity as Giant Eagle officers and directors because of the fraud at Phar-Mor.²  Giant Eagle asserted that its written insurance policy contained the entire insurance coverage agreement, that the policy contained no restriction limiting coverage for common or related acts, and that it should be enforced as written.   In other words, Giant Eagle contended that it was covered separately for the misfeasance of its officers sued as Giant Eagle (not Phar-Mor) officials for the fraud at Phar-Mor.   In count two, Giant Eagle alleged that Federal also breached the insurance agreement by refusing to defend the directors and officers of Giant Eagle in the claims asserted against them, resulting in damages to Giant Eagle in excess of $50,000.   Giant Eagle did not demand a jury trial.

Federal answered the complaint, denying the allegations and asserting that the parties had agreed to amend Section 3.1 of Giant Eagle's policy by adding the following:

(e) Where all or part of such claim is, directly or indirectly based on, attributable to, arising out of, resulting from or in any manner related to any claim made against Phar-Mor, Inc. and/or Tamco, Inc. after January 14, 1992.

App. 34.   This agreement, Federal contended, was intended to limit coverage for common or related claims against Phar-Mor and Giant Eagle officials to a total of $20 million, even though each company otherwise had a separate limit of $20 million.   To the extent that Endorsement No. 2 failed to state this intent, Federal maintained, “it is the result of scrivener's error and/or mutual mistake of the parties.”   App. 34.   Federal asked the court to reform the policy language to reflect the actual agreement of the parties.   Federal demanded a jury trial.

In December 1994, the parties filed a stipulation, which stated in pertinent part:

The parties agree that the only issue to be litigated in this expedited action is whether Federal may continue to deny coverage obligations under the Giant Eagle Policy for the reasons relating to Endorsement # 2 set forth in Attorney Bailey's letter․

The parties agree that all issues of fact to be decided at time of trial which they are legally entitled to have decided by a jury shall be decided by a jury and not the court.

App. 40-41.   At the close of discovery, the district court sought briefing as to whether Federal had a Seventh Amendment right to a jury trial on the ground that this action was “legal” rather than “equitable.”   See Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 42, 109 S.Ct. 2782, 2790, 106 L.Ed.2d 26 (1989) (jury trial right exists for actions analogous to those brought in a court of law in 18th century England, but if the action is analogous to one brought in a court of equity, no jury trial is required).³  The court concluded that the breach of contract claim-a classic legal cause of action-predominated over Federal's defense.   Therefore, pursuant to the Supreme Court's decisions in Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 79 S.Ct. 948, 3 L.Ed.2d 988 (1959), and Dairy Queen v. Wood, 369 U.S. 469, 82 S.Ct. 894, 8 L.Ed.2d 44 (1962), the court held that Federal had a right to try the stipulated issue to a jury.

The case proceeded to trial.   After Federal presented its case, Giant Eagle moved for a directed verdict under Fed.R.Civ.P. 50(a), arguing that Federal's evidence was insufficient as a matter of law.   The district court postponed ruling on the motion, but, expressing its doubts about the sufficiency of the evidence, encouraged Giant Eagle to renew its motion after the verdict if the jury found for Federal.   The jury returned a verdict for Federal.   Giant Eagle renewed its motion under Fed.R.Civ.P. 50(b) for a directed verdict and, in the alternative, for a new trial under Fed.R.Civ.P. 59.   In that motion, Giant Eagle also renewed its objection to the court's pretrial ruling that Federal was entitled to a jury trial.

C. The District Court's Post-Trial Decision

Upon reconsideration, the district court reversed itself on the Seventh Amendment issue.   See Giant Eagle v. Federal Ins. Co., 884 F.Supp. 979 (W.D.Pa.1995).   It reasoned that it did not have to reach the Rule 50 issues because Federal was not entitled to a jury trial on its stipulated defense issue.  “In the case at bar,” the court explained, “the sole issue at trial was ․ whether Endorsement 2 of the [D & O policy], either as intended by the parties, reformed by the Court, or as set forth therein, excludes coverage for the claims made against the Giant Eagle officers and directors [in the Phar-Mor litigation].”  Id. (emphasis added).   The court then analyzed the stipulation as follows:

Federal conceded at trial that the endorsement, “as set forth therein”, did not exclude coverage for such claims.   Furthermore, because language that limits coverage of an insurance policy must, under Pennsylvania law, be clear and unambiguous to be enforceable, Bishop v. Washington, 331 Pa.Super. 387, 480 A.2d 1088, 1095 (1984);  Equibank v. State Farm Mutual Auto. Insurance Co., 426 Pa.Super. 354, 626 A.2d 1243, 1246 (1993), and since Endorsement No. 2 was neither, the “intention of the parties” with respect to Endorsement No. 2 is relevant only to prove mutual mistake as a basis for reformation.   We agree with Giant Eagle that reformation is purely an equitable issue and must be decided by the court rather than by a jury.   See, e.g., Royal Aviation, Inc. v. Aetna Casualty & Surety Co., 770 F.2d 1298, 1302 (5th Cir.1985).

Id. at 985.   Therefore, the court concluded that it-not the jury-should decide the reformation issue.

The district court also rejected, as outside the stipulation and unsupported by evidence, Federal's alternative arguments that the parties had limited coverage by way of an oral agreement or that the stipulation gave Federal a contractual right to try the disputed factual issues to a jury.   Id. at 985-86 & n. 2. Finally, concluding that Federal unjustifiably delayed in responding to Giant Eagle's queries regarding the intended effect of Endorsement No. 2, the court held that Federal was estopped from now relying on that Endorsement to limit coverage.   Conclusions of Law ¶ 22.

At this juncture, construing Giant Eagle's motion as one for partial summary judgment according to Fed.R.Civ.P. 52(c), the district court entered a declaratory judgment in favor of Giant Eagle on the stipulated issue:  that Federal could not continue to deny coverage under the policy on the basis of Endorsement No. 2. Id. at 991.   The court also filed findings of fact and conclusions of law.   This appeal followed.⁴

II. CONTENTIONS ON APPEAL

Federal contends that its Seventh Amendment right to a trial by jury was violated, that the error was not harmless, and that, even if it had no right to a jury trial, it was inherently unfair for the district court to set aside the jury verdict in its favor.

Giant Eagle contests all these arguments.   It also presses, as an alternative basis for affirming the district court's order, the main basis of its post-trial motion:  that it is entitled to a directed verdict, or in the alternative to a new trial, under Fed.R.Civ.P. 50 & 59.⁵  Finally, Giant Eagle urges us to affirm the district court on the basis that Federal is estopped from denying coverage because of its delay in responding to Giant Eagle's questions concerning Endorsement No. 2.

With regard to its Seventh Amendment contentions, Federal argues that its right to a jury trial was violated when the district court, treating the jury verdict in favor of Federal as advisory only, resolved the factual dispute concerning the true nature of the contract in favor of Giant Eagle.   This contention raises interesting issues regarding the scope of the Seventh Amendment.   Cf. Dairy Queen v. Wood, 369 U.S. 469, 82 S.Ct. 894, 8 L.Ed.2d 44 (1962) (holding that neither equitable defense nor equitable characterization of essentially legal action could deprive plaintiff of jury trial right in trademark action);  Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 79 S.Ct. 948, 3 L.Ed.2d 988 (1959) (suggesting that equitable defense will trump legal cause of action only “when legal remedies [are] inadequate”);  City of Morgantown v. Royal Ins. Co., 337 U.S. 254, 69 S.Ct. 1067, 93 L.Ed. 1347 (1949) (leaving open question whether defense of mutual mistake is “equitable” for purposes of the Seventh Amendment).   As noted above, this issue consumed the bulk of the litigants' briefs, and this court heard extensive oral argument on the matter.

However, we need not decide this question.   It is a staple of judicial decisionmaking that courts should not decide constitutional questions unless necessary.   See, e.g., Spector Motor Serv., Inc. v. McLaughlin, 323 U.S. 101, 105, 65 S.Ct. 152, 154, 89 L.Ed. 101 (1944).  Federal Rule of Civil Procedure 50 provides an ample non-constitutional basis on which to decide this case.⁶

III. DIRECTED VERDICT UNDER FED. R. CIV. P. 50

A. General Principles

Turning, then, to the Rule 50 issue, we must decide whether a directed verdict is appropriate in this case.   Under Fed.R.Civ.P. 50, a court must grant a directed verdict “[i]f during trial by jury a party has been fully heard on an issue and there is no legally sufficient basis for a reasonable jury to find for the party on that issue.”  Fed.R.Civ.P. 50(a)(1);  see also Fed.R.Civ.P. 50(b) (“The movant may renew its request for judgment as a matter of law by filing a motion no later than 10 days after the entry of judgment․”).   It is uncontested that Giant Eagle timely filed a motion for a directed verdict.

Whether the evidence is sufficient to sustain a jury's verdict is a question of law over which we exercise plenary review.   See Anderson v. Liberty Lobby, 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).   In evaluating a motion for a directed verdict, the court should apply the same substantive standard that the non-moving party must meet at trial, granting all reasonable inferences from the evidence to the non-moving party.   See id.   In this case, Pennsylvania law requires a party seeking to reform a contract, as Federal does here, to show both (1) that the contract as written does not reflect the actual agreement of the parties, and (2) what the actual intent of the parties was.   See Hassler v. Mummert, 242 Pa.Super. 536, 364 A.2d 402, 403 (1976).   Furthermore, the party seeking reformation must demonstrate these elements by “clear and convincing” evidence.   See Three-O-One Market, Inc. v. Department of Public Welfare, 64 Pa.Cmwlth. 237, 439 A.2d 909, 911 (1982).⁷

The clear and convincing standard requires, among other things, that the party's “witnesses must be found to be credible, that the facts to which they testify are distinctly remembered and the details thereof narrated exactly and in due order, and that their testimony is so clear, direct, weighty and convincing as to enable the jury to come to a clear conviction.”   Id. The district court, acting as fact-finder, found that Federal's primary witness, John Burrows, was not credible.   See Findings of Fact ¶ 55 (“We find that Burrows' testimony was inconsistent, equivocal and less than persuasive.   In addition, either Burrows, or some other employee of Federal, failed to produce relevant documents prior to trial, despite repeated requests from Giant Eagle.”).   However, under the directed verdict standard of Rule 50, we review the jury's verdict under a different standard than that employed by the district court.   And it is well settled that under this standard “credibility determinations, the weighing of evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge.”  Liberty Lobby, 477 U.S. at 255, 106 S.Ct. at 2513.   Therefore, in making our evaluation, we must be guided by other aspects of Pennsylvania's clear and convincing standard.

We find that guidance in Pennsylvania's “two witness” rule.   See Blair v. Manhattan Life Ins. Co., 692 F.2d 296 (3d Cir.1982) (Pennsylvania's “two-witness” rule applicable to reformation cases).   Under this rule, “[c]lear, precise, and convincing evidence requires direct supporting evidence from at least two credible witnesses with distinct recollection of the facts and details, or from one witness with corroborating circumstances equivalent to a second witness.”  General Elec. Credit Corp. v. Aetna Cas. & Sur. Co., 437 Pa. 463, 263 A.2d 448, 456 (1970).

Thus, omitting the credibility determination since we are evaluating the sufficiency of the evidence, Pennsylvania law requires either (1) two witnesses giving direct supporting testimony, or (2) one witness and other evidence equivalent to a second witness to establish clear and convincing evidence.   And, because this is a reformation case, this evidence must establish both (1) a mistake of the parties,⁸ and (2) the parties' true intent.

B. Federal's Evidence

To show that it satisfied its burden at trial, Federal directs us to the testimony of four witnesses:  (1) John Burrows;  (2) William Shomaker;  (3) Loretta Stanish;  and (4) Anthony Cardiero.   But, as we shall see, Burrows's testimony established neither a mistake of the parties nor that the parties' true intent was consistent with Federal's theory.   And the testimony of the other three witnesses did not support Federal's side of the story.   Federal also introduced evidence of another insurance negotiation with a different Giant Eagle subsidiary-evidence which we find similarly inapposite to the issue in this trial.

1. Terminology

Before parsing the testimony, we briefly explain some concepts central to this litigation-and their related terminology-because an understanding of them is critical to our analysis.   Federal claims that it agreed with Giant Eagle to limit coverage to $20 million for situations involving lawsuits against officers of Giant Eagle and officers of Phar-Mor for common or related claims, regardless of whether the officers were common to both companies and regardless of whether they were sued in their separate capacities.   To illustrate, assume that Jack is a Giant Eagle official and that Jill is an official of both Phar-Mor and Giant Eagle.   Under Federal's view, if Jill were sued for alleged misdeeds in her capacity as an officer or director of Phar-Mor, she would have coverage of $20 million.   However, if after Jill used her $20 million in coverage, Jack at Giant Eagle were sued for malfeasance in his work as a Giant Eagle officer-and the claims were related-Jack would have no coverage.   The total coverage would be limited to $20 million for common claims.   Federal appears to use the terms “stacking,” “pyramiding,” (sometimes with the “anti” or “non” prefix) and “capping” interchangeably to refer to this concept.

Giant Eagle, on the other hand, contends that the parties entered into a different type of limitation.   According to Giant Eagle, the parties agreed that coverage would be limited to $20 for situations in which an officer common to both Giant Eagle and Phar-Mor were sued in only one capacity.   In other words, if Jill-sitting on the boards of both Phar-Mor and Giant Eagle-were sued only in her capacity as a Phar-Mor officer, she would have a coverage limit of only $20 million.   She could not use the $20 million in coverage on her Giant Eagle policy unless she were also sued in her capacity as a Giant Eagle officer.   Giant Eagle contends that this different concept is properly known as “stacking” or “pyramiding,” while the more drastic limitation alleged by Federal is known as “capping.”   Because it distinguishes between the two competing concepts, we will use Giant Eagle's terminology in our discussion, to which we now return.

2. John Burrows

Federal's primary witness was John Burrows, a Federal employee who negotiated the insurance agreement and whose failure to draft Endorsement No. 2 coherently and to respond to Giant Eagle's repeated requests for clarification, by his own admission, caused the current predicament.   Federal points to the following passages of Burrows's testimony as establishing its case that (1) Endorsement No. 2 as written did not reflect the true intentions of the parties, and (2) the parties intended to “cap” coverage at $20 million.

Q. ․ I am going to let you, you just tell this jury what happened and the series of events, as best you recall, about, starting in the summer of '91, your meetings that you held, what you told Shomaker, what you told Loretta Stanish, and what they told you.

A. ․ The other part of that meeting was a discussion of the breaking out the policies and a discussion of the capping of limits, non-pyramiding of limits at the time as to if we broke out those policies, what that would mean.   At that meeting I had an agreement and it was understood with Bill Shomaker and Loretta Stanish that that's what would transpire.

Q. So you agreed on behalf of Chubb to write a separate policy for Giant Eagle and a separate policy for Phar-Mor, but you didn't want a stacking of two limits.   What does that mean?

A.  That is just really for any related or common claims that would be filed under the Giant Eagle policy or the Phar-Mor policy, the idea would be, there would be only one limit of liability, and that would be 20 million.   It was not my understanding that we would offer anything higher than that.

App. 682a-683a (emphasis added).

Q. Incidentally, when I asked you earlier-and I think I just read Shomaker's testimony this morning, so it is probably pretty clear-your discussions that Chubb would not permit pyramiding or stacking of the limits, did they agree with that?

A.  Yes, they did.

Q. They understood that?

A.  They understood that.

Q. Did they understand it in the conference room where you were talking and negotiating?

A.  Yes. My understanding is that they understood that, we had an agreement, and that was the deal.

App. 685a (emphasis added).

Q. You say there was an agreement that there would be an endorsement and it would protect Chubb from being liable for $40 million in an interrelated or related claim situation.   So the concept was discussed, the idea was discussed?

A.  Yes, the endorsement would just confirm what was already agreed to.

App. 686a.

Q. Mr. Burrows, when you were dealing with Loretta Stanish and Bill Shomaker in mid-1991 and you talked about the non-pyramiding of limits so that Giant Eagle and Phar-Mor D & O's had a total of 20 million between them for related claims, was Loretta Stanish there during these discussions on behalf of both Giant Eagle and Phar-Mor?

A.  That's correct.

Q. Was Bill Shomaker there on behalf of both Giant Eagle and Phar-Mor?

A.  Yes.

App. 697a-698a.

To begin with, even Burrows's testimony is not entirely clear.   For instance, he refers to “capping,” “stacking,” and “pyramiding” interchangeably.   He also discusses the situation as one in which “for any related or common claims that would be filed under the Giant Eagle policy or the Phar-Mor policy, the idea would be, there would be only one limit of liability, and that would be $20 million.” (emphasis added).   This statement, describing claims filed under one policy or the other, seems consistent with Giant Eagle's position that the parties agreed to a limit of $20 million when a common officer was sued only in her capacity as an official of one of the companies (not both).   Nowhere does Burrows describe Federal's purported limitation with sufficient clarity that a fact-finder could be certain he was testifying to “capping,” as we are using the term, as opposed to “stacking” or “pyramiding.”

Even if we assume that Burrows was discussing “capping,” he testified that-by his understanding-Federal and Giant Eagle agreed to cap coverage at $20 million.   But Burrows's “understanding” does not establish whether an agreement was actually reached;  Giant Eagle's understanding is critical as well.   Although Burrows testified that Giant Eagle “agreed,” he provides no indication of facts within his personal knowledge that would support his conclusion, i.e., external manifestations of agreement.   Without describing what the officials said or did, Burrows failed to provide a fact-finder with any means to determine why Burrows concluded that Giant Eagle agreed (and to precisely what) and whether that conclusion was reasonable.   Therefore, Burrows's testimony-even if totally credible-does not “directly support” Federal's contention that Giant Eagle and Chubb agreed to a $20 million cap.

3. William Shomaker

The second witness that Federal claims supports its position is William Shomaker, one of the Giant Eagle employees involved in the negotiation.   In particular, Federal points to the following testimony of Shomaker:

Q. Was the use of the phrase non-pyramiding of limits and non-stacking of limits used in connection with the general conversation with all four?

A.  Yes.

Q. What do you recall Mr. Burrows saying about non-pyramiding of limits?

A.  My recollection is that the conversation from John was that he was very willing to split the two policies, one for Giant Eagle and one for Phar-Mor, but that he was concerned that the two policies did not pyramid, producing the limit of $40 million.

App. 648a-649a (emphasis added).

Q. Do you recall Mr. Burrows or Marci Nelson saying anything else with regard to non-pyramiding or non-stacking?

A.  Yes.

Q. What do you recall?

A.  We had a general discussion as to the intention of Giant Eagle and Phar-Mor regarding the splitting of the policies and the limits, and the intention of Chubb in providing two $20 million policies as opposed to one.   And a discussion regarding the non-pyramiding and non-stacking of those limits.

Q. That was a specific discussion about the non-stacking of those limits then?

A.  That's correct.

App. 650a.

A. ․ John then stated that again that Chubb didn't want to be in a position where these limits were where it would provide $40 million for a particular instance.   We replied that we would, were it our intention to have $40 million applied, we would purchase a $40 million policy or $40 million in limits, but that our intention, again, was to have $20 million applied to the Giant Eagle claims and $20 million applied to the Phar-Mor claims.

App. 506a (emphasis added).

Q. Can you articulate your definition of non-pyramiding as it was used at the meeting in the fall of 1992 with the Chubb underwriting personnel?

A.  I believe so.   I believe that the agreement in the meeting was that Giant Eagle would have a limit of $20 million for claims or occurrences arising under Giant Eagle's policy;  and that Phar-Mor would have a $20 million limit for claims arising out of their policy;  but that the $20 million would not apply to the same claim.

Q. The last part of that was the $20 million would not apply to the same claim?

A.  That each of the $20 million would not-the two $20 million would not apply.

App. 506a-507a (emphasis added).

We believe that this testimony, taken as a whole, is completely consistent with Giant Eagle's position that it agreed not to “stack” or “pyramid” the limits.   As we have explained, Giant Eagle concedes that the parties agreed that coverage would be limited to $20 million for situations in which an officer common to both Giant Eagle and Phar-Mor were sued in only one capacity.   Thus, Shomaker's statement that “our intention, again, was to have $20 million applied to the Giant Eagle claims and $20 million applied to the Phar-Mor claims” (emphasis added) supports Giant Eagle's position.   According to this description, $20 million was available to Giant Eagle and $20 million was available to Phar-Mor as long as there were “claims ” (plural) against both companies.

Shomaker's other major statement on this point is similarly consistent with Giant Eagle's position:  “I believe that the agreement in the meeting was that Giant Eagle would have a limit of $20 million for claims or occurrences arising under Giant Eagle's policy and that Phar-Mor would have a $20 million limit for claims arising out of their policy, but that the $20 million would not apply to the same claim ” (emphasis added).   This statement simply reflects Giant Eagle's position on stacking:  that a Giant Eagle officer could not obtain an additional $20 million under the Phar-Mor policy as long as only one “claim” (singular) had been made;  only if the officer were sued in both capacities (i.e., was subject to multiple claims ) could the officer make use of the Phar-Mor coverage.

Finally, even Shomaker's statement that “[Burrows] was concerned that the two policies did not pyramid producing the limit of $40 million”-to the uncertain extent it represents something Giant Eagle agreed to-is at best ambiguous as to whether Shomaker is discussing “pyramiding” as Giant Eagle defines it or as Federal uses the term.   And additional testimony of Shomaker, in which he states that Giant Eagle agreed to “antipyramiding” but not “capping,” makes clear that his discussion of the “antipyramiding” agreement does not pertain to “capping”:

Q. Throughout that meeting until it concluded was there any discussion at all about the phrase, capping of limits, by anyone?

A.  I am sorry, capping?

Q. Capping of limits, or capping of exposure.

A. I don't recall that.

App. 508a (emphasis added).

Q. Are you saying it was your understanding that if a Giant Eagle D & O is sued as a Giant Eagle D & O, and that same person was a Phar-Mor D & O and he was also sued as a Phar-Mor D & O, that one-that that one individual who is a director/officer for both corporations would have two $20 million policies covering him?

A.  Yes.

Q. So he would have $40 million coverage in total?

A.  No.

Q. All right.   What coverage would he have in total?

A.  He would have $20 million in his capacity as a Giant Eagle D & O, and he would have $20 million in his capacity as a Phar-Mor D & O.

Q. It was your understanding that would not constitute pyramiding the policies?

A.  That's correct.

App. 511a.

Thus, granting all favorable weight and credibility inferences to Federal, we conclude that Shomaker's testimony does not provide “direct supporting evidence” of Federal's position.

4. Loretta Stanish

The third witness Federal points to is Loretta Stanish, Giant Eagle's manager in charge of insurance:

Q. It is fair to say from where you stood you were allowing Shomaker to negotiate issues on behalf of Giant Eagle, but you expected him to come back to tell you everything he was negotiating?

A.  I expected him to keep me informed of what he was negotiating.   The details back and forth, what happened, not necessarily, no, he would only give me the final-

Q. So you were giving him even a broader latitude, you are saying, you go negotiate, I don't need the details, I just need the big things?

A.  No, I didn't need to know the back and forth.

 .    .    .    .    .

Q. In this case you expected that he would tell you what was going on, what the negotiations were, the best deals that he was able to strike, then you can make a determination if you had the authority without going to your superiors or you would go to them and make a determination of whether you thought that was best for Giant Eagle, then you would get back to Shomaker and say, yea or nay?

A.  Correct.

Q. Then you would expect Shomaker to make the communication with the insurance company to commit on a certain policy or provision?

A.  Yes.

App. 628a-629a.

This testimony establishes only that Shomaker had authority to deal with Federal.   It says absolutely nothing about the nature of the agreement between the two parties.   And since Shomaker's testimony itself does not help Federal, testimony about his authority to bargain is beside the point.

5. Anthony Cardiero

The final witness to which Federal points is Anthony Cardiero, a Phar-Mor manager:

Q. Can you explain, we are operating in phrases here.   Let me just explore with you what you mean a little further by that definition.   If there is commonality of officers and directors and you said something about coverage under one policy for both companies, you put those two thoughts together?

A.  They were policies with both companies, but they would be used to-as one-as one to cover any action or omissions from the officers or directors.

Q. There were two policies, but they would be used as one to cover?

A.  As I recall, I believe that's how it was explained by Bill [Shomaker] to me.

Q. To cover the-

A.  Errors or omissions, whatever coverages that are involved under the policy.

Q. Of the D & Os?

A.  Yes.

Q. When you say they would be used as one to cover the D & Os, what do you mean by that?

A.  Maybe I don't mean used as one.   You know, that they would-they were-how can I phrase this?   That there was a limitation between the two of them as far as the limits on it.

App. 598a-599a (emphasis added).

Even taking this testimony out of its context as Federal has done, it is ambiguous as to whether the “limitation between the two of them” is the “antistacking” concept that Giant Eagle concedes it agreed to or the “capping” concept that Federal seeks to prove.   Moreover, examining the entire transcript reveals that Cardiero was answering a question regarding “the meaning of nonpyramiding or nonstacking of policies in the D & O insurance context.”   App. 597a-598a.   Like Shomaker, Cardiero also distinguished between “nonpyramiding” and “nonstacking” on the one hand, and “capping” on the other.   After the allegedly supportive statement excerpted in Federal's Brief, Fed. Br. at 39-40, Cardiero testified as follows:

Q. Are you familiar with the phrase capping of limits in the insurance context?

A.  Somewhat, yes.

Q. Does that define or involve in your mind the definition of nonpyramiding or nonstacking?

A.  I don't think so.   I don't think-I don't think.

Exhibit 56, Cardiero Dep. at 27 (emphasis added).⁹

Thus, having excised the “capping” concept from his discussion of “nonstacking” and “nonpyramiding,” Cardiero's testimony cannot be said to provide “direct supporting evidence” of Federal's position.   By distinguishing the terms, it is apparent that Cardiero used the “nonstacking/nonpyramiding” concepts in a manner consistent with Giant Eagle's understanding.   In other words, he admitted what Giant Eagle has all along conceded-that a Giant Eagle official could not take advantage of coverage under her Phar-Mor policy unless she were sued as a Phar-Mor official as well.

Even to the extent that Cardiero's testimony is ambiguous, it fails to provide the “direct supporting evidence” that Pennsylvania's clear and convincing evidence standard demands.   Cardiero's testimony highlights a major problem in this litigation:  that the concepts and terminology of “stacking,” “pyramiding,” and “capping”-especially when used without agreement as to their meaning-are confusing.   We can only assume that they were confusing for the jury as well.   The jury may have understood the ultimate issue in the trial, but had difficulty discerning whether testimony discussing “pyramiding” or “stacking” applied to the “capping” issue.   Federal bears the burden of proof in this litigation.   Therefore, the confusing nature of the litigation and the seemingly loose use of terminology cuts against Federal.   This is not a matter of granting permissible inferences-the task of the jury in this case-but of determining relevance and legal sufficiency, a job for the court.   This ambiguous testimony could not establish an agreement between Giant Eagle and Federal regarding the precise “capping” matter at issue in the litigation.

6. Other Circumstantial Evidence

The last bit of evidence Federal offers to support its position is the existence of a different insurance negotiation with a separate Giant Eagle subsidiary.   In Federal's own words:

To summarize that evidence, a different Giant Eagle subsidiary, Deer Leasing, negotiated a similar policy with Federal at the same time as the policy at issue here, which also contained a written coverage limitation.   The same parties were involved in the negotiation.

Fed. Rep. Br. at 10 (citations omitted).   The implications of this evidence, according to Federal, were as follows:

The details of this other policy provide circumstantial evidence that [1] the parties understood the concept inherent in the coverage limitation and [2] had no difficulty in providing for such capping of limits in the Giant Eagle policy.

Id. (emphasis added).   We agree that these are the implications, but we do not see what these implication have to do with the case at bar.   That the Giant Eagle officials understood the concept of “capping” is not material.   Giant Eagle has never contended that it did not understand the concept, only that it did not agree to it.   And that the officials had “no difficulty” in providing for limits on a different policy for a different company similarly has no bearing on what Giant Eagle agreed to for this policy for this company.   Thus, this circumstantial “evidence” cannot satisfy the requirement of “direct supporting evidence ․ equivalent to a second witness.”  General Elec., 263 A.2d at 456.

C. Rule 50 Summary

We hold that, as a matter of law, Federal failed to produce sufficient evidence to sustain its burden of proving that the true intention of the parties was to “cap” coverage at $20 million for suits against Giant Eagle and Phar-Mor officers in their separate capacities if the suits related to common claims.   Burrows's testimony established only his understanding of the agreement, and he provided no basis to enable a fact-finder to determine whether that understanding was reasonable.   The other witnesses' testimony did not even support Burrows's rendition.   Finally, the circumstantial “evidence” of another insurance agreement is irrelevant and, therefore, cannot provide direct corroboration equivalent to another witness.

We note that, because a directed verdict issue is a matter of law, we may reach our own conclusion based on the record evidence even if the district court did not reach this issue.   We believe, however, that the district court did indicate its opinion on this matter.   In the course of evaluating the reformation claim, the district court stated:

There is no evidence, other than the less than impressive testimony of Burrows, that the parties agreed to cap the limits between the two policies to $20 million on claims related to Phar-Mor.   And even if we were to accept Burrow's [sic] testimony that Federal intended, through Endorsement No. 2, to cap the limit between the policies, ․ there is no evidence that Giant Eagle, either through Stanish or HRH, ever agreed to such a limitation.

Giant Eagle, 884 F.Supp. at 990 (emphases added).   Thus, even leaving aside credibility judgments, the district court found that there was no evidence to support the ultimate contention on which Federal bore the burden of proof:  that, regardless of Federal's intentions, Giant Eagle agreed to “cap” coverage to a total of $20 million under both the Giant Eagle and Phar-Mor policies for common or related claims.   A directed verdict was appropriate, as a result, under the district court's own analysis.

IV. BEREDA AND MANIFEST UNFAIRNESS

Federal's final argument is that it is entitled to a new trial because, in displacing the jury's verdict, the district court violated this Court's rule in Bereda v. Pickering Creek, 865 F.2d 49, 53 (3d Cir.1989), and the result would be “manifestly unfair.”

We disagree.   Because we hold that a directed verdict was appropriate under Fed.R.Civ.P. 50, Bereda is not relevant here.   In Bereda, this Court found a violation of Fed. R. Civ. Pro. 39(c) where the court treated a jury's verdict as advisory after the jury had returned its verdict.  865 F.2d at 53.   In granting a directed verdict, we are not treating the jury's verdict as advisory;  we are holding that, as a matter of law, Federal's evidence was insufficient to meet its clear and convincing burden of proof.   See Fed.R.Civ.P. 50.¹⁰  And because our action is expressly authorized by a federal rule of civil procedure, there can be nothing “manifestly unfair” about it.

V. CONCLUSION

The judgment of the district court will be affirmed.   Federal did not meet its burden of proving a scrivener's error by “clear and convincing” evidence, as Pennsylvania law requires.   Therefore, a directed verdict for Giant Eagle was appropriate.

JUDGMENT

This cause came on to be heard on the record from the United States District Court for the Western District of Pennsylvania and was argued by counsel on March 21, 1996.

On consideration whereof, it is now here ordered and adjudged by this Court that the judgment of the said District Court entered March 24, 1995 which was certified by order entered May 18, 1995, be, and the same is hereby affirmed.   Costs taxed against appellant.   All of the above in accordance with the opinion of this Court.

FOOTNOTES

1.   Much of that litigation has been consolidated in the Western District of Pennsylvania by the Judicial Panel on Multidistrict Litigation under In re Phar-Mor, Inc. Securities Litigation, Civil Action No. 92-1938, MDL No. 959.

2.   Giant Eagle admitted in its complaint that coverage is capped at $20 million for directors and officers common to both companies if they are sued only in their capacity as Phar-Mor officials.   App. 15 (Complaint ¶ 39).

3.   The Seventh Amendment provides:  “In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.”   U.S. Const. amend.   VII.

4.   Although the order being appealed did not dispose of all of the claims, it was certified by the district court pursuant to Fed. R. Civ. Pro. 54(b) (judgment entered upon less than all the claims with “express determination that there is no just reason for delay”).   Thus, this Court has jurisdiction under 28 U.S.C. § 1291.

5.   This argument, like Federal's contention, takes the form of “harmless error” in Giant Eagle's briefs.   See G.E. Br. at 25 (“III. Any Alleged Seventh Amendment Error Would be Harmless in Any Event ”).   It is clear, however, that the substance of Giant Eagle's argument is that a directed verdict was appropriate.   See G.E. Br. at 26 (citing, inter alia, Neville Chem. Co. v. Union Carbide Corp., 422 F.2d 1205, 1210 (3d Cir.) (“[T]he denial of the right to a jury trial is harmless error where a directed verdict would have been appropriate.”) (emphasis added), cert. denied, 400 U.S. 826, 91 S.Ct. 51, 27 L.Ed.2d 55 (1970)).We will discuss this matter as a directed verdict rather than a “harmless error” issue.   The “harmless error” cases that both sides cite involve instances where a jury trial was improperly denied.   Here, of course, the jury trial was granted.   We believe that this issue is more appropriately discussed as whether a directed verdict is appropriate, therefore, than whether the district court's post-trial decision nullifying the jury verdict was “harmless.”

6.   Because we affirm on the Rule 50 basis, we also do not reach Giant Eagle's estoppel argument.

7.   The district court held that Federal could prevail only on a reformation theory-as opposed to a contract interpretation theory using parol evidence-because “language that limits coverage of an insurance policy must, under Pennsylvania law, be clear and unambiguous to be enforceable.”  Giant Eagle v. Federal Ins. Co., 884 F.Supp. 979, 985 (W.D.Pa.1995) (citing Bishop v. Washington, 331 Pa.Super. 387, 480 A.2d 1088, 1095 (1984);  Equibank v. State Farm Mutual Auto. Ins. Co., 426 Pa.Super. 354, 626 A.2d 1243, 1246 (1993)).   Federal does not directly challenge this decision on appeal.   Indeed, it seems to concede it repeatedly in its brief, arguing instead that “an equitable affirmative defense” cannot trump a party's right to a jury trial on a breach of contract claim, which is overwhelmingly legal.Federal does argue that it did not need to pursue reformation for a different reason:  it contends-not that it could introduce parol evidence to interpret Endorsement # 2-but that its capping agreement with Giant Eagle was a subsequent oral agreement completely separate from the Endorsement.   This argument is also unavailing.   The district court held that Federal could not pursue this theory at trial because, inter alia, this argument was outside the scope of the stipulation, which is constrained to “the reasons relating to Endorsement # 2.”   We agree.   See Washington Hosp. v. White, 889 F.2d 1294 (3d Cir.1989) (interpretation of stipulation is matter of law, over which court exercises plenary review).   We also note that the contract itself-which Federal drafted-contains an integration clause which seems to bar such a subsequent oral modification.   See App. 1261a (Clause 8.5 of contract) (“No change in, modification of, or assignment of interest under this policy shall be effective except when made by written endorsement to this policy signed by an authorized employee of Chubb & Son Inc.”).   However, we do not conclusively determine the meaning of this or other clauses in the contract because the parties, by the stipulation, have reserved the right to press additional theories and defenses in the district court when our work on this appeal is finished.

8.   Because both sides agree that Endorsement No. 2 is gibberish, we will assume that Federal has met its burden of proving that the writing represented a mistake of the parties.

9.   Perhaps adding to the jury's confusion, two of the key witnesses-Cardiero and Shomaker-testified by deposition, presumably because they were outside the subpoena power of the district court.

10.   Moreover, even if Bereda were somehow relevant, it does not apply to this situation.   In that case, this Court based its holding on an analysis of the language of Rule 39(c)-allowing a jury trial “with the consent of both parties.”  Fed.R.Civ.P. 39(c).   The Court held that “when the litigants have consented to a nonadvisory jury under Rule 39(c), a district court must notify both sides of a jury's advisory status no later than the time at which the jury selection has begun.”  865 F.2d at 53 (emphasis added).   In this case, Giant Eagle did not consent to trial by a jury.   See Findings of Fact ¶ 31 (“Giant Eagle renewed its objection prior to and subsequent to trial arguing that the issue of reformation is purely equitable in nature and should be decided by the court.”).   In fact, Giant Eagle consistently and vigorously opposed a trial by a jury.   Therefore, the basis of Bereda-the consent requirement of Rule 39(c) (and its related notice and court-discretion concerns)-is absent here.

BECKER, Circuit Judge.