Koppers Co Inc v. Aetna Cslty & Surety , 98 F.3d 1440 ( 1996 )

Opinions of the United
1996 Decisions States Court of Appeals
for the Third Circuit
10-28-1996
Koppers Co Inc v. Aetna Cslty & Surety
Precedential or Non-Precedential:
Docket 95-3432,95-3461
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
N0S. 95-3432 and 95-3461
KOPPERS COMPANY, INC.
v.
THE AETNA CASUALTY AND SURETY COMPANY;
ZURICH INSURANCE COMPANY; THE TRAVELERS INDEMNITY CO.;
THE AMERICAN HOME ASSURANCE COMPANY; COMMERCIAL UNION
INSURANCE COMPANY; THE HOME INSURANCE COMPANY;
UNDERWRITER'S AT LLOYD'S OF LONDON
Certain Underwriters at Lloyd's, London;
Certain Insurance Companies in the
London Market, referred to in this
action as "Jackson and Companies",*
(*Pursuant to Rule 12(a), F.R.A.P.)
Appellants in No. 95-3432
KOPPERS COMPANY, INC.
v.
THE AETNA CASUALTY AND SURETY COMPANY;
ZURICH INSURANCE COMPANY; THE TRAVELERS INDEMNITY CO.;
THE AMERICAN HOME ASSURANCE COMPANY; COMMERCIAL UNION
INSURANCE COMPANY; THE HOME INSURANCE COMPANY;
UNDERWRITER'S AT LLOYD'S OF LONDON; CERTAIN INSURANCE
COMPANIES IN THE LONDON MARKET, REFERRED TO IN THIS
ACTION AS "JACKSON AND COMPANIES"*
(*Pursuant to Rule 12(a), F.R.A.P.)
KOPPERS COMPANY, INC.,
Appellant in No. 95-3461
On Appeal From the United States District Court
For the Western District of Pennsylvania
(D.C. Civil Action No. 85-cv-02136)
Argued May 2, 1996
BEFORE: STAPLETON, COWEN, AND SEITZ, Circuit Judges
(Opinion Filed October 28, 1996)
Joseph W. Montgomery,
III (Argued)
Jones, Day, Reavis &
Pogue
500 Grant Street, 31st
Floor
Pittsburgh, PA 15219
Attorney for
Appellee/Cross-Appellant
Larry R. Eaton (Argued)
Gregory G. Smith
Blatt, Hammesfahr &
Eaton
333 West Wacker Drive,
Suite 1900
Chicago, IL 60606
and
William T. Hangley
Hangley, Aronchick,
Segal & Pudlin
One Logan Square, 12th
Floor
Philadelphia, PA 19103
and
Kent D. Syverud
Hutchins Hall
Ann Arbor, MI 48109-1215
Attorneys for
Appellants/Cross-Appellee
OPINION OF THE COURT
STAPLETON, Circuit Judge:
Koppers Company, Inc. ("Koppers"), asserts breach of
contract and declaratory judgment claims against its liability
insurers, based on their denial of coverage for various
environmental property damage claims. Koppers entered into
settlement agreements with several of its insurers prior to
trial, leaving only certain excess liability insurers as
litigating defendants. Following the jury's determinations that
the occurrence-based policies had been triggered and that Koppers
had incurred a total of about $70 million in property damage
liability, the district court entered judgment for Koppers,
holding its excess insurers liable for the full amount of the
claim without reducing the verdict to account for Koppers'
settlements with the other insurers.
On appeal, the excess insurers allege four errors under
Pennsylvania law: (1) the court erroneously instructed the jury
that the occurrence-based policies would be triggered if any
property damage occurred during the policy period, even if the
initial cause of that damage was an event (such as a chemical
spill) that occurred prior to the policy period; (2) the court
erroneously instructed the jury that the insurer has the burden
of proving that the specific property damage that occurred was
not fortuitous but was expected or intended by the insured; (3)
the court abused its discretion by excluding proffered evidence
of Koppers' failure to mitigate the damage; and (4) the court
erroneously failed to reduce the judgment to account for the
plaintiff's settlements with other insurers. We believe the
district court committed reversible error with respect only to
the last claim, and we will accordingly reverse and remand with
instructions to reduce the judgment to account for the settling
insurers' apportioned shares.
I.
Koppers is a large, diverse manufacturing company based
in Pittsburgh, Pennsylvania that has been conducting
manufacturing operations in locations throughout the United
States since the early part of this century. In the 1980s,
federal and state agencies brought claims against Koppers
demanding remediation for environmental contamination at some 150
plant sites and disposal sites. This environmental contamination
included property damage to third-party soil, subsoil and
groundwater. Koppers then sought a defense and indemnification
from its various liability insurers, all of whom initially denied
coverage.
Appellants, defendants below, are a group of certain
underwriters for Lloyd's of London and certain London market
insurance companies (hereinafter the "London Insurers"). Over
the years, the London Insurers have issued a number of excess
liability insurance policies to Koppers.
Koppers commenced this action in 1985 against two of
its primary insurers, and has since amended its complaint several
times to add other primary and excess insurers, including the
appellant insurers. All of the defendant insurers except for the
London Insurers settled with Koppers before trial. Koppers,
alleging that the London Insurers breached their contracts of
insurance, sought damages and a declaratory judgment regarding
Koppers' right to indemnification under those policies.
The district court limited the scope of the trial to
twelve specific policies, which provided multiple layers of
occurrence-based, excess liability coverage for third-party
property damage. Five of these policies were in effect between
late 1953 and January 1957, and the remaining seven policies were
in effect between January 1957 and January 1960. Thus, although
Koppers had insurance from at least the 1940s through at least
the 1970s, the trial was limited to a roughly six-year period.
The district court further limited the scope of the trial to only
18 of the contaminated sites. Finally, the trial was limited to
determining liability and damages for cleanup and response costs
incurred at these sites through the end of 1993, and to
determining whether Koppers was entitled to a declaratory
judgment for the period thereafter.
After a three-week trial, the jury found by special
verdict that, during the applicable policy periods, (1) an
"occurrence" had triggered coverage under all of the policies at
issue at each site, and (2) Koppers had neither expected nor
intended to cause damage to third-party property at any site.
The jury awarded some $70 million in damages, and the court
entered judgment in May 1995. Pursuant to the court's
instructions, the jury's damages figure represents the total
costs Koppers had incurred because of third-party property damage
at the eighteen focus sites through the end of 1993, without
regard to the sums of money Koppers received from the settling
insurers. The court explained to the jury that the court would
adjust the damages award according to rules of law after the jury
determined the total damages figure.
Both parties moved to alter or amend the judgment under
Fed. R. Civ. P. 59(e). The district court, in its July 1995
order, granted Koppers' motion and granted the London Insurers'
motion in part but denied it in part. Specifically, as relevant
here, the court: (1) granted Koppers' motion to reduce the
judgment to about $66 million, but denied the London Insurers'
motion to reduce the judgment further to account for Koppers'
settlements with the other insurers; (2) granted a declaratory
judgment (limited to the twelve policies and eighteen focus sites
at issue) that Koppers is entitled to indemnification under the
London Insurers' policies for the period following 1993; and
(3) certified the July 1995 order as final under Fed. R. Civ.
P. 54(b). This timely appeal followed.
II.
The district court had jurisdiction over this diversity
action pursuant to 28 U.S.C. § 1332. We have appellate
jurisdiction over the final order pursuant to 28 U.S.C. § 1291.
The parties agree, as do we, that Pennsylvania law
governs this case. We review the district court's interpretation
and prediction of state law de novo. Wiley v. State Farm Fire &
Cas. Co., 995 F.2d 457, 459 (3d Cir. 1993). In adjudicating a
case under state law, we are not free to impose our own view of
what state law should be; rather, we are to apply existing state
case law as interpreted by the state's highest court in an effort
to predict how that court would decide the precise legal issues
before us. Kowalsky v. Long Beach Township, 72 F.3d 385, 388 (3d
Cir. 1995). In the absence of guidance from the state's highest
court, we must look to decisions of state intermediate appellate
courts, of federal courts interpreting that state's law, and of
other state supreme courts that have addressed the issue. Wiley,
995 F.2d at 459-60. We must also consider "analogous decisions,
considered dicta, scholarly works, and any other reliable data
tending convincingly to show how the highest court in the state
would decide the issue at hand." McGowan v. University of
Scranton, 759 F.2d 287, 291 (3d Cir. 1985) (quoting McKenna v.
Ortho Pharmaceutical Corp., 622 F.2d 657, 663 (3d Cir. 1980))
(internal quotation marks omitted).
A timely appeal from the denial of a Rule 59 motion to
alter or amend the judgment brings up the underlying judgment for
review, so that our standard of review varies with the underlying
judicial decision. Federal Kemper Ins. Co. v. Rauscher, 807 F.2d
345, 348 (3d Cir. 1986).
We exercise plenary review in determining whether a
jury instruction misstates a legal standard. Savarese v. Agriss,
883 F.2d 1194, 1202 (3d Cir. 1989). We consider the jury
instructions as a whole to determine whether they fairly and
adequately contain the law applicable to the case. See Douglas
v. Owens, 50 F.3d 1226, 1233 (3d Cir. 1995); Savarese, 883 F.2d
at 1202.
"We review pre-trial and trial court rulings concerning
the admission of evidence for abuse of discretion," but "error
may not be predicated upon a ruling which admits or excludes
evidence unless a substantial right of the party is affected."
Glass v. Philadelphia Elec. Co., 34 F.3d 188, 191 (3d Cir. 1994)
(internal quotation marks omitted). "[I]f we find non-
constitutional error in a civil suit, such error is harmless only
if it is highly probable that the error did not affect the
outcome of the case." Id. (internal quotation marks omitted).
III.
A.
We will address first the London Insurers' argument
that the district court gave erroneous jury instructions
regarding the trigger of coverage under their policies. The
district court instructed the jury that the policies could be
triggered in either of two ways:
These policies are triggered if either, one, the cause
of the property damage or, two, the property damage
itself took place during the policy period for each
site. Thus, if an event or events that eventually led
to property damage took place during the policy period,
or if . . . the property damage itself took place
during the policy period, the policies have been
triggered.
App. at 2046. The London Insurers argue, however, that their
policies could be triggered only by a causative event taking
place during the policy period, not by the resulting property
damage alone if the causative event occurred pre-policy.
We need not predict how the Supreme Court of
Pennsylvania would interpret these particular insurance
contracts, however. Koppers introduced uncontroverted evidence
that the property damage (mostly groundwater contamination
through leaching) was continuous, progressive, and indivisible
throughout the relevant policy periods. It also introduced
uncontroverted evidence that the causes of the contamination
(e.g., leaks, drips, spills, or disposals) existed at each site
during each policy period. Based on this evidence, the jury
found that each of the policies had been triggered. While such a
finding could theoretically have been made under the court's
instruction based solely on the jury's acceptance of Koppers'
uncontradicted evidence regarding the occurrence of property
damage, we perceive no basis on which the jury might have
accepted that evidence yet rejected Koppers' uncontroverted
evidence regarding the occurrence of the causes of that damage.
Accordingly, we find it more than highly probable that the
district court's charge on this point did not affect the outcome
of the case. In short, the charge, even if erroneous, was
harmless error.
B.
1.
The London Insurers next argue that the court erred in
instructing the jury that the insurers had the burden of proving,
as an affirmative defense, that the losses were not fortuitous--
i.e., that Koppers expected or intended the third-party property
damage. The London Insurers argue that, because a plaintiff
insured must prove that it is entitled to coverage, and because
only fortuitous losses are covered, Koppers had the burden of
proving that it neither expected nor intended the harm.
The question of which party bears the burden of proof
in a diversity case is a matter of state substantive law. Blair
v. Manhattan Life Ins. Co., 692 F.2d 296, 299 (3d Cir. 1982). In
Pennsylvania, the insured bears the burden of proving facts that
bring its claim within the policy's affirmative grant of
coverage. See, e.g., Riehl v. Travelers Ins. Co., 772 F.2d 19,
23 (3d Cir. 1985). By contrast, the insurer bears the burden of
proving the applicability of any exclusions or limitations on
coverage, since disclaiming coverage on the basis of an exclusion
is an affirmative defense. See, e.g., Aetna Life & Cas. Co. v.
Barthelemy, 33 F.3d 189, 194 (3d Cir. 1994); Compagnie des
Bauxites de Guinee v. Insurance Co. of N. Am., 551 F. Supp. 1239,
1243 (W.D. Pa. 1982). Our research has revealed no Pennsylvania
case allocating the burden of proof on the fortuity requirement.
We nonetheless predict that the Pennsylvania Supreme Court would
place the burden on the insurer in this case.
The terms of the policies do not mention fortuity. The
portions of the policies defining the scope of coverage state
that the London Insurers will "indemnify the Assured for all sums
which the Assured shall be obligated to pay by reason of the
liability imposed upon the Assured . . . for damages . . . on
account of . . . property damage." App. at 141. There is no
requirement in the coverage provisions that the loss be
fortuitous or "unexpected and unintended." Nor do the exclusion
provisions of any of the policies expressly exclude losses that
are non-fortuitous or "expected and intended."
In Intermetal Mexicana v. Insurance Co. of N. Am., 866
F.2d 71, 72 (3d Cir. 1989), the insurance policy at issue covered
"'all risks of direct physical loss or damage from any external
cause except hereinafter excluded.'" The insurer acknowledged
that the loss claimed was within the scope of coverage as so
stated but denied coverage because that loss was not fortuitous.
The policy exclusions contained no reference to the fortuity of
the loss. This court there predicted that the Supreme Court of
Pennsylvania would recognize a "judicially created 'fortuity'
exclusion from coverage." Id. at 76. Our prediction was based
on the generally accepted principle that "every 'all risk'
contract of insurance contains an unnamed exclusion -- the loss
must be fortuitous in nature." Id. at 75. We recognized that
this generally recognized principle had a "public policy" basis.
Id. at 77.
The rationale supporting the generally accepted rule
against indemnity for non-fortuitous losses is succinctly
explained in Robert E. Keeton & Alan I. Widiss, Insurance Law
§ 5.3(a), at 476-77 (student ed. 1988):
[The concept of fortuity], which
expresses the concern that insurance
arrangements should be limited to the
transfer of economic detriments that are
fortuitous, is generally regarded as a
principle that is central to the basic
determination of what risks may or should be
transferred by an insurance arrangement. In
most circumstances, it is contrary to public
policy to permit the enforcement of an
insurance contract if it would provide
indemnification for losses that are not
fortuitous. . . .
. . . The [rule requiring fortuity] embodies
a fundamental and significant public policy
interest that in some contexts is
sufficiently important to preclude coverage
claims even when there are explicit
agreements to the contrary, but in any case
is a very compelling public interest in
regard to coverage questions when there is no
applicable provision in the insurance
agreement.
Consistent with Intermetal Mexicana, we predict that it
is the public policy of Pennsylvania not to enforce an insurance
coverage contract providing coverage for a non-fortuitous loss.
As with exclusions stated in an insurance policy itself, when an
insurer relies on public policy to deny coverage of a claim, the
insurer must bear the burden. See, e.g., Butterfield v.
Giuntoli, 670 A.2d 646, 654 (Pa. Super. 1995) (finding no
exclusion for punitive damages in insurance policy, burden
shifted to insurer to prove that punitive damages are excluded as
against public policy in Pennsylvania); Princeton Ins. Co. v.
Chunmuang, 678 A.2d 1143, 1147 (N.J. Super. 1996) ("Whether the
exclusion is based on an expressed provision or on the public
policy prohibition of insurance against criminal conduct, the
insurer bears a substantial burden of demonstrating that the loss
falls outside the scope of coverage."); Continental Cas. Co. v.
Fibreboard Corp., 762 F. Supp. 1368, 1373 (N.D. Cal. 1991), appeal
dismissed and remanded, 4 F.3d 777 (9th Cir. 1993) (burden on
insurer to prove damages at issue fall within California public
policy exclusion). In particular, if an insurer has issued a
policy that on its face covers the loss at issue and seeks to
deny coverage on the basis that enforcing the policy as written
would offend the public policy against indemnification of non-
fortuitous losses, we predict that the Pennsylvania Supreme Court
would place on the insurer the burden of proving that the
circumstances of the loss were such that coverage would be
inconsistent with that public policy. We therefore conclude that
the district court did not erroneously allocate the burden of
proof as to whether Koppers' losses were expected and intended.
2.
In addition to challenging the district court's
fortuity instruction for misallocating the burden of proof, the
London Insurers argue that the instruction improperly limited
this public policy affirmative defense to situations in which the
insured "expected or intended" the specific harms that occurred.
They insist that, under Pennsylvania law, coverage is defeated if
the insured expected or intended a harm of the same general typeas the
harm that occurred. Koppers does not contest this
proposition; it does dispute, however, that the court's
instructions were inconsistent with this proposition.
We agree that the district court's instructions on this
issue did not limit the fortuity defense to those harms
specifically expected or intended by the insured. As the London
Insurers point out, the district court instructed the jury: "If
you find that Koppers intentionally or knowingly caused property
damage for which it seeks coverage, then Koppers may not recover
for that specific damage." App. at 1013. However, the court
concluded this instruction by stating: "To lose coverage, Koppers
must have intended the same general type of property damage that
occurred." Id. We think that the instructions on this point,
when read as a whole, fairly conveyed to the jury what the
parties agree is the correct legal standard. See Douglas v.
Owens, 50 F.3d 1226, 1233 (3d Cir. 1995); Savarese v. Agriss, 883
F.2d 1194, 1202 (3d Cir. 1989).
C.
The London Insurers' third claim is that the district
court abused its discretion by excluding their proffered evidence
of Koppers' failure to mitigate the property damage. The
insurers argue that, under Pennsylvania law, an insured has an
ongoing duty to mitigate its losses, and that Koppers' recovery
must be reduced by the amount of loss which could have been
prevented if Koppers had undertaken reasonable efforts to
mitigate the property damage.
The district court ruled, as a general matter, that
evidence of Koppers' failure to mitigate damages would be
admissible. Although the precise basis for the district court's
decision to exclude the London Insurers' proffered evidence is
not clear from the record, we find no reversible error.
As a matter of general contract law, the Pennsylvania
Supreme Court has held that a plaintiff's duty to mitigate its
damages arises upon the defendant's breach of the contract.
E.g., Bafile v. Borough of Muncy, 588 A.2d 462, 464 (Pa. 1991).
The superior court has applied this rule in the context of an
insurance contract, holding that, upon the insurer's breach by
refusing to indemnify the insured, the insured has a duty to
mitigate its damages. See Forest City Grant Liberty Assocs. v.
Genro II, Inc., 652 A.2d 948, 952 (Pa. Super. Ct. 1995) (holding
that insurer, once found to be liable, need not reimburse
insured for unnecessary roof repairs). Here, the defendant
insurers breached by refusing to indemnify Koppers in the 1980s,
but all of the proffered "mitigation" evidence concerned the
prior two decades. Even assuming, however, that the Pennsylvania
Supreme Court would require an insured to mitigate its damages
prior to the insurer's breach of contract, the district court's
exclusion of the proffered evidence was proper because the
evidence was legally insufficient to make out a claim of failure
to mitigate damages.
Mitigation is an affirmative defense, so the burden of
proving a failure to mitigate is on the defendant. See Williams
v. Masters, Mates and Pilots of Am., 120 A.2d 896, 901 (Pa.
1956); Ecksel v. Orleans Constr. Co., 519 A.2d 1021, 1028 (Pa.
Super. 1987). To prove a failure to mitigate, a defendant must
show: (1) what reasonable actions the plaintiff ought to have
taken, (2) that those actions would have reduced the damages, and
(3) the amount by which the damages would have been reduced.
See, e.g., Ecksel, 519 A.2d at 1021 (finding defendant's failure
to mitigate defense unproven because defendant did not show how
plaintiff could have mitigated damages or how damages were made
worse by alleged inaction); State Pub. Sch. Bldg. Auth. v. W.M.
Anderson Co., 410 A.2d 1329 (Pa. Commw. Ct. 1980) (affirming
judgment for contractor where breaching school district failed to
show that contractor's work was unreasonable and avoidable); see
also New Castle County v. Hartford Accident & Indem. Co., 685 F.
Supp. 1321, 1332 (D. Del. 1988) (holding that, where insurance
policy contained express mitigation provision, insurer must
specify what further injury occurred as result of the insured's
lack of mitigation).
The London Insurers' evidence would not have satisfied
any of these three elements, as it merely purports to show that
Koppers was aware of property damage in the 1960s and 1970s but
failed to correct the problem until the 1980s. The London
Insurers offered no evidence of what reasonable actions Koppers
might or ought to have taken, no evidence tending to show that
any actions would have measurably reduced the harm, and, thus, no
evidence from which the jury could have determined how much
damages could have been reduced by mitigation. For this reason,
the court's exclusion of the London Insurers' evidence was not
reversible error.
D.
The London Insurers' final claim is that the district
court erroneously saddled them with liability for the entire loss
by improperly failing to reduce the judgment to account for
Koppers' settlements with the other defendant insurers. We
agree.
1.
In J.H. France Refractories Co. v. Allstate Insurance
Co., 626 A.2d 502 (Pa. 1993), the Pennsylvania Supreme Court was
called upon to allocate coverage responsibility among six primary
insurers, each of which was obligated to cover an indivisible
loss. J.H. France had brought a declaratory judgment action to
determine its insurers' duty to defend and indemnify against
lawsuits involving asbestos-related bodily injury claims. The
insurance policies at issue were all pre-1986 comprehensive
general liability ("CGL") policies which would be triggered by
the occurrence during the policy period of "bodily injury."
Affirming the lower court's application of the "multiple-trigger"
or "continuous-trigger" theory of determining liability of the
insurers, under which all phases of the disease--exposure,
progression, and manifestation--independently constitute "bodily
injury" triggering coverage, the supreme court held that "every
insurer which was on the risk at any time during the development
of a claimant's asbestos-related disease has an obligation to
indemnify J.H. France." Id. at 507.
The next question, naturally, was "how to allocate the
liability of each insurer when, as is commonly the case, more
than one insurer was on the risk at one time or another during
the development of a claimant's disease." Id. The superior
court had held that the several insurers must share the
obligation to indemnify on a pro rata basis, apportioned upon the
amount of time each policy was in effect. Id. Declining to
adopt that approach, the supreme court held instead that the
insurers whose coverage had been triggered were jointly and
severally liable for the full amount of the claim up to policy
limits, and that the insured was entitled to select the policy or
policies under which it would be indemnified. Id. at 508. As
the supreme court explained:
When the policy limits of a given insurer are
exhausted, J.H. France is entitled to seek
indemnification from any of the remaining insurers
which was on the risk during the development of the
disease [i.e., the remaining triggered policies]. Any
policy in effect during the period from exposure
through manifestation must indemnify the insured until
its coverage is exhausted.
Id. at 509. The supreme court added, however, that its holding
"does not alter the rules of contribution or the provisions of
'other insurance' clauses in the applicable policies," so that an
insurer who is saddled with more than its fair share of liability
may seek to obtain "a share of indemnification or defense costs
from other insurers." Id.
In the instant case, the district court predicted that
the Pennsylvania Supreme Court would extend its holding on the
allocation issue in J.H. France to cases involving environmental
property damage claims, such that all insurers whose policies
were triggered to cover an indivisible loss would be jointly and
severally liable, up to policy limits, for the full amount of
that loss. Although we conclude that J.H. France does not
completely control the disposition of this case, we agree as a
general matter with this prediction.
The Pennsylvania Supreme Court's reasons for adopting
the joint and several approach in J.H. France are fully
applicable to the case before us. "First, and most compelling,
is the language of the policies themselves." Id. at 507. In
J.H. France, "[e]ach insurer obligated itself to 'pay on behalf
of the Insured all sums which the Insured shall become legally
obligated to pay as damages because of bodily injury to which
this insurance applies.'" Id. (emphasis in original). Thus, as
the supreme court explained, "each insurer contracted to pay all
sums which the insured becomes legally obligated to pay, not
merely some pro rata portion thereof." Id. (emphasis in
original).
Similarly, the policy at issue here obligated the
London Insurers "to indemnify the Assured for all sums which the
Assured shall be obligated to pay by reason of the liability
imposed upon the Assured . . . for damages . . . on account of .
. . property damage." App. at 141 (emphasis added). We
accordingly believe the Pennsylvania Supreme Court would
interpret the London Insurers' policies here, as it did the
policies at issue in J.H. France, to "cover [the insured's]
entire liability once they are triggered." 626 A.2d at 508
(quoting Keene Corp. v. Insurance Co. of N. Am., 667 F.2d 1034,
1048 (D.C. Cir. 1981), cert. denied, 455 U.S. 1007 (1982))
(alteration in original omitted); see ACandS, Inc. v. Aetna Cas.
& Sur. Co., 764 F.2d 968, 974 (3d Cir. 1985) (predicting
Pennsylvania Supreme Court would interpret "the phrase 'all sums'
to provide for full coverage once coverage under a policy was
triggered").
The second reason the supreme court gave for adopting
the joint and several approach in J.H. France is the
indivisibility of asbestos-related bodily injury. No medical
evidence was presented to substantiate the assumption, implicit
in the superior court's allocation method of pro rata by time on
the risk, "that the progression of asbestos-related disease is
linear in character." 626 A.2d at 508. The supreme court
elaborated: "To apportion liability among the insurers on a
strictly temporal basis in direct proportion to the length of
time each insurer was on the risk, . . . notwithstanding its
surface attractiveness, assumes a linearity of disease
progression which this record does not support." Id.
As with asbestos-related bodily injury, environmental
property damage is a progressive harm that, as a practical
matter, is indivisible. See, e.g., New Castle County v.
Continental Cas. Co., 725 F. Supp. 800, 811-12 (D. Del. 1989)
(concluding "it would be impossible in this case to determine
when the first molecule of contaminant damaged neighboring
property, or at what rate the contamination spread"), aff'd and
rev'd in part on other grounds, 933 F.2d 1162 (3d Cir. 1991);
Abraham, supra, at 120 ("Given the progressive nature of the
environmental harms in question, finding the facts necessary [to
hold each policy liable only for those harms that occurred during
the policy period] usually would be administratively difficult,
scientifically impossible, or both."); John H. Mathias, Jr. et
al., Allocation: J.H. France and the Insureds' Right to Select
from Multiple-Triggered Policies, Coverage (A.B.A. Sec. Litig.),
Mar.-Apr. 1994, at 19-20 ("Like the progression of asbestosis or
other insidious diseases, the migrations of contaminants over
years or decades may result not from a predictable, linear
process, but rather from sporadic or periodic events or
conditions that vary in magnitude and frequency over the
years."). Accordingly, it is appropriate to hold the triggered
policies jointly and severally liable here, given that "because
each has been triggered to provide coverage against liability for
a single indivisible injury, there is no basis for apportioning
responsibility among them." Abraham, supra, at 120-21.
Finally, the supreme court in J.H. France relied on the
fact that, according to the policies' terms, each of the several
policies triggered to cover a specific claim was potentially
liable for the entire claim. The policies provided insurance
against "occurrences" and, as defined in the policies, an
"occurrence" included "'continuous or repeated exposure to
conditions which result in bodily injury.'" 626 A.2d at 508.
Thus, the entire "process of exposure [would] constitute one
occurrence." Id. The supreme court explained:
Being defined as one "occurrence," the entire injury,
and all damages resulting therefrom, fall within the
indemnification obligation of the insurer. In other
words, once the liability of a given insurer is
triggered, it is irrelevant that additional exposure or
injury occurred at times other than when the insurer
was on the risk. The insurer in question must bear
potential liability for the entire claim.
Id.; see also ACandS, 764 F.2d at 974 (noting that, "if a
plaintiff's damages are caused in part during an insured period,
it is irrelevant to [the insured's] legal obligations and,
therefore, to the insurer's liability that they were also caused,
in part, during another period").
Like the CGL policies in J.H. France, the London
Insurers' policies provided occurrence-based coverage and
defined an "occurrence" to mean either "a series of occurrences
arising out of one event," App. at 158, or "one happening or
series of happenings, arising out of or due to one event taking
place during the term of this policy." App. at 149. Under
either definition, then, all of the effects resulting from a
single causative event are considered a single occurrence. As in
J.H. France, because the entire injury is defined as one
"occurrence," a triggered policy must indemnify the insured for
all damages resulting from that injury.
For these reasons, we predict that if the Pennsylvania
Supreme Court were faced with this case it would apply the J.H.
France allocation approach, holding jointly and severally liable
all policies triggered to cover a single, indivisible loss. We
note that other courts have similarly taken the joint and several
approach where multiple policies cover an indivisible loss. See,
e.g., Keene Corp. v. Insurance Co. of N. Am., 667 F.2d 1034,
1047-50 (D.C. Cir. 1981), cert. denied, 455 U.S. 1007 (1982);
Dayton Indep. Sch. Dist. v. National Gypsum Co., 682 F. Supp.
1403, 1410-11 (E.D. Tex. 1988), rev'd on other grounds sub nom.W.R. Grace
& Co. v. Continental Cas. Co., 896 F.2d 865 (5th Cir.
1990).
2.
Given this prediction, if this case, like J.H. France,
involved several triggered primary policies where none of the
insurers had settled, J.H. France would dictate our resolution of
this appeal. But this is not such a case. We must consider
several complicating factors that were not present in J.H.
France, namely, the presence of excess insurers, the insured's
settlements with some primary and some excess insurers, and the
district court's decision to limit the trial to a certain period
of years at certain sites. We believe that, if presented with
the complicating factors in our case, the Pennsylvania Supreme
Court would not simply apply J.H. France and hold that the
appellant excess insurers are jointly and severally liable, up to
policy limits, for the entire property damage liability at the
focus sites. Instead, as explained below, we predict that the
supreme court would modify the J.H. France rule to hold the
London Insurers jointly and severally liable for the amount of
the loss in excess of the settling insurers' pro rata shares of
liability.
We begin with the principle of indemnity, a fundamental
principle of insurance law which prohibits insurance contracts
from conferring a benefit greater than the insured's loss (i.e.,
a "double recovery"). See, e.g., J.H. France, 626 A.2d at 508
(stating principle that insured "cannot collect more than it owes
in damages") (quoting Keene, 667 F.2d at 1050); Keeton & Widiss,
supra § 3.1(a), at 135. We must apply this principle of
indemnity -- barring recoveries greater than losses -- in
conjunction with the J.H. France rule -- holding that where
multiple insurance policies are triggered to cover an indivisible
loss, each insurer may be called upon to cover the entire loss up
to policy limits. J.H. France does not, of course, hold that an
insured, having recovered part of its loss from one insurer, can
recover an amount equal to its entire loss from another.
Because we cannot permit a double recovery, and because
several insurers have already paid money to Koppers in complete
settlement of Koppers' claims against them, we must either
(1) reduce the judgment to account for the settling insurers'
apportioned shares of liability, or (2) permit the non-settling
insurers to seek contribution from the settling insurers and, in
turn, permit the settling insurers to seek reimbursement from
Koppers. We predict that the Pennsylvania Supreme Court would
choose the former rule: reducing the judgment to account for the
settling insurers' apportioned shares of liability. That is, we
predict that the supreme court would adopt the "apportioned share
set-off rule."
Although the Pennsylvania Supreme Court has not had
occasion to decide how to allocate coverage responsibility where
some of the defendant insurers have settled, the Pennsylvania
Superior Court has reached this issue and has resolved it by
applying the apportioned share set-off rule. In Gould, Inc. v.
Continental Cas. Co., 585 A.2d 16 (Pa. Super. Ct. 1991), Gould,
the insured, sued several insurers seeking indemnification for
sums paid in settlement of its employees' claims of injury from
exposure to toxic metals and chemicals in Gould's lead smelting
facility. One of the insurers, National Union, joined an
additional insurer, Travelers, claiming entitlement for
contribution. Because Travelers had previously paid money to
Gould in settlement of Gould's claims for indemnification,
however, the trial court granted an order dismissing the cross-
complaint against Travelers. National Union appealed from that
order.
The superior court affirmed. The court held that,
where two insurers are obligated to cover the same loss and one
insurer settles but one does not, the litigating insurer cannot
seek contribution from the settling insurer. Id. at 19
("Travelers is not 'contributorily' liable to National Union in
this action."). Rather, the litigating insurer "will be entitled
to prorate the amount of coverage" based on the settling
insurer's proportionate share of coverage responsibility as
determined by the terms of the two policies, especially the
"other insurance" provisions. Id. The court stated that the
proration of a litigating insurer's liability will not be
impaired by the dismissal of any settling insurers because "the
applicable limits and pro rata shares pertaining to the policies
issued by [the settling insurers] will be examined and their
proportionate share of liability determined, even if they are no
longer parties to the action." Id. (internal quotation marks
omitted; alteration in original).
Had the Gould decision been issued by the supreme
court, it would be controlling. Absent some reason to believe
that the supreme court would reach a different result, the
superior court's holding is entitled to great deference in our
endeavor to predict state law. See, e.g., Rolick v. Collins Pine
Co., 925 F.2d 661, 664 (3d Cir. 1991) (predicting Pennsylvania
law, and stating that we cannot disregard decision of
intermediate appellate court unless we are convinced that
state's highest court would establish different rule).
The superior court's decision in Gould, insofar as it
requires the amount for which the litigating insurers are liable
to be reduced by the settling insurers' apportioned shares, is in
no way inconsistent with J.H. France, which involved no settling
insurers. Moreover, the Pennsylvania Supreme Court has had
occasion to decide the effect of a plaintiff's settlement with
fewer than all jointly and severally liable defendants outside of
the environmental liability insurance context, and there the
supreme court has adopted the apportioned share set-off rule,
rejecting any right of contribution against settling defendants
because such an action would defeat the finality of the
settlement. See Charles v. Giant Eagle Mkts., 522 A.2d 1, 2-3
(Pa. 1987) (holding, in context of joint and several tort
liability, verdict amount against litigating defendants shall be
reduced by amount of settling defendants' apportioned share of
liability, regardless of amount received by plaintiff in
settlement). The decisions in Charles and Gould are readily
applicable in a case in all respects like J.H. France except for
the existence of some settling insurers; there must be a set-off,
rather than a subsequent contribution action, to avoid a double
recovery.
We accordingly predict that, if presented with our
case, the Pennsylvania Supreme Court would hold that each non-
settling insurer whose policy was triggered to cover an
indivisible loss is jointly and severally liable, up to the
limits of its policy, for the full amount of the judgment, lessthe
settling insurers' apportioned shares.
3.
Having predicted how the supreme court would modify its
holding in J.H. France to accommodate the problem of the settling
insurers, we note that there are two additional rules of
Pennsylvania insurance law that must guide our resolution of the
case at hand. These rules are relevant because, unlike J.H.
France, this case involves excess as well as primary policies.
First, a true excess or secondary policy is not
"triggered" or required to pay until the underlying primary
coverage has been exhausted. See, e.g., Occidental Fire & Cas.
Co. v. Brocious, 772 F.2d 47, 53-54 (3d Cir. 1985). This remains
true even where the primary insurer would have paid to exhaustion
but for its bankruptcy: in Pennsylvania, an excess insurer is not
required to "drop down" to provide primary coverage if the
underlying primary insurer is insolvent. See Donegal Mut. Ins.
Co. v. Long, 597 A.2d 1124, 1127-28 (Pa. 1991) (deciding to
"refuse to transform an excess carrier into a primary carrier");
J. Kinderman & Sons, Inc. v. United Nat'l Ins. Co., 593 A.2d 857,
860 (Pa. Super. 1991) (holding that excess policy is responsible
only for amounts exceeding underlying policy's limits), aff'd,
619 A.2d 1058 (Pa. 1993).
Second, if the underlying primary insurer is solvent
but the policyholder settles its claim against that primary
insurer for less than policy limits, we predict the Pennsylvania
Supreme Court would adopt the widely-followed rule that the
policyholder may recover on the excess policy for a proven loss
to the extent it exceeds the primary policy's limits. See Barry
R. Ostrager & Thomas R. Newman, Handbook on Insurance Coverage
Disputes § 13.04, at 575-77 (7th ed. 1994) (citing, inter alia,
Stargatt v. Fidelity & Cas. Co., 67 F.R.D. 689, 691 (D. Del.
1975) (opining that to require insured "actually to collect the
full amount of the [primary] policies . . . in order to 'exhaust'
that insurance . . . seems unnecessarily stringent"), aff'd, 578
F.2d 1375 (3d Cir. 1978)). That is, settlement with the primary
insurer functionally "exhausts" primary coverage and therefore
triggers the excess policy -- though by settling the policyholder
loses any right to coverage of the difference between the
settlement amount and the primary policy's limits. The excess
insurer cannot be made liable for any part of this difference
because the excess insurer never agreed to pay for losses below a
specified floor (i.e., below the limits of the underlying primary
policies). Courts have adopted this rule because it encourages
settlement and allows the insured to obtain the benefit of its
bargain with the excess insurer, while at the same time
preventing the insured from obtaining a double recovery.
Accordingly, because all of the London Insurers'
policies provided layers of excess liability coverage over
certain specified, underlying policy limits, no London Insurer
policy would be triggered until the underlying coverage has been
"exhausted," either by settlement or by payment. With respect to
this exhaustion requirement, the London Insurers argue that allapplicable
primary coverage must be exhausted before any excess
insurer will be obligated to pay. This argument is predicated on
the policies' "other insurance" clauses, which state essentially
that all other available insurance must be exhausted first.
Under J.H. France, however, a policy which promises to pay "all
sums" must provide for full coverage once triggered, without
regard for such "other insurance" clauses. 626 A.2d at 507. The
court held that it was irrelevant whether other policies were
also triggered, concluding that, "The insurer in question must
bear potential liability for the entire claim." Id. at 508.
Here, the London Insurers agreed to pay "all sums" in excess of
the specified limits of the directly underlying policies. Once
the directly underlying coverage has been exhausted, then, each
excess policy must indemnify the insured for the full excess loss
up to policy limits. Under J.H. France, the insured gets
indemnified first (pursuant to the insuring agreements) and thenthe
insurers may seek to redistribute the burden among
themselves. It is only at this latter stage that the "other
insurance" clauses become relevant, so the London Insurers'
exhaustion argument based on the "other insurance" clauses must
be rejected.
In sum, taking all of the above rules together, we
predict that the Pennsylvania Supreme Court would hold that the
non-settling excess insurers are jointly and severally liable for
the full amount of the loss in excess of: the sum of (1) the
policy limits of the directly underlying, "exhausted" primary
policies, and (2) the combined pro rata shares of other settling
(primary and excess) insurers. The beneficent consequences of
this formula are that the insured bears the risk of settling too
low while the non-settling insurers bear the risk of being unable
to redistribute equitably among themselves the burden of paying
the balance (if, for example, some of their number are
insolvent).
4.
During the period litigated at trial in this case,
1953-1960, there were two primary policies directly underlying
the twelve excess policies issued by the London Insurers. There
were no other policies involved in that period. Prior to trial,
Koppers settled with the insurer that had issued both primary
policies. Accordingly, coverage under these two primary policies
has been "exhausted" -- regardless of the amount Koppers received
in settlement -- and the London Insurers' excess policies are
obligated to pay.
If Koppers had not settled with any other insurers
(insurers which had issued policies outside of the 1953-1960
litigation period), that would be the end of the matter: the
judgment would be reduced simply by the combined limits of the
two underlying primary policies, and the London Insurers would be
jointly and severally liable for the balance (although they would
be free subsequently to seek contribution from the other
insurers, all of whom would be non-settlers). But our case is
not so simple: Koppers settled with several other primary and
excess insurers that had issued policies in effect both before
and after the litigation period. On remand, the district court
must therefore apply the apportioned share set-off rule for these
settled policies as well.
Determining the apportioned share of a settling insurer
requires consideration of the "other insurance" clauses of the
policies found to cover the loss and the applicable state law
governing the interpretation of those clauses and the resolution
of any conflicts among them. See Gould, 585 A.2d at 19; see
also Ostrager & Newman, supra, §§ 11.01-11.04 (discussing
allocation of coverage responsibility and resolution of conflicts
involving "other insurance" clauses). The record before us does
not contain the "other insurance" clauses from all potentially
applicable policies. Moreover, because of the district court's
limitation of the period covered by the trial, all policies that
may be found to cover the indivisible loss have not yet been
identified. In these circumstances, we cannot determine what the
apportioned shares of the settling insurers will be. While we
leave that determination for the district court in the first
instance, we offer two observations to assist the district court
in its task.
Our first observation relates to the primary policies
that do not directly underlie the London Insurers' excess
policies (i.e., those that cover a period outside of 1953-
1960). We have today held that the London Insurers' liability
under their excess policies was triggered as soon as the two
directly underlying primary policies were settled, and that the
existence of other primary policies applicable to the indivisible
loss was irrelevant for the purpose of resolving the threshold
issue of whether the London Insurers' policies were triggered.
This does not necessarily mean, however, that the existence of
other primary policies applicable to the indivisible loss is
irrelevant for the purpose of determining the extent of the
London Insurers' liability under their excess policies. The
"other insurance" clauses of the relevant policies and the
Pennsylvania law applicable thereto may require that, as between
a primary policy and an excess policy triggered to cover the same
loss, the primary policy must pay first and, accordingly, that
the apportioned share of a settled primary policy covering the
same indivisible loss is its full policy limits. See, e.g.,
Ostrager & Newman, supra, § 11.03[e][1]. Thus, the district
court may be required to deduct from the total loss the combined
limits of all settled primary policies.
Our second observation relates to the settled excess
policies. Koppers settled with some, but not all, of the excess
insurers that issued policies in effect outside of the litigation
period. Therefore, there are some non-settled, excess policies
for which the threshold triggering question has not been
answered.
It may be that, under the applicable law, the
apportioned share of a settling excess insurer -- and,
accordingly, the extent of the London Insurers' liability --
cannot be determined without identifying all policies that are
triggered and cover the indivisible loss, whether they were in
force during or outside the litigation period. This will be
true, for example, if the applicable rule of allocation among
excess policies here is found to be a pro rata allocation based
on the limits of each policy and the total limits of all
triggered policies. See Gould, 585 A.2d at 19; Ostrager &
Newman, supra, § 11.04. Under this rule of allocation and the
peculiar circumstances of our case, however, the district court
would not need to determine whether the non-settling pre-1971
policies were triggered because the London Insurers concede --
against their interests -- that all of Koppers' policies up to
1971 (the date from which pollution exclusion clauses have
appeared in all the policies) were triggered. Reply Br. at 31
(noting that Koppers "admits" this fact). With respect to the
post-1970 policies, however, the district court may have to
decide whether those policies were triggered before it can
properly determine the settling insurers' apportioned shares.
IV.
For the foregoing reasons, we will reverse and remand
for the sole purpose of allowing the district court to mold the
verdict to take account of the settling insurers' apportioned
shares of liability.