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LIBERTY MUT. INS. CO. v. INSURANCE CORP. OF IRELAN

August 30, 1988

LIBERTY MUTUAL INSURANCE COMPANY, Plaintiff,
v.
INSURANCE CORPORATION OF IRELAND, LTD., et al., Defendants



The opinion of the court was delivered by: MENCER

 This lawsuit involves the insurance coverage of Westinghouse Electric Corporation's potential environmental liabilities. Liberty Mutual Insurance Company (Liberty Mutual) provided primary insurance to Westinghouse Electric Corporation and its subsidiary, Thermo King Corporation (collectively "Westinghouse"). Liberty Mutual filed this lawsuit against Westinghouse and its other insurers seeking a declaratory judgment as to each insurance company's liability for any sanctions imposed against Westinghouse. Westinghouse has filed a motion to dismiss, asserting that this court lacks subject matter jurisdiction over this dispute. Westinghouse's motion to dismiss is currently before this court.

 1. Facts

 Westinghouse is a large diversified corporation with numerous manufacturing operations. Currently, Westinghouse faces a plethora of toxic waste claims in at least twenty-three states. Some of these toxic waste claims are brought by the Environmental Protection Agency and comparable state agencies and could involve enormous liability for cleaning up the waste sites.

 As a large corporation with complicated insurance needs, Westinghouse had a multi-layered lattice of insurance policies. Liberty Mutual provided Westinghouse's primary insurance. Above the policy limits provided by Liberty Mutual, Westinghouse had additional "layers" of insurance to cover excess liabilities. From 1956 through 1981, Westinghouse had between three and nine layers of excess coverage, each layer comprised of between one and eleven policies. The individual policy limits ranged from $ 60,000 to $ 25 million, and the total coverage for a single year reached $ 200 million. Approximately 130 insurance companies participated in this insurance conglomeration.

 The Insurance Corporation of Ireland, Ltd. (ICI) is one of the named defendants and is alleged to be the basis for federal subject matter jurisdiction. ICI is an insurance company located in Ireland. The Republic of Ireland owns a majority of the shares of ICI.

 ICI did not issue any insurance policies directly to Westinghouse. Instead, ICI participated in two high-level excess policies issued by the Institute of London Underwriters/Companies Combined (Lloyd's). These policies provided $ 50 million coverage per year from April, 1973 to January, 1977, and ICI's share of the coverage ranged from 1.558% to 1.71%. The insurance underlying the Lloyd's policy consisted of four layers and fifty-two policies issued by eighty-two companies totalling $ 100 million. Thus, Lloyd's would be liable for the insurance claims exceeding $ 100 million for each of the four years from 1973 until 1977, and ICI would be liable for somewhat less than two percent of Lloyd's liability. If, however, Westinghouse's insurance claims exceed $ 150 million per year for the four relevant years, then ICI's share of the insurance coverage could amount to approximately $ 3.3 million.

 Westinghouse initially filed a suit in the New Jersey Superior Court seeking to require its insurance companies to defend and indemnify Westinghouse during the environmental proceedings. The New Jersey court ruled that it would only consider insurance coverage of expenses related to toxic waste sites in New Jersey, and dismissed portions of the case. Liberty Mutual then filed this suit for declaratory judgment in the federal district court, asserting jurisdiction under the Foreign Sovereign Immunities Act of 1976 (FSIA).

 2. Legal Analysis

 Westinghouse's motion to dismiss raises two distinct grounds for dismissing parts of this case for lack of subject matter jurisdiction. First, it asserts that this court does not have jurisdiction to hear any portion of this dispute under FSIA. Second, it asserts that, if this court does have jurisdiction over ICI under FSIA, it should not exercise jurisdiction over the other 130 defendants.

 A. Jurisdiction over ICI

 Liberty Mutual brings this action under the Declaratory Judgment Act, 28 U.S.C. § 2201. The Act gives this court the power to determine the rights and legal relations of the parties in any matter within the court's jurisdiction. It does not confer subject matter jurisdiction over a matter not otherwise within our jurisdiction. Skelly Oil Co. v. Phillips Petroleum, 339 U.S. 667, 94 L. Ed. 1194, 70 S. Ct. 876 (1950). Wright, Miller & Kane, Federal Practice and Procedure: Civil 2d § 2766.

 Liberty Mutual has asserted that this court has jurisdiction over this action under FSIA. FSIA, enacted in 1976, added § 1330 to U.S.C. Title 28, and governs federal jurisdiction over actions against foreign states. Section 1330 reads in part:

 
(a) The district courts shall have original jurisdiction without regard to amount in controversy of any nonjury civil action against a foreign state as defined in section 1603(a) of this title as to any claim for relief in personam with respect to which the foreign state is not entitled to immunity . . . .

 Section 1603 defines "foreign state" to include any entity:

 
(1) which is a separate legal person, corporate or otherwise, and
 
(2) which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof . . . .

 Both parties agree that the Republic of Ireland owns the majority of ICI, and, thus, that ICI qualifies as a foreign state under § 1603. Therefore, the issue before this court is whether this lawsuit contains a "nonjury civil action against" ICI as required by § 1330.

 Westinghouse argues that Liberty Mutual's Complaint does not satisfy § 1330 because Liberty Mutual's claim is not "against" ICI. Actually, Westinghouse asserts, Liberty Mutual and ICI have the identical interest of avoiding coverage of Westinghouse's liabilities. The fact that Liberty Mutual has named ICI as an adverse party is irrelevant, Westinghouse contends, because the designation of the parties in the Complaint is not controlling with respect to jurisdiction. Indianapolis v. Chase National Bank, 314 U.S. 63, 86 L. Ed. 47, 62 S. Ct. 15 (1941). The court should "look beyond the pleadings" and realign the parties according to their real interests. Id. at 63; Bonar, Inc. v. Schottland, 631 F. Supp. 990, 999 (E.D. Pa. 1986).

 Liberty Mutual responds to Westinghouse's argument by asserting that its interest is adverse to ICI's interest. It asserts that a divergence of interest between Liberty Mutual and ICI is most likely to occur in the following manner. If Westinghouse incurs high liability, then Liberty Mutual, as primary insurer, benefits if all the liability is in one year. Liberty Mutual would then pay the policy limit once, and the excess insurers (including ICI) would cover the balance. Conversely, ICI benefits if the claims are spread evenly over many years, so that Westinghouse's liability never exceeds $ 100 million in a given year. ICI would then not incur any liability. Toxic site cleanup is notoriously expensive, and the date of occurrence is often a contested fact in ...


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