8-18 are private third-party complaints filed against Texas Eastern, alleging injuries arising out of PCB contamination, not specifically identified in Texas Eastern's First Amended Complaint. They were the subject of Texas Eastern's motion for leave to file a Second Amended Complaint which I held in abeyance. (Order No. 42, Document No. 443.) In a memorandum and order filed contemporaneously with this opinion, I have denied Texas Eastern's motion for leave to amend its complaint and therefore conclude that evidence of the private third-party complaints is not properly before me. Exhibits 8-18 will therefore be stricken.
Exhibits 19-27 present a more difficult question. Texas Eastern has offered evidence of the drafting history of one form of a pollution exclusion used in many of the insurance policies at issue in this litigation.
For the reasons set forth in my discussion of the "Pollution Exclusion" issue, infra part XII, I have decided that consideration of this evidence is permissible under Texas law and, thus, the Carriers' motion to strike exhibits 19-31 will be denied.
Exhibits 47 and 48 are excerpts from the depositions of Texas Eastern expert witnesses John A. Cherry and Bradford S. Cushing. The Carriers object to this evidence on the ground that the excerpts are insufficient to allow me to determine the experts' qualifications, or the facts and data upon which the opinions are based. Additionally, the Carriers believe that this evidence sets forth mere conclusions and does not offer any evidence of the experts' thought processes or rationale. Texas Eastern has responded by providing some of the deposition transcript missing from its initial proffer. (See TApp.
222; TApp. 223.) I am satisfied that when considered together with the additional deposition testimony, this evidence is properly before the court and the motion to strike will therefore be denied.
Exhibit 50 consists of two affidavits sworn by Karen Hammerstrom, an EPA employee, which were submitted in support of EPA's enforcement action against Texas Eastern. Texas Eastern relies heavily on these affidavits to prove that at least some of its response costs are the direct result of actual or threatened third-party harm to property or persons. Although the affidavits were not created specifically for this litigation, they appear to be reliable and relevant, and appear to satisfy the requirements of Federal Rule of Civil Procedure 56(e). As such, they are properly before me. The Carriers' motion to strike the Hammerstrom Affidavits will therefore be denied.
Second, the Carriers object to any reliance on Texas Eastern's "Statement of General Background Facts" filed contemporaneously with, and in support of, its motion for summary judgment because, in general, it does not cite to record evidence. It is settled law that all evidence relied upon in deciding a motion for summary judgment must be reducible to admissible evidence. Texas Eastern admitted at oral argument that its "Statement of General Background Facts" was not "admissible evidence" and, as such, I have not relied on it in deciding these motions for summary judgment. The Carriers' motion to strike Texas Eastern's "Statement of General Background Facts" will therefore be granted.
C. Supplemental Motion to Strike
The Carriers have moved to strike certain additional evidence offered by Texas Eastern. First, the Carriers seek to strike paragraphs 4, 5, 7, and 8 of the Declaration of H. Douglas Church, located at TApp. 191, on the ground that the information contained therein is not based on Mr. Church's personal knowledge. The information in these paragraphs relates to Texas Eastern's historical practices concerning PCB use and containment. The Carriers contend that Mr. Church cannot have personal knowledge of events which occurred before 1985, the date when he first became responsible for dealing with Texas Eastern's PCB-related problems.
Texas Eastern responds that although Mr. Church does not have first-hand personal knowledge of all the events to which he attested, he acquired personal knowledge by reviewing relevant documents and discussing the issues with senior management
and other personnel from Texas Eastern's Operations, Engineering, Environmental, and Legal departments. (Church Decl., TApp. 191 at P 4.) The Carriers have in turn challenged the quality of Mr. Church's efforts to "get up to speed" on these important issues. (Ins.' Reply in Supp. of Suppl. Mot. to Strike at 4-5.)
Federal Rule of Evidence 602 prohibits a witness from testifying about an issue unless the witness has personal knowledge of the matter. The Carriers complain that Mr. Church's knowledge cannot be personal to him because it was acquired from third parties. This argument proves too much. All perception is inferential to some degree. As the Seventh Circuit recently noted:
Knowledge acquired through others may still be personal knowledge within the meaning of Fed. R. Evid. 602, rather than hearsay, which is the repetition of a statement made by someone else . . . . Such a statement is different from a statement of personal knowledge merely based, as most knowledge is based, on information obtained from other people.
Agfa-Gevaert, A.G. v. A.B. Dick Co., 879 F.2d 1518, 1523 (7th Cir. 1989).
Mr. Church acknowledges that he relied on various sources to acquire his knowledge of the events to which he attests. He does not, however, offer his statement solely on the authority of those statements, but rather vouches for the statements' truth himself. Mr. Church's alleged reliance on documents distinguishes this case from one in which a declarant relies solely on the "say-so" of third parties. See, e.g., Kaczmarek v. Allied Chem. Corp., 836 F.2d 1055, 1060-61 (7th Cir. 1987). I conclude that the Church Declaration is sufficiently based on personal knowledge and is therefore admissible evidence that can be relied on in deciding these motions for summary judgment.
Next, the Carriers have moved to strike paragraphs 6 and 8 of the Declaration of Steve L. Horton, found at TApp. 194. In paragraph 6, Mr. Horton states that after discussions with environmental representatives of other pipeline companies, it is his understanding that no other pipeline company has been required by EPA or any state authority to install the same source control equipment that Texas Eastern is required to install under the terms of the EPA Consent Decree. (Horton Decl., TApp. 194 at P 6.) The Carriers and Texas Eastern agree that this statement is hearsay if it is offered to prove the truth of the matter, that is, that no other company has, in fact, been required to install the above-mentioned source control equipment.
Texas Eastern contends that this evidence is being offered only to establish what Steve Horton, Texas Eastern's Vice President of Environmental Affairs, believed other companies have been required to do. Without ruling on the relevance of Mr. Horton's opinion, I will deny the motion to strike; however, Mr. Horton's statement is admissible only to establish what he believed has been the practice in the industry.
In Paragraph 8, Mr. Horton states that the residual value of a computer and software, purchased by Texas Eastern exclusively to help carry out the required activities under the Consent Decree, will be little or none when the activities are completed. (Horton Decl., TApp. 194 at P 8.) The Consent Decree involves a ten-year cleanup program. (App. 385 at 16.) Thus, Mr. Horton is merely stating that in his opinion, a computer purchased today will have little value ten years from now.
The Carriers believe that Texas Eastern should offer expert testimony on this issue, or at least lay testimony of someone with expertise in the computer industry. Given the nature of this testimony, I believe that Mr. Horton's duties make him sufficiently knowledgeable about the computer and the work to which it is committed so as to permit his lay testimony to be admitted under Federal Rule of Civil Procedure 701. Of course, the fact that he is not an expert in this area may affect the persuasiveness of his testimony.
The Carriers also move to strike the excerpts of the deposition testimony of Texas Eastern expert Davis L. Ford concerning Texas Eastern's waste management practices. (TApp. 31; TApp. 206.) The grounds for striking the testimony are the same as those asserted in the Carriers' original motion to strike the deposition testimony of experts Cushing and Cherry. Texas Eastern has supplemented its offer with additional deposition testimony sufficient to allow its admission as evidence. (See TE's Opp'n to Suppl. Mot. to Strike at 13-14; Ex. F.) The Carriers' argument that the subject matter of Mr. Ford's testimony is not helpful because it fails to consider Texas Eastern's PCB use goes to the weight, not the sufficiency, of the evidence.
Finally, the Carriers move to strike TApp. 127 and 129. These exhibits are part of the evidence offered by Texas Eastern concerning circumstances surrounding the drafting of the pollution exclusion which appears in a number of the insurance policies at issue in this case. Having decided that consideration of such evidence is proper under Texas law to help determine whether the term "sudden" is, or is not, ambiguous, I conclude that the evidence is properly before me. For all of these reasons, the Carriers' supplemental motion to strike will be denied in its entirety.
V. CHOICE OF LAW
The parties agree that Texas law applies
to all of the issues in this multidistrict litigation except those concerning the insurability of civil fines and penalties, where the Carriers contend that the law of the state which imposed the fine or penalty should apply. I will address the choice of law issue regarding civil fines and penalties in my discussion of that issue. (See infra part X.C.1.) Otherwise, Texas law will be applied throughout this opinion.
It is axiomatic that the decisions of a state's highest court are the ultimate authority regarding state law. Connecticut Mut. Life Ins. Co. v. Wyman, 718 F.2d 63, 65 (3d Cir. 1983). If the state's highest court has not ruled on the issue in question, it is my duty to predict how the state court would rule. Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co., 652 F.2d 1165, 1167 (3d Cir. 1981). In making these predictions, I have relied, to the best of my ability, on lower Texas state court decisions, well-reasoned authority from other jurisdictions, and other relevant sources.
With respect to my use of sources other than the Texas Supreme Court, I have relied first on lower court decisions from the Texas state courts. Intermediate state court decisions are presumptive evidence of state law. Commercial Union Ins. Co. v. Bituminous Casualty Corp., 851 F.2d 98, 100 (3d Cir. 1988). As the Third Circuit recently stated:
Although we are not bound in a diversity case to follow decisions of a state intermediate appellate court, we are instructed that such decisions are "not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise."
Northern Ins. Co. v. Aardvark Assocs., Inc., 942 F.2d 189, 193 (3d Cir. 1991) (quoting West v. American Tel. & Tel. Co., 311 U.S. 223, 237, 61 S. Ct. 179, 85 L. Ed. 139 (1940)).
I have also relied on decisions from other jurisdictions, as well as other miscellaneous sources, to aid in my predictions in instances where the lower courts have either (1) not decided an issue, or (2) have decided an issue with insufficient rationale to be a good indicator of what the Texas Supreme Court would conclude if faced with a similar question. Although I cannot guarantee that I have predicted correctly, I have relied on my own understanding of the law, and on the insurance and contract principles which Texas courts have historically considered important, to reach the conclusions which follow.
VI. GOVERNING PRINCIPLES OF INSURANCE LAW
A. Texas Rules of Insurance Contract Construction
Under Texas law, insurance policies are governed by the same rules of construction which apply to contracts generally. National Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991); Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex. 1987); Garrison v. Fielding Reinsurance, Inc., 765 S.W.2d 536, 538 (Tex. Ct. App. 1989) (writ denied). "When terms of an insurance policy are unambiguous, they are to be given their plain, ordinary and generally accepted meaning unless the instrument itself shows that the terms have been used in a technical or different sense." Garrison, 765 S.W.2d at 538.
When the terms of an insurance policy are ambiguous, a court should apply the construction that favors the insured and permits recovery. Yancey v. Floyd West & Co., 755 S.W.2d 914, 918 (Tex. Ct. App. 1988) (writ denied). A term is ambiguous when the language of a policy is susceptible to more than one reasonable construction. Yancey, 755 S.W.2d at 918. "Where the clause of the insurance policy subject to dispute involves exceptions or limitations on the insurer's liability under the policy, even more stringent construction than usual is required." Id. (citing Glover v. National Ins. Underwriters, 545 S.W.2d 755, 761 (Tex. 1967)). The court must adopt the insured's construction of an exclusionary clause "as long as that construction is not unreasonable, even if the construction urged by the insurer appears to be more reasonable or a more accurate reflection of the parties' intent." Hudson Energy Co., 811 S.W.2d at 555. However, courts should refrain from creating an ambiguity where none exists. Yancey, 755 S.W.2d at 918. In this regard, "a policy which is otherwise clear is not rendered ambiguous simply because it requires the insured to read the policy thoroughly and carefully." Labatt Co. v. Hartford Lloyd's Ins. Co., 776 S.W.2d 795, 800 (Tex. Ct. App. 1989). Additionally, mere disagreement over the interpretation of an instrument does not make it ambiguous. Cohen v. Rains, 769 S.W.2d 380, 389 (Tex. Ct. App. 1989) (writ denied). Indeed, a court must avoid a construction of the policy which renders a portion of the contract meaningless. Liberty Mut. Ins. Co. v. American Employers Ins. Co., 556 S.W.2d 242, 245 (Tex. 1977); Ideal Mut. Ins. Co. v. Last Days Evangelical Ass'n, Inc., 783 F.2d 1234, 1238 (5th Cir. 1986). If no ambiguity exists, parol evidence is inadmissible to create an ambiguity. Entzminger v. Provident Life & Accident Ins. Co., 652 S.W.2d 533, 537 (Tex. Ct. App. 1983). However, in determining whether a contract term is ambiguous, a court should consider the contract terms in light of the surrounding circumstances. Sun Oil Co. (Del.) v. Madeley, 626 S.W.2d 726, 731-32 (Tex. 1981).
B. Texas Rules Concerning the Burden of Proof
Pursuant to Texas law, the insured bears the burden of establishing that the claimed loss is within the coverage of the policy. Employers Casualty Co. v. Block, 744 S.W.2d 940, 944 (Tex. 1988). The insured also bears the burden of proving that it complied with all conditions precedent to coverage. Trevino v. Allstate Ins. Co., 651 S.W.2d 8, 11 (Tex. Ct. App. 1983) (writ refused n.r.e.).
Texas law also requires the insured to prove that the loss does not fall within an exclusion or exception where the insurer pleads such exclusion or exception to coverage. Sherman v. Provident Am. Ins. Co., 421 S.W.2d 652, 654 (Tex. 1967); American Home Assurance Co. v. Brandt, 778 S.W.2d 141, 143 (Tex. Ct. App. 1989) (writ denied); Britt v. Cambridge Mut. Fire Ins. Co., 717 S.W.2d 476, 482 (Tex. Ct. App. 1986) (writ refused n.r.e.). I recognize that this is a minority rule, but it appears to be the settled law in Texas.
Finally, if it is determined that the policy provides coverage for only a portion of the insured's loss, the burden of apportioning the damages between covered and noncovered losses is on the insured. Winn v. Continental Casualty Co., 494 S.W.2d 601, 606 (Tex. Civ. App. 1973).
VII. IMPUTATION OF EMPLOYEE KNOWLEDGE
When individual parties are involved in litigation, the determination of what a party knew or intended is rarely a simple matter. Engaging in a post hoc analysis of what an individual was thinking requires powers of clairvoyance which most mortals do not possess. This difficult task is even more formidable when a corporate party is involved. A corporation operates solely through its individual employees. The employees' knowledge and intentions must therefore ordinarily be deemed the knowledge and intentions of the corporation. As Judge Dalton observed:
A corporation can only act through its employees and, consequently, the acts of its employees, within the scope of their employment, constitute the acts of the corporation. Likewise, knowledge acquired by employees within the scope of their employment is imputed to the corporation. In consequence, a corporation cannot plead innocence by asserting that the information obtained by several employees was not acquired by any one individual employee who then would have comprehended its full import. Rather, the corporation is considered to have acquired the collective knowledge of its employees and is held responsible for their failure to act accordingly.