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GOULD INC. v. CONTINENTAL INS. CO.

May 12, 1993

GOULD INC. Plaintiff
v.
CONTINENTAL INSURANCE CO. Defendant



The opinion of the court was delivered by: WILLIAM H. YOHN, JR.

 Yohn, J.

 May 12, 1993

 The plaintiff, Gould Inc., originally filed a motion for partial summary judgment on April 29, 1992. By this motion, the plaintiff sought an order that the defendant, Continental Insurance Company, was obligated under the insurance policies it issued to the plaintiff to indemnify the plaintiff for the costs associated with an United States Environmental Protection Agency ("EPA") mandated clean-up. The plaintiff incurred these costs as a result of its statutory liability for eight illegal disposals of hazardous wastewater made over 83 days by a company the plaintiff hired to dispose of the waste.

 By agreement of the parties, the court ordered this case and the pending motion placed in civil suspense on June 9, 1992 awaiting the decision by the Supreme Court of Illinois on the appeal of Outboard Marine Corporation v. Liberty Mutual Ins. Co., 212 Ill. App. 3d 231, 570 N.E.2d 1154, 156 Ill. Dec. 432 (1991). This appeal concerned the meaning of pollution exclusion language similar to that now in dispute.

 On December 4, 1992, the Illinois Supreme Court filed its opinion. Outboard Marine Corporation v. Liberty Mutual Ins. Co., 154 Ill. 2d 90, 607 N.E.2d 1204, 180 Ill. Dec. 691 (1992). The plaintiff has since renewed its motion for partial summary judgment. For the reasons explained in this memorandum and order, the court will deny the plaintiff's motion.

 FACTUAL BACKGROUND

 In 1976, the plaintiff, a corporation engaged in the electronics business, purchased a facility in Dunmore, Pennsylvania. The plaintiff maintained an automotive battery plant at the Dunmore facility as part of its manufacturing operations in its automotive battery division.

 When the plaintiff commenced operations at the Dunmore plant in 1976, the plant's on-site wastewater treatment facility was still under construction. Consequently, the plaintiff contracted with ABM Disposal Company ("ABM"), a waste hauling company, to dispose of the wastewater generated by the start-up operations at the Dunmore plant from July 30, 1976 to October 21, 1976.

 Over this 83 day period, ABM removed eight loads of wastewater from the Dunmore plant. Each load of wastewater consisted of approximately 5,000 to 6,000 gallons. ABM deposited the waste into a well at 362-372 Henderson Road in King of Prussia, Pennsylvania ("Henderson Road site"). The removed waste contained such substances as copper, zinc, chromium, lead, oil and grease. All of these substances are considered hazardous substances under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. § 9601(14).

 In June, 1985, the EPA notified the plaintiff that it had determined that the Henderson Road site, which at that time was operated by O'Hara Sanitation Company, was a hazardous waste site. The EPA identified the plaintiff as a potentially responsible party ("PRP") in connection with this site since all eight loads of waste the plaintiff delivered to ABM for disposal were illegally dumped at this site. As a PRP, the EPA sought to have the plaintiff contribute toward the remediation of the Henderson Road site.

 In November, 1985, the plaintiff and other PRPs signed an EPA Administrative Order of Consent to participate in a Remedial Investigation and Feasibility Study ("RI/FS"). Subsequently, the EPA issued an order, pursuant to CERCLA, § 106, 42 U.S.C. § 9606, requiring the plaintiff and other PRPs to contribute to the clean-up of the Henderson Road site. This order did not find that the plaintiff was aware of the illegal disposals at this site. However, the plaintiff was liable for the clean-up since CERCLA § 107, 42 U.S.C. § 9607, imposes strict liability on responsible parties, regardless of fault. On June 14, 1991, the plaintiff entered into an agreement with the other PRPs to fund the remediation of the Henderson Road site.

 When the plaintiff received notice from the EPA in June, 1985 that it was a PRP, the company was insured by two policies issued by the defendant. One policy was a comprehensive general liability policy (policy number CCP 984 8000) that provided up to one million dollars ($ 1 million) in coverage. The second policy was an umbrella excess third-party liability policy (policy number RDU 148 1000) that provided up to nine million dollars ($ 9 million) in coverage. The umbrella excess policy expressly incorporates the coverage provisions of the underlying comprehensive general liability policy. The excess policy also expressly includes the pollution exclusion provision. Both insurance policies covered the plaintiff for the period February 1, 1974 through February 1, 1977. Neither party alleges that any other insurance policy covered the plaintiff during this time period.

 Shortly after the plaintiff received notice from the EPA that it was a PRP, the plaintiff notified the defendant of the potential claim. The defendant accepted the plaintiff's defense under a written reservation of rights. The defendant provided for the plaintiff's defense for almost three years. However, on July 1, 1988, the defendant informed the plaintiff that it was withdrawing from the plaintiff's defense because:

 
"recent federal court decisions in various jurisdictions have supported the pollution exclusion on claims for clean up of hazardous waste sites. (citations omitted). The courts have stated that clean up costs are not "property damage" and for that reason should not be payable by insurance companies under standard general liability business insurance policies. All of the information developed regarding the Henderson Road Site indicates that the only claim is for the site clean up costs. For that reason, we must hereby advise that no coverage exists under the Comprehensive General Liability contract."

 Exhibit O to Plaintiff's Statement of Uncontested Facts.

 The plaintiff now seeks indemnification from the defendant to the extent that the plaintiff has incurred costs in connection with both the defense and settlement of the proceedings arising from the EPA mandated remediation at the Henderson Road site. The defendant asserts that it has no obligation to the plaintiff since no such coverage existed.

 CHOICE OF LAW

 The court has jurisdiction over the present dispute pursuant to 28 U.S.C. § 1332 in that the amount in controversy exceeds $ 50,000 and the parties are citizens of different states. Since the court has jurisdiction based on diversity, the court must decide which state's substantive law to apply to the dispute.

 The insurance contracts at issue in the present dispute are silent as to choice of law. The plaintiff urges this court to apply Illinois law since it believes it has the most significant relationship with the policies. In a letter addressed to the court dated June 5, 1992, the defendant initially took no position on the choice of law question since it believed it would prevail under either Illinois or Pennsylvania law. However, the defendant now contends that Pennsylvania law should be applied since the wrongful conduct occurred at a site situated in Pennsylvania.

 A federal court exercising diversity jurisdiction must apply the choice of law rule of the forum state. Klaxon Company v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941); Shields v. Consolidated Rail Corp., 810 F.2d 397, 399 (3d Cir. 1987). Thus, Pennsylvania's choice of law rules will determine which state's substantive law will apply to this case.

 The seminal choice of law case in Pennsylvania is Griffith v. United Airlines, Inc., 416 Pa. 1, 203 A.2d 796 (1964). In Griffith, the Pennsylvania Supreme Court abandoned the traditional lex loci delicti doctrine. That doctrine dictated that the law of the place of the injury be applied to tort cases. In its place, the Griffith court adopted a modified version of the flexible approach of the Restatement (Second) of Conflicts of Laws (1969). Under this flexible approach, a court must first determine whether a conflict actually exists between the jurisdictions which may have an interest in the dispute. Parker v. State Farm Ins. Co., 543 F. Supp. 806 (E.D.Pa. 1982). If the court finds a conflict exists, the court must perform a governmental interest analysis along with the significant relationships approach set forth in the Restatements (Second) of Conflicts of Laws. Myers v. Commercial Union Assur. Cos., 506 Pa. 492, 485 A.2d 1113 (1984); Parker, supra. Although the Griffith case involved a tort action, subsequent cases have extended the same rationale and approach to contract cases involving a choice of law question. See In re Complaint of Bankers Trust Co., 752 F.2d 874, 881-82 (3d Cir. 1984); Melville v. American Home Assur. Co., 584 F.2d 1306, 1312-13 (3d Cir. 1978) (construing In Re Hunter, 421 Pa. 287, 218 A.2d 764 (Pa. 1966).

 On the issue in question here, what constitutes a "sudden and accidental" occurrence in the pollution exclusion language contained in the two policies, the court finds that Illinois law and Pennsylvania law do conflict. Under Pennsylvania law, "sudden and accidental" retriggers coverage under the pollution exclusion if the damages resulting from pollution discharges are both sudden, meaning abrupt and lasting only a short time, and accidental, meaning unexpected. See Lower Paxon Township v. United States Fidelity and Guaranty Company, 383 Pa. Super. 558, 557 A.2d 393, (1989); Techalloy Co. v. Reliance Ins. Co., 338 Pa. Super. 1, 487 A.2d 820, allocatur denied, 338 E.D.Allo.Dkt 1985 (Pa. Oct. 31, 1985); United States Fidelity & Guaranty Co. v. The Korman Corp., 693 F. Supp. 253 (E.D.Pa. 1988); American Mutual Liability Ins. v. Neville Chemical Co., 650 F. Supp. 929 (W.D.Pa. 1987). However, under Illinois law, "sudden and accidental" retriggers coverage under the pollution exclusion if the damages resulting from pollution discharges are unexpected or unintentional. See Outboard Marine Corporation v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 607 N.E.2d 1204, 180 Ill. Dec. 691 (1992). Since a conflict does exist between Illinois law and Pennsylvania law, the court must determine which state's law to apply.

 In deciding which state's law to apply, the court will combine the most significant relationship approach set forth in the Restatement (Second) of Conflicts of Law with the governmental interest analysis. See Melville v. American Home Assurance Co., 584 F.2d 1306 (3d Cir. 1984). The Restatement recommends resolution of a choice of law question involving a contract dispute be based upon consideration of the following factors: (a) the place of contracting; (b) the place of negotiation of the contract; (c) the place of performance; (d) the location of the subject matter of the contract; and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties. Restatement (Second) of Conflict of Laws § 188 (1969). Section 193 of the Restatement deals specifically with fire, surety or casualty insurance contracts. Comment b to Section 193 states the principle that greater weight should be given to the state of the insured risk in making a choice of law ...


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