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Koppers Co., Inc. v. Aetna Cas. and Sur. Co.

October 28, 1996

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", *fn*

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"*FN**

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)

BEFORE: STAPLETON, COWEN, AND SEITZ, Circuit Judges

STAPLETON, Circuit Judge

Argued May 2, 1996

Filed October 28, 1996)

OPINION OF THE COURT

Koppers Company, Inc. ("Koppers"), *fn1 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. *fn2 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 polices.

The district court limited the scope of the trial to 12 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, *fn3 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. Section(s) 1332. We have appellate jurisdiction over the final order pursuant to 28 U.S.C. Section(s) 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 ...


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