The opinion of the court was delivered by: CAHN
Plaintiffs Hyde Athletic Industries, Inc. ("Hyde") and Saucony Shoe Manufacturing Company, Inc. ("Saucony") have sued several of their insurance carriers, seeking, inter alia, the costs of defense and indemnity related to an environmental action. Before the court are Plaintiffs' motion for partial summary judgment against one of their insurers for breach of the duty to defend, and motions by three of the insurers for summary judgment on all counts. For the reasons explained below, Plaintiffs' motion is DENIED and Defendants' motions are GRANTED.
This insurance coverage action arises from a cost recovery and contribution action brought by the United States Environmental Protection Agency ("EPA") pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq. ("CERCLA") and its Pennsylvania counterpart, the Hazardous Sites Cleanup Act, 35 Pa. C.S.A. § 6020.101 et seq. ("HCSA"). The environmental cost recovery action, United States v. Atlas Minerals and Chemicals, Inc. et al. (the "Atlas action"), 797 F. Supp. 411, filed in this court as Civil Action No. 91-5118, involved the cleanup of the Dorney Road Landfill (the "Site") in Lehigh County, Pennsylvania. The complete factual history of the Atlas action can be found in United States v. Atlas Minerals and Chemicals, Inc. v. Mabry, 1995 U.S. Dist. LEXIS 13097, 41 ERC (BNA) 1417, Civ. A. No. 91-5118, 1995 WL 510304 (E.D.Pa. Aug. 22, 1995), and the court will not restate that extensive and complicated history here. However, a brief synopsis of the history of the Site and Plaintiffs' involvement with it is required for a full understanding of this insurance dispute.
From 1958 through 1978, the Site was used as a landfill for the disposal of municipal solid waste and industrial hazardous waste. Atlas, 1995 U.S. Dist. LEXIS 13097, 1995 WL 510304, at *3-4. The Pennsylvania Department of Environmental Resources ("PaDER") cited the owner of the landfill for violations and ordered that landfilling operations cease by January 1, 1979. Id. at *4. In 1979, the EPA began investigating contamination at the Site, leading to the Site's placement on the National Priorities List and the preparation of a remedial investigation and feasibility study. Id. at *4-5. The EPA and PaDER conducted a Superfund-financed emergency removal action at the Site in 1986. Id. at *5. The EPA determined that unacceptable health hazards existed at the Site, and identified Potentially Responsible Parties ("PRPs") for the environmental damage. Id. at *6-7.
In August 1991, the United States filed a cost recovery action against ten PRPs in this court pursuant to CERCLA and the Pennsylvania HSCA, seeking to recover the EPA's response costs incurred in the removal action. In 1994, the parties entered into, and this court approved, a consent decree between the original PRP defendants and the United States. The defendants agreed to pay approximately $ 1.2 million to reimburse the United States for its response costs, and agreed to pay for future oversight costs at the Site. United States v. Atlas Minerals and Chemicals, Inc., 851 F. Supp. 639, 647 (E.D. Pa. 1994).
In 1992, the original PRP defendants became third-party plaintiffs by filing complaints for contribution against approximately sixty third-party defendants, including Saucony.
Following entry of the consent decree, each third-party defendant either settled with the third-party plaintiffs or was dismissed from the action, with the exception of Saucony and one other party. Atlas, 1995 U.S. Dist. LEXIS 13097, 1995 WL 510304, at *2. This court held a non-jury trial in the third-party action, leading to the lengthy Atlas opinion. The court found that Saucony "generated, owned or possessed hazardous substances, and arranged by contract, agreement, or otherwise for the disposal of hazardous substances at the Site." Id. at *111. The court assigned Saucony a 0.44 percent share of the total liability for remediation at the Site. Id. at *113 (Appendix E-3). Plaintiffs estimate that the remediation costs at the Site will total approximately $ 22.7 million; Plaintiffs' share of the costs is 0.44 percent of that total, or approximately $ 100,000. Am. Compl. P 36.
B. This Insurance Coverage Action
On September 15, 1995, Hyde and Saucony commenced this action against six insurance companies. The Amended Complaint, filed in November 1995, contains seven counts. Count I seeks a declaration that the insurers owed a duty to defend Hyde and Saucony in the Atlas action; Count II seeks a similar declaration regarding the duty to indemnify Plaintiffs for the liability imposed in Atlas. Count III seeks damages for the insurers' alleged breach of their duties to defend and indemnify. Count IV seeks relief for violations of the Pennsylvania Unfair Insurance Practices Act, 40 Pa. C.S.A. § 1171.1 et seq., for allegedly (1) denying insurance coverage on the basis of policy language which the insurers knew to be ambiguous, (2) destroying expired policies in an effort to disavow insurance obligations, and (3) misrepresenting to the public and policyholders the scope of the coverage under comprehensive general liability policies. Count V asserts a conspiracy by and among Defendants and the insurance industry to misrepresent or conceal facts relating to the pollution exclusion clause in general liability policies. In Count VI, Plaintiffs seek damages pursuant to Pennsylvania's bad faith statute, 42 Pa. C.S.A. § 8371, for the insurers' alleged breach of the duty of good faith and fair dealing in handling Plaintiffs' insurance claims. Finally, in Count VII, Plaintiffs seek reformation of the insurance policies at issue.
Hyde and Saucony allege that two of the insurer defendants issued comprehensive general liability ("CGL") coverage: Continental Casualty Company ("Continental") and Greater New York ("GNY").
Continental sold Plaintiffs CGL policy number CCP 857-76-97, providing coverage between September 18, 1973 and September 18, 1974, with a limit of $ 100,000 of liability per occurrence. Am. Compl. P 16. GNY sold Plaintiffs CGL policy numbers 1703-200-731, 1703-200-911, 1703-201-121, 1703-201-450, 1703-201-837, providing coverage from September 26, 1974 until September 26, 1979; each of those CGL policies had a limit of $ 100,000 per occurrence. Am. Compl. P 17.
Plaintiffs allege that four of the insurer defendants provided excess, or umbrella, coverage: Lumbermens Mutual Casualty Company ("Lumbermens"), Federal Insurance Company ("Federal"), Highlands Insurance Company ("Highlands"), and Continental. Lumbermens umbrella policy number 4SX-002-421 covered the period of April 18, 1974 until April 18, 1977, and provided $ 5,000,000 per occurrence. Id. at P 18. The Lumbermens policy responds when the underlying general liability insurance is exhausted. Five Federal umbrella policies covered "some time period beginning on February 6, 1976," and two Highlands excess policies covered the period between April 18, 1977 and April 18, 1979. Id. at PP 19-20.
Continental excess policy numbers RDX-893-58-47 and RDX-893-86-65 covered the period of April 18, 1977 until April 18, 1979 with a limit of $ 5,000,000 per occurrence. Id. at P 21. The Continental policies are second-layer excess policies, meaning that they do not respond until the underlying general and excess policy limits are exhausted.
II. SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate when the record shows that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The court's role is to determine whether the evidence is such that a reasonable jury could return a verdict for the non-moving party, with all reasonable inferences viewed in the light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 255, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). The moving party has the burden of demonstrating that no genuine issue of material fact exists, but if the non-moving party fails to produce sufficient evidence in connection with an essential element of a claim for which it has the burden of proof, then the moving party is entitled to summary judgment. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986).
As a federal court sitting in diversity jurisdiction, this court applies the choice of law rules of Pennsylvania, our forum state. Klaxon Co. v. Stentor Elec. Manufacturing Co., 313 U.S. 487, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941). According to Pennsylvania choice of law principles, two states have significant relationships and interests in this action: Pennsylvania, where Saucony is incorporated and the Site is located; and Massachusetts, where Hyde is incorporated and where Hyde entered into its insurance contracts with Continental, GNY, and Lumbermens.
In this case, the court is spared the task of resolving a choice of law question because there is no actual conflict between the potentially applicable bodies of law. "Where the laws of the two jurisdictions would produce the same result on the particular issues presented, there is a 'false conflict' and the court should avoid the choice-of-law question." Williams v. Stone, 109 F.3d 890, 893 (3d Cir. 1997) (citations omitted). Research by the parties and by this court reveals that the laws of Massachusetts and Pennsylvania resolve the legal issues of this case in the same manner. In addition, no party has objected to the application of Pennsylvania law, so the court may consider any such objections waived. See, e.g., Neely v. Club Med Management Services, Inc., 63 F.3d 166, 180 (3d Cir. 1995). For these reasons, the court will eschew a choice of law analysis, and will apply Pennsylvania law.
Under Pennsylvania law, the duty to defend is broad. "The issuer of a general liability policy has a duty to defend its insured when the allegations in the complaint against it could potentially fall within the coverage of the policy." Air Products and Chemicals, Inc. v. Hartford Accident and Indemn. Co., 25 F.3d 177, 179 (3d Cir. 1994)(citations omitted). The Defendant insurance companies have moved for summary judgment on the duty to defend, asserting that they had no duty to defend Plaintiffs in the underlying action. Plaintiffs have also moved for summary judgment against GNY on this count, asserting that GNY had a duty to defend and breached it as a matter of law.
A. Pollution Exclusion Clause
Defendants argue that they had no duty to defend because the pollution exclusion clause unequivocally excluded any reasonable possibility of coverage for the underlying Atlas complaints. In determining whether a policy potentially covers a complaint against an insured, the court looks first at the language of the policy and its exclusions, because "the inquiry into coverage is independent of, and antecedent to, the question of duty to defend." Lucker Mfg. v. Home Ins. Co., 23 F.3d 808, 813-14 (3d Cir. 1994)(citation and footnote omitted).
The CGL and excess insurance policies which Continental, GNY, and Lumbermens sold to Plaintiffs contain pollution exclusion clauses. The clauses, with little variation, read as follows:
This insurance does not apply:
(f) to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental[.]
Continental Commercial CGL form policy, Exh. 9, Continental Mot. Summ. Judg.; GNY CGL policy, Exh. E, Pltf. Mot. Partial Summ. Judg.; Lumbermens CCL policy, Exh. A, Lumbermens' Mot. Summ. Judg.
The meaning and application of the pollution exclusion clause, and of the "sudden and accidental" exception to the exclusion, form the heart of the parties' dispute. The Third Circuit Court of Appeals, predicting Pennsylvania law, has held that a pollution exclusion clause identical to the ones in Plaintiffs' insurance policies is unambiguous, and that the exception for sudden and accidental discharges "applies only to discharges that are abrupt and last a short time." Northern Ins. Co. of New York v. Aardvark Assoc., Inc., 942 F.2d 189, 193 (3d Cir. 1991). At trial, the insurers bear the burden of proving that the pollution exclusion applies to prevent coverage, but the burden of establishing the "sudden and accidental" exception to the pollution exclusion rests with the insureds. See id. at 194-195.
After looking at the coverage and exclusion language in the policies, the next step is to analyze the underlying complaints in the Atlas action. If the allegations of the underlying complaint, if proven true, "could potentially fall within the coverage of the policy," the insurer has a duty to defend. Air Products, 25 F.3d at 179 (citations omitted). Moreover, if the allegations of the underlying complaint "may or may not fall" within the pollution exclusion clause, the insurer must defend. Id. at 180 (citation omitted).
The underlying complaint by Defendant/Third-party plaintiff GAF Corporation against Saucony includes the following allegations:
From at least 1960 through 1978, Saucony at various times disposed of, or arranged for the disposal of, wastes that it generated at its Kutztown plant at the Site.
The waste that Saucony generated at its plant and that was disposed at the Site included scrap leather, glues and other wastes from its manufacturing processes.
Upon information and belief, the waste was a hazardous substance, as defined in CERCLA § 101(14), 42 U.S.C. § 9601(14), or the waste contained hazardous substances, as defined in CERCLA § 101(14), 42 U.S.C. § 9601(14).
Third-Party Complaint by Defendant GAF Corporation, Exh. A, Pltf. Mem. Opp. Cont. Mot. Summ. Judg., PP 59-61. The complaint of Defendants/Third-party plaintiffs Atlas Mineral and Chemicals, et al. alleges:
The Third-Party Defendants [including Saucony] . . . are responsible persons pursuant to Section 701(a)(2) of the Pennsylvania Hazardous Sites Cleanup Act ("HSCA") . . . in that they generated, owned or possessed hazardous substances and arranged by contract, agreement or otherwise for the dispersal, ...