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Great Northern Insurance Co. v. Greenwich Insurance Co.

August 24, 2007

GREAT NORTHERN INSURANCE COMPANY AND FEDERAL INSURANCE COMPANY, PLAINTIFFS,
v.
GREENWICH INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Conti, District Judge

MEMORANDUM OPINION

Introduction

The instant case arises out of the blowout of a natural gas exploration well that occurred near Ronco and Nemacolin, Pennsylvania, on February 2, 2004. Doc. No. 49 at ¶ 1 (Plaintiffs' Combined Statement Of Material Facts Not In Dispute). The matter is pending before the court on cross-motions for summary judgment. Doc. Nos. 31 & 35. Great Northern Insurance Company ("Great Northern") and Federal Insurance Company ("Federal" and together with Great Northern, collectively "plaintiffs") believe that they are entitled to equitable contribution from Greenwich Insurance Company ("Greenwich" or "defendant") in the amount of $802,683.41 for payments made under insurance policies issued by plaintiffs to third parties whose property was damaged as a result of the blowout. For the reasons that follow, the court will grant partial summary judgment in favor of plaintiffs and partial summary judgment in favor of defendant.

Defendant's liability for equitable contribution if any shall be limited to $100,000.00. Whether defendant is liable for this amount will be determined at trial.

Background

In February 2004, Gene D. Yost & Sons, Inc. ("Yost"), an insured of Greenwich, was drilling a well in Ronco, Pennsylvania for Atlas America, Inc. ("Atlas America"), and its wholly-owned subsidiary, Atlas Resources, Inc. ("Atlas Resources"). Doc. No. 49 at ¶ 2. Atlas America is listed as the first named insured on an insurance policy issued by Great Northern, which is a member of the Chubb Group of Insurance Companies ("Chubb"). Id. at ¶ 3. The Great Northern policy was an Energy Industries Commercial General Liability Policy ("Great Northern Policy") effective from February 1, 2003, through March 1, 2004. Id. at ¶ 4. The primary policy limit was $1,000,000.00. Id. There are forty-five named insureds on the Great Northern Policy, including Atlas America, Atlas Resources and Resource America, Inc. ("Resource America").

Id. at ¶ 5.

Atlas America is the first named insured on an umbrella insurance policy ("Federal Policy") issued by Federal, which is another member of Chubb. Id. at ¶ 6. The Federal Policy was effective from February 1, 2003, through March 1, 2004, and it set the excess policy limits at $25,000,000.00. Id. at ¶ 7. The Federal Policy listed forty-five named insureds, including Atlas America, Atlas Resources and Resource America. Id. at ¶ 8.

Yost is an independent contractor that routinely performs oil and gas drilling tasks for Atlas America and Atlas Resources. Id. at ¶ 9. Proudfit Insurance Agency ("Proudfit"), an independent agency licensed by Greenwich, directs prospective clients to Greenwich and other insurance companies. Id. at ¶ 10. On July 16, 2003, a Certificate of Liability Insurance naming Yost as an insured was issued by Proudfit, which was acting as the licensed agent of Greenwich. Id. at ¶ 11.

Greenwich issued Policy No. MP37-001389-03 ("Greenwich Policy"), which was effective from July 9, 2003, through July 9, 2004, naming Yost and Diamond Y Enterprise, Inc. ("Diamond") as named insureds. Id. at ¶ 14. The Greenwich Policy has policy limits of $1,000,000.00. Id. at ¶ 15. Atlas Resources is named as an additional insured under the Greenwich Policy. Id. at ¶ 16.

Atlas America is a corporate entity organized under the laws of Delaware. Doc. No. 50 at ¶ 5. Atlas Resources is a distinct corporate entity registered under the laws of Pennsylvania. Id. at ¶ 6. Atlas Resources is a wholly-owned subsidiary of Atlas America. Id. The Great Northern Policy contains a named insured endorsement which provides identical coverage for both Atlas America and Atlas Resources. Id. at ¶ 9. The Federal Policy likewise contains a named insured endorsement providing identical coverage for both entities. Id. at ¶ 10.

Atlas America entered into a Master Work Agreement ("Agreement") with Yost for the purpose of having Yost drill natural gas development wells in and around Fayette County, Pennsylvania. Doc. No. 50 at ¶ 12. One such well was Ronco USX #3 ("Ronco Well"), which is located in the town of Ronco, Pennsylvania. Id. at ¶¶ 11-12. Atlas Resources entered into a drilling contract with Yost for the purpose of having Yost drill wells owned by Atlas America, including the Ronco Well. Id. at ¶ 12.

On February 2, 2004, there was a natural gas development well blowout at the Ronco Well. Id. at ¶ 13. The blowout occurred while the well was being drilled by Yost. Id. After the blowout, a fire ignited. Id. During the course of the blowout, a large amount of crude oil, gas and combustible material was spread over the areas surrounding the Ronco Well, leaving droplets of partially combusted oil and debris on automobiles, homes and property owned by third parties. Id.

Subsequent to the blowout, Great Northern and Federal made settlement payments for third-party claims associated with the release of partially combusted oil droplets and debris. Id. at ¶ 14. Great Northern's payments equaled the policy limit of $1,000,000.00, and Federal's payments equaled $605,366.83. Id. The claims adjuster from Chubb assigned to handle the claims arising out of the blowout was Megan Trend ("Trend"). Id. at ¶ 4. Trend sent a letter dated March 1, 2004, to Duane Yost, who had signed the Agreement on behalf of Yost, and Nita Dungee ("Dungee"), a Greenwich insurance agent. Id. at ¶ 16. In that letter, Trend asked that Chubb be reimbursed for the payments made on behalf of Atlas America. Id. She contended that this reimbursement was owed to Chubb pursuant to an indemnity provision contained in the Agreement. Doc. No. 35-9 at 2-3, Ex. 8. William A. Burton ("Burton") of DBG & Associates, Inc. ("DBG"), Greenwich's claims adjuster, sent a written response to Trend. In that letter, which was dated March 9, 2004, Burton requested that Trend provide him with a copy of the Agreement. Doc. No. 50 at ¶ 17. Upon receipt of Burton's letter, Trend proceeded to send him a copy of the Agreement. Id. at ¶ 18. In a letter dated April 19, 2004, Burton responded by informing Trend that the indemnity provision of the Agreement applied only to claims asserted by the contractor, a subcontractor, or the employees of the contractor or a subcontractor. (Doc. No. 35-12 at 2-3, Ex. 11. Since the claims for which Trend sought reimbursement had been asserted by third parties, Burton explained that no reimbursement was owed to Chubb. Id.

In a letter to Duane Yost and Dungee dated February 22, 2005, Trend stated that the Agreement contained a mutual waiver of subrogation, and that Chubb was making a claim for contribution from Greenwich for its share of the payments made in consequence of the blowout. Doc. No. 35-14 at 2-3, Ex. 13. Trend stated that Atlas America was a named insured under the Greenwich Policy as well as the Great Northern Policy and the Federal Policy, thereby creating a situation in which concurrent coverage existed. Id. According to Trend, this situation required the loss to be pro-rated between the insurance carriers, with Greenwich contributing its proportionate share for the property damage sustained as a result of the blowout. Id.

Burton sent Trend a letter dated April 14, 2005, in which he refused the request for reimbursement on the ground that Greenwich did not insure Atlas America, but rather Atlas Resources. Doc. No. 35-15 at 2-3, Ex. 14. Enclosed with Burton's letter was a copy of an Additional Insured Endorsement, which listed only Atlas Resources as an additional insured. Id. Counsel for Chubb responded with a written letter to Yost, Dungee and Burton dated April 19, 2005. Doc. No. 35-16 at 2-4, Ex. 15. In that letter, Chubb's counsel contended that Atlas America and Atlas Resources were the same entity from a legal standpoint, and that the Certificate of Insurance listed the Certificate Holder under the Greenwich Policy as "Atlas America, Inc, Resource America, Inc. et al." Id. The letter indicated that a suit would be filed to collect the proceeds if an affirmative response to Chubb's request for payment was not made within ten days. Id. Payment was not made and the instant litigation was commenced by plaintiffs on May 9, 2005. Doc. No. 1.

Standard of Review

Federal Rule of Civil Procedure 56(c) provides that summary judgment may be granted if, drawing all inferences in favor of the nonmoving party, "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." FED.R.CIV.P. 56(c). A motion for summary judgment will not be defeated by the mere existence of some disputed facts, but will be defeated when there is a genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). In determining whether the dispute is genuine, the court's function is not to weigh the evidence or to determine the truth of the matter, but only to determine whether the evidence of record is such that a reasonable jury could return a verdict for the nonmoving party. Id. at 249.

Discussion

Since jurisdiction in this case is predicated on diversity of citizenship under 28 U.S.C. § 1332(a)(1), the court must apply the choice of law rules applicable in the Commonwealth of Pennsylvania. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941). The parties are in apparent agreement that the substantive law of Pennsylvania is applicable in this case. Therefore, the court will proceed to analyze the relevant legal issues in accordance with Pennsylvania law.

Great Northern and Federal seek equitable contribution from Greenwich for the payments made as a result of the blowout at the Ronco Well. In such a situation, "'the respective obligations as between several insurers who have covered the same risk do not arise out of contract, but are based upon equitable principles designed to accomplish ultimate justice in the bearing of a specific burden.'" General Accident Ins. Co. of America v. Safety Nat'l Cas. Co., 825 F.Supp. 705, 707 (E.D.Pa. 1993) (quoting Guar. Nat'l Ins. Co. v. Am. Motorists Ins. Co., 758 F.Supp. 1394, 1397 (D.Mont. 1991), aff'd in part on other grounds, 981 F.2d 1109 (9th Cir. 1992)). "The equitable considerations that apply in a given case 'depend upon the particular policies of insurance, the nature of the claim made, and the relation of the insured to the insurers.'" General Accident Ins. Co., 825 F.Supp. at 707 (quoting Signal Companies v. Harbor Ins. Co., 612 P.2d 889, 895 (Cal. 1980)). The question whether Great Northern and Federal are entitled to equitable contribution depends upon whether the Greenwich Policy covered the same interest and subject matter against the same risk. See Liberty Mut. Ins. Co. v. Home Ins. Co., 583 F.Supp. 849, 852 (W.D.Pa. 1984).

In determining whether the Greenwich Policy extended the same coverage for the Ronco Well blowout as the Great Northern Policy, it is necessary to determine the extent of the coverage provided by the Greenwich Policy. Although this case is not brought by an insured of Greenwich, the equitable contribution question turns precisely on the extent of the coverage afforded to insureds under the Greenwich Policy. The law of Pennsylvania with respect to the interpretation of insurance contracts was explained by the Pennsylvania Supreme Court in Madison Construction Co. v. The Harleysville Mutual Insurance Co., 735 A.2d 100 (Pa. 1999):

"[T]he task of interpreting [an insurance] contract is generally performed by a court rather than by a jury. The goal of that task is, of course, to ascertain the intent of the parties as manifested by the language of the written instrument. Where a provision of a policy is ambiguous, the policy provision is to be construed in favor of the insured and against the insurer, the drafter of the agreement. Where, however, the language of the contract is clear and unambiguous, a court is required to give effect to that language."

Id. at 106 (quoting Gene & Harvey Builders v. Pennsylvania Mfrs. Ass'n, 517 A.2d 910, 913 (Pa. 1986) and Standard Venetian Blind Co. v. American Empire Ins. Co., 469 A.2d 563, 566 (1983))(citations omitted). The language of an insurance contract is deemed to be ambiguous only "if it is reasonably susceptible of different constructions and capable of being understood in more than one sense." Hutchison v. Sunbeam Coal Co., 519 A.2d 385, 390 (Pa. 1986)(emphasis added). This inquiry is fact specific, and "contractual terms are ambiguous if they are subject to more than one reasonable interpretation when applied to a particular set of facts." Madison Constr. Co., 735 A.2d at 106 (emphasis added). A court must not "distort the meaning of the language or resort to a strained contrivance in order to find an ambiguity." Id. (citing Steuart v. McChesney, 444 A.2d 659, 663 (Pa. 1982)). Under Pennsylvania law, "ambiguous insurance policy provisions are construed in favor of coverage without regard to whether that construction is right or wrong." Employers Mut. Cas. Co. v. Loos, 476 F.Supp.2d 478, 487 (W.D.Pa. 2007). In Prudential Property & Casualty Insurance Co. v. Sartno, 903 A.2d 1170 (Pa. 2006), the Pennsylvania Supreme Court explained:

The instant matter is a prime example of language in a policy that can be understood in more than [one] way. Sartno prefers one interpretation; Prudential favors the other. Regardless of which one is "right" or "wrong," the fact is that because each interpretation is reasonable, the exclusionary term is ambiguous, and we must construe it in favor of the insured.

Id. at 1177. Even though this action against Greenwich has not been commenced by an insured, the rule requiring that ambiguous policy provisions be construed in favor of coverage is nevertheless applicable in this case. Imperial Cas. & Indem. Co. v. High Concrete Structures, Inc., 858 F.2d 128, 131-32 n.4 (3d Cir. 1988). With that in mind, the court now turns to the specific issues raised by the parties in this case.

I. Entitlement to Equitable Contribution

Greenwich argues that Great Northern and Federal do not have "standing" to assert an equitable contribution claim on the ground that the payments were made on behalf of Atlas America, which is not insured by Greenwich, rather than on behalf of Atlas Resources, which is insured by Greenwich. Doc. No. 35 at 7-13. In this context, Greenwich's use of the term "standing" is not understood to be a challenge to the court's subject-matter jurisdiction under Article III of the Constitution or the jurisdictional statutes contained in Title 28 of the United States Code. Instead, Greenwich's contention goes to the merits of the equitable contribution claim, which turns on whether Great Northern and Federal made payments on behalf of an insured of Greenwich. Great Northern and Federal argue that there is no "practical difference" between Atlas America and Atlas Resources for purposes of the instant controversy. Doc. No. 32 at 17.

The parties disagree with respect to whether Atlas America was an insured of Greenwich at the time of the blowout and with respect to whether Great Northern and Federal made payments on behalf of Atlas Resources. The Greenwich Policy listed Yost and Diamond as named insureds. Doc. No. 35-5 at 5, Ex. 4. Atlas Resources was listed as an additional insured. Doc. No. 35-5 at 14, Ex. 4. Although Atlas America was not listed as an additional insured on the Greenwich Policy, Great Northern and Federal call the court's attention to a Certificate of Liability Insurance (the "Certificate") issued by Proudfit, which contains the following language:

"Certificate holder, its parent and subsidiaries are named as additional insured [sic] on a primary basis with respect to all work performed by the named insured." Doc. No. 36 at 8, Ex. 1. The named insured was Yost. Id. The Certificate specifically lists both Atlas America and Resource America as additional insureds. Id. Nevertheless, at the top of the Certificate, there is a disclaimer which provides:

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.

Id. Thus, it is clear that the listing of Atlas America as an additional insured on the Certificate is not dispositive in this case, since it is the language of the Greenwich Policy that matters.

There is no question that the Greenwich Policy lists only Atlas Resources as an additional insured. Doc. No. 35-5 at 14, Ex. 4. "An insurance policy issued to a subsidiary does not automatically cover the parent company." Knoll Pharm. Co. v. Auto. Ins. Co. of Hartford, 167 F.Supp.2d 1004, 1008 (N.D.Ill. 2001). In order for the parent company to be covered under a subsidiary's policy, it must show either that it is named as an additional insured or that there is written authorization for its inclusion under the policy. Id. Since Great Northern and Federal cannot make such a showing, the court concludes that Atlas America was not insured under the Greenwich Policy. This determination, however, does not end the inquiry. The court must proceed to address the question whether Great Northern and Federal made payments on behalf of Atlas Resources, which is named as an additional insured under the Greenwich Policy.

Both parties rely on the testimony of Chubb's claims adjuster, Trend, to support their positions. In her deposition, Trend testified as follows:

[Counsel for Greenwich]: Is it safe to say at that point in time you were unaware of a drill contract between Atlas Resources and Yost?

[Trend]: Well, it says, "Are there any contracts besides the MSA between Atlas and Yost?"

[Counsel for Greenwich]: What does Atlas refer to?

[Trend]: Atlas America and Atlas Resources.

[Counsel for Greenwich]: You use that term interchangeably?

[Trend]: Yes.

[Counsel for Greenwich]: Is there any difference between the two?

[Trend]: Atlas America is a wholly owned subsidiary of Atlas Resources. . . . .

[Trend]: The MSA was between Atlas America, Inc., et al, operator, and Gene D. Yost and Son, independent contractor, on this 15th day of May in the year 2003.

[Counsel for Greenwich]: Was Atlas America, Inc. an operator of the Ronco Number 3 well site?

[Trend]: Yes.

[Counsel for Greenwich]: Was Atlas Resources, Inc. an operator of that well?

[Trend]: I believe so. Atlas America is a wholly owned subsidiary of Atlas Resources.

[Counsel for Greenwich]: Do you believe that Atlas Resources, Inc. and Atlas America, Inc. ...


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