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General Refractories Company v. First State Insurance Co.

February 21, 2012


The opinion of the court was delivered by: Ludwig, J.


The parties cross-move for partial summary judgment.*fn1 Fed. R. Civ. P. 56. See fn. 1 for case history.

Plaintiff General Refractories Company (GRC), a manufacturer and supplier of asbestos-containing products, sues all of its insurance carriers for a declaration of excess liability insurance coverage for underlying asbestos-related claims.*fn2 GRC is a defendant in numerous asbestos-related suits throughout the United States. The insurance policies were issued between 1979 and 1985.

GRC moves for partial summary judgment (doc. nos. 311, 312 (sealed)), asserting that the exclusions were not submitted to and formally approved by the Insurance Commissioner as required by Pennsylvania's insurance laws -- in particular 40 P.S. § 477b. Compl. ¶¶ 51, 50-58. Section 477b directs the Commissioner to approve or disapprove the form of insurance contracts before they are issued and sold. GRC maintains that the exclusions are "invalid and unenforceable" because they violate public policies expressed in or underlying those laws. Id. at ¶¶ 51, 52, 58. GRC: "Prior to November 9, 1987, whenever an insurance company or its representatives submitted for approval any asbestos-related exclusion . . . , it was the general policy of the Pennsylvania Insurance Department to disapprove such exclusion," id. at ¶ 53; the "policies were sold several years before the . . . Department approved any asbestos-related exclusion for use in comprehensive general liability policies," id. at ¶ 54; and the exclusions would not have been approved if submitted, id. ¶ 58. GRC asserts that defendants did not submit their forms of exclusion because the Department had an established practice of rejecting asbestos exclusions. Def. br. at 2 (doc. no. 312).

According to defendants, the exclusions do not violate public policy and are enforceable as a matter of law. For example, defendants Hartford Accident and Indemnity Company and First State Insurance Company cross-move for partial summary judgment (doc. nos. 321, 323 (sealed)), asserting that § 477b does not apply to their policies and that GRC's complaint asserts a private cause of action not recognized under that statute. First State posits, as a "surplus lines"*fn3 carrier not licensed to do business in Pennsylvania, that it was not "doing business" in the Commonwealth under § 477b and, therefore, was not required to obtain the Commissioner's approval. In addition, five of the six policies issued by First State and both policies issued by Hartford "followed form"*fn4 to an underlying umbrella policy. These defendants maintain that their policies did not require the Commissioner's approval: "It is the underlying insurer -- not the following-form excess insurer -- that issues, sells, or disposes of the policy language contained in the underlying policy. And, therefore, it is the underlying insurer that is required to submit the policy language to the DOI for approval." Defs. br. at 10 (doc. no. 323).

Lexington Insurance Company and AIU Insurance Company join in Hartford's and First State's motion (doc. nos. 322, 366). From 1979 to 1985, Lexington issued three and AIU issued two follow-form excess policies to GRC. Conkin Aff. ¶¶ 5-9, Ex. 1 (doc. nos. 322, 322-1, 322-3). Lexington was a surplus lines insurer. Id. (doc. nos. 322 at 1, 322-2). The motion is now moot as to two policies issued for the period August 1, 1984-85: Lexington policy no. 552 6337 and AIU policy 75-103894.*fn5 Orders and mem., June 20, 2011 and Jan. 27, 2012 (doc. nos. 318-320, 406-407).

For similar reasons, "Certain Defendants"*fn6 also cross-move for partial summary judgment (doc. nos. 324 (sealed)). These defendants say that the exclusions are enforceable as a matter of law. Moreover, because § 477b does not create a private cause of action, the enumerated statutory remedies do not include the voiding of policy provisions, and Pennsylvania's General Assembly did not enact any statute prohibiting asbestos-related exclusions.*fn7

None of the exclusions or exclusionary endorsements was approved by the Insurance Commissioner pursuant to Pennsylvania's regulatory insurance statute:

It shall be unlawful for any insurance company . . . , doing business in this Commonwealth, to issue, sell, or dispose of any policy . . . , covering . . . all forms of casualty insurance, . . . or use applications, riders, or endorsements, in connection therewith, until the forms of the same have been submitted to and formally approved by the Insurance Commissioner, and copies filed in the Insurance Department, . . . except any forms, which, in the opinion of the Insurance Commissioner, do not require his approval.

Section 534 of The Insurance Company Law of 1921, May 17, P.L. 682, as amended, 40 P.S. § 477b. Defendants concede as much, but contend nevertheless that the exclusions are enforceable.

That issue -- whether enforcement of the exclusions would violate important public policies expressed in or underlying § 477b when the policies were sold to GRC in 1979 to 1985 -- is presented in the pending cross-motions for partial summary judgment. Today's order holds that there are genuine issues of material fact as to the public policies proposed by GRC and, therefore, none of the moving parties is entitled to judgment as a matter of law.

Discovery has been completed, and the following is not in dispute: 1. The wording of the exclusions that defendants used does not contravene any statute or regulation. 2. For purposes of these motions, GRC does not contend that the exclusionary language is ambiguous or otherwise objectionable except to the extent that asbestos-related hazards are excluded. 3. The record does not contain any evidence that the exclusions were submitted to the Insurance Commissioner or that the Commissioner approved the exclusions. 4. Defendants' use of the exclusions was an express violation of § 477b. 5. Pennsylvania's General Assembly has not enacted any statutes prohibiting asbestos-related exclusions such as the ones set forth in defendants' policies. 6. The Insurance Commissioner has not published any official pronouncements or promulgated any regulations that expressly prohibit such asbestos-related exclusions.

"'Generally, courts must give plain meaning to a clear and unambiguous contract provision unless to do so would be contrary to a clearly expressed public policy.'" Heller v. Pa. League of Cities & Mun., 32 A.3d 1213, 1220 (Pa. 2011) (quoting Prudential Prop. & Cas. Ins. Co. v. Colbert, 813 A.2d 747, 750 (Pa. 2002)). GRC challenges the exclusions solely on the ground that they violate public policies expressed in or underlying § 477b.

GRC has the burden to prove that the public policy considerations invalidate the exclusions. Williams v. GEICO Gov't Emp. Ins. Co., 32 A.3d 1195, 1200 (Pa. 2011) ("a high burden"); Heller, 32 A.3d at 1229 ("a heavy burden") (Saylor, J., dissenting).

The Supreme Court of Pennsylvania recently reaffirmed its "reticence to throw aside clear contractual language based on 'the often formless face of public policy,'" Heller, 32 A.3d at 1220 (quoting Colbert, ...

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