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General Refractories Company v. First State Insurance Co.


March 21, 2012


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


Each of the eleven defendants in this action moves for summary judgment.*fn1 Fed. R. Civ. P. 56. See footnote 1 for case history. Jurisdiction is diversity. 28 U.S.C. § 1332.

Plaintiff General Refractories Company (GRC), a manufacturer and supplier of asbestos-containing products, sues its insurance carriers for a declaration of excess liability insurance coverage for underlying asbestos-related claims.*fn2 GRC is a defendant in some 33,000 asbestos-related lawsuits throughout the United States. It purchased the insurance policies between 1979 and 1985.

Defendants'*fn3 motions for summary judgment (doc. nos. 338, 339, 340, 341, 342 (sealed), 343 (sealed), 344 (sealed), 345 (sealed), 347-350 (sealed))) assert that one or more exclusions in the policies sold to GRC preclude coverage. They say the plain language of each exclusion unambiguously eliminates coverage for all of the underlying asbestos-related claims.

In its responses to the motions, GRC denies that the exclusions are that broad: "different exclusions meant different things." Pl. br. at 7, doc. no. 368. While GRC concedes that some policy terms would exclude allegations contained in the underlying lawsuits, it contends that coverage exists for most of the claims.*fn4

The following facts are not in dispute. GRC manufactured, distributed, and sold products that contained asbestos. Defendants drafted the policy exclusions; they were not specially crafted or designed for GRC and GRC did not negotiate any of the exclusionary terms. GRC received copies of the exclusions only after the policies were sold. The underlying lawsuits are for injuries arising from exposure to GRC's products.*fn5

"Where an insurer relies on a policy exclusion as the basis for its denial of coverage and refusal to defend, the insurer has asserted an affirmative defense and, accordingly, bears the burden of proving such defense." Madison Constr. Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100, 106 (Pa. 1999); accord Wall Rose Mut. Ins. Co. v. Manross, 939 A.2d 958, 962 (Pa. Super. Ct. 2007), appeal denied, 946 A.2d 688 (Pa. 2008). "An exclusion from liability must be clear and exact and unambiguous to be given effect." Id. at 963 (citing Prudential Prop. & Cas. Ins. Co. v. Sartno, 903 A.2d 1170, 1177 (Pa. 2006)).

"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). "Whether ambiguity exists cannot be resolved in a vacuum, . . . but must instead be considered in reference to a specific set of facts." Lititz Mut. Ins. Co. v. Steely, 785 A.2d 975, 978 (Pa. 2001) (citing Madison, 735 A.2d at 106); accord Kropa v. Gateway Ford, 974 A.2d 502, 508 (Pa. Super. Ct. 2009) (citing Madison), appeal denied, 990 A.2d 730 (Pa. 2010).

In the interpretation of written, integrated contracts, such as the insurance policies here, Pennsylvania follows the Restatement (Second) of Contracts § 202 (1981), et seq. AstenJohnson, Inc. v Columbia Cas. Co., 562 F.3d 213, 220 (3d Cir. 2009) (citing Sunbeam Corp. v. Liberty Mut. Ins. Co., 781 A.2d 1189 (Pa. 2001)). Under that approach, "[p]arole evidence cannot be used to contradict the provisions of such a contract." Id. However, in determining whether such a contradiction exists, "the text of the contract must first be interpreted in light of any evidence of trade usage and the performance of the parties under the contract." Id. (citing Sunbeam, 781 A.2d at 1193); accord Hussey Copper, Ltd. v. Arrowood Indem. Co., 391 Fed. App'x 207, 210-11 (3d Cir. 2010). Even in the absence of a showing of ambiguity, evidence of industry custom and trade usage may be offered:

In the law of contracts, custom in the industry or usage in the trade is always relevant and admissible in construing commercial contracts and does not depend on any obvious ambiguity in the words of the contract.

Sunbeam, 781 A.2d at 1193 (Pa. 2001); see also Restatement (Second) of Contracts § 202, cmt. a (rules in aid of interpretation do not depend on any determination of ambiguity"); id. § 220 cmt. d ("no requirement that an ambiguity be shown before usage can be shown"). "If after the consideration of such evidence, the intent of the parties remains unclear, evidence concerning the pre-contract negotiations of the parties may also be considered in reaching a conclusion regarding the intention of the parties." AstenJohnson, 562 F.3d at 220 (citing Resolution Trust Corp. v. Urban Redev. Auth. of Pittsburgh, 638 A.2d 972, 975-76 (Pa. 1994) ("but extraneous evidence is admissible to show local usage which would give a particular meaning to the language").

Defendants: The plain language of each exclusion is susceptible to only one reasonable interpretation -- claims for all injuries related to asbestos in any form are excluded. Defendants submit extrinsic evidence of the parties' communications and course of conduct contemporaneous with the issuance of the policies, as well as numerous documents and deposition transcripts. This evidence, they assert, confirms the proffered plain meaning of the exclusions and the parties' intent to exclude all types of asbestos-related claims.*fn6 Some defendants submit extrinsic evidence of industry custom and trade usage,*fn7 to show that this evidence also reflects the proffered plain meaning of the terms. On the other hand, GRC submits extensive extrinsic evidence as to how the insurance industry, insurance policies, and litigants of asbestos-related claims used and regarded the terms.*fn8 According to GRC, this evidence establishes other reasonable interpretations of the terms and gives insurance protection to GRC.

As a result, substantially all of the proffered evidence presents triable disputes as to the meaning and application of each exclusion at issue. The meaning of the exclusionary terms as evidenced by custom in the industry and usage in trade must be established first -- only then may it be determined whether parole evidence should be considered. See AstenJohnson, 562 F.3d at 221. Moreover, the meaning of the exclusionary terms must be shown before the terms can be compared and applied to the allegations in the underlying complaints. Resolution of these disputes depends on the credibility of the parties' witnesses, experts, and proofs at trial.

The question whether the exclusionary terms contain ambiguity as applied to the allegations used in the underlying lawsuits cannot be determined on this record. At present this question has been submitted based solely on the parties' summary characterizations of the allegations. Defendants have the burden of proving that the policy terms exclude the specific factual allegations at issue, and these affirmative defenses have not been fully developed.

Rulings on the meaning of the various exclusionary terms, and whether those terms are clear and unambiguous, will be reserved for trial.

An order accompanies this memorandum. That order holds that genuine triable disputes exist as to the meaning and applications of the exclusionary terms. The questions whether those terms are clear or ambiguous and whether those terms provide or preclude insurance coverage for GRC's defense or indemnification of the underlying claims are not decided.


Edmund V. Ludwig, J.

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