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Pennsylvania National Mutual Casualty Insurance Co. v. St. John

Supreme Court of Pennsylvania

December 15, 2014

PENNSYLVANIA NATIONAL MUTUAL CASUALTY INSURANCE COMPANY
v.
JOHN D. ST. JOHN AND KATHY M. ST. JOHN, INDIVIDUALLY AND D/B/A THUNDER VALLEY FARM AND LPH PLUMBING AND HEATING, LLC AND STOLTZFUS WELDING AND REPAIR. APPEAL OF: JOHN D. ST. JOHN AND KATHY M. ST. JOHN

 Argued May 7, 2013

Appeal from the order of Superior Court at No. 277 EDA 2011 dated November 28, 2011 Affirming the order of the Chester County Court of Common Pleas, Civil Division, at No. 09-6388 dated December 20, 2010. Appeal allowed October 1, 2012 at 959 MAL 2011. Trial Court Judge: Robert J. Shenkin, Judge. Intermediate Court Judges: Mary Jane Bowes, Judge, Cheryl Lynn Allen, Judge, William Platt, Judge.

For St. John, John & Kathy, APPELLANT: Donna Marie Doblick, Esq., Jay M. Levin, Esq., Douglas Richard Widin, Esq., Reed Smith, LLP.

For Pennsylvania National Mutual Casualty Insurance Company, APPELLEE: Michael P. McKenna, Esq., Margolis Edelstein.

For Stoltzfus Welding and Repair, APPELLEE: Stoltzfus Welding and Repair, Pro Se.

For The Insurance Federation of Pennsylvania, Inc., AMICUS CURIAE: William T. Salzer, Esq., Swartz Campbell, LLC.

For Pennsylvania Defense Institute, APPELLEE AMICUS CURIAE: Alan Stuart Miller, Esq., Picadio, Sneath, Miller & Norton, P.C.

MR. JUSTICE BAER. CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, JJ. Former Justice McCaffery did not participate in the decision of this case. Mr. Chief Justice Castille and Mr. Justice Eakin join the opinion. Mr. Justice Saylor files a dissenting opinion. Madame Justice Todd dissents as she would dismiss the appeal as improvidently granted.

OPINION

Page 2

MR. BAER, JUSTICE

In this matter, Appellants John D. St. John and Kathy M. St. John (" Appellants" ) challenge the Superior Court's decision affirming the declaratory judgment order issued by the Court of Common Pleas of Chester County, finding Pennsylvania National Mutual Casualty Insurance Company (" Penn National" ) liable for a judgment

Page 3

against its insured LPH Plumbing and Heating (" LPH Plumbing" ) under a policy of commercial general liability (CGL) insurance in effect from July 1, 2003 to July 1, 2004. We granted review to determine whether, pursuant to the facts of this case and the policy language at issue, Penn National is instead liable for the judgment against its insured under a separate policy of CGL insurance as well as a companion umbrella policy in effect from July 1, 2005 to July 1, 2006. We also consider whether the multiple trigger theory of liability insurance coverage adopted by this Court in J.H. France Refractories Co. v. Allstate Ins. Co., 534 Pa. 29, 626 A.2d 502 (Pa. 1993), within the context of asbestos bodily injury claims applies in this case, where property damage was continuous and progressive, to trigger coverage under all policies in effect from exposure to the harmful condition to manifestation of the injury. For the reasons that follow, we affirm all aspects of the lower court's decision finding that coverage was triggered under the policy in effect from July 1, 2003 to July 1, 2004, when property damage became reasonably apparent, and declining to apply the multiple trigger theory of liability insurance coverage.

I.

In 2002, Appellants, co-owners of a dairy farm in Chester County, called Thunder Valley Farm, elected to expand the size of their dairy herd and milking facility. As part of their expansion project, Appellants hired LPH Plumbing to install a new plumbing system, which would include a wastewater drainage system and a separate freshwater drinking system for the expanded dairy operation. LPH Plumbing, in turn, subcontracted with Stoltzfus Welding (" Stoltzfus" ) to assist with welding metal pipes leading to a holding tank for the new freshwater drinking system. Construction on the expanded milking facility with the newly installed plumbing system was completed by July 1, 2003, at which time Appellants began full dairy operations in the expanded milking facility.

Unknown to Appellants, the plumbing system installed by LPH Plumbing was defective when dairy operations began. PVC piping used by LPH Plumbing for the wastewater was cracked which allowed " gray water," containing natural and chemical waste byproducts produced during milking operations, to escape. Further, Stoltzfus failed to properly weld an intake pipe leading to a holding tank that formed a part of the freshwater drinking system for the dairy herd. Within a few months after the commencement of operations, gray water that escaped the PVC pipe migrated under the new milking facility and infiltrated the freshwater holding tank through the defective weld. As a result, Appellants' dairy herd was exposed to contaminated drinking water shortly after dairy operations began in July 2003. See Stipulation of Facts at Reproduced Record (" R.R." ) 166a.

The gray water contamination caused various health and reproductive problems with the dairy herd, beginning as early as April 2004, and progressing with greater frequency, though intermittently, over the next few years. During this time, Appellants, unaware of the gray water contamination, consulted numerous veterinarians and nutritionists to help diagnose and remedy the dairy herd's various maladies, some of which were commonplace to dairy farming, like reduced milk production, ketosis, and metabolic disorders, and others rarer, such as laminitis, salmonella poisoning, and birth defects.[1] Appellants tested

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their water supply on a regular basis in compliance with farming regulations, but they did not discover the gray water contamination, as their testing was conducted at the wellhead rather than the holding tank. Appellants say they finally began to suspect that the dairy herd's drinking supply was the cause of their difficulties when, in March 2006, Appellants noticed the cows thrashing their heads in their drinking troughs and refusing to drink the water. After investigating further, Appellants discovered the aforementioned plumbing defects and the ongoing seepage of gray water into the dairy herd's drinking supply.

In 2007, Appellants brought suit in the Court of Common Pleas of Chester County against LPH Plumbing and Stoltzfus for the negligent installation of the plumbing system. LPH Plumbing was defended in this action by its liability insurer, Penn National, which covered LPH Plumbing under four policies of CGL insurance in effect, in aggregate, from July 1, 2003 through July 1, 2006 (hereinafter " Penn National policies" ). The jury returned a verdict in favor of Appellants, finding LPH Plumbing and its subcontractor Stoltzfus jointly and severally liable for $3.5 million in damages with an additional $277,505.36 in delay damages.

LPH Plumbing appealed the verdict, and the Superior Court assigned the case to its appellate mediation program. Appellants, LPH Plumbing, and Penn National entered a memorandum of understanding, whereby LPH Plumbing agreed to discontinue its appeal and Penn National agreed to pay $1.2 million to Appellants in exchange for their waiver of all claims against its insured, LPH Plumbing. The $1.2 million represented the limit of liability under one of the Penn National policies in addition to a portion of the delay damages awarded by the trial court. Appellants retained the right to seek the remainder of the $3.5 million judgment directly from Penn National pursuant to the aforementioned CGL policies.

Meanwhile, Penn National filed a declaratory judgment action in the Court of Common Pleas of Chester County to determine its rights and responsibilities under the four Penn National policies in effect during the relevant time periods. Three of these policies were year-long CGL policies, with the first covering the period July 1, 2003 to July 1, 2004; the second covering the period July 1, 2004 to July 1, 2005; and the third covering the period July 1, 2005 to July 1, 2006.[2] The fourth policy provided umbrella coverage for the period July 1, 2005 to July 1, 2006. Each policy carried a $1 million coverage limit. In its declaratory judgment action, Penn National sought a determination regarding which policies were triggered by LPH Plumbing's negligent installation of the plumbing system on Appellants' dairy farm. Penn National contended that it was answerable for LPH Plumbing's liabilities only under the policy of insurance in effect from July 1, 2003 to July 1, 2004, when injuries first manifested. Appellants counterclaimed, seeking a declaration that the liability imposed on LPH Plumbing in the underlying dairy farm litigation triggered the two policies in effect for the period July 1, 2005 to July 1, 2006, when they discovered the gray water contamination. In the alternative, Appellants sought a declaration that LPH Plumbing's liability triggered each of the four CGL policies

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pursuant to a multiple trigger theory of liability insurance coverage.

Under the terms of the CGL policies at issue, Penn National agreed to indemnify LPH Plumbing for its liabilities arising from either bodily injury or property damage that occurred during the respective policy periods, making these " occurrence" policies.[3] The insuring agreements for the CGL policies provided in relevant part:

(a) [Penn National] will pay those sums that the insured [LPH Plumbing] becomes legally obligated to pay as damages because of " bodily injury" or " property damage" to which this insurance applies . . . .
* * *
(b) This insurance applies to " bodily injury" and " property damage" only if:
(1) The " bodily injury" or " property damage" is caused by an " occurrence" that takes place in the " coverage territory" ;
(2) The " bodily injury" or " property damage" occurs during the policy period; and
(3) Prior to the policy period, no insured listed under Paragraph 1. of Section II - Who is An Insured and no " employee" authorized by [LPH Plumbing] to give or receive notice of an " occurrence" or claim, knew that the " bodily injury" or " property damage" had occurred, in whole or in part.

CGL policy at Section I, Subsection (1)(b)(1-3); R.R. 387a.[4] The CGL policies defined an " occurrence" as " an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Id. at Section V, Subsection (13); R.R. 400a. They defined " property damage" in relevant part as " [p]hysical injury to tangible property, including all resulting loss of use of that property" ; while " [a]ll such loss of use [was] deemed to occur at the time of the 'occurrence' that caused it." Id. at Section V, Subsection (17); R.R. 401a.[5]

Penn National and Appellants stipulated to the following facts regarding their opposing declaratory judgment actions: (1) the damage that LPH Plumbing's negligence caused Appellants' dairy herd constituted " property damage" as that term was defined under each of the policies; (2) the property damage to Appellants' dairy herd " took place during the policy period of each of the Penn National policies of liability insurance at issue" ; and (3) no

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exclusions from coverage under the policies of liability insurance applied. Stipulation of Facts at R.R. 165a-168a. Notably, the stipulations did not specify which event or events constituted an occurrence under the CGL policies. Neither did the stipulations identify a precise point in time when the occurrence or occurrences causing injury to the dairy herd first arose such that coverage was triggered.

At a non-jury trial held on June 10, 2010, Appellants offered testimony regarding the nature of the injuries sustained by the dairy herd and the timing in which these injuries first manifested themselves. Appellants explained that they first encountered problems with the dairy herd in April 2004, when they experienced a significant drop in milk production. Appellants described a drop in milk production as an unwanted occurrence, but also as a circumstance common to dairy farming that is attributable to a wide range of possible causes. Accordingly, when milk production dropped in April 2004, and continued to fluctuate over the next few years, Appellants did not suspect that the dairy herd's water supply was contaminated with gray water. Notes of Testimony (" N.T." ), 6/10/2010, at R.R. 302a-06a.

Appellants further testified that as of April 2004, the dairy herd began experiencing other health problems, including metabolic disorders, laminitis, ketosis, salmonella poisoning, and birth defects. According to Appellants, the levels at which these health issues initially manifested themselves were not unusual to dairy farming. Rather, the various health problems increased in frequency over time until eventually they were occurring at rates higher than expected for normal dairy farm operations.[6] Notwithstanding the health problems affecting their dairy herd,

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Appellants avowed they did not suspect that their dairy herd's water supply was contaminated until March 2006, when they noticed the cows thrashing their heads in their drinking troughs and refusing to drink.

On August 31, 2010, the trial court entered an order declaring Penn National liable for paying the judgment against LPH Plumbing only under the CGL policy in effect for the period July 1, 2003 to July 1, 2004. The trial court concluded that the underlying events constituted a single occurrence, which happened when the effects of LPH Plumbing's negligence first manifested in April 2004 with the drop in milk production. Appellants filed a motion for post-trial relief, and the trial court denied the motion without opinion. Thereafter, Appellants appealed to the Superior Court.

In their statement of errors complained of on appeal, filed pursuant to Pa.R.A.P. 1925(b), Appellants raised the same two issues they argued in their motion for post-trial relief. First, Appellants argued that the initial manifestation of injury, and thus the only occurrence, happened no earlier than March 31, 2006, when Appellants discovered the contaminated drinking water. In so arguing, Appellants sought coverage under both the CGL policy and the umbrella policy in effect from July 1, 2005 to July 1, 2006. Second, Appellants argued, in the alternative, that the gradual progression of various diseases and disorders affecting the dairy herd between April 2004 and March 2006 constituted multiple or continuous occurrences, thus triggering each policy at issue pursuant to the multiple trigger theory of liability insurance coverage adopted by this Court in J.H. France Refractories v. Allstate Ins. Co., as applied to asbestos-related disease claims. 534 Pa. 29, 626 A.2d 502 (Pa. 1993).

In a Rule 1925(a) opinion, the trial court explained that an occurrence triggers coverage under one of the CGL policies when the effect of a negligent act first manifests itself in a manner that would put a reasonable person on notice of damage to personal property, the so-called " first manifestation rule." See Consulting Engineers, Inc. v. Ins. Co. of North Amer., 710 A.2d 82 (Pa.Super. 1998), affirmed on the basis of the opinion of the Superior Court, 560 Pa. 247, 743 A.2d 911 (Pa. 2000), citing D'Auria v. Zurich Ins., 352 Pa.Super. 231, 507 A.2d 857 (Pa.Super. 1986). The trial court concluded that the effects of LPH Plumbing's negligent installation of the plumbing system were obvious to Appellants in April 2004, or, in any event, no later than June 30, 2004. The trial court observed:

The illnesses and ailments being suffered by the cows were numerous and obvious, including a decrease in milk production, increase in general health problems, increase in deformed calves, and salmonella, laminitis and metabolic disorders. [Appellants] [do] not dispute observing these conditions during the term of the policy period of the first policy set forth above [in effect from July 1, 2003 to July 1, 2004].

Tr. Ct. Op. at 4 (Apr. 22, 2011). The fact that Appellants did not discover the reason for the dairy herd's ailments until March 2006 was of no moment to the trial court, as long as Appellants were clearly aware of the problems caused by LPH Plumbing's negligence in April 2004. Accordingly, the trial court concluded that an occurrence happened during the period July 1, 2003 to July 1, 2004, triggering the policy in effect during that period only.

The trial court further rejected Appellants' contention that the facts of the case warranted application of the multiple trigger theory of liability such that the continuous and progressive damage sustained by the dairy herd as a ...


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