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General Refractories Co. v. First State Insurance Co.

United States District Court, E.D. Pennsylvania

June 1, 2015



L. Felipe Restrepo. District Judge

Plaintiff General Refractories Company ("GRC"), a manufacturer and supplier of refractory products that at times contained some asbestos, sues its insurance carriers for a declaration of excess insurance coverage against underlying asbestos-related lawsuits and for breach of insurance contract. Since about 1978, GRC has been named as a defendant in a multitude of asbestos-related suits throughout the United States. Each of those insurance carriers has now settled with GRC, except one - defendant Travelers Casualty and Surety Company, formerly known as The Aetna Casualty and Surety Company (collectively, "Travelers"). A jury trial is scheduled for June 15, 2015.

Travelers moves to preclude GRC from presenting "any evidence of damages at trial." Def. Mot., Br. at 1, 3 (doc. nos. 649, 649-1). The motion contends that GRC cannot prove any insured damages because Travelers' policies incorporate an asbestos exclusion contained in an umbrella liability policy that the Insurance Company of the State of Pennsylvania ("ICSOP") sold to GRC. ICSOP Exclusion, Def. Ex. 1 (doc. no. 649-3 at 12); Travelers' policies, Def. Exs. 2 and 3 (doc. nos. 649-4 and 649-5). Travelers' policies do not physically contain or attach the ICSOP exclusion, and they do not mention ICSOP by name. Nor does ICSOP's policy refer to Travelers' policies. A "Schedule of Underlying Insurance" contained in Travelers' policies names "Granite State" and Granite State's "policy number 44851093" as the controlling underlying umbrella liability insurance. The motion requests that the language of Travelers' Schedule be construed to mean that ICSOP's policy - and not Granite State's policy - is the controlling underlying umbrella liability insurance. GRC opposes the motion on several grounds. Principally, GRC maintains that under the guise of policy language interpretation, the Schedule cannot be reformed to make ICSOP's policy the controlling umbrella insurance - "particularly where, as is the case here - such an 'interpretation' is inconsistent with the facts." PL Resp. at 1, 4 (doc. no. 654). For the background of this motion, see Memorandum, dated May 29, 2015, at 1-2, 4 & nn.1-2 (doc. no. 662).


A. Travelers' Policies Define Granite State's Policy as the Controlling Underlying Umbrella Liability Insurance for the August 1, 1985-86 Period

Travelers' motion repeatedly asserts that the ICSOP policy "is the Controlling Underlying Insurance" for Travelers' policies and contends that "there is nothing for the Court to reform." Def Br. at 2, 5, 6, 9-10; Def. Reply at 3, 5 & n.2 (doc. no. 658). This position is not soundly tethered to the written terms of Travelers' policies. It is also not consistent with Pennsylvania's "well established" rules for analysis of insurance policies. Meyer v. CUNA Mut. Ins. Soc'y. 648 F.3d 154, 163 (3dCir. 2011) (citing Regents of Mercersburg Coll. v. Republic Franklin Ins. Co.. 458 F.3d 159, 171 (3d Cir. 2006) (citing E. Associated Coal Corp. v. Aetna Cas. & Surety Co.. 632 F.2d 1068, 1075 (3d Cir. 1980)). The parties agree that Pennsylvania law applies in this diversity action.

The analysis "begins with the language of the policy." Meyer, 648 F.3d at 163 (citing Madison Constr. Co. v. Harleysville Mut. Ins. Co.. 735 A.2d 100, 106 (Pa. 1999)). "A policy must be construed as a whole and its meaning construed according to its plain language." Id. (citing Frog, Switch & Mfg. Co.. Inc. v. Travelers Ins. Co.. 193 F.3d 742, 746 (3d Cir. 1999)). "The "polestar of our inquiry, therefore, is the language of the policy." Madison. 735 A.2d at 106. Where the language of a policy '"is clear and unambiguous, a court is required to give effect to that language.'" Meyer, 648 F.3d at 164 (quoting Madison. 735 A.2d at 106)). Pennsylvania's Supreme Court has long held that where "the language of the contract is clear and unambiguous, a court is required to give effect to that language." Standard Venetian Blind Co. v. Am. Empire Ins. Co.. 469 A.2d 563, 566 (Pa. 1983). This was recently reaffirmed: "When the language of an insurance policy is plain and unambiguous, a court is bound by that language." Pennsylvania Nat'l Mut. Cas. Ins. Co. v. St. John. 106 A.3d 1, 15 (Pa. 2014). That principle, which is at the core the analysis here, controls.

Travelers agreed to indemnify GRC "against EXCESS NET LOSS arising out of an accident or occurrence during the policy period, subject to the limits of liability... and to all of the terms of this policy." Travelers' policies, "Indemnity Agreement, " Def Exs. 1 and 2 (doc. nos. 649-4 and 649-5 at 5-6). This insuring agreement is defined more specifically, as follows:

EXCESS NET LOSS means that part of the total of all sums which the INSURED becomes legally obligated to pay or has paid, as damages on account of any one accident or occurrence, and which would be covered by the terms of the Controlling Underlying Insurance, if written without any limits of liability, less realized recoveries and salvages, which is in excess of any self-insured retention and the total of the applicable limits of liability of all policies described in Section 3. Schedule of Underlying Insurance; whether or not such policies are in force.

Id. As referenced in the Indemnity Agreement, the "Schedule of Underlying Insurance" is set forth on a separate page of Travelers' policies and provides in part:









$2, 000, 000

$2, 000, 000




Def. Exs. 2 and 3 (doc. nos. 649-4 and 649-5 at 6).

Travelers' motion fundamentally skews the anlysis of the Schedule's plain language in order to reach the desired conclusion - that ICSOP's policy is the controlling umbrella insurance. There is no dispute that the ICSOP policy is numbered "4485-1093, " and declares $2 million limits of liability, "any one occurrence" and "in the aggregate, " for the period, August 1, 1985 to August 1, 1986. ICSOP "Declarations, " Def. Ex. 1 (doc. no. 649-3 at 4). Basically, these terms defining the policy number, limits, and period are the same as those contained in Travelers' Schedule. Based largely on this comparison, the motion asserts: "It is clear from the matching policy number and policy limits ... that the ICSOP Policy is the Controlling Underlying Insurance." Def. Reply at 3. What is omitted from this analysis of the Schedule's plain language is any consideration of the Schedule's naming of "Granite State" as the carrier for a "Granite State" controlling umbrella policy.

Importantly, Travelers' policies indemnify GRC against liability claims for damages "which would be covered by the terms of the Controlling Underlying Insurance . . . whether or not such policies are in force." Indemnity Agreement. Accordingly, crossing out "Granite State, " and inserting "ICSOP, " would materially alter the insurance protection that GRC purchased.

As to the Schedule's identification of the controlling umbrella policy, there is no ambiguity to be found within the four corners of Travelers' policies. The plain language of the Indemnity Agreement and the Schedule define one "umbrella liability insurer" -that is, "Granite State, " for one "Granite State" policy numbered "44851093." The parties agree that the Schedule's use of "Granite State" denotes a non-party carrier, Granite State Insurance Company. Accordingly, the Schedule contained in Travelers' policies will be enforced according to its plain written terms, as required by Third Circuit and Pennyslvania law. Even though this ruling is dispositive of the questions presented for decision here, the following clarifies certain issues and arguments posited by Travelers' motion.

The proposition that "Granite State" really means "ICSOP" is an assertion of fact founded on inferences drawn from circumstances and materials that are extrinsic to the plain language of Travelers' policies. In short, Travelers' motion is not one to interpret the meaning of the Schedule's express terms. Instead, it is one to reform Travelers' policies to coincide with the parties' supposed intent - in Travelers' view, that the ICSOP policy should be the controlling umbrella insurance. Yet Travelers did not plead a counterclaim for reformation or resscission of its policies. Moreover, Travelers' motion does not identify the mistake that supposedly led to the naming of Granite State - how it came about, who made it when, or why the omission of ICSOP should be readily apparent as a mistake.

Our Court of Appeals has long recognized that under the guise of contract interpretation, a court is not empowered to "'rewrite policies.'" Union Paving Co. v. Thomas. 186F.2d 172, 176 (3d Cir. 1951) (quoting Globe Indem. Co. v. Liberty Mut. Ins. Co.. 138F.2dl80, 184(3dCir. 1942) ("A court may not rewrite policies of insurance or supply missing allegations to a petition.")). "Nor can the insurer's obligation be enlarged or varied by judicial construction." Id. (internal quotation marks and citation omitted). The "burden of drafting with precision rests with the insurance company, the author of the policy." Meyer, 648 F.3d at 163 (citing J. C. Pennev Life Ins. Co. v. Pilosi. 393 F.3d 356, 365 (3d Cir. 2004)).

Pennsylvania's law is in accord. For example, in Pennsylvania Gen. Ins. Co. v. Barr. 257 A.2d 550 (Pa. 1969), the two policies at issue provided uninsured motorist coverage, but neither specified the limits of the insurer's liability. A demand for arbitration of disputed amounts owed under the policies was made. The insurer sued for an injunction to restrain arbitration until the nature and extent of the UIM coverage had been judicially determined. The trial court dismissed the complaint, ruling that arbitration, not judicial proceedings, was the sole forum for resolution of the dispute. On appeal, the insurer asserted that the absence of an express limit of liability was readily apparent on the face of the policies, and the lower court should have reformed the policies to remedy that mistake. Barr affirmed the dismissal, ruling that the question of mistake and request for reformation were not properly presented below:

Of course, a court of equity has the power to reform a written instrument where mutual mistake is shown. In this case, however, there was no such showing. Nothing in the record, or in [the insurer's] brief or argument, indicates what precisely the mistake was, how it came about, why it was readily apparent to the policy holder, and what provisions of the policies are in need of reformation. Indeed, [the insurer] did not plead mistake, mutual or otherwise, and failed to pray for reformation. Rather, the complaint sought only interpretation of certain contractual provisions.

Id. at 460-61. Here, Travelers asserts that the Schedule is incorrect; otherwise the record and arguments in this case are comparable ...

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