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Consolidated Rail Corp. v. ACE property & Casualty insurance Co.

Superior Court of Pennsylvania

March 23, 2018

CONSOLIDATED RAIL CORPORATION Appellant
v.
ACE PROPERTY & CASUALTY INSURANCE CO. (FORMERLY AETNA INS. CO.), ALLIANZ GLOBAL RISKS U.S. INSURANCE CO. (FORMERLY ALLIANZ INS. CO.), ALLIANZ UNDERWRITERS INSURANCE CO., ALLSTATE INSURANCE CO. (AS SUCCESSOR IN INTEREST TO NORTHBROOK EXCESS & SURPLUS INS. CO. A/K/A NORTHBROOK INS. CO.), AMERICAN HOME ASSURANCE CO. (AMERICAN INTERNATIONAL GROUP), AMERICAN MOTORISTS INSURANCE CO. (KEMPER), AVIVA INSURANCE CO. OF CANADA (U.S. BRANCH), (FORMERLY GAN GENERAL INS. CO. (FORMERLY SIMCOE & ERIE GENERAL INS. CO.)), BIRMINGHAM FIRE INSURANCE CO. OF PA. (AMERICAN INTERNATIONAL GROUP), BRITAMCO UNDERWRITERS, INC. C/O DEVONSHIRE GROUP, CENTURY INDEMNITY CO. (SUCCESSOR IN INTEREST TO CIGNA SPECIALTY INS. CO. (FORMERLY CALIFORNIA UNION INSURANCE CO.) AND AS SUCCESSOR TO CCI INSURANCE CO., SUCCESSOR TO INSURANCE CO. OF NORTH AMERICA), CONTINENTAL INSURANCE CO. (IN ITS OWN RIGHT AND AS SUCCESSOR IN INTEREST TO HARBOR INSURANCE CO.) (CNA INSURANCE COS.), EMPLOYERS MUTUAL CASUALTY CO. (EMC INSURANCE COS.), EMPLOYERS INSURANCE OF WAUSAU (FORMERLY EMPLOYERS MUTUAL OF WAUSAU), EVANSTON INSURANCE CO., EVEREST REINSURANCE CO. (FORMERLY PRUDENTIAL REINSURANCE CO.), FEDERAL INSURANCE CO. (CHUBB GROUP OF INS. COS.), FIREMAN'S FUND INSURANCE CO., FIRST STATE INSURANCE CO. (HARTFORD INSURANCE GROUP), GRANITE STATE INSURANCE CO. (AMERICAN INTERNATIONAL GROUP), HARTFORD ACCIDENT & INDEMNITY CO. (HARTFORD INSURANCE GROUP), HUDSON INSURANCE CO., INSCO C/O DEVONSHIRE GROUP, INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA (AMERICAN INTERNATIONAL GROUP), LANDMARK INSURANCE CO. (AMERICAN INTERNATIONAL GROUP), LEXINGTON INSURANCE CO. (AMERICAN INTERNATIONAL GROUP), LIBERTY MUTUAL INSURANCE CO., MIDSTATES REINSURANCE CORP. (FORMERY MEAD REINSURANCE CORP.), NATIONAL CASUALTY CO., NATIONAL UNION FIRE INSURANCE CO. OF PITTSBURGH, PA (AMERICAN INTERNATIONAL GROUP), NORTHWESTERN NATIONAL INSURANCE CO. (FORMERLY BELLEFONTE UNDERWRITERS INSURANCE CO.), OLD REPUBLIC INSURANCE CO., PACIFIC INSURANCE CO. (CNA INSURANCE COS.), REPUBLIC INSURANCE CO., ROYAL INSURANCE CO. OF AMERICA (FORMERLY ROYAL GLOBE INS. CO.) (ROYAL & SUN ALLIANCE INSURANCE GROUP), SENTRY INSURANCE GROUP (AS ASSUMPTIVE REINSURER OF GREAT SOUTHWEST FIRE INS. CO. AND GREAT SOUTHWEST SURPLUS LINES INS. CO.), ST. PAUL FIRE & MARINE INSURANCE CO. (ST. PAUL TRAVELERS COMPANIES), ST PAUL SURPLUS LINES INSURANCE CO. (ST. PAUL TRAVELERS COMPANIES), STONEWALL INSURANCE CO., TIG INSURANCE CO. (AS SUCCESSOR TO INTERNATIONAL INS. CO. (FORMERLY INTERNATIONAL SURPLUS LINES INS. CO.)) (FAIRFAX FINANCIAL (USA) GROUP), TIG PREMIER INSURANCE CO. (FORMERLY TRANSAMERICA INS. CO.) (FAIRFAX FINANCIAL (USA) GROUP), TRAVELERS CASUALTY AND SURETY CO. (FORMERLY ATENA CASUALTY AND SURETY CO.) (ST. PAUL TRAVELERS COMPANIES), TRAVELERS INDEMNITY CO. (ST. PAUL TRAVELERS COMPANIES), TWIN CITY FIRE INSURANCE CO. (HARTFORD INSURANCE GROUP), UNIONE ITALIANA REINSURANCE CO. OF AMERICA, INC., UTICA MUTUAL INSURANCE CO., ZURICH AMERICAN INSURANCE CO. (FORMERLY ZURICH INSURANCE CO.) AND CERTAIN LONDON MARKET INSURANCE COMPANIES AND PENNSYLVANIA PROPERTY & CASUALTY INSURANCE GUARANTY ASSOCIATION (FORMERLY PENNSYLVANIA INSURANCE GUARANTY ASSOCIATION) Appellees

          Appeal from the Judgment Entered April 8, 2015 In the Court of Common Pleas of Philadelphia County Civil Division at No(s): 002638 Civil Action Sept. Term, 2004.

          BEFORE: GANTMAN, P.J., LAZARUS, J., and PLATT, J. [*]

          OPINION

          GANTMAN, P.J.

         Appellant, Consolidated Rail Corporation ("Conrail"), appeals from the summary judgment entered in the Philadelphia County Court of CommonPleas, in favor of Stonewall Insurance Company ("Stonewall"), Continental Insurance Company ("Continental"), and Lloyd Italico & L'Ancora ("Lloyd"). For the following reasons, we affirm in part, reverse in part, and remand for further proceedings.

         This case involves Conrail's efforts to obtain indemnification for contamination remediation, clean-up costs, and other expenses related to toxic spills and releases at various geographic sites. The trial court set forth the relevant facts regarding the Elkhart site as follows:

From 1976 through 1999, Conrail owned a large classification yard for freight cars in Indiana. Beginning in 1986, the [United States Environmental Protection Agency ("EPA")] found significant amounts of [trichloroethene ("TCE")] and [carbon tetrachloride ("CCl4")] in portions of Conrail's property and in the groundwater under a large number of neighboring properties.
Conrail admits that [t]here is only one incident that resulted in carbon tetrachloride contamination at Elkhart-a release of [CCl4] in the vicinity of track number 69…in May 1968[, ] while Penn Central was operating Elkhart…eight years before Conrail began its own operations at Elkhart.
Conrail also claims that [t]he principal source of the TCE contamination at Elkhart was a release of TCE in the Track 65-66 area of the rail yard. The TCE emanating from the rail yard has reached the drag strip and the St. Joseph River on the northern border of the site. The EPA's expert, Gary Chirlin, opined that [s]ubstantial TCE contamination exists over the entire aquifer thickness…within this source area; this is consistent with a local release of sufficient magnitude that separate phase TCE [a dense non-aqueous phase liquid ("DNAPL")] penetrated nearly to bedrock. Conrail's lead environmental consultant at the Elkhart [s]ite, Miranda Menzies, testified that the nature of the contamination at Tracks 65-66-i.e., a large release of contaminants in undissolved form that sank through the soil into the aquifer-is consistent with a large spill from a tank car, as opposed to multiple small spills [which] would remain close to the soil surface. While the exact date of this release [of TCE] is unknown, it likely took place before 1976.
In addition, Conrail notes that its employees told the EPA that solvents were used as degreasers at the car shop, then poured onto concrete pads and hosed down; they did not specify the year(s) in which this occurred or the types of solvent(s) used.
Through September 2012, Conrail incurred over $15 million in remediation costs, approximately $3.8 million in government payments, and more than $2 million in defense costs in connection with the Elkhart [s]ite. Remediation is ongoing and Conrail continues to incur additional costs with respect to the Elkhart [s]ite.

(Trial Court Opinion, filed October 28, 2014, at 1-2) (internal quotation marks and footnotes omitted). The trial court set forth the relevant facts regarding the Hollidaysburg, Douglasville, Conway, Beacon, and Paoli sites as follows:

The Hollidaysburg, Pennsylvania, [s]ite was owned by Conrail from 1976 until 1999. It was a car shop, which was used to build, rebuild, and repair railway cars, and a reclamation plant, which was used to repair railcars and components, to recover parts and equipment from railcars, and to recycle rail equipment and materials that could no longer be used.
In 1997, the [Pennsylvania Department of Environmental Protection ("PaDEP")] and Conrail discovered over 3, 500 drums of waste material buried on the [s]ite. It appears that Conrail's predecessors buried the drums. In addition, there was apparently spilling and/or leaking of hazardous waste from [Conrail's] drum crusher and its catch basin onto the adjacent ground.
[Polychlorinated biphenyl ("PCB")] and lead contamination was found in the soil at the Hollidaysburg [s]ite, but not at any neighboring sites. Arsenic contamination was also a problem at the site. In addition, [n]aphthalene and various metals were present at levels exceeding established maximum allowable levels in the groundwater at the [s]ite, but Conrail's environmental consultants concluded that the contaminated groundwater was not migrating off-site.
The PaDEP ordered Conrail to excavate and remove the drums. Conrail was also ordered to install a control system to prevent off-site migration of surface water, submit a plan to control wind dispersion of contamination, and submit a groundwater monitoring plan to determine whether any contaminated groundwater was migrating off-site. Conrail promptly undertook the remediation required by [the PaDEP's] Administrative Order, which included the performance of groundwater flow and usage studies; the testing and monitoring of groundwater; the performance of an ecological assessment of the Beaverdam and Frankstown branches of the Juniata River; and the investigation of potential contamination at other locations at the [s]ite.
In connection with the Hollidaysburg [s]ite, Conrail paid $4, 999, 806.60 in remediation costs and $2, 828, 740.45 in defense costs which it seeks to recover [through indemnification]. It also paid $4.1 million in governmental fines and penalties for which it seeks coverage.
* * *
The Douglasville Disposal [s]ite is located in Pennsylvania. It was never owned or operated by Conrail. It was operated by Berks Associates as a waste oil recycling plant. Between 1976 when Conrail came into being and 1985 when waste oil processing ceased at the Douglassville [s]ite, Conrail sent its waste oil to be processed there, as did many other entities. At least one Conrail agent testified to the effect that Conrail contracted with Berks Associates to safely process and recycle its waste oil, and to do so in compliance with all applicable environmental regulations.
In the 1980s, the EPA investigated the [s]ite and discovered a panoply of contaminants, including [volatile organic compounds ("VOCs")], PCBs, [polycyclic aromatic hydrocarbons ("PAHs")], and lead in the soil, ground and surface water, which had emanated from [ten] different source areas of contamination at the [s]ite. The contamination was the result of Berks Associates' waste storage and disposal methods, including disposing of it in lagoons, landfarming it, and depositing filter cakes, as well as leaks and spills resulting from Berks' recycling operations. There were also serious risks [of further contamination] arising from Berks' abandoned processing facility.
Litigation and remediation took place over the next [ten] or more years. In 2001, Conrail and other potentially responsible parties entered into agreements regarding payment of their respective shares of the remediation costs. Conrail claims it paid $5, 983, 997.95 in such costs and incurred $1, 313, 053.02 in defense costs for both of which it seeks [indemnification]. Additional costs may yet be incurred by Conrail.
* * *
The Conway rail yard is located in western Pennsylvania. A creek, Crows Run, flows through a stone and concrete culvert under the rail yard. Upon exiting the culvert, Crows Run flows approximately 200 feet before joining the Ohio River. Thirty-eight storm water outfalls and drains intersect the rail yard and discharge into the Ohio River or into Crows Run along the culvert wall. Conrail operated Conway from 1976 until 1999.
[C]ertain areas at the Conway rail yard were contaminated with oil [as a result of releases occurring] both before and after April 1, 1976, [when Conrail assumed control of the site. The oil] leached and migrated through the soil and was able to enter Crows Run by way of the Conway drainage system, as well as from groundwater seepage through the culvert side wall.
Two documented oil releases occurred at Conway while Conrail was operating there. The first occurred on or around September 29, 1977, and resulted from a spill that made its way into the Ohio River through a sewer outfall. The release of oil appears to have continued unabated until approximately October 7, 1977. Although Conrail was never able to confirm the source of the spill, it was suspected that the discharge was caused when part of the wastewater treatment facility was temporarily shut down by a contractor hired to clean out sewer lines at the rail yard.
The second spill occurred in December 1979[, ] when an underground fueling pipe separated at a joint, causing the release of oil directly into the ground (as opposed to directly into Crows Run) near a building in the vicinity of Crows Run. Approximately 25, 000 gallons of oil [were] recovered from Crows Run during and immediately after the spill; the quantity of oil that was released from the pipeline but stayed in the ground and was not [immediately] released to Crows Run or the river is unknown. Although the spill was originally thought to have occurred because of a ruptured pipeline, the actual source of the spill was identified on December 31, 1979[, ] as a separated pipeline and was repaired by January 2, 1980. Booms and other recovery efforts were implemented to remove oil from Crows Run.
There were also two, non-oil, chemical spills at Conway, one of styrene monomer in 1984[, ] and one of carbon disulfide in 1985.
Conrail admits that it knew about the existing oil contamination when it assumed control of Conway, but denies that it knew until the 1990s that it would be liable for millions of dollars in remediation costs with respect to the [s]ite. Conrail seeks coverage relating to the remediation of diesel fuel and lubricant oil, as well as styrene and carbon disulfide, from the ground and subsurface of the rail yard, as well as from the groundwater, Crows Run, and the Ohio River.
Through December 2012, Conrail has incurred over $14 million in remediation costs, almost $1.2 million in government payments to the Commonwealth of Pennsylvania and the Borough of Conway, and more than $2 million in defense costs. Conrail continues to incur additional remediation costs.
* * *
The Beacon Park rail yard is located in Massachusetts and was operated by Conrail from 1976 through 1999. The rail yard is bisected by the Massachusetts Turnpike, so that it comprises two distinct units. Portions of both units are contaminated with [light non-aqueous phase liquids ("LNAPLs")], primarily oil and diesel fuel.
[T]he first area of contamination at the Beacon Park [s]ite is known as the "Charles River Chamber" area and is located near the diesel servicing facility in the loop track area. The Charles River Chamber is a collection point for several storm sewers. LNAPL in the surrounding groundwater entered the chamber through cracks and fissures in the sewer system, often as the result of heavy rains. The sources of this contamination are the various historical releases at the Beacon Park [s]ite as well as the diesel servicing area and the lube oil tank area west of the chamber, all of which migrated to the area surrounding the chamber.
The second area of contamination is located in the classification yard section of Beacon Park and is known as the "Control Tower" area. Contamination at the Control Tower area consists of a layer of LNAPL on the water table beneath the Turnpike and the northern portion of the rail yard. When precipitation increased the height of the water table, the oil would infiltrate a storm drain running through this area and flow into the Charles River.
Conrail knew, at the time that it took over operations of the Beacon Park rail yard, that there was contamination [there], and that an EPA Administrative Order had been issued regarding contamination at Beacon Park on March 1, 1976…. Conrail [also] knew, in August 1976, that it would be responsible for complying with an order issued by the Massachusetts Division of Water Pollution Control. Once Conrail completed the work required by these two orders, however, [Conrail claims] it had no reason to believe that it would be responsible for further remediation of the [s]ite. Conrail denies that it was aware in 1976, or at any other time during the period when [its insurers] issued policies, [that subsequent] remediation would approach the level of coverage provided by [its insurers' p]olicies.
There is evidence that at least two spills occurred [in the Charles River Chamber area after Conrail assumed operations of the rail yard]: a spill of approximately 2, 000 gallons of fuel reported to Conrail on November 1, 1981, and a spill of approximately 800 gallons on or about August 9, 1982.
With respect to the 1981 leak, the EPA determined that oil discharg[ing] from Conrail's corroded underground [two inch] pipe [entered] into surrounding earth, leached through the ground and groundwater into a storm conduit, flowed through the conduit to a junction box, and spilled through two culverts from the junction box to the Charles River. [C]ontamination from the pipe leak reached the Charles River Chamber area of Beacon Park. The leak occurred for [eight] days until Conrail located its source and capped the pipe.
[N]o identifiable release or source of the contamination in the Control Tower area of the yard was ever identified.
Conrail seeks coverage here for $5, 388, 264.76 in remediation costs and $352, 101.49 in defense costs. Conrail dropped its claim for approximately $2.5 million in government penalties that it paid.
* * *
The Paoli [s]ite was a rail yard and car shop that Conrail operated in Pennsylvania from 1976 through 1982, and which was operated by [the Southeastern Pennsylvania Transportation Authority ("SEPTA")] thereafter. [F]rom the early 1950s, railcars using transformer oil that contained PCBs were repaired and maintained at the Paoli rail yard…. [F]or most of the period before April 1, 1976, the hazards of PCBs were unknown and…from an environmental standpoint the PCB-containing transformer fluid was treated similarly to other oils. … [R]eleases of PCB-containing fluid onto the ground occurred during Conrail's and SEPTA's occupancy at the site, including some releases during maintenance operations.
[A]fter [Conrail] assumed operations at Paoli, federal and state regulations began to require that PCBs be treated as hazardous substances and Conrail's own internal policies began to require that PCBs be treated as a hazardous substance soon thereafter. [As a result, ] there was a significant decrease in the incidence of PCB discharges during the operations conducted by Conrail and…known spills were commonly cleaned up promptly.
However, on at least [twenty] different occasions between 1979 and 1985, PCBs spilled from railcars at the Paoli [s]ite. Conrail admits that the [railcar] transformers were designed to release PCB-containing fluid in the event of excessive pressure, but Conrail denies that th[is] "burping" of the transformers was routine or that it was the exclusive source of PCB releases into the ground at Paoli. Conrail [also] admits that leaks occurred from time to time from faulty gaskets or eroded and fractured sight glass on some cars, but denies that such leaks occurred frequently.
Conrail seeks $12, 766, 859.05 in indemnity costs and $5, 215, 407.74 in defense costs…. Some of those costs were incurred by SEPTA, which Conrail claims is an additional insured under the [p]olicies.

(Trial Court Opinion, filed October 28, 2014, at 1-11) (footnotes and some internal quotation marks omitted). The trial court set forth the relevant facts regarding the Lloyd principal-agent relationship as follows:

[Conrail] claims that [Lloyd] issued a $1, 000, 000 Umbrella Excess Liability [p]olicy to Conrail for the April 1, 1978 through April 1, 1979 policy period. [Lloyd] denies that it issued any such policy to Conrail. Due to the passage of time ([thirty-six] years), many relevant records have been lost or destroyed, memories have dimmed, and witnesses can no longer be found, so the court must determine which party must bear the consequences of this lack of evidence.
* * *
In support of its claim that [Lloyd] issued an insurance contract to Conrail, Conrail proffers a single page that purports to be an "Umbrella Excess Liability Policy Issued By [Lloyd]" (the "[Lloyd p]olicy"). It is signed by "Joseph F. Ambriano" on behalf of "PLAR GROUP." There is also a second page that purports to be "Endorsement No. 1" to the
[Lloyd p]olicy, which increases the coverage provided by the [p]olicy from $500, 000 to $1, 000, 000. That Endorsement is signed by "R.A. Browing" on behalf of the "Independence Marine Group." A third page purports to be "Endorsement No. 2" to the [p]olicy. It sets forth a computation of the earned premium based on Conrail's revenues during the [p]olicy year, which results in an additional premium payment due. Endorsement No. 2 was issued in July ...

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