Rohm and Haas Co. v. Continental Cas. Co.

• Decision Date: 18 October 2001
• Citation: 566 Pa. 464,781 A.2d 1172
• Parties: ROHM AND HAAS COMPANY and Rohm and Haas Delaware Valley Inc., Appellants, v. CONTINENTAL CASUALTY COMPANY, et al., and The Home Insurance Company, Appellees. Rohm nd Haas Company and Rohm and Haas Delaware Valley Inc., Appellants, v. Continental Casualty Company, et al., and Certain Underwriters at Lloyd's, London and Certain London Market Insurance Companies, Appellees.
• Court: Pennsylvania Supreme Court

781 A.2d 1172

566 Pa. 464

ROHM AND HAAS COMPANY and Rohm and Haas Delaware Valley Inc., Appellants, v. CONTINENTAL CASUALTY COMPANY, et al., and The Home Insurance Company, Appellees.

Rohm nd Haas Company and Rohm and Haas Delaware Valley Inc., Appellants, v. Continental Casualty Company, et al., and Certain Underwriters at Lloyd's, London and Certain London Market Insurance Companies, Appellees.

Supreme Court of Pennsylvania.

Argued October 17, 2000.

Decided October 18, 2001.

Steven Andrew Reed, Arlin M. Adams, John G. Harkins, Nancy J. Gellman, William J. O'Brien, Philadelphia, Paul H. Titus, Pittsburgh, for Rohm and Haas Company and Rohm and Haas Delaware Valley, Inc.

Dale G. Larrimore, Philadelphia, for Pennsylvania Trial Lawyers Ass'n.

Marc J. Sonnenfeld, Philadelphia, for Pennsylvania Chamber of Business and Industry.

John J. Walliser, Glenshaw, for Pennsylvania Environmental Council.

John Alexander MacDonald, Philadelphia, for United Policyholders.

William J. Brennan, Philadelphia, for Home Insurance Co.

Frank Eugene Noyes, Judith Nichols Renzulli, Philadelphia, for Insurance Environmental Litigation Ass'n.

Gary Westerberg, Chicago, Il., Elit R. Felix, Jerome J. Shestack, Philadelphia, for Certain Underwriters at Lloyd's, London.

Before FLAHERTY, C.J., and ZAPPALA, CAPPY, CASTILLE, NIGRO, NEWMAN and SAYLOR, JJ.

OPINION ANNOUNCING THE JUDGMENT OF THE COURT

FLAHERTY, Chief Justice:

This is an appeal by allowance from the judgment of the superior court reversing the trial court's grant of judgment notwithstanding the verdict (JNOV) in favor of appellants, Rohm & Haas. In this case involving comprehensive general liability coverage (CGL)¹ for the cleanup of serious environmental pollution of the soil, groundwater and surface water of a manufacturing site formerly owned and operated by appellants, appellants present three issues for this court's review. The first issue is whether JNOV was properly entered with respect to the appellee insurance companies' defense via the "known loss" doctrine, a matter of first impression before this court. The second is whether JNOV was properly granted with respect to appellees' defense of fraud. The final issue is whether JNOV was properly granted with respect to appellees' defense of late notice.

Appellants are manufacturers of specialty chemicals headquartered in Philadelphia. In June 1964, appellants, through a wholly owned subsidiary, purchased Whitmoyer Laboratories, a small veterinary pharmaceuticals company, and continued operations. Shortly thereafter, appellants discovered that the site was extensively polluted with arsenic waste, a byproduct of Whitmoyer's and appellants' manufacturing processes.² Although appellants undertook remedial measures to clean up the site, arsenic waste continued to be produced as a result of appellants' operations. In 1978, appellants sold the site to Smith-Kline Beecham.

In December 1964, appellants added the Whitmoyer site to existing CGL insurance coverage it held with appellee insurers. Appellants periodically purchased from appellees additional policies that covered Whitmoyer throughout the time that they operated the site and were aware of the contamination. Although appellants disclosed the problem to their primary coverage insurer and to their insurance broker as well as to the proper commonwealth authorities, there is no evidence that the excess insurers were ever notified of the pollution problem.

In 1980, Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).³ This act retroactively imposes strict liability for environmental cleanup costs on present and former owners or operators of polluting facilities without regard to fault. Subsequently, the Environmental Protection Agency notified appellants that they were strictly liable for the cleanup costs associated with the Whitmoyer site. In 1988, twenty-four years after becoming aware of the severe pollution at Whitmoyer, appellants notified their excess insurers that they were asserting a claim to cover the Whitmoyer cleanup costs, more than twenty-one million dollars. Appellees denied the claim and appellants brought suit.

The parties agreed to a bifurcated trial, with the liability trial before a jury and any subsequent damages trial to be held before the bench. After a nine-and-one-half week liability trial, the trial court directed a verdict in appellants' favor on the issue of appellees' late notice defense and submitted a verdict form containing seven questions for the jury's consideration. The jury, in response to the special verdict interrogatories, determined that no coverage existed as it found in favor of appellees on, inter alia, the following questions

by answer to Jury Verdict Question No. 7: That Rohm & Haas failed to disclose material facts about the arsenic pollution at Whitmoyer when it purchased the excess policies [the fraud issue]; [and] by answer to Jury Verdict Question No. 3: That at the time it contracted with the excess liability insurers, Rohm & Haas knew of damage or injury for which there would be legal liability large enough to reach the excess policies [the known loss issue]....

Rohm and Haas Co. v. Continental Casualty Co., 732 A.2d 1236, 1245 (Pa.Super.1999). After post-trial motions were filed, the court entered JNOV on the jury's verdict with respect to questions 3 and 7, among others.⁴ Superior Court reversed the trial court with respect to both questions and with respect to the late notice defense, and a timely appeal to this court followed.

Our scope of review with respect to whether JNOV is appropriate is plenary, as with any review of questions of law. Phillips v. A-Best Products Co., 542 Pa. 124, 665 A.2d 1167, 1170 (1995). It is axiomatic that, "[t]here are two bases upon which a judgment n.o.v. can be entered: one, the movant is entitled to judgment as a matter of law, and/or two, the evidence was such that no two reasonable minds could disagree that the outcome should have been rendered in favor of the movant." Moure v. Raeuchle, 529 Pa. 394, 604 A.2d 1003, 1007 (1992) (citations omitted). To uphold JNOV on the first basis, we must review the record and conclude "that even with all the factual inferences decided adverse to the movant the law nonetheless requires a verdict in his favor, whereas with the second [we] review the evidentiary record and [conclude] that the evidence was such that a verdict for the movant was beyond peradventure." Id.

When we review a motion for JNOV, we must consider the evidence in the light most favorable to the verdict winner, who must receive "the benefit of every reasonable inference of fact arising therefrom, and any conflict in the evidence must be resolved in his favor." Id. (citing Broxie v. Household Finance Co., 472 Pa. 373, 372 A.2d 741, 745 (1977)). Any doubts must be resolved in favor of the verdict winner, and JNOV should only be entered in a clear case. Id. Finally, "a judge's appraisement of evidence is not to be based on how he would have voted had he been a member of the jury, but on the facts as they come through the sieve of the jury's deliberations." Id. (citing Brown v. Shirks Motor Express, 393 Pa. 367, 143 A.2d 374, 379 (1958)).

As it raises a matter of first impression before this court, we will first turn our attention to the entry of JNOV with respect to question no. 3. As Superior Court observed, "[t]he `known loss' doctrine has not been tested in the state courts of Pennsylvania, [but] has been recognized by the courts of other states." Rohm and Haas, supra, at 1256 (quoting UTI Corp. v. Fireman's Fund Ins. Co., 896 F.Supp. 362, 375 (D.N.J.1995)(a case in which the federal district court predicted Pennsylvania law)). Superior Court described the known loss doctrine as follows:

The known loss doctrine is a common law concept that derives from the fundamental requirement of fortuity in insurance law. Essentially, the doctrine provides that one may not obtain insurance for a loss that either has already taken place or is in progress. As we have recognized, the rule is based on the realization that the purpose of insurance is to protect insureds against unknown risks. State courts are divided as to the scope of the known loss doctrine. Some have construed it quite narrowly, barring coverage only when the insured knew of certainty of damages and liability. Others have refused to find coverage when the insured was substantially aware of a risk of loss.

Rohm and Haas, supra at 1256 (quoting Pittston Co. Ultramar America Ltd. v. Allianz Ins. Co., 124 F.3d 508, 517 3d Cir.1997) (citations and quotations omitted). The questions presented here are whether this doctrine is recognized in Pennsylvania, and if so, how broadly or narrowly should it be construed.

Appellants argue that if it exists at all, courts should employ a narrow construction of the doctrine. They urge that its application requires the existence of certain knowledge of a particular legal liability large enough to reach the excess layers of insurance at the time of contracting; for example, an entry of judgment on a claim by a third party against the insured that exceeds the CGL threshold. Appellees, on the other hand, argue that courts should employ a broad construction of the doctrine. That is, an insured's mere awareness of a substantial probability of liability large enough to reach the excess layers of insurance at the time of contracting is sufficient to satisfy the requirements of the doctrine.

While the known loss doctrine has not been formally adopted in Pennsylvania, this court has long required insurance applicants to make full and fair disclosure of all things material to the insurable risk. Smith v. Northwestern Mut. Ins. Co., 196 Pa. 314, 46 A. 426 (1900), See also American Union Life Ins. Co. v. Judge, 191 Pa. 484, 43 A. 374 (1899). On their faces these cases seemingly support the proposition that when an insured knows of an insurable...