Armotek Industries, Inc. v. Employers Ins. of Wausau

• Decision Date: 31 December 1991
• Docket Number: 90-6001,Nos. 90-5969,s. 90-5969
• Citation: 952 F.2d 756
• Parties: , 60 USLW 2463, 22 Envtl. L. Rep. 20,561 ARMOTEK INDUSTRIES, INC., Appellant/Cross Appellee in 90-5969, v. EMPLOYERS INSURANCE OF WAUSAU, Appellee/Cross Appellant in 90-6001.
• Court: U.S. Court of Appeals — Third Circuit

Page 756

952 F.2d 756

34 ERC 1772, 60 USLW 2463, 22 Envtl.

L. Rep. 20,561

ARMOTEK INDUSTRIES, INC., Appellant/Cross Appellee in 90-5969, v. EMPLOYERS INSURANCE OF WAUSAU, Appellee/Cross Appellant in 90-6001.

Nos. 90-5969, 90-6001.

United States Court of Appeals Third Circuit.

Argued Aug. 5, 1991.

Decided Dec. 31, 1991.

John P. O'Dea (argued), Craig R. Blackman, Stradley, Ronon, Stevens & Young, Philadelphia, Pa., Thomas P. Farnoly, Gruccio, Pepper, Giovinazzi & DeSanto, Vineland, N.J., for appellant.

Janet L.R. Menna (argued), William Gerald McElroy, Jr., Zelle & Larson, Waltham, Mass., for appellee.

Peter J. Kalis, Kirkpatrick & Lockhart, Pittsburgh, Pa., for Westinghouse Elec. amicus-appellant.

Dona S. Kahn, Anderson, Kill, Olick & Oshinsky, Philadelphia, Pa., for Com. of Pennsylvania amicus-appellant.

Thomas W. Brunner, Wiley, Rein, Fielding, Washington, D.C., for Insurance Environmental Litigation Ass'n.

Before MANSMANN and ALITO, Circuit Judges, DIAMOND, District Court. ^*

OPINION OF THE COURT

ALITO, Circuit Judge:

An insured sued to recover under general liability insurance policies for costs related to a state-mandated cleanup of toxic waste at an industrial site. The district court granted summary judgment for the insurer, holding that Pennsylvania rather than New Jersey law should be applied, and that under the policies the insured's claims were not covered because, as defined by the policies, no occurrence caused property damage while the policies were in effect. We will affirm.

I.

Armotek Industries, Inc. ("Armotek") was incorporated under the laws of New York ¹ but its principal place of business has always been in New Jersey. From 1979 to 1985, Armotek was covered by general liability insurance policies issued by Employers Insurance of Wausau ("Wausau"), a Wisconsin corporation. These policies obligated Wausau to pay "all sums which the insured shall become legally obligated to pay as damages because of ... property damage ... caused by an occurrence." The policies defined an "occurrence" as "an accident, including continuous or repeated exposure to conditions, which results in ... property damage." "Property damage" was defined to include "physical injury to property which occurs during the policy period." The policies also contained a standard pollution exclusion clause that excluded coverage for property damage caused by pollution unless the "discharge, disbursal, release or escape" of pollution was "sudden and accidental."

Armotek procured these policies through the Philadelphia office of an insurance brokerage, Alexander & Alexander, Inc. ("A & A"). As directed by Armotek, A & A canvassed the market and recommended coverage. A & A applied to Wausau in Philadelphia for the Armotek policies. A & A also conducted all negotiations with Wausau in Philadelphia. A & A, however, had no authority to secure coverage without express authorization from Armotek's chief financial officer. After the negotiations were completed, the policies were countersigned by Wausau in its Philadelphia office.

Wausau sent all premium bills to A & A's Philadelphia office; A & A then sent its own invoices to Armotek in New Jersey; Armotek sent A & A's Philadelphia office checks payable to A & A; and A & A then sent its own checks to Wausau's Philadelphia office.

In 1979, after securing its first policy, Armotek acquired the Chambers-Storch Company ("CSC"), which operated a chromeplating plant in Norwich, Connecticut. In 1984, the Connecticut Department of Environmental Protection ("DEP") inspected the Norwich facility, and in 1985 the Connecticut DEP ordered Armotek to remediate pollution at the plant. Armotek sought recovery under its Wausau policies for costs related to the DEP order, but Wausau denied any obligation to provide a defense or indemnification.

Armotek then filed this action in the United States District Court for the District of New Jersey, seeking to recover the costs incurred as a result of the DEP order. Wausau moved to transfer venue to the District of Connecticut, but Armotek opposed transfer, and the district court denied Wausau's motion. In ruling on this motion, the district court considered the choice-of-law question that would have to be decided by the court that ultimately adjudicated the case. The district court noted that neither Wausau nor Armotek was claiming that Connecticut law should apply. The court observed that the parties' choice-of-law dispute centered on whether Pennsylvania or New Jersey was the place of contracting.

In a later opinion, the district court ruled that Pennsylvania rather than New Jersey law would be applied. Applying the choice-of-law rules of the forum (New Jersey), the district court stated that the law of the place of contracting presumptively governs contract disputes, and the court concluded that the contracts in question had been formed in Pennsylvania, because the last act necessary to give the contracts binding effect, Wausau's countersignature, occurred in Philadelphia. The court then considered whether any factors other than the place of contracting were sufficient to require a choice of New Jersey law. The court noted that the policies had been negotiated in Pennsylvania and were "performed" in Pennsylvania, since that is where the premiums were paid. The court acknowledged that the location of Armotek's principal place of business weighed in favor of New Jersey law, but the court concluded that this lone factor was outweighed by the others.

On cross-motions for summary judgment, the court granted summary judgment for Wausau. The court observed that Armotek was seeking coverage for expenses incurred as a result of a spill of chromic acid that occurred in 1977. The court rejected Wausau's argument that government-mandated cleanup costs are not "damages" within the meaning of the policies, but the court held that the policies, which as noted were in effect from 1979 to 1985, did not cover property damage caused by the 1977 spill. The court also held that Wausau had not breached its duty to defend because nothing in the order issued by the Connecticut DEP "remotely suggest[ed] a 'sudden and accidental' release of pollution." Finally the court held that Wausau was not obligated to reimburse Armotek for costs incurred by Armotek in suing the prior owner of the Norwich plant and that Wausau had not violated 42 Pa.Cons.Stat.Ann. § 8371 (1991), which provides relief in cases in which an insurer "has acted in bad faith toward the insured." Armotek appealed, ² and Wausau cross-appealed, contesting the district court's holding that cleanup costs constitute "damages." ³

II.

We turn first to the choice-of-law argument pressed by Armotek. Armotek contends that the district court should have applied New Jersey law. Wausau maintains that the district court correctly decided to apply Pennsylvania law. Neither party argues that the law of Connecticut, the site of the Norwich plant, should be applied. We generally decide only those issues raised by parties, Winston v. Children & Youth Servs., 948 F.2d 1380, 1385 (3d Cir.1991); Beaver Valley Power Co. v. National Eng'g & Contracting Co., 883 F.2d 1210, 1217 n. 6 (1989), and accordingly we confine our analysis here to the question whether New Jersey rather than Pennsylvania law should govern. ⁴

Since this is a diversity case filed in the District of New Jersey, we must apply New Jersey choice-of-law rules. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941); Shuder v. McDonald's Corp., 859 F.2d 266, 268-69 (3d Cir.1988). In State Farm Mutual Automobile Insurance Co. v. Estate of Simmons, 84 N.J. 28, 37, 417 A.2d 488, 493 (1980), the New Jersey Supreme Court held:

[T]he law of the place of the contract will govern the determination of the rights and liabilities of the parties under the insurance policy. This rule is to be applied unless the dominant and significant relationship of another state to the parties and the underlying issue dictates that this basic rule should yield.

See also First State Underwriters Agency v. Travelers Insurance Co., 803 F.2d 1308, 1316 (3d Cir.1986).

The State Farm court (417 A.2d at 491) cited with approval Restatement (Second) Conflict of Laws § 188(2) (1971), which lists the following factors that should be considered as part of a court's conflict of laws analysis:

(a) the place of contracting;

(b) the place of negotiation of the contract;

(c) the place of performance;

(d) the location of the subject matter of the contract; and

(e) the domicile, residence, nationality, place of incorporation and place of business of the parties.

Applying these factors, the district court concluded that Pennsylvania law should be applied in this case. Armotek relies on the same factors, but contends that they were misapplied by the district court. We hold, however, that these factors weigh strongly in favor of Pennsylvania, rather than New Jersey law. ⁵

Place of contracting. The "place of contracting is the place where occurred the last act necessary ... to give the contract binding effect." Restatement (Second) Conflict of Laws § 188, comment c (1971); see also Fimbel Door Corp. v. United States Fidelity & Guaranty Co., No. 90-1187, 1990 WL 191920 at * 7-8, 1990 U.S. Dist. LEXIS 16032 at * 19-20 (D.N.J. Nov. 5, 1990); Crawford v. Manhattan Life Ins. Co., 208 Pa.Super. 150, 154, 221 A.2d 877, 880 (Pa.Super.Ct.1966); Varas v. Crown Life Ins. Co., 204 Pa.Super. 176, 183, 203 A.2d 505, 508 (Pa.Super.Ct.1964), cert. denied, 382 U.S. 827, 86 S.Ct. 62, 15 L.Ed.2d 72 (1965); McCrea v. Automatic Heat, Inc., 161 Pa.Super. 545, 547, 55 A.2d 564, 565 (Pa.Super.Ct.1947). The parties agree that the Wausau employees' countersignatures on the policies were the last acts necessary to make the policies valid and binding. Brief of Appellant at 16; Brief of Appellee at 23. A. 114-115. See also Appleman, Insurance Law and Practice § 7133 at...