Babcock & Wilcox Co. v. Am. Nuclear Insurers

• Decision Date: 10 July 2013
• Citation: 76 A.3d 1,2013 PA Super 174
• Parties: The BABCOCK & WILCOX COMPANY and B & W Nuclear Environmental Services, Inc., Appellees v. AMERICAN NUCLEAR INSURERS and Mutual Atomic Energy Liability Underwriters and other Interested Party: Atlantic Richfield Company. Appeal of American Nuclear Insurers and Atomic Energy Liability Underwriters. American Nuclear Insurers and Mutual Atomic Energy Liability Underwriters, Appellant v. The Babcock & Wilcox Company and B & W Nuclear Environmental Services, Inc., and Atlantic Richfield Company.
• Court: Pennsylvania Superior Court

76 A.3d 1

2013 PA Super 174

The BABCOCK & WILCOX COMPANY and B & W Nuclear Environmental Services, Inc., Appellees

v.AMERICAN NUCLEAR INSURERS and Mutual Atomic Energy Liability Underwriters and other Interested Party: Atlantic Richfield Company.

Appeal of American Nuclear Insurers and Atomic Energy Liability Underwriters.

American Nuclear Insurers and Mutual Atomic Energy Liability Underwriters, Appellant

v.The Babcock & Wilcox Company and B & W Nuclear Environmental Services, Inc., and Atlantic Richfield Company.

Superior Court of Pennsylvania.

Argued Oct. 31, 2012.

Filed July 10, 2013.

Andrew Amer, New York, New York, for American Nuclear and Mutual Atomic Energy, appellants.

James A. Datillo, Pittsburgh, for Atlantic Richfield, appellee.

Thomas M. Reiter, Pittsburgh, for B & W Nuclear, appellee.

BEFORE: MUSMANNO, J., OLSON, J., and WECHT, J.

OPINION BY WECHT, J.:

In this insurance coverage dispute, Appellants American Nuclear Insurers and Mutual Atomic Energy Liability Underwriters (collectively, “ANI”) challenge the trial court's February 17, 2012 Amended Final Order and Judgment. In that order, the trial court ruled, inter alia, that ANI was obligated to provide insurance coverage to Appellees The Babcock & Wilcox Company and B & W Nuclear Environmental Services (collectively, “B & W”) in the amount of $80 million plus pre-judgment interest. This constituted the aggregate amount that B & W, acting independently and over ANI's objections, paid hundreds of plaintiffs to settle federal damage claims arising from plaintiffs' exposure to radiation. We vacate the trial court's judgment and remand for further proceedings.

This is not the first time that this case has come before us. In 2002, we set forth the underlying facts and allegations as follows:

This case involves insurance coverage disputes for two nuclear fuel processing facilities: the “Apollo Facility” and the “Parks Facility.” In 1957, the Atomic Energy Commission ... licensed these facilities to possess nuclear material....

Since March 1958, ANI (or its predecessor) provided insurance coverage for nuclear hazards at the Apollo and Parks [F]acilities[, presently owned and operated by B & W and previously owned and operated by Atlantic Richfield Company (“ARCO”) ]. Over the years, the limits on the coverage increased from $3 million to $160 million [per facility] as of February 1979.

In June 1994, five individuals and three purported class representatives filed an action against B & W and ARCO in federal district court (“the Hall case”). These plaintiffs alleged that they sustained bodily injury and property damage caused by radioactive emissions from the Apollo Facility and the Parks Facility. Subsequently, amended complaints were filed adding approximately 300 named plaintiffs to the Hall case, but not substantially changing the causes of action. B & W and ARCO denied that the facilities released radioactive or toxic materials into the environment that exceeded the levels permitted by federal regulation. They further denied that any of the plaintiffs' [damages were] attributable to releases from the facilities.

In 1998, the federal district court tried eight “test cases” from the Hall case in a single jury trial. The jury returned verdicts in favor of the eight plaintiffs totaling $33.7 million against B & W and ARCO, and an additional $2.8 million against only B & W. However, the federal trial court subsequently granted a new trial based upon evidentiary errors. After the grant of a new trial, a coverage dispute arose regarding the limits of coverage available to indemnify B & W and ARCO against claims made in the Hall action. Additionally, a dispute arose as to whether B & W and ARCO are each entitled to counsel in the new trial....

While the new trial in the federal case was pending, ANI filed a declaratory judgment action in the Court of Common Pleas of Allegheny County against B & W and ARCO. ANI's Complaint sought declarations regarding[, inter alia,] whether it had a duty to provide separate counsel to ARCO in the Hall case. In addition, ANI also alleged bad faith and breach of contract by B & W. B & W filed its own action ... seeking declarations regarding the coverage issues, and alleging bad faith against ANI. These actions were consolidated....

On August 10, 2000, the trial court entered an Order, which had been agreed to by the parties, setting forth the issues for preliminary determination. This Order provided, in relevant part, as follows:

Until further Order of Court, the Actions shall proceed for the limited purpose of resolving the following legal issues (the “Issues for Resolution”):

a. Whether ANI, having acknowledged a duty to defend ARCO in the Hall Action, is obligated to pay for supplemental and/or independent defense counsel to represent and defend ARCO's separate interests in the Hall Action[?]

b. Whether ANI, having acknowledged a duty to defend B & W in the Hall Action, is obligated to pay for supplemental and/or independent defense counsel to represent and defend B & W's separate interests in the Hall Action[?]

Trial Court Order, 8/10/00. The trial court stayed all further action on the bad faith claims until the resolution of these issues.

Subsequently, ANI, B & W and ARCO each filed motions for partial summary judgment with respect to the Issues for Resolution, seeking declarations regarding the available policy limits and the duty to provide separate counsel. On April 5, 2001, the trial court entered an Order, which provided, in relevant part, as follows:

* * *

(2) ANI has a duty to pay for independent defense counsel to represent and defend the separate interests of B & W and ARCO in the Hall [A]ction....

Order, 4/25/01, at 2. ANI filed a Motion for reconsideration of the trial court's Order, which the trial court granted. On October 1, 2001, the trial court entered an Order again holding ... that ANI has a duty to provide separate counsel for ARCO in the Hall [A]ction. Order, 10/1/01. The trial court's Order also certified these issues for immediate appeal.

Babcock & Wilcox Co. v. Amer. Nuclear Ins., 1916 WDA 2001, Slip. Op. at 2–5, 2002 WL 31749119 (Pa.Super. Nov. 25, 2002) (unpublished). Following review, this Court affirmed the trial court's order.

The trial court, per the Honorable R. Stanton Wettick,¹ provides the following account of the events that followed our affirmance of the trial court's order:

[T]hrough negotiations with counsel retained by [B & W], the Hall plaintiffs settled their claims with [B & W] for less than the policy limits. The settlement funds were provided by [B & W]. ANI disagreed with the decision to settle.

At the request of the parties, I held a status conference following the settlement of the Hall [Action]. At the conference, there were no surprises. [B & W] is seeking reimbursement for the full amount paid to settle the Hall [Action], together with counsel fees. ANI is defending on the ground that it has no obligation to make any payment because [B & W violated] the consent to settlement clauses in the ... policies issued to [B & W].²

At the status conference, the parties requested that I address their disagreement over the legal standard to be applied in determining ANI's insurance coverage obligations.

The standard proposed by [B & W] is as follows:

If an insurer breaches its duty to consent to a reasonable settlement within insurance limits, the insured may settle without the insurer's consent, without forfeiting its insurance coverage, provided the settlement is reasonable and entered into in good faith. [B & W's] Motion for Ruling on the Legal Standard, Proposed Court Order.

The standard proposed by ANI is as follows:

This articulation of the bad faith standard which follows from Cowden v. Aetna Casualty and Surety Co., 389 Pa. 459, 134 A.2d 223 (Pa.1957), and its progeny should apply here. Accordingly, the Court should enforce ANI's Consent–to–Settlement Clauses and bar coverage for [B & W's] settlement [ ] unless [B & W] can show by clear and convincing evidence that: (a) there was no real chance of a defense verdict in the Hall Action; (b) there was little possibility of a verdict or settlement within policy limits; (c) ANI's decision to proceed to trial rather than settle was not based on their bona fide belief, predicated upon all of the circumstances of the case, that there was a good possibility of winning; and (d) ANI's decision to litigate rather than settle was made dishonestly. ANI's Memorandum of Law Regarding the Legal Standard at 15–16.

Trial Court Opinion (“T.C.O.”), 12/3/2009, at 1–3 (citations modified).

After reviewing the policies, the trial court agreed with ANI that, under the unambiguous language of the policies, ANI had “no obligation to reimburse [B & W] for any funds that [B & W] paid to settle the case.... [However,] B & W contends that the courts will not enforce standard consent to settlement clauses where the insured, acting in good faith, enters into a reasonable settlement at or below the policy limits.” Id. at 4. The learned trial court concluded that the Cowden standard provided the appropriate measure of ANI's obligation to fund B & W's negotiated settlement with the plaintiffs in the Hall litigation. Thus, only if B & W could plead and prove satisfaction of the four-part Cowden test would B & W be entitled to reimbursement for the $80 million it paid to settle the outstanding claims over ANI's objection.

Cowden is the seminal Pennsylvania precedent establishing an insurer's obligation to accept a settlement within the limits of the policy issued to the defendant “when there is little possibility of a verdict or settlement within the limits of the policy.” 134 A.2d at 226. However, the duty to settle under those circumstances is not absolute; even when an excess award is imminent if the fact-finder returns a verdict for the plaintiff, the insurer may decline to settle within policy limits and proceed to trial when it has a “bona...