Gen. Refractories Co. v. First State Ins. Co.

• Decision Date: 27 March 2012
• Docket Number: Civil Action No. 04–3509.
• Citation: 862 F.Supp.2d 382
• Parties: GENERAL REFRACTORIES COMPANY v. FIRST STATE INSURANCE CO., et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

862 F.Supp.2d 382

GENERAL REFRACTORIES COMPANY

v.FIRST STATE INSURANCE CO., et al.

Civil Action No. 04–3509.

United States District Court, E.D. Pennsylvania.

March 27, 2012.

Mark E. Gottlieb, Michael Conley, William H. Pillsbury, Offit Kurman PA, Philadelphia, PA, for General Refractories Company.

Ann M. Ungvarsky, William J. Bowman, Jeremy T. Monthy, Hogan & Hartson, LLP, James P. Ruggeri, Joshua D. Weinberg, Michele L. Backus, Shipman & Goodwin LLP, Washington, DC, Gregory T. Locasale, Michael E. Difebbo, Jr., Marjorie A. Weiss, White & Williams LLP, John P. Hartley, Howard M. Cyr, Paul M. Quinones, Harvey Pennington Ltd., C. Lawrence Holmes, James J. Rodgers, Francis P. Maneri, Dilworth Paxson LLP, Elit R. Felix, II, Margolis Edelstein, Jennifer L. Corry, Nicole J. Rosenblum, Ronald P. Schiller, Hangley Aronchick Segal & Pudlin, Samuel J. Arena, Jr., Daniel T. Fitch, Stradley, Ronon, Stevens & Young, Paul M. Hummer, Joseph Coleman Monahan, Saul Ewing LLP, Philadelphia, PA, Jerome Doctors, Lynberg & Watkins PC, Los Angeles, CA, Karen H. Moriarty, Kevin E. Wolff, Coughlin Duffy LLP, Morristown, NJ, Marc Paul Gorfinkel, Rivkin Radler LLP, Uniondale, NY, Robert E. Stagg, Perrie, Buker & Stagg, P.C., Atlanta, GA, Susan Simpson Brown, Koch & DeMarco, Wendy H. Koch, Koch And Corboy, Jenkintown, PA, James F. McNaboe, Cortner McNaboe Colliau & Elenius, Monmouth Junction, NJ, Daniel I. Schlessinger, Ernesto R. Palomo, Locke Lord Bissell & Liddell LLP, Chicago, IL, for First State Insurance Co., et al.

MEMORANDUM

LUDWIG, District Judge.

All of the eleven defendants in this action again move for summary judgment (doc. no. 346 sealed).¹Fed.R.Civ.P. 56. See footnote 1 for case history. Jurisdiction is diversity. 28 U.S.C. § 1332.

Plaintiff General Refractories Company (GRC), a manufacturer and supplier of asbestos-containing products, sued its insurance carriers for a declaration of excess liability insurance coverage in some 33,000 underlying asbestos-related suits pending throughout the United States.² GRC purchased the insurance policies between 1979 and 1985. After defendants denied coverage, GRC entered into “two-tiered or conditional” settlements ³ with many of the underlying claimants.

Defendant insurers' ⁴ motion asserts that GRC under the pertinent policies cannot prove any damages. Its position is that under each policy the insuring agreementis to pay only what GRC is obligated to pay “by reason of liability imposed by law for damages.” ⁵ GRC, they say, “has not paid one penny to the claimants” in thousands of the settlements and “never will.” Defs. br. at 1, doc. no. 346. This is so, they continue, because GRC's promises to fund the settlements are restricted to the proceeds of whatever may be collected in the present action, and policy exclusions eliminate coverage for the underlying claims. Id. at 1, 6–7.⁶ According to defendants, they have no legal obligation to pay what GRC is not obligated to pay “from its own financial resources”: “[I]n return for a complete and absolute release ..., GRC agreed that the claimants would be paid if, and only if, GRC prevails in this coverage litigation.... [In the event GRC does not recover damages in this litigation], claimants agreed to receive nothing and have no recourse against GRC.” Id. at 1–2, 3, 8, 9.⁷ Because the settlements “impose no legal liability on GRC whatsoever” to pay the underlying claimants' damages, defendants aver that they have no obligation to indemnify GRC. Id. at 2; Defs. reply br. at 1–2, doc. no. 400.

GRC opposes the motion. It asserts entitlement to an award of each defendant's share necessary to pay for the underlying settlements as well as GRC's defense costs and other declaratory judgment relief. According to GRC, each policy's insurance agreement encompasses the settlements it made in the underlying lawsuits.⁸ Pl. br. at 10–11, doc. no. 369.

Barry L. Katz, Esq., GRC's Rule 30(b)(6) representative, testified:

A. There was a time period in 2000–2001 where there were settlements that had a cash component and a non-cash component.

* * *

Q. Is it your understanding ... that every entry on the queue that shows a cash payment is related to a settlement for which GRC has already been indemnified by some other insurer other than the ones that are defendants in this action?

A. If there was a cash payment, it was paid by an insurance company. I believe that's the case.

* * *

Q. [A]re there any claims where GRC has paid cash out of pocket and it's seeking recovery in this litigation for such claims?

A. Not that—leaving aside defense costs, separate-issue claims, I don't believe so.

* * *

Q. Am I correct that when GRC enters into one of these settlement agreements, where it gives the plaintiffs an interest in the outcome of this litigation, that GRC does not pay any cash out of pocket with respect to those settlements?

A. Yes.

Q. Is that true in all instances?

A. Yes.

* * *

Q. Who first proposed that the underlying claimants settle cases without accepting a present cash payment?

A. I did.... Because General Refractories was running out of insurance ... as to which the carriers had agreed to provide coverage.... Originally the proposal was that as to any settlements entered into, they would get half cash and half an interest in the litigation.... The reason being that there was still insurance companies covering General Refractories and money available. But it was clear that the writing was on the wall.... GRC would run out. And, so, originally it was half cash, half the arrangement to be paid later. And when the insurance actually ran out, it became fully to be paid later.

* * *

Q. Aside from insurance proceeds, at the time when—I'm using your words—the insurance ran out, did GRC have any other assets?

A. Effectively, no. It did not.

* * *

Q. If this case comes to a conclusion, say there's a judgment in favor of the defendants, and GRC recovers no money, what do the underlying claimants get in that instance?

A. No money.

* * *

Q. So, if the defendants win this case and GRC recovers nothing, do any of the underlying claimants ... have any recourse to GRC for any further payment?

A. I don't believe so.... I can tell you that my understanding of the actual agreements with them, the settlement agreements and releases, is that they've released General Refractories with respect to their cases and the only consideration that they're getting is their settlement amount. And that payment obligation is only with respect to the outcome of this case.

Katz dep., 1058:12–15, 1059:6–14, 1060:5–9, 1109:12–20, 1110:4–1111:6, 1111:17–21, 1222:25–1223:5, 1223:6–1224:25, LoCasale Aff., Ex. 12, doc. no. 346.

Pennsylvania substantive law, as the parties agree, governs this damages dispute. In an action based on diversity of citizenship, a federal court generally applies the damages law of the jurisdiction in which it sits. Kaneff v. Del. Title Loans, Inc., 587 F.3d 616, 621 (3d Cir.2009) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)); Thabault v. Chait, 541 F.3d 512, 521 (3d Cir.2008) (validity of a theory of damages is “a matter uniquely subject to state law principles”) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938)). Under Pennsylvania law, an insurance contract is governed by the law of the state in which the contract was made. Meyer v. CUNA Mut. Ins. Soc'y, 648 F.3d 154, 162 (3d Cir.2011) (citing Crawford v. Manhattan Life Ins. Co. of N.Y., 208 Pa.Super. 150, 221 A.2d 877, 880 (Pa.Super.Ct.1966)). The law of the state where the insurance policy was delivered to the insured is the law to be applied in construing its terms. Peele v. Atl. Exp. Transp. Group, Inc., 840 A.2d 1008, 1011 (Pa.Super.Ct.2003); Crawford, 221 A.2d at 881. Here, GRC's business premises in Pennsylvania will be presumed to be the place of delivery, and the record does not contain evidence to the contrary. See Compl. (premises located in Bala Cynwyd, Pa.).

A federal court sitting in diversity must apply the law of the state that governs the issue to be decided. Mitchell Partners, L.P. v. Irex Corp., 656 F.3d 201, 203 (3d Cir.2011) (citing Klaxon, 313 U.S. at 496–97, 61 S.Ct. 1020). “In the absence of a definitive ruling by a state's highest court, we must predict how that court would rule if faced with the issue.” Meyer, 648 F.3d at 164. For this purpose, “decisions of state intermediate appellate courts, of federal courts interpreting that state's law, and of other state supreme courts that have addressed the issue, as well as ... analogous decisions, considered dicta, scholarly works, and any other reliable data tending convincingly to show how the highest court in the state would decide the issue at hand” offer guidance. Id. (citations and internal quotation marks omitted). “ ‘Although not dispositive, decisions of state intermediate appellate courts should be accorded significant weight in the absence of an indication that the highest state court would rule otherwise.’ ” Allstate Prop. & Cas. Ins. Co. v. Squires, 667 F.3d 388, 391 (3d Cir.2012) (quoting Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1373 n. 15 (3d Cir.1996)).

The question here is whether the conditional settlements entered into by GRC are permissible under Pennsylvania law. Because the Pennsylvania Supreme Court has not ruled on this issue, it is necessary to predict the conclusion it would reach in the event that it did so. The controlling case in this area, decided by our Court of Appeals, is Trustees of the Univ. of Pa. v. Lexington Ins. Co., 815 F.2d 890 (3d Cir.1987) (Becker, J., later C.J.). Judge Becker found Alfiero v. Berks Mut. Leasing Co., 347 Pa.Super. 86, 500 A.2d 169 (Pa.Super.Ct.1985), appeal denied (Sept. 9, 1986) “the most persuasive indication of the position of Pennsylvania law,” predicting that Pennsylvania would uphold the validity of two-tiered conditional settlements when the insurer refused...