General Refractories Co. v. First State Ins. Co.

• Citation: 500 F.3d 306
• Decision Date: 28 August 2007
• Docket Number: No. 05-4708.,05-4708.
• Parties: GENERAL REFRACTORIES COMPANY, Appellant v. FIRST STATE INSURANCE CO.; Westport Insurance Corporation, successor to, or formerly known as Puritan Insurance Company; Lexington Insurance Company; Centennial Insurance Company; Granite State Insurance Company; Potomac Insurance Company of Illinois; Hartford Accident & Indemnity Co.; Government Employees Insurance Co.; Republic Insurance Co.; Sentry Insurance Company, successor to, or formerly known as Vanliner Insurance Company formerly known as Great SW Fire Insurance Co.; American International Ins. Co.; AIU Insurance Company; Harbor Insurance Company; St. Paul Travelers Co., successor to, or formerly known as Aetna Casualty & Surety Company; American Empire Insurance Co.; Ace USA Inc., as successor to International Insurance Company.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

500 F.3d 306

GENERAL REFRACTORIES COMPANY, Appellant v. FIRST STATE INSURANCE CO.; Westport Insurance Corporation, successor to, or formerly known as Puritan Insurance Company; Lexington Insurance Company; Centennial Insurance Company; Granite State Insurance Company; Potomac Insurance Company of Illinois; Hartford Accident & Indemnity Co.; Government Employees Insurance Co.; Republic Insurance Co.; Sentry Insurance Company, successor to, or formerly known as Vanliner Insurance Company formerly

known as Great SW Fire Insurance Co.; American International Ins. Co.; AIU Insurance Company; Harbor Insurance Company; St. Paul Travelers Co., successor to, or formerly known as Aetna Casualty & Surety Company; American Empire Insurance Co.; Ace USA Inc., as successor to International Insurance Company.

No. 05-4708.

United States Court of Appeals, Third Circuit.

Argued June 14, 2007.

Filed: August 28, 2007.

Barry L. Katz (Argued), Bala Cynwyd, PA, for Appellant General Refractories Co.

John N. Ellison, Michael Conley (Argued), Jocelyn A. Gabrynowicz, Anderson Kill & Olick, P.C., Philadelphia, PA, Amy Bach, Mill Valley, CA, for Amicus Curiae United Policyholders in support of General Refractories Co.

Francis P. Maneri (Argued), Dilworth Paxson LLP, Philadelphia, PA, for Appellee Westport Insurance Corp. (successor to Puritan Insurance Co.).

Paul M. Hummer, Joseph Monahan, Saul Ewing LLP, Philadelphia, PA, for Appellee American Empire Surplus Lines Insurance Company.

Marc P. Gorfinkel, Rivkin Radler, LLP, Uniondale, NY, Wendy H. Koch, Koch & Corboy, Jenkintown Plaza, PA, for Appellee Sentry Insurance Co.

Cynthia Ruggerio, Christie, Pabarue, Mortensen & Young, Philadelphia, PA, for Appellee One Beacon America Insurance Company, as successor in interest to Potomac Insurance Company (improperly identified as Potomac Insurance Company of Illinois).

Kevin E. Wolff, Karen H. Moriarty, Couglin Duffy, LLP, Morristown, NJ, for Appellee Centennial Insurance Company.

BEFORE: FUENTES, GREENBERG and NYGAARD, Circuit Judges.

OPINION OF THE COURT

GREENBERG, Circuit Judge.

I. INTRODUCTION

Plaintiff General Refractories Company ("GRC") appeals from the district court's dismissal of its declaratory judgment and breach of contract action against 16 defendant insurance companies¹ for failure to join parties as defendants pursuant to Federal Rule of Civil Procedure 12(b)(7). In particular, it asks us to consider whether the district court erred in determining that various insurers GRC did not name in its complaint as defendants, i.e., the absent insurers, were both "necessary" and "indispensable" to this action as Federal Rule of Civil Procedure 19 defines those terms. For the reasons that follow, we conclude that they were neither, and, accordingly, we will reverse.

II. FACTS AND PROCEDURAL HISTORY

GRC is a manufacturer, distributor, and seller of asbestos-containing products that plaintiffs have named as a defendant in thousands of asbestos-related lawsuits filed throughout the United States in both state and federal courts. GRC maintains that from 1979 to 1986, it purchased excess and umbrella liability insurance policies from either defendants or their predecessors-in-interest.² Notwithstanding its acquisition of these policies, GRC's attempts to obtain coverage from defendants for asbestos claims filed against it have met with little success thus far.³ See Gen. Refractories Co. v. First State Ins. Co. ("GRC"), 234 F.R.D. 99, 100 (E.D.Pa.2005) ("Plaintiff submitted these claims to its comprehensive general liability insurers, which tendered defenses and indemnification until their policy limits were exhausted. On one basis or another, all of defendants' policies purport to exclude asbestos-related personal injury claims; and defendants denied coverage.") (internal citations omitted).

On July 23, 2004, GRC filed a two-count complaint in the district court against defendants. First, GRC sought a declaratory judgment "that any asbestos-related exclusions in [defendants'] Policies [we]re invalid and unenforceable" and that defendants were required "to pay for GRC's defense of the Underlying Actions, and to reimburse GRC for, or pay on behalf of GRC, any and all judgments or settlements reached in the Underlying Actions, until such time as the total aggregate limits of each of the foregoing insurance policies have been exhausted." J.A. at 69-70. Second, GRC stated a breach of contract claim, alleging that defendants had "refused to honor their obligations to provide GRC with a defense or indemnification in and for the Underlying Actions" and seeking, among other things, "[t]he entry of an award requiring the Defendants to pay GRC all monetary damages suffered by GRC caused by their breaches, including, without limitation, compensatory damages, consequential damages, prejudgment interest, post-judgment interest, and attorneys' fees and costs." Id. at 70-71. It is undisputed that GRC expressly chose not to name all of the insurers that provided it with coverage because it believed that some of the policies were subject to releases, their limits had been exhausted, or the insurers who had issued the policies were insolvent or non-diverse from GRC.⁴

After GRC filed its complaint, five of the 16 excess and umbrella insurance companies named as defendants moved to dismiss the same pursuant to Federal Rule of Civil Procedure 12(b)(7) for failure to join indispensable parties under Federal Rule of Civil Procedure 19. Defendants predicated their motions on the theory that GRC had failed to name all of the excess and umbrella insurers that had provided it with coverage from 1979 to 1986, and that these absent insurers were indispensable to the action.⁵ Significantly, if GRC had joined the absent insurers in the action, the district court would not have had subject matter jurisdiction as some of these insurers were non-diverse.

The district court agreed with defendants in an order issued September 27, 2005. In the order the court reached two particularly significant conclusions for present purposes: First, insofar as GRC acknowledged that "at least one of the policies in dispute follows form to a policy issued by an Absent Insurer [i.e., Century Indemnity Co.]," the court concluded that the absent insurer was a "necessary" party under Rule 19(a).⁶ GRC, 234 F.R.D. at 101. The court went on to observe that:

Without the Absent Insurers, it is highly unlikely that a judgment could be fashioned that would not be either unduly favorable or prejudicial to . . . some of the other parties. It is also unlikely that a plaintiff's award would be adequate if rendered against fewer than all potentially responsible insurers. No shaping of the judgment could avoid these coverage issue possibilities.

Id. at 102. Accordingly, the court found that all the absent insurers, rather than just Century Indemnity Co., were "indispensable" parties under Rule 19(b). Id. The court thus dismissed GRC's complaint as joining the absent insurers would destroy diversity of citizenship jurisdiction. It indicated, however, that GRC could refile the action in state court "where all defendants may be joined in one action and complete relief afforded." Id. GRC moved for reconsideration of that order, but the court denied that motion on October 27, 2005. GRC has appealed from these two orders.

III. JURISDICTION

The district court had diversity of citizenship jurisdiction over this declaratory judgment and breach of contract action pursuant to 28 U.S.C. § 1332. We have jurisdiction over the final order of the district court dismissing GRC's complaint and the order denying reconsideration of that order pursuant to 28 U.S.C. § 1291.

To the extent that the district court premised its Rule 19(a) determination that the absent insurers' joinder was necessary on a conclusion of law, our review is plenary. Janney Montgomery Scott, Inc. v. Shepard Niles, Inc., 11 F.3d 399, 404 (3d Cir.1993). By contrast, we would review any subsidiary findings of fact for clear error only. Id.⁷ Our review of the district court's Rule 19(b) determination that the absent insurers were indispensable, and dismissal is required because their joinder would destroy subject matter jurisdiction in diversity, is for abuse of discretion. Id. at 403; see also Koppers Co. v. Aetna Cas. & Sur. Co., 158 F.3d 170, 174 (3d Cir.1998).

IV. DISCUSSION

Federal Rule of Civil Procedure 19 specifies the circumstances in which the joinder of a particular party is compulsory. In reviewing the district court's conclusion in this regard, we first must determine whether the absent insurers should be joined as "necessary" parties under Rule 19(a). If they should be joined, but their joinder is not feasible inasmuch as it would defeat diversity of citizenship (as would be the case here), we next must determine whether the absent parties are "indispensable" under Rule 19(b).⁸ Should we answer this question in the affirmative, the action cannot go forward. Janney Montgomery Scott, 11 F.3d at 404 (citing Bank of Am. Nat'l Trust & Sav. Ass'n v. Hotel Rittenhouse Assocs., 844 F.2d 1050, 1053-54 (3d Cir.1988)). Relatedly, should we decide that the district court erred in its conclusion that the absent insurers were "necessary" parties under Rule 19(a), we need not reach or decide the question of whether it abused its discretion by holding the absent insurers were "indispensable" under Rule 19(b), though we are not precluded from doing so to reach an alternative basis for our result. Id.

A. Rule 19(a)

Under Rule 19(a), the joinder of parties is compulsory or "necessary" if their joinder is "feasible." Specifically, the rule states in material part:

A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in the person's absence complete relief cannot be accorded among those already parties,...