H.K. Porter Co., Inc. v. Pennsylvania Ins. Guar. Ass'n

• Citation: 75 F.3d 137
• Decision Date: 18 January 1996
• Docket Number: No. 95-3182,95-3182
• Parties: H.K. PORTER COMPANY, INC., a Corporation, Appellant, v. PENNSYLVANIA INSURANCE GUARANTY ASSOCIATION, an unincorporated association.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 137

75 F.3d 137

H.K. PORTER COMPANY, INC., a Corporation, Appellant, v. PENNSYLVANIA INSURANCE GUARANTY ASSOCIATION, an

unincorporated association.

No. 95-3182.

United States Court of Appeals,

Third Circuit.

Argued Oct. 30, 1995.

Decided Jan. 18, 1996.

Frederick J. Francis (argued), Meyer, Unkovic & Scott, Pittsburgh, PA, for Appellant.

John W. Jordan IV (argued), Gaca, Matis & Hamilton, Pittsburgh, PA, for Appellee.

Before: NYGAARD, ALITO and SAROKIN, Circuit Judges.

OPINION OF THE COURT

SAROKIN, Circuit Judge:

Plaintiff H.K. Porter Company, Inc. ("Porter") filed suit in federal district court against the Pennsylvania Insurance Guaranty Association ("PIGA") seeking a declaration that PIGA was legally obligated to indemnify Porter under the terms of three insurance policies issued to Porter by an insolvent insurance company. Porter claimed that each of the approximately 100,000 lawsuits filed against it constitutes a separate "covered claim" for which Porter is entitled to the statutory limit of $300,000, subject to the $5 million coverage limit of each policy. The district court entered an order for partial summary judgment in favor of PIGA, holding that Porter was only entitled to indemnity for three covered claims--one for each policy that Porter held with the insolvent insurance company--on the theory that Porter, rather than those claiming against it, was the claimant. We disagree and reverse.

I.

Beginning in 1958, H.K. Porter was engaged in the manufacture and sale of various types of asbestos-containing products. These products were sold for use in shipyards and the ship-building industry across the country and around the world.

In 1984, Porter began to be inundated with lawsuits by individuals alleging bodily injury or death as a result of exposure to asbestos-containing products. By 1991 Porter was being sued at the rate of approximately 2,000 separate cases per month. The sheer volume of these lawsuits eventually forced Porter into Chapter 11 bankruptcy, by which time there had been approximately 100,000 lawsuits filed against Porter. Porter settled or disposed of many of these claims through payment of $30 million of its own funds. At the time of the bankruptcy, the estimated value of identified pending lawsuits against Porter was approximately $590 million.

During its operational years, Porter had maintained several different insurance policies, including three "commercial catastrophe liability" policies issued by Integrity Insurance Company. These policies had indemnity limits of $5 million per occurrence/$5 million annual aggregate, resulting in a total aggregate of $15 million under the three policies. All parties agree that the policies cover liability and indemnity for bodily injury arising from Porter's manufacture and sale of asbestos products.

When the flood of lawsuits began in the late 1980s, Porter sought indemnity from Integrity for all amounts which Porter had paid in the process of settling lawsuits or would become legally obligated to pay in the future. In March of 1987, however, Integrity Insurance Company was declared insolvent. Porter thus turned to PIGA for indemnity. PIGA is an unincorporated association created by statute for the purpose of providing means for payment of covered claims when the insurance company responsible for those claims has become insolvent, and for the purpose of avoiding financial loss to claimants and policy holders. See 40 P.S. § 1701.102(1) (repealed 1994). ¹

PIGA persistently refused to indemnify, defend, or in any way become involved in Porter's asbestos lawsuits, despite Porter's continual requests starting in 1987. As a result, Porter filed suit against PIGA on February 12, 1993, seeking a declaration that PIGA could be required to pay Porter up to $15 million--the $5 million aggregate limit for each of the three Integrity policies--as well as counsel fees and expenses for the defense of the lawsuits. ²

The parties filed cross motions for summary judgment. One of the issues presented in the motions was whether the $299,900 statutory limit ³ set forth in section 201 of the PIGA Act for each "covered claim" applied to three claims (one claim supposedly made by Porter under each Integrity policy), or whether it applied to each separate, individual claimant lawsuit submitted by Porter to PIGA. This section provides, in relevant part, as follows:

(1) The association shall:

(i) Be obligated to make payments to the extent of the covered claims of an insolvent insurer existing prior to the determination of said insurer's insolvency, and covered claims arising within thirty days after the determination of the insolvency, or before the policy expiration date if less than thirty days after such determination ... but such obligation shall include only that amount of each covered claim which is in excess of one hundred dollars ($100), and is less than three hundred thousand dollars ($300,000). In no event shall the association be obligated on a covered claim in an amount in excess of the obligation of the insolvent insurer under the policy under which the claim arises.

40 P.S. § 1701.201(b)(1)(i).

The district court held that the $299,900 statutory limit applied to each of the three claims it determined Porter had made (one under each of the Integrity policies), for a total maximum recovery of $899,700, far below Porter's $15 million indemnity claim against Integrity. H.K. Porter Company, Inc. v. Pennsylvania Insurance Guaranty Association, No. 93-212, typescript at 11-12 (W.D.Pa. Jan. 3, 1995).

Porter filed a Motion for Reconsideration, but the district court denied the motion. Porter then filed a motion requesting that the district court amend its Order regarding the statutory limit to acknowledge the existence of a controlling question of law as to which there is substantial ground for difference of opinion, which was granted. Subsequently, Porter filed a Petition for Permission to Appeal from an Interlocutory Order, pursuant to 28 U.S.C. § 1292(b). This court granted Porter's Petition, and we now decide this appeal.

II.

The district court had jurisdiction over the instant action under 28 U.S.C. § 1334(b), which provides federal district courts with original and exclusive jurisdiction over all cases under Title 11 of the United States Code. This court has jurisdiction pursuant to 28 U.S.C. § 1292(b). Our review of a grant or denial of summary judgment by the district court is plenary. See Rappa v. New Castle County, 18 F.3d 1043, 1050 (3d Cir.1994).

III.

In November of 1970, Pennsylvania adopted the Pennsylvania Insurance Guaranty Association Act in order to provide insurance policy holders with a means to receive payment of claims covered against insolvent insurance companies. 40 P.S. § 1701.102(1). The Act and the statutory creation of PIGA were based on a model bill created by the National Association of Insurance Commissioners in response to the social harm that results from insurance companies becoming insolvent. See Sands v. Pennsylvania Insurance Guaranty Ass'n, 283 Pa.Super. 217, 423 A.2d 1224, 1225-26 (1980).

One of the stated purposes of Pennsylvania's Act is:

(1) To provide a means for the payment of covered claims under certain property and casualty insurance policies, to avoid excessive delay in payment of such claims, and to avoid financial loss to claimants or policyholders as a result of the insolvency of an insurer.

40 P.S. § 1701.102(1).

Under section 201 of the Act, PIGA is obligated to make payments for each "covered claim" against the insolvent insurance company, subject to a $299,900 statutory limit per "covered claim." 40 P.S. § 1701.201(b)(1)(i). In no instance is PIGA obligated to pay a covered claim in excess of the maximum amount the insolvent insurance company would have paid under the terms of the policy. Id.

The resolution of this case rests on the determination of what, exactly, constitutes a "covered claim." The Act defines it as follows:

"Covered claim" means an unpaid claim, including a claim for unearned premiums, which arises under a property and casualty insurance policy of an insolvent insurer and is:

(i) The claim of a person who at the time of the insured event resulting in loss or liability was a resident of this Commonwealth, or

(ii) A claim arising from an insured event resulting in loss or liability to property which was permanently situated in this Commonwealth.

40 P.S. § 1701.103(5)(a).

The district court concluded that the "covered claims" for which Porter was entitled to indemnity from PIGA included only one claim under each Integrity policy, for a total of three claims. H.K. Porter v. PIGA, No. 93-212, typescript at 11-12. The district court's rationale focused upon the word "person" in the phrase of the statutory definition of "covered claim" which reads: " 'Covered claim' means ... [t]he claim of a person who at the time of the insured event resulting in loss or liability was a resident of this Commonwealth." 40 P.S. § 1701.103(5)(a)(i) (emphasis added). The district court noted that under the statute "person" is defined as "an individual, a corporation, a partnership, an association, or any other holder of or claimant under a property and casualty insurance policy." H.K. Porter v. PIGA, No. 93-212, typescript at 11 (citing 40 P.S. § 1703.103(8)). The court thus concluded that by "[a]pplying that language to the claims of Porter, it is clear that the claims at issue are the claims of a person (Porter) for indemnification under the three Integrity policies," H.K. Porter v. PIGA, No. 93-212, typescript at 11, and therefore Porter is limited to indemnification for only $899,700, or $299,900 for each of the three Integrity policies.

Upon Porter's Motion for Reconsideration of this determination, the Court succinctly clarified its position as follows:

This Court is aware that "person" is defined by statute as, among other things, a holder of or claimant under a property and...