Island Associates, Inc. v. Eric Group, Inc.

• Decision Date: 30 January 1995
• Docket Number: Civ. A. No. 94-0478.
• Parties: ISLAND ASSOCIATES, INC., Plaintiff, v. ERIC GROUP, INC. and Eric Syndicate, Inc., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

894 F. Supp. 200

ISLAND ASSOCIATES, INC., Plaintiff, v. ERIC GROUP, INC. and Eric Syndicate, Inc., Defendants.

Civ. A. No. 94-0478.

United States District Court, W.D. Pennsylvania.

January 30, 1995.

James R. Mall and Frederick J. Francis, Meyer, Unkovic & Scott, Pittsburgh, PA, for plaintiff.

Robert E. Kelly, Jr. and Allen C. Warshaw, Duane, Morris & Heckscher, Harrisburg, PA, for defendants.

OPINION

ZIEGLER, Chief Judge.

Pending before the court are cross-motions for summary judgment by plaintiff, Island Associates, Inc., and defendants, ERIC Group, Inc. and ERIC Syndicate, Inc. ("ERIC").¹ Plaintiff commenced this declaratory judgment action on March 22, 1994, pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, and diversity of citizenship, 28 U.S.C. § 1332, seeking, in addition to damages and attorney's fees, a declaration that defendants are obligated pursuant to an insurance contract to defend and indemnify plaintiff and Power Contracting, Inc. in three state court personal injury actions in which plaintiff and Power Contracting are defendants. The sole issue before the court is whether the pollution exclusion clause in the policy relieves defendants of those obligations.

Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Because we find that there are no material factual issues in dispute, this action is ripe for summary disposition.

In 1991, Power Contracting was hired by the Butler Veteran's Association Medical Center as the general contractor on a construction project. Power Contracting contracted with plaintiff, Island Associates, for the removal of asbestos for the project. The subcontract required Island to indemnify Power Contracting for any claims, lawsuits or damages resulting from Island's work on the project.

In order to secure the subcontract, Island was required to obtain approval for the project from its insurer, ERIC. Island had purchased a Commercial General Liability and Asbestos Special Liability insurance policy from ERIC on or about March 19, 1991. The policy was renewed on April 1, 1992. On October 17, 1991, Island submitted a Contractor Asbestos Abatement Project Application to ERIC advising defendants of what was involved with regard to the asbestos removal at the hospital and requesting coverage for the project under the policy. On October 22, 1991, ERIC provided Endorsement A-6 to the policy, which recognized that the work on the hospital project was covered under the policy.

In January of 1992, Island used a cleaning compound called "Sentinel 787 Mastic Remover" ("Sentinel") to clean and remove asbestos floor tile mastic. Island's use of Sentinel resulted in the commencement in 1993 of three separate personal injury actions in state court against Island and Power Contracting ("the state actions"). The complaints in each of the state actions allege that the plaintiffs were employees of the Butler Veteran's Association Medical Center, that they were exposed to fumes from Sentinel, and that they were harmed by such fumes. In accordance with the terms of the insurance policy, Island timely notified ERIC of each of the state actions and requested that ERIC defend and indemnify Island and Power Contracting. ERIC refused on the basis that the claims made in the state actions were excluded from coverage under the policy pursuant to the pollution exclusion clause.

The pollution exclusion clause provides that the scope of coverage does not encompass:

"Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants, however, wherever or whenever occurring, and by whomever caused or alleged to have been caused.

"Pollutant" is defined to mean:

any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.

The issue before the court is whether the above exclusion relieves ERIC from its obligations to defend and indemnify Island and Power in the state actions.²

Under governing Pennsylvania law, the interpretation of an exclusion in an insurance policy is a question of law for the court. Curbee, Ltd. v. Rhubart, 406 Pa.Super. 505, 594 A.2d 733, 735 (1991), appeal denied, 529 Pa. 649, 602 A.2d 859 (1992) (citations omitted). The interpretation "must be based on a reading of the policy in its entirety, giving the words thereof their plain and proper meaning." Id. The language of the policy "must be tested by what a reasonable person in the position of the insured would have understood the words to mean." Lucker Mfg. v. Home Insurance Co., 23 F.3d 808, 814 (3d Cir.1994). If the test establishes the existence of an ambiguity, the ambiguous language must be construed in favor of the insured. "Nevertheless, a court should be careful not to create an ambiguity and, likewise, it should avoid rewriting the policy language in such a way that it conflicts with the plain meaning of the language." Id. (citing Imperial Casualty & Indem. Co. v. High Concrete Structures, Inc., 858 F.2d 128, 131 (3d Cir.1988)).

In applying these rules of contract interpretation, the courts must also recognize that "where the insurer creates in the insured a reasonable expectation of coverage that is not supported by the terms of the policy that expectation will prevail over the language of the policy." Bensalem Twp. v. Int'l. Surplus Lines Ins. Co., 38 F.3d 1303, 1311 (3d Cir. 1994). In that case, the Court of Appeals recognized that, under Pennsylvania case law, the emerging theme of insurance contract interpretation is that the "courts are to be chary about allowing insurance companies to abuse their position vis-a-vis their customers." Id. We must now determine, pursuant to the this law, whether the pollution exclusion clause at issue is unambiguous and represents the reasonable expectation of the insured.

It has been said that "one of the most hotly litigated insurance coverage questions of the late 1980's and early 1990's has been the scope and application of the pollution exclusion contained in the standard commercial general liability (CGL) policy." Center for Creative Studies v. Aetna Life and Casualty Co., 871 F.Supp. 941, 943 (E.D.Mich., 1994) (quoting Jeffrey W. Stempel, Interpretation of Insurance Contracts: Law and Strategy for Insurers and Policyholders, p. 825 (1994)). Numerous courts applying Pennsylvania law have considered pollution exclusion clauses. See, e.g., Northern Ins. Co. v. Aardvark Associates, 942 F.2d 189 (3d Cir.1991); St. Leger v. American Fire and Casualty Ins. Company, 870 F.Supp. 641 (E.D.Pa.1994); O'Brien Energy v. American Employers' Insurance Co., 427 Pa.Super. 456, 629 A.2d 957 (1993); Lower Paxon Twp. v. U.S. Fidelity and Guaranty Co., 383 Pa.Super. 558, 557 A.2d 393 (1989); Techalloy Company, Inc. v. Reliance Insurance Co., 338 Pa.Super. 1, 487 A.2d 820 (1984). Defendant urges that these cases stand for the proposition that pollution exclusion clauses are unambiguous and must be interpreted as written.

The mere fact that Pennsylvania law does not treat pollution exclusions as inherently ambiguous does not necessarily lead to the conclusion that the exclusion in the instant action is unambiguous when applied to the facts of this case. The clarity of the exclusion clause cannot be tested in a vacuum, rather, ERIC must establish that the exclusion clearly and unambiguously applies to exclude from coverage the claims made in the state actions. See Regional Bank of Colorado v. St. Paul Fire & Marine Ins. Company, 35 F.3d 494, 496 (10th Cir.1994).

Unfortunately, the existing case law applying Pennsylvania law is not, for the most part, helpful to our analysis. Indeed, in each of the cases relied upon by defendants in support of coverage exclusion, the alleged activity giving rise to the action is readily defined and universally recognized as pollution. Northern Ins. Co., 942 F.2d 189 (insured discharged hazardous waste at disposal sites); O'Brien Energy, 629 A.2d 957 (insured, which had been contracted to extract methane gas from landfills, failed to abate the migration of the gas onto adjacent land); Lower Paxon Twp., 557 A.2d 393 (insured township incurred expenses in remedying problem of methane gas escaping from landfills); and Techalloy Co., 487 A.2d 820 (insured dumped hazardous and/or toxic chemicals into water). Thus, it is no surprise that in each of these cases the court held that the pollution exclusion unambiguously applied to deny coverage.

In contrast, we are called upon to decide whether the fumes from a cleaning compound, which have not been identified as hazardous or toxic and which were confined to a small area within a worksite, constitute a "pollutant" which has been "discharged, dispersed, released" or has "escaped". ERIC argues that the fumes from Sentinel clearly fall within the policy's definition of pollutant, which includes any "gaseous ... irritant or contaminant, including ... fumes...." Although it would appear that Sentinel fumes (or, for that matter, fumes from any substance) would fall within a broad reading of the definition, we agree with the reasoning of ...