Keene Corp. v. Insurance Co. of North America, Civ. A. No. 78-1011.

• Decision Date: 11 January 1985
• Docket Number: Civ. A. No. 78-1011.
• Parties: KEENE CORPORATION, Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA, et al., Defendants.
• Court: U.S. District Court — District of Columbia

597 F. Supp. 946

KEENE CORPORATION, Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA, et al., Defendants.

Civ. A. No. 78-1011.

United States District Court, District of Columbia.

November 19, 1984.

As Amended January 11, 1985.

Harold D. Murry, Jr., Clifford & Warnke, Eugene Anderson, Jerold Oshinsky, Arthur S. Olick, Anderson, Baker, Kill & Olick, Washington, D.C., for plaintiff.

Dennis M. Flannery, Wilmer, Cutler & Pickering, Washington, D.C., Michael R. Gallagher, Thomas E. Betz, Gallagher, Shrap, Fulton, Norman & Mollison, Cleveland, Ohio, Frank W. Gaines, Jr., Robert L. Hoegle, Olwine, Connelly, Chase, O'Donnell & Weyher, Washington, D.C., Gerald V. Weigle, Jr., Dinsmore, Shohl, Coates & Depree, Cincinnati, Ohio, John F. Mahoney, Jr., James E. Rocap, Stephen L. Nightingale, John P. Arness, William J. Bowman, Hogan & Hartson, Washington, D.C., for defendants.

MEMORANDUM OPINION

JUNE L. GREEN, District Judge.

This matter is before the Court on plaintiff Keene Corporation's ("Keene") motion for partial summary judgment regarding defendant Insurance Company of North America's ("INA") continuing duty to defend, defendant's opposition thereto and cross-motion for partial summary judgment, plaintiff's opposition thereto, the parties' respective replies, and the entire record herein.¹

Keene contends that defendant INA's duty to defend Keene in underlying asbestos cases continues after the exhaustion of aggregate policy limits. Specifically, Keene alleges that the defense duty under INA's pre-1966 insurance policies continues for all present and future asbestos cases. Keene's Statement of Points and Authorities in Support of Its Motion for Partial Summary Judgment With Respect to the Defendants' Continuing Duty to Defend Keene and to Pay Keene's Defense Costs ("Keene's Motion") at 1-2.

For the reasons stated below, the Court finds that defendant INA's duty to defend Keene in underlying asbestos cases ceases upon the exhaustion of indemnity limits under the pre-1966 policies in question. Therefore, the Court denies Keene's motion for partial summary judgment and grants the cross-motion of INA.

I. Background

All pre-1966 policies were sold to Keene by INA, with policy periods from December 31, 1956 to January 1, 1968. Keene's Motion at 4. The defense agreement set forth in Paragraph IV of the policies states in pertinent part:

With respect to such insurance as is afforded by this policy the company shall:

(a) defend any suit against the insured ... even if such suit is groundless, false or fraudulent; but the company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient; ...

* * * * * *

and the amounts so incurred, except settlements of claims and suits, are payable by the company in addition to the applicable limit of liability of this policy.

Appendix 2 to Keene's Motion ¶ IV.

In 1966, the insurance industry revised the standard policy language to provide that "the insurer shall not be obligated to pay any claim or judgment or defend any suit after the applicable limit of the insurer's liability has been exhausted by payment of judgments or settlements." Appendix 3 to Keene's Motion ¶ I.

INA notified Keene that the indemnity limits of the pre-1966 policies were exhausted and that defense obligations would be transferred to Keene's excess liability insurance carriers.² Affidavit of Howard A. Mileaf (executed Aug. 21, 1984); INA's Statement of Material Facts as to Which There is No Genuine Issue ¶ 4.

Under the excess policies, the carriers agreed to pay Keene's "ultimate net loss," which included indemnity and defense costs. In some cases, defense costs were charged against the aggregate policy limits rather than paid in addition to indemnity limits as they are under the primary insurance policies. Keene's Motion at 7.

II. Discussion

Summary judgment is appropriate under Rule 56 of the Federal Rules of Civil Procedure when no genuine issues of material fact exist and when the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56; Weiss v. Kay Jewelry Stores, Inc., 470 F.2d 1259, 1262 (D.C.Cir. 1972) (quoting Traylor v. Black, Sivalls & Bryson, Inc., 189 F.2d 213, 216 (8th Cir. 1951)).

The issue before the Court is whether INA's duty to defend under its pre-1966 insurance policies terminates upon the exhaustion of the policies' indemnity limits. Since no material facts concerning this issue are in dispute, the Court properly may consider the question on cross-motions for summary judgment. See supra note 2.

Keene contends that the standard pre-1966 policy language creates an unqualified duty of INA to continue paying defense costs in all asbestos-related lawsuits now pending or subsequently brought against Keene. INA's duty to defend³ would not terminate until the actions against Keene ceased and all cases were fully litigated.

Keene relies primarily on three cases interpreting the standard pre-1966 policy language as to the continuing duty to defend in underlying asbestos cases. After finding the language ambiguous, the courts construed the policies liberally in favor of the insured. The courts held the insurers to "an unqualified and unlimited as to dollar amount duty to `defend any suit against the insured.'" Zurich Insurance Co. v. Raymark Industries, Inc., No. 78 L 8760 at 6 (Ill.Cir.Ct. Cook Cty. June 15, 1982); ACandS, Inc. v. Aetna Casualty and Surety Co., 576 F.Supp. 936, 942 (E.D.Pa.), appeals docketed, Nos. 83-1927, 1928 (3d Cir.1983); Commercial Union Insurance Co. v. Pittsburgh Corning Corp., 553 F.Supp. 425, 429 (E.D.Pa.1981).

After careful consideration, this Court disagrees with those decisions and finds that the intention of the parties was not to create a continuing duty of defense after the exhaustion of policy limits.

The Court agrees with Keene that Pennsylvania law applies to the duty-to-defend issue as to the pre-1966 policy language.⁴ The Court disagrees, however, that it is bound by the decisions of the Federal court for the Eastern District of Pennsylvania in which the defense duty was found to continue indefinitely. The Federal court merely predicted the outcome under Pennsylvania law; no State court has considered the issue at hand. In Commercial Union, the Federal court noted the lack of Pennsylvania authority on which to base its prediction. Commercial Union Insurance Co. v. Pittsburgh Corning Co., 553 F.Supp. at 430.

This Court must make its own prediction of what Pennsylvania State authority would hold in the instant controversy after consideration of all available data. Glassman Construction Co. v. Fidelity & Casualty Co. of New York, 356 F.2d 340, 342 n. 7 (D.C.Cir.), cert. denied, 384 U.S. 987, 86 S.Ct. 1890, 16 L.Ed.2d 1005 (1966). Decisions of other Federal courts are not conclusive and need not be followed if "contrary to the more cogent reasoning of the best and most wide-spread authority." Ward v. Hobart Manufacturing Co., 450 F.2d 1176, 1180 n. 5 (5th Cir.1971); McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657, 662-63 (3d Cir.), cert. denied, 449 U.S. 976, 101 S.Ct. 387, 66 L.Ed.2d 237 (1980).

This Court believes that the Commercial Union and ACandS decisions failed to interpret the insurance policies in accordance with well-established rules of construction and wrongly predicted the trend of the Pennsylvania Supreme Court.

In interpreting the pre-1966 policy language, neither court attempted to ascertain the intent of the parties. The language simply was deemed ambiguous and construed in favor of the insured.

The interpretation of an insurance policy requires the same rules generally as the construction and interpretation of other written contracts. See 4 Williston on Contracts § 625 at 828 (3d ed. 1961). "The task of the District Court is to determine the intention of the parties to the contract. `It is an elementary principle of contract interpretation that the plain and unambiguous meaning of a written contract is controlling, in the absence of some clear evidence indicating a contrary intention.'" Pennsylvania Avenue Development Corp. v. One Parcel of Land in the District of Columbia, 670 F.2d 289, 292 (D.C.Cir.1981) (quoting Vogel v. Tenneco Oil Co., 465 F.2d 563, 565 (D.C.Cir.1972)); Mellon Bank, N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1009 (3d Cir. 1980). The Court must determine first whether the language is "plain and unambiguous" and therefore controlling as a matter of law or whether the words are ambiguous and in need of interpretation through rules of construction and objective evidence of the parties' intent.

Courts have defined ambiguity as being "`reasonably susceptible of different constructions or interpretations.'" Papago Tribal Utility Authority v. F.E.R.C., 723 F.2d 950, 955 (D.C.Cir.1983) (emphasis added); Mellon Bank, N.A. v. Aetna Business Credit, Inc., 619 F.2d at 1011. The reasonableness of different interpretations of an insurance policy is determined by the intent of the insured, rather than the insurer. "The test is not what the insurer intended the words of the policy to mean but what a reasonable person in the position of an insured would understand them to mean." St. Paul Fire and Marine Insurance Co. v. Thompson, 150 Mont. 182, 433 P.2d 795, 798 (1967); Keene v. INA, 667 F.2d 1034, 1041 (D.C.Cir.1981).

Pennsylvania law does not limit the court to a "four corners" approach in determining whether the language is ambiguous. Rather, the role of the judge is "to consider the words of the contract, the alternative meaning suggested by counsel, and the nature of the objective evidence to be offered in support of that meaning." Mellon Bank, N.A. v. Aetna Business Credit, Inc., 619 F.2d at 1011. "If no `reasonable' alternative meanings are put forth, then the writing will be enforced as the judge reads it on its `face.'" Id. at 1012 n. 13 (citing International Systems, Inc. v. Personnel Data Systems, slip op. (Pa. Jan. 18, 1980)).

In the...